Registration Nos: 2-41251
811-2214
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF / X /
1933
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 40 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
Amendment No. 22 / X /
COLONIAL TRUST I
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
617-426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address of
Agent for Service Copy to
Michael H. Koonce Peter MacDougall, Esq.
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International
Place
Boston, MA 02111 Boston, MA 02110-2624
It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to
paragraph (b).
/ X / on April 29, 1996 pursuant to paragraph
(b).
/ / 60 days after filing pursuant to paragraph
(a)(1).
/ / on (date) pursuant to paragraph (a)(1) of
Rule 485.
/ / 75 days after filing pursuant to paragraph
(a)(2).
/ / on (date) pursuant to paragraph (a)(2) of
Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a
new effective date for a previously filed
post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has registered an indefinite number of its shares
of beneficial interest under the Securities Act of 1933 pursuant
to Rule 24f-2 under the Investment Company Act of 1940. On
February 27, 1996, the Registrant filed a Rule 24f-2 Notice in
respect of its fiscal year ended December 31, 1995.
COLONIAL TRUST I
Cross Reference Sheet
(Colonial High Yield Securities Fund)
Item Number Prospectus Location or Caption
of Form N-1A
Part A
1. Cover page
2. Summary of Expenses
3. The Fund's Financial History
4. The Fund's Investment Objective;
Organization and History;
How the Fund Pursues Its Objective
5. Cover page;
How the Fund is Managed;
Organization and History;
Back cover
6. Organization and History;
Distributions and Taxes;
How to Buy Shares
7. How to Buy Shares;
How the Fund Values Its Shares;
12b-1 Plans; Back cover
8. How to Sell Shares;
How to Exchange Shares;
Telephone Transactions
9. Not applicable
April 29, 1996
COLONIAL HIGH YIELD SECURITIES FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund
investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Colonial High Yield Securities Fund (Fund), a diversified portfolio of Colonial
Trust I (Trust), an open-end management investment company, seeks high current
income and total return by investing primarily in lower rated corporate debt
securities. The Fund invests primarily in lower rated securities and is
considered to be highly speculative.
The Fund is managed by the Adviser, an investment adviser since 1931.
The Fund may invest up to 100% of its assets in lower rated bonds (commonly
referred to as "junk bonds") which are regarded as speculative as to payment of
principal and interest and, therefore, may not be suitable for all investors.
These securities are subject to greater risks, including the risk of default,
than higher rated bonds. See "How the Fund pursues its objective." Purchasers
should carefully assess the risks associated with an investment in the Fund.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the April 29, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission
and is obtainable free of charge by calling the Adviser at 1-800-248-2828.
The Statement of Additional Information is incorporated by reference in
(which means it is considered to be a part of) this Prospectus.
HY--0496
The Fund offers three classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and, in addition, are subject to an annual
distribution fee and a declining contingent deferred sales charge on redemptions
made within six years after purchase; and Class D shares are offered at net
asset value plus a small initial sales charge and, are subject to a contingent
deferred sales charge on redemptions made within one year after purchase and an
annual distribution fee. Class B shares automatically convert to Class A shares
after approximately eight years. See "How to Buy Shares."
Contents Page
Summary of Expenses
The Fund's Financial History
The Fund's Investment Objective
How the Fund Pursues its Objective and
Certain Risk Factors
How the Fund Measures its Performance
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
Appendix
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
Shareholder Transaction Expenses(1)(2)
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price)(3) 4.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(4) 5.00% 1.00%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See "How
to Sell Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and Class
D shares, long-term Class B and Class D shareholders may pay more in
aggregate sales charges than the maximum initial sales charge
permitted by the National Association of Securities Dealers, Inc.
However, because the Fund's Class B shares automatically convert to
Class A shares after approximately 8 years, this is less likely for
Class B shares than for a class without a conversion feature.
Annual Operating Expenses (as a % of average net assets)
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Management fee 0.60% 0.60% 0.60%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.36 0.36 0.36
----- ----- -----
Total operating expenses 1.21% 1.96% 1.96%
===== ===== =====
</TABLE>
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example should
not be considered indicative of actual or expected Fund performance or expenses,
both of which will vary:
<TABLE>
<CAPTION>
Class A Class B Class D
Period: (6) (7) (6)(9) (7)
<S> <C> <C> <C> <C> <C>
1 year $ 59 $ 70 $20 $ 40 $ 30
3 years 84 91 61 71 71
5 years 111 126 106 114 114
10 years 187 209 (8) 209(8) 236 236
</TABLE>
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class B shares automatically convert to Class A shares after
approximately 8 years; therefore, years 9 and 10
reflect Class A share expenses.
(9) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year.
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a share outstanding
throughout each year has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1995 Annual
Report, and is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------------------------------------------------
1995 1994 1993 1992
---- ---- ---- ----
Class A Class B Class A Class B Class A Class B Class A Class B(a)
------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $6.300 $6.300 $6.950 $6.950 $6.400 $6.400 $5.860 $6.360
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.615 0.566 0.599 0.549 0.634 0.585 0.669 0.332
Net realized and unrealized
gain (loss) 0.452 0.452 (0.622) (0.622) 0.576 0.576 0.531 0.057
----- ----- ------- ------- ----- ----- ----- -----
Total from Investment
Operations 1.067 1.018 (0.023) (0.073) 1.210 1.161 1.200 0.389
----- ----- ------- ------- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.603) (0.555) (0.627) (0.577) (0.660) (0.611) (0.660) (0.349)
In excess of net investment income (0.014) (0.013) --- --- --- --- ---- ----
------- ------- --- --- --- --- ---- ----
Total from Distributions (0.617) (0.568) (0.627) (0.577) (0.660) (0.611) (0.660) (0.349)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of period $6.750 $6.750 $6.300 $6.300 $6.950 $6.950 $6.400 $6.400
====== ====== ====== ====== ====== ====== ====== ======
Total return(b) 17.65% 16.78% (0.34)% (1.09)% 19.69% 18.83% 21.15% 5.53% (c)
===== ===== ====== ====== ===== ===== ===== ====
Expenses 1.21% (d) 1.96% (d) 1.23% 1.98% 1.23% 1.98% 1.26% 2.01% (e)
Net investment income 9.14% (d) 8.39% (d) 9.03% 8.28% 9.55% 8.80% 10.64% 9.89% (e)
Portfolio turnover 95% 95% 123% 123% 122% 122% 66% 66%
Net assets at end of period (000) $466,905 $351,068 $389,791 $253,438 $440,942 $222,536 $346,225 $94,653
_________________________________
(a) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or
contingent deferred sales charge.
(c) Not annualized.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact.
Prior years' ratios are net of benefits received, if any.
(e) Annualized.
</TABLE>
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------
1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ----
Class A Class A Class A Class A Class A Class A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $4.640 $6.340 $7.210 $7.180 $7.690 $7.550
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.726 0.799 0.888 0.873 0.873 0.888
Net realized and unrealized
gain (loss) 1.207 (1.669) (0.867) 0.030 (0.543) 0.177
----- ------- ------- ----- ------- -----
Total from Investment
Operations 1.933 (0.870) 0.021 0.903 0.330 1.065
----- ------- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.713) (0.830) (0.891) (0.873) (0.840) (0.925)
------- ------- ------- ------- ------- -------
Net asset value - End of period $5.860 $4.640 $6.340 $7.210 $7.180 $7.690
====== ====== ====== ====== ====== ======
Total return(a) 43.88% (14.86)% 0.06% 13.00% 4.30% 14.81%
===== ======= ==== ===== ==== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.36% 1.33% 1.21% 1.17% 1.18% 1.11%
Net investment income 13.41% 14.32% 12.71% 11.91% 11.56% 11.41%
Portfolio turnover 37% 9% 22% 40% 51% 52%
Net assets at end of period (000) $299,587 $233,813 $366,953 $463,498 $429,971 $442,071
______________________
(a) Total return at net asset value assuming all distributions reinvested and no initial sales charge
or contingent deferred sales charge.
</TABLE>
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks high current income and total return by investing primarily in
lower rated corporate debt securities.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund will normally invest at least 80% of its total assets (other than cash
and government securities) in lower rated debt securities. However, when
economic conditions cause a narrowing of yield spread between these securities
and higher rated securities, the Fund may invest up to 100% of its assets in
higher rated securities. The Fund may invest in debt securities of any maturity
and no more than 25% of the Fund's assets will be invested in securities issued
or guaranteed by foreign governments or foreign companies.. The value of debt
securities (and thus of Fund shares) usually fluctuates inversely to changes in
interest rates. No more than 25% of the Fund's assets will be invested in a
single industry.
Lower Rated Debt Securities. Lower rated debt securities (commonly referred to
as junk bonds) are debt securities which, because of the greater possibility
that the issuers will default, are not investment grade (i.e., are rated below
BBB by Standard & Poor's Corporation (S&P) or below Baa by Moody's Investors
Service (Moody's), or are unrated but considered by the Adviser to be of
comparable credit quality). Because of the increased risk of default, these
securities generally have higher nominal or effective interest rates than higher
quality securities.
The Fund may purchase bonds in the lowest rating categories (C for Moody's and D
for S&P) and comparable unrated securities. However, the Fund will only purchase
securities rated Ca or lower by Moody's or CC or lower by S&P if the Adviser
believes the quality of such securities is higher than indicated by the rating.
The values of lower rated securities are more likely to fluctuate directly,
rather than inversely, with changes in interest rates. This is because increases
in interest rates often are associated with an improving economy, which may
translate into an improved ability of the issuers to pay off their bonds
(lowering the risk of default). Lower rated bonds also are generally considered
significantly more speculative and likely to default than higher quality bonds.
Relative to other debt securities, their values tend to be more volatile
because: (i) an economic downturn may more significantly impact their potential
for default, and (ii) the secondary market for such securities may at times be
less liquid or respond more adversely to negative publicity or investor
perceptions, making it more difficult to value or dispose of the securities. The
likelihood that these securities will help the Fund achieve its investment
objective is more dependent on the Adviser's own credit analysis.
The weighted average composition of the Fund's portfolio for the year ended
December 31, 1995, was:
Investment grade 1.20%
BB 9.50
B 69.40
CCC 7.20
CC 0.00
C 0.00
D 0.00
Nonrated 1.60
--------
Subtotal 88.90
--------
U.S. governments,
equities and others 11.10
Total 100.00%
This table does not necessarily reflect the current or future composition of the
portfolio.
Common Stock. The Fund may invest up to 20% of total assets in common stocks,
usually as a result of warrants associated with debt instruments purchased by
the Fund, but also under certain circumstances to seek capital appreciation.
The Fund may invest in debt securities of any maturity that pay fixed,
floating or adjustable interest rates. The Fund also may invest in debt
securities (i) that do not pay interest but, instead, are issued at a
significant discount to their maturity values (referred to as zero coupon
securites), (ii) that pay interest, at the issuer's option, in additional
securities instead of cash (referred to as pay-in-kind securities) or (iii)
pay interest at predetermiend rates that increase over time (referred to as
step coupon bonds).
The values of debt securities generally fluctuate inversely with changes in
interest rates. This is less likely to be true for adjustable or floating rate
securities, since interest rate changes are more likely to be reflected in
changes in the rates paid on the securities. However, reductions in interest
rates also may translate into lower distributions paid by the Fund.
Additionally, because zero coupon, pay-in-kind securities and step coupon bonds
may not pay interest but the Fund nevertheless must accrue and distribute the
income deemed to be earned on a current basis, the Fund may have to sell other
investments to raise the cash needed to make income distributions.
Foreign Investments. Investments in foreign securities have special risks
related to political, economic and legal conditions outside of the U.S. As a
result, the prices of foreign securities may fluctuate substantially more than
the prices of securities of issuers based in the U.S. Special risks associated
with foreign securities, include the possibility of unfavorable movements in
currency exchange rates, the existence of less liquid markets, the
unavailability of reliable information about issuers, the existence (or
potential imposition) of exchange control regulations (including currency
blockage), and political and economic instability, among others. In addition,
transactions in foreign securities may be more costly due to currency conversion
costs and higher brokerage and custodial costs. See "Foreign Securities" and
"Foreign Currency Transactions" in the Statement of Additional Information for
more information about foreign investments. Foreign bonds in the lowest
investment grade category are considered to be somewhat speculative as to the
issuer's ability to pay and could be more adversely affected by unfavorable
economic developments than bonds in higher categories.
Foreign Currency Transactions. In connection with its investments in foreign
securities, the Fund may purchase and sell (i) foreign currencies on a spot or
forward basis and (ii) foreign currency futures contracts. Such transactions
will be entered into (a) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the Fund,
or (b) to hedge against a decline in the value, in U.S. dollars or in another
currency, of a foreign currency in which securities held by the Fund are
denominated. The Fund will not attempt, nor would it be able, to eliminate all
foreign currency risk. Further, although hedging may lessen the risk of loss if
the hedged currency's value declines, it limits the potential gain from currency
value increases. See the Statement of Additional Information for information
relating to the Fund's obligations in entering into such transactions.
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, commercial paper, Treasury bills,
repurchase agreements and U.S. government securities. Some or all of the Fund's
assets also may be invested in such investments during periods of unusual market
conditions. Under a repurchase agreement, the Fund buys a security from a bank
or dealer, which is obligated to buy it back at a fixed price and time. The
security is held in a separate account at the Fund's custodian, and constitutes
the Fund's collateral for the bank's or dealer's repurchase obligation.
Additional collateral will be added so that the obligation will at all times be
fully collateralized. However, if the bank or dealer defaults or enters
bankruptcy, the Fund may experience costs and delays in liquidating the
collateral, and may experience a loss if it is unable to demonstrate its rights
to the collateral in a bankruptcy proceeding. Not more than 10% of the Fund's
net assets will be invested in repurchase agreements maturing in more than 7
days and other illiquid assets.
Interest Rate Futures and Options. For hedging purposes, the Fund may (1) buy or
sell interest rate futures and (2) buy put and call options on such futures. The
total market value of securities to be delivered or acquired pursuant to such
contracts will not exceed 5% of the Fund's net assets. A futures contract
creates an obligation by the seller to deliver and the buyer to take delivery of
the type of instrument at the time and in the amount specified in the contract.
Although futures contracts call for the delivery (or acceptance) of the
specified instrument, the contracts are usually closed out before the settlement
date through the purchase (or sale) of an offsetting contract. If the price of
the initial sale of the futures contract exceeds (or is less than) the price of
the offsetting purchase, the Fund realizes a gain (or loss).
"When-Issued" Securities. The Fund also may invest in "when-issued" securities.
"When-issued" securities are contracts to purchase securities for a fixed price
on a date beyond the customary settlement time with no interest accruing until
settlement. If made through a dealer, the contract is dependent on the dealer
completing the sale. The dealer's failure could deprive the Fund of an
advantageous yield or price. These contracts also involve the risk that the
value of the underlying security may change prior to settlement. The Fund may
realize short-term profits or losses if the contracts are sold. The Fund
currently will not purchase these securities with more than 120 days to
settlement. Transactions in "when-issued" securities may be limited by certain
Internal Revenue Code requirements. High portfolio turnover may result in higher
transaction costs and higher levels of realized capital gains.
Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets; however, the Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental policies may be changed without
shareholder approval. The Fund will notify investors at least 30 days prior to
any material change in the Fund's investment objective. If there is a change in
the investment objective, shareholders should consider whether the Fund remains
an appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in objective. The Fund's fundamental policies listed in
the Statement of Additional Information cannot be changed without the approval
of a majority of the Fund's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 4.75% on Class A shares, the
maximum initial sales charge of 1.00% on Class D shares and the contingent
deferred sales charge applicable to the time period quoted on Class B and Class
D shares. Other total returns differ from average annual total return only in
that they may relate to different time periods, may represent aggregate as
opposed to average annual total returns and may not reflect the initial or
contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent month's distribution, annualized, by the maximum
offering price of that Class at the end of the month. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All performance
information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial Investment
Services, Inc. (Distributor) is a subsidiary of the Adviser and serves as the
distributor for the Fund's shares. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, serves as the shareholder
services and transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.60% of the Fund's average daily net assets for fiscal year 1995.
Andrea S. Feingold, Vice President of the Adviser, has managed the Fund since
1993. Ms. Feingold joined the Adviser in 1991 as an Investment Analyst. Prior to
joining the Adviser, she was an Investment Analyst at Sun Financial Group.
The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million. The Transfer Agent provides transfer agency and shareholder
services to the Fund for a fee of 0.25% annually of average net assets plus
certain out-of pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
Subject to seeking best execution, the Adviser may consider research and
brokerage services furnished to it and its affiliates and sales of shares of the
Fund (and of certain other Colonial funds) in selecting broker-dealers for
portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close of the New York Stock Exchange (Exchange) each day the
Exchange is open. Portfolio securities for which market quotations are readily
available are valued at market. Short-term investments maturing in 60 days or
less are valued at amortized cost, when it is determined, pursuant to procedures
adopted by the Trustees, that such cost approximates market value. All other
securities and assets are valued at their fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders virtually all net income
and any net realized gain, at least annually. The Fund generally declares
distributions daily and pays them monthly. Distributions are invested in
additional shares of the same Class of the Fund at net asset value unless the
shareholder elects to receive cash. Regardless of the shareholder's election,
distributions of $10 or less will not be paid in cash to shareholders but will
be invested in additional shares of the same Class of the Fund at net asset
value. To change your election, call the Transfer Agent for information.
Whether you receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution. Each
January, information on the amount and nature of your distributions for the
prior year is sent to shareholders.
The Fund has a significant capital loss carry forward and, until it is
exhausted, it is unlikely that capital gain distributions will be made. Any
capital gains will, however, be reflected in the net asset value.
HOW TO BUY SHARES
Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50, and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class D shares and there are
some limitations on the issuance of Class A share certificates. The Fund may
refuse any purchase order for its shares. See the Statement of Additional
Information for more information.
Class A Shares. Class A shares are offered at net asset value, subject to a
0.25% annual service fee, plus an initial or a contingent deferred sales charge
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
Retained
by
Financial
Service
Firm
as % of as % of
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than
$100,000 4.71% 4.50% 4.00%
$100,000 to less than 3.63% 3.50% 3.00%
$250,000
$250,000 to less than 2.56% 2.50% 2.00%
$500,000
$500,000 to less than 2.04% 2.00% 1.75%
$1,000,000
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
<TABLE>
<CAPTION>
Amount Purchased Commission
<S> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25% (1)
</TABLE>
(1) Paid over 12 months but only to the extent the
shares remain outstanding.
Purchases of $1 million to $5 million are subject to a 1.00% contingent deferred
sales charge payable to the Distributor on redemptions within 18 months from the
first day of the month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5 million.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee), a 0.25% annual service fee and a
declining contingent deferred sales charge if redeemed within six years after
purchase. As shown below, the amount of the contingent deferred sales charge
depends on the number of years after purchase that the redemption occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.
Class D Shares. Class D shares are offered at net asset value plus a 1.00%
initial sales charge, subject to a 0.75% annual distribution fee, a 0.25% annual
service fee and a 1.00% contingent deferred sales charge on redemptions made
within one year from the first day of the month after purchase.
The Distributor pays financial service firms an initial commission of 1.85% on
purchases of Class D shares and an ongoing commission of 0.65% annually. Payment
of the ongoing commission is conditioned on receipt by the Distributor of the
0.75% annual distribution fee referred to above. The commission may be reduced
or eliminated if the distribution fee paid by the Fund is reduced or eliminated
for any reason.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales charge, if any), in the account
reduced by prior redemptions on which a contingent deferred sales charge was
paid and any exempt redemptions). See the Statement of Additional Information
for more information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class D shares. Purchases of $250,000 or
more must be for Class A or Class D shares. Purchases of $500,000 or more must
be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. See the
Statement of Additional Information for more information.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with a reduced, or without an, initial or
contingent deferred sales charge. These programs are described in the Statement
of Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For more
information about these services or your account, call 1-800-345-6611. Some
services are described in the attached account application. A shareholder's
manual explaining all available services will be provided upon request.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation.
Shareholders will receive 60 days' written notice to increase the account value
before the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
Colonial funds. Not all Colonial funds offer Class D shares. Shares will
continue to age without regard to the exchange for purposes of conversion and in
determining the contingent deferred sales charge, if any, upon redemption.
Carefully read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-248-2828 to receive a prospectus and an
exchange authorization form. Call 1-800-422-3737 to exchange shares by
telephone. An exchange is a taxable capital transaction. The exchange service
may be changed, suspended or eliminated on 60 days' written notice.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which, exchanges are made at the net
asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund into which the original investment was made.
Class D Shares. Exchanges of Class D shares will not be subject to the
contingent deferred sales charge. However, if shares are redeemed within one
year after the original purchase, a 1.00% contingent deferred sales charge will
be assessed.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values it shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine and, if it does
not, may be liable for any losses due to unauthorized or fraudulent telephone
transactions. All telephone transactions are recorded. Shareholders and/or their
financial advisers are required to provide their name, address and account
number. Financial advisers are also required to provide their broker number.
Shareholders and/or their financial advisers wishing to redeem or exchange
shares by telephone may experience difficulty in reaching the Fund at its
toll-free telephone number during periods of drastic economic or market changes.
In that event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under "How to
Sell Shares." The Adviser, the Transfer Agent and the Fund reserve the right to
change, modify, or terminate the telephone redemption or exchange services at
any time upon prior written notice to shareholders. Shareholders and/or their
financial advisers are not obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets attributed to each Class of shares. The Fund
also pays the Distributor an annual distribution fee of 0.75% of the average net
assets attributed to its Class B and Class D shares. Because the Class B and
Class D shares bear the additional distribution fee, their dividends will be
lower than the dividends of Class A shares. Class B shares automatically convert
to Class A shares, approximately eight years after the Class B shares were
purchased. Class D shares do not convert. The multiple class structure could be
terminated should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The Distributor uses
the fees to defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution, shareholder servicing
costs and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of Fund
shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1985. The Fund
represents the entire interest in a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative. The risk
of a particular fund incurring financial loss on account of another fund of the
Trust is also believed to be remote because it would be limited to circumstances
in which the disclaimer was inoperative and the other fund was unable to meet
its obligations.
APPENDIX
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from AAA
only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to repay principal and interest than for bonds in the A category.
BB, B, CCC and CC bonds are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus (+) or minus (-) are modifiers relative to the standing within the major
rating categories.
MOODY'S
Aaa bonds 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. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups which Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the 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 are considered as medium grade, 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 are judged to have speculative elements: their future cannot be
considered as well secured. 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 these
bonds.
B bonds 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 are of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
April 29, 1996
COLONIAL HIGH YIELD SECURITIES FUND
PROSPECTUS
Colonial High Yield Securities Fund seeks high current income and total return
by investing primarily in lower rated corporate debt securities.
For more detailed information about the Fund, call the Adviser at 1-800-248-2828
for the April 29, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
[COLONIAL FLAG LOGO]
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Mutual Funds
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 7.
To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S. citizen status.
__Joint Tenant: Print all names, the Social Security # for the first person,
and his/her U.S. citizen status.
__Uniform Gift to Minors: Name of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? Yes___ No___
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or D shares. If no distribution
option is selected, distributions will be reinvested in additional Fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.
Fund Fund Fund
1_______________ 2__________________ 3____________________
$_______________ $__________________ $____________________
Amount Amount Amount
Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (Adjustable Rate
U.S. Government Fund only)
___ D Shares (less than $500,000, available on certain funds; see prospectus)
Method of Payment
Choose one
___Check payable to the Fund
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Wire/Trade confirmation #___________________
Ways to Receive Your Distributions
Choose one
___Reinvest dividends and capital gains
___Dividends and capital gains in cash
___Dividends in cash; reinvest capital gains
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection Complete Bank Information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House (ACH).
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that his/her actions are
authorized.
I have received and read each appropriate Fund prospectus and understand that
its terms are incorporated by reference into this application. I understand
that this application is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales charge. I certify,
under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is correct.
You must cross out item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.
2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding. It is agreed that the Fund, all Colonial
companies and their officers, directors, agents, and employees will not be
liable for any loss, liability, damage, or expense for relying upon this
application or any instruction believed genuine.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following features. Complete only
the section(s) that apply to the features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks from your account in
any amount you select, with certain limitations. Your redemption checks can
be sent to you at the address of record for your account, to your bank
account, or to another person you choose. The value of the shares in your
account must be at least $5,000 and you must reinvest all of your
distributions. Checks will be processed on the 10th calendar day of the month
or the following business day. If you receive your SWP payment via ACH, you
may request it to be processed any day of the month. Withdrawals in excess of
12% annually of your current account value will not be accepted. Redemptions
made in addition to SWP payments may be subject to a contingent deferred sales
charge for Class B or Class D shares. Please consult your financial or tax
adviser before electing this option.
Funds for Withdrawal:
1___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day/month).
2___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day/month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via Colonial Cash Connection (through electronic funds
transfer). Please complete the Bank Information section below. All ACH
transactions will be made two business days after the processing date
My bank must be a member of the Automated Clearing House (ACH) system.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
B. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.
1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or ACH. Telephone redemptions over $1,000 will be sent via federal fund wire,
usually on hte next business day ($7.50 will be deducted). Redemptions of
$1,000 or less will be sent by check to your designated bank.
3. On-Demand ACH Redemption
__I would like the On-Demand ACH Redemption Privilege. Proceeds paid via ACH
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from you fund acount
by telephone and send your money to your bank account. If you are adding
this service to an existing account, complete the Bank Information section
below and have all shareholder signatures guaranteed.
Colonial's and the Fund's liability is limited when following telephone
instructions; a shareholder may suffer a loss from an unauthorized transaction
reasonably believed by Colonial to have been authorized.
Bank Information (For Sections A and B Above)
I authorize deposits to the following bank account:
____________________________________________________________
Bank name City Bank account number
____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)
X__________________________________
Signature of account owner(s)
X__________________________________
Signature of account owner(s) Place signature guarantee here.
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing fund distributions in another
Colonial fund. These investments will be made in the same share class and
without sales charges. Accounts must be identically registered. I have
carefully read the prospectus for the fund(s) listed below.
1____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
2____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial fund in
which you have a balance of at least $5,000 exchanged into the same share
class of up to four other identically registered Colonial accounts, on a
monthly basis. The minimum amount for each exchange is $100. Please complete
the section below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
1____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
2____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
C. Fundamatic/On-Demand ACH Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial fund account. The On-Demand ACH Purchase
program moves money from you bank checking account to your Colonial Fund
account by electronic funds transfer on any specified day of the month.
You will receive the applicable price two business days after the receipt
of your request. Your bank needs to be a member of the Automated Clearing
House system. Please attach a blank check marked "VOID." Also, complete the
section below.
1____________________________________
Fund name
_________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
2___________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Check one:
__ACH (Any day of the month)
__Paper Draft
(Choose either the 5th__ or 20th__ day of the month)
Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. Do Not Detach. Make sure all depositors on the bank account sign to
the far right. Please attach a blank check marked "VOID" here. See reverse
for bank instructions.
I authorize Colonial to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial fund. Colonial and my bank are not
liable for any loss arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and Colonial may reverse
the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to Reduce Your Sales Charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial funds, you may be eligible for a reduced sales charge. The combined
value of your accounts must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from another Colonial fund.
The sales charge for your purchase will be based on the sum of the purchase
added to the value of all shares in other Colonial funds at the previous
day's public offering price.
__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
1_____________________________________
Name on account
_____________________________________
Account number
2_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.
7-------------Financial Service Firm---------------------
To be completed by a Representative of your financial service firm.
This application is submitted in accordance with our selling agreement with
Colonial Investment Services, Inc. (CISI), the Fund's prospectus, and this
application. We will notify CISI, Inc., of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
8----------Request for a Combined Quarterly Statement Mailing-----------
Colonial can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my accounts. Please
indicate accounts to be linked.______________________
Fundamatic (See Reverse Side)
Applications must be received before the start date for processing.
This program's deposit privilege can be revoked by Colonial without prior
notice if any check is not paid upon presentation. Colonial has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service Center, Inc. to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of Colonial Investors
Service Center, Inc., Colonial Investment Services, Inc., hereby indemnifies
and holds you harmless from any loss (including reasonable expenses) you may
suffer from honoring such draw, except any losses due to your payment of any
draw against insufficient funds.
D-224B-1295
COLONIAL TRUST I
Cross Reference Sheet
(Colonial Income Fund)
Item Number Prospectus Location or Caption
of Form N-1A
Part A
1. Cover page
2. Summary of Expenses
3. The Fund's Financial History
4. The Fund's Investment Objective;
Organization and History;
How the Fund Pursues Its Objective
5. Cover page;
How the Fund is Managed;
Organization and History;
Back cover
6. Organization and History;
Distributions and Taxes;
How to Buy Shares
7. How to Buy Shares;
How the Fund Values Its Shares;
12b-1 Plans; Back cover
8. How to Sell Shares;
How to Exchange Shares;
Telephone Transactions
9. Not applicable
April 29, 1996
COLONIAL INCOME FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund
investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Colonial Income Fund (Fund), a diversified portfolio of Colonial Trust I
(Trust), an open-end management investment company, seeks as high a level of
current income and total return, as is consistent with prudent risk, by
investing primarily in corporate debt securities.
The Fund is managed by the Adviser, an investment adviser since 1931.
This Prospectus explains concisely what you should know before investing in the
Fund.
IF-01/059C-0496
Read it carefully and retain it for future reference. More detailed information
about the Fund is in the April 29, 1996 Statement of Additional Information,
which has been filed with the Securities and Exchange Commission and is
obtainable free of charge by calling the Adviser at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
The Fund offers two classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and, in addition, are subject to a distribution fee
and a declining contingent deferred sales charge on redemptions made within six
years after purchase. Class B shares automatically convert to Class A shares
after approximately eight years. See "How to Buy Shares."
Contents Page
Summary of Expenses
The Fund's Financial History
The Fund's Investment Objective
How the Fund Pursues its Objective and
Certain Risk Factors
How the Fund Measures its Performance
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses(1)(2)
Class A Class B
<S> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as % of offering price)(3) 4.75% 0.00%(5)
Maximum Contingent Deferred Sales Charge (as % of offering price)(3) 1.00%(4) 5.00%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to Sell Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will
be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase. See
"How to Buy Shares."
(5) Because of the 0.75% distribution fee applicable to Class B shares,
long-term Class B shareholders may pay more in aggregate sales charges
than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because the Fund's
Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely than for Class B shares
than for a class without a conversion feature.
Annual Operating Expenses (as a % of average net assets)
Class A Class B
Management fee 0.50% 0.50%
12b-1 fees 0.25 1.00
Other expenses 0.34 0.34
Total operating expenses 1.09% 1.84%
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example should
not be considered indicative of actual or expected Fund performance or expenses,
both of which will vary:
Class A Class B
Period: (6) (7)
1 year $58 $69 $19
3 years 81 88 58
5 years 105 120 100
10 years 175 197(8) 197(8)
(6) Assumes redemption at period end.
(7) Assumes no redemption
(8) Class B shares automatically convert to Class A shares after
approximately 8 years; therefore, years 9 and 10 reflect Class A
share expenses.
<PAGE>
THE FUND'S FINANCIAL HISTORY
The following schedules of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1995 Annual
Report and is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $5.950 $6.720 $6.460 $6.460 $5.970 $6.430 $6.610 $6.520
------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.472 0.487 0.501 0.546 0.587 0.632 0.647 0.687
Net realized and unrealized
gain (loss) on investments 0.698 (0.761) 0.261 0.001 0.487 (0.477) (0.159) 0.081
------ ------- ------ ------ ------ ------- ------- ------
Total from investment .
operations 1.170 (0.274) 0.762 0.547 1.074 0.155 0.488 0.768
------ ------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.480) (0.496) (0.502) (0.547) (0.584) (0.615) (0.662) (0.678)
From capital paid in --- --- --- --- --- --- (0.006) ---
--- --- --- --- --- --- ------- ---
Total distributions declared to
shareholders (0.480) (0.496) (0.502) (0.547) (0.584) (0.615) (0.668) (0.678)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of period $6.640 $5.950 $6.720 $6.460 $6.460 $5.970 $6.430 $6.610
======= ======= ======= ======= ======= ======= ======= =======
Total return (a) 20.30% (4.09)% 12.05% 8.83% 18.80% 2.65% 7.62% 12.45%
====== ======= ====== ===== ====== ===== ===== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.09% (b) 1.11% 1.10% 1.24% 1.25% 1.23% 1.15% 1.13%
Net investment income 7.45% (b) 7.80% 7.45% 8.49% 9.46% 10.30% 9.82% 10.37%
Portfolio turnover 85% 16% 46% 68% 44% 29% 41% 19%
Net assets at end of period (000) $143,834 $129,560 $155,543 $149,309 $146,905 $141,467 $162,163 $159,991
- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------------------------------------
Year Ended December 31
- ---------------------------------------------------------------
1987 1986
---- ----
<S> <C> <C>
Net asset value -
Beginning of period $7.220 $7.180
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.703 0.789
Net realized and unrealized
gain (loss) on investments (0.649) 0.061
------- -----
Total from investment
operations 0.054 0.850
------ -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.754) (0.810)
From capital paid in --- ---
--- ---
Total distributions declared to
shareholders (0.754) (0.810)
------- -------
Net asset value - End of period $6.520 $7.220
======= ======
Total return (a) 0.48% 12.34%
===== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.15% 1.11%
Net investment income 10.10% 10.77%
Portfolio turnover 32% 42%
Net assets at end of period (000) $164,636 $162,550
- ---------------------------------
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(b) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits received,
if any.
<PAGE>
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------
Year ended December 31
--------------------------------------------------------
1995 1994 1993 1992(a)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $5.950 $6.720 $6.460 $6.390
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.425 0.440 0.451 0.290
Net realized and unrealized
gain (loss) on investments 0.698 (0.761) 0.261 0.088
------ ------- ------ -----
Total from investment operations 1.123 (0.321) 0.712 0.378
------ ------- ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.433) (0.449) (0.452) (0.308)
------- ------- ------- -------
Net asset value - End of period $6.640 $5.950 $6.720 $6.460
======= ======= ======= ======
Total return (b) 19.42% (4.82)% 11.23% 6.00%(d)
====== ======= ====== =====
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.84%(c) 1.86% 1.85% 1.99%(e)
Net investment income 6.70%(c) 7.05% 6.70% 7.74%(e)
Portfolio turnover 85% 16% 46% 68%
Net assets at end of period (000) $38,203 $22,805 $19,787 $6,092
- ---------------------------------
</TABLE>
(a) Class B shares were initially offered on May 15, 1992. Per share
amounts reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) Not annualized.
(e) Annualized.
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income and total return, as is
consistent with prudent risk, by investing primarily in corporate debt
securities.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund invests primarily in corporate and government debt securities and
preferred stocks, but intends to limit investment in preferred stocks to 10% of
net assets. The Fund may invest in debt securities of any maturity. Some
preferred stocks may be accompanied by rights to acquire the issuer's common
stock, but the Fund intends to dispose of any common stock acquired through
these rights. The type of securities held by the Fund will vary over time based
on management's judgment of market and economic conditions, fiscal and monetary
policy and interest rate trends. The value of debt securities (and thus of Fund
shares) usually fluctuates inversely to changes in interest rates. No more than
25% of the Fund's assets will be invested in a single industry.
REMICs and CMOs. The Fund may also invest in real estate mortgage investment
conduits (REMICs), collateralized mortgage obligations (CMOs) and other
mortgage-backed securities of investment grade or which are considered by the
Adviser to be of comparable quality. Certain of these securities may be issued
by non-U.S. government agencies although the underlying mortgages will in all
cases be guaranteed by a U.S. government agency. The Fund may experience costs
and delays in liquidating the collateral if the non-U.S. government issuer
defaults or enters bankruptcy and may incur a loss. CMOs are obligations issued
by special-purpose trusts, secured by mortgages. REMICs own mortgages and elect
REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or
more classes of securities of which one (the Residual) is in the nature of
equity. The Fund will not invest in the Residual class. Principal on a REMIC,
CMO or other mortgage-backed security may be prepaid if the underlying mortgages
are prepaid. Because of the prepayment feature these investments may not
increase in value when interest rates fall. The Fund may be able to invest
prepaid principal only at lower yields. The Fund may invest in "stripped"
mortgage-backed securities representing interests in, for example, only the
principal or only the interest on underlying mortgages. Interest-only strips
involve the additional risk of loss of the entire value of the investment if the
underlying mortgages are prepaid. The prepayment of REMICs, CMOs or other
mortgage-backed securities purchased at a premium may result in losses equal to
the premium.
Lower Rated Debt Securities. The Fund currently intends to limit its investments
in lower rated bonds (commonly referred to as "junk bonds") to less than 25% of
total assets. Lower rated bonds are those bonds rated lower than Baa by Moody's
or BBB by S&P and comparable unrated securities. Relative to comparable
securities of higher quality the market price for lower rated securities is
likely to be more volatile and because of greater investment risk, the Fund's
achievement of its investment objective is more dependent on the Adviser's
credit analysis. For the year ended December 31, 1995, 18.2% of the Fund's
weighted average total assets were invested in lower rated bonds. The 1995
portfolio composition does not necessarily reflect the current or future
portfolio composition.
The Fund may invest in debt securities of any maturity that pay fixed, floating
or adjustable interest rates. The Fund also may invest in debt securities (i)
that do not pay interest but, instead are issued at a significant discount to
their maturity values (referred to as zero coupon securities), (ii) that pay
interest, at the issuer's option, in additional securities instead of cash
(referred to as pay-in-kind securities) or (iii) pay interest at predetermined
rates that increase over time (referred to as step coupon bonds).
The values of debt securities generally fluctuate inversely with changes in
interest rates. This is less likely to be true for adjustable or floating rate
securities, since interest rate changes are more likely to be reflected in
changes in the rates paid on the securities. However, reductions in interest
rates also may translate into lower distributions paid by the Fund.
Additionally, because zero coupon, pay-in-kind securities and step coupon bonds
may not pay interest but the Fund nevertheless must accrue and distribute the
income deemed to be earned on a current basis, the Fund may have to sell other
investments to raise the cash needed to make income distributions.
Foreign Investments. The Fund may invest up to 25% of its assets in securities
issued or guaranteed by foreign governments or foreign companies. Investments in
foreign securities have special risks related to political, economic, and legal
conditions outside of the U.S. As a result, the prices of foreign securities
and, therefore, the net asset value of Fund shares, may fluctuate substantially
more than the prices of securities of issuers based in the U.S. Special risks
associated with foreign securities include the possibility of unfavorable
movements in currency exchange rates, difficulties in obtaining and enforcing
judgments abroad, the existence of less liquid and less regulated markets, the
unavailability of reliable information about issuers, the existence of different
accounting, auditing and legal standards in foreign countries, the existence (or
potential imposition) of exchange control regulations (including currency
blockage), and political and economic instability, among others. In addition,
transactions in foreign securities may be more costly due to currency conversion
costs and higher brokerage and custodial costs. See "Foreign Securities" and
"Foreign Currency Transactions" in the Statement of Additional Information for
more information about foreign investments.
Some of the Fund's foreign investments may consist of securities issued or
guaranteed by companies or governments located in countries whose economies or
securities markets are not yet highly developed. Special risks associated with
these investments (in addition to the considerations regarding foreign
investments generally) may include, among others, greater political
uncertainties, an economy's dependence on revenues from particular commodities
or on international aid or development assistance, extreme or volatile debt
burdens or inflation rates, highly limited numbers of potential buyers for such
securities, heightened volatility of security prices, restrictions on
repatriation of capital invested abroad and delays and disruptions in securities
settlement procedures.
Foreign Currency Transactions. In connection with its investments in foreign
securities, and for hedging purposes, the Fund may purchase and sell (i) foreign
currencies on a spot or forward basis, (ii) foreign currency futures contracts,
and (iii) options on foreign currencies and foreign currency futures. Such
transactions may be entered into (a) to lock in a particular foreign exchange
rate pending settlement of a purchase or sale of a foreign security or pending
the receipt of interest, principal or dividend payments on a foreign security
held by the Fund, or (b) to hedge against a decline in the value, in U.S.
dollars or in another currency, of a foreign currency in which securities held
by the Fund are denominated. The Fund will not attempt, nor would it be able, to
eliminate all foreign currency risk. Further, although hedging may lessen the
risk of loss due to a decline in the value of the hedged currency, it tends to
limit the potential gain from increases in currency value. See the Statement of
Additional Information for information relating to the Fund's obligations in
entering into such transactions.
Temporary/Defensive Instruments. Temporarily available cash may be invested in
high quality certificates of deposit, bankers' acceptances, commercial paper,
Treasury bills, U.S. government securities and repurchase agreements. The Fund
may invest up to 25% of its total assets in such investments during periods of
unusual market conditions. Under a repurchase agreement, the Fund buys a
security from a bank or dealer, which is obligated to buy it back at a fixed
price and time. The security is held in a separate account at the Fund's
custodian, and constitutes the Fund's collateral for the bank's or dealer's
repurchase obligation. Additional collateral will be added so that the
obligation will at all times be fully collateralized. However, if the bank or
dealer defaults or enters bankruptcy, the Fund may experience costs and delays
in liquidating the collateral, and may experience a loss if it is unable to
demonstrate its rightsto the collateral in a bankruptcyproceeding. Not more than
10% of the Fund's net assets will be invested in repurchase agreements maturing
in more than 7 days or other illiquid assets.
Interest Rate Futures and Options. For hedging purposes, the Fund may (1) buy or
sell interest rate futures and (2) buy and sell options on such futures. The
total market value of securities to be delivered or acquired pursuant to such
contracts will not exceed 5% of the Fund's net assets. A futures contract
creates an obligation by the seller to deliver and the buyer to take delivery of
the type of instrument at the time and in the amount specified in the contract.
Although futures contracts call for the delivery (or acceptance) of the
specified instrument, the contracts are usually closed out before the settlement
date through the purchase (or sale) of an offsetting contract. If the price of
the initial sale of the futures contract exceeds (or is less than) the price of
the offsetting purchase, the Fund realizes a gain (or loss).
"When-Issued" and "Delayed Delivery" Securities. The Fund may acquire securities
on a "when-issued" basis by contracting to purchase securities for a fixed price
on a date beyond the customary settlement time with no interest accruing until
settlement. If made through a dealer the contract is dependent on the dealer's
consummation of the sale. The dealer's failure could deprive the Fund of an
advantageous yield or price. These contracts may be considered securities and
involve risk to the extent that the value of the underlying security changes
prior to settlement. The Fund may realize short-term profits or losses if the
contracts are sold.
Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets; however, the Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental policies may be changed without
shareholder approval. The Fund will notify investors at least 30 days prior to
any change in the Fund's investment objective. If there is a change in the
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in objective. The Fund's fundamental policies listed in
the Statement of Additional Information cannot be changed without the approval
of a majority of the Fund's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula, assume the reinvestment of all distributions,
the maximum initial sales charge of 4.75% on Class A shares and the contingent
deferred sales charge applicable to the time period quoted on Class B shares.
Other total returns differ from average annual total return only in that they
may relate to different time periods, may represent aggregate as opposed to
average annual total returns, and may not reflect the initial sales charge or
contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent month's distribution, annualized, by the maximum
offering price of that Class at the end of the month. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information.
All performance information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial Investment
Services, Inc. (Distributor) is a subsidiary of the Adviser and serves as the
distributor for the Fund's shares. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, serves as the shareholder
services and transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the
Adviser 0.50% of the Fund's average daily net assets for fiscal year 1995.
Mr. Carl C. Ericson, Senior Vice President of the Adviser and Manager of the
Taxable Fixed Income Group, has managed the Fund since 1991 and various other
Colonial taxable income funds since 1985.
Richard A. Stevens, Vice President of the Adviser, has co-managed the Fund since
September, 1995. Prior to co-managing the Fund, Mr. Stevens was a Senior
Research Analyst for the Adviser. Prior to joining the Adviser in 1994, Mr.
Stevens was an Investment Analyst for Back Bay Advisors.
The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million. The Transfer Agent provides transfer agency and shareholder
services to the Fund for a fee of 0.18% annually of average net assets plus
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking best execution,
the Adviser may consider sales of shares of the Fund (and of certain other
Colonial funds) in selecting broker-dealers for portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close of the New York Stock Exchange (Exchange) each day the
Exchange is open. Portfolio securities for which market quotations are readily
available are valued at market. Short-term investments maturing in 60 days or
less are valued at amortized cost when it is determined, pursuant to procedures
adopted by the Trustees, that such cost approximates market value. All other
securities and assets are valued at their fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders virtually all net income
and any net realized gain at least annually.
The Fund generally declares distributions daily and pays them monthly.
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash to
shareholders but will be invested in additional shares of the same Class of the
Fund at net asset value. To change your election, call the Transfer Agent for
information. Whether you receive taxable distributions in cash or in additional
fund shares, you must report them as taxable income unless you are a tax-exempt
institution. Each January, information on the amount and nature of distributions
for the prior year is sent to shareholders.
The Fund has a significant capital loss carry forward and, until it is
exhausted, it is unlikely that capital gains distributions will be made. Any
capital gains will, however, be reflected in the net asset value.
HOW TO BUY SHARES
Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50 and the minimum initial investment for a Colonial retirement account is $25.
Certificates will not be issued for Class B shares and there are some
limitations on the issuance of Class A share certificates. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.
Class A Shares. Class A shares are offered at net asset value, subject to a
0.25% annual service fee, plus an initial sales charge or a contingent deferred
sales charge as follows:
Initial Sales Charge
---------------------------------
Retained
by
Financial
Service
Firm
as % of as % of
---------------------
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than
$100,000 4.71% 4.50% 4.00%
$100,000 to less than
$250,000 3.63% 3.50% 3.00%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the shares remain outstanding.
Purchases of $1 million to $5 million are subject to a 1.00% contingent deferred
sales charge payable to the Distributor on redemptions within 18 months from the
first day of the month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5 million.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee), a 0.25% annual service fee and a
declining contingent deferred sales charge if redeemed within six years after
purchase. As shown below, the amount of the contingent deferred sales charge
depends on the number of years after purchase that the redemption occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on.
The Distributor pays financial service firms a commission of 4.00% on Class B
share purchases.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemption). See the
Statement of Additional Information for more information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Purchases of $250,000 or more must be
for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced, or without an, initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For more
information about these services or your account, call 1-800-345-6611. Some
services are described in the attached account application. A shareholder's
manual explaining all available services will be provided upon request.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from your financial service firm, the Transfer Agent
and many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation. Shareholders will receive 60 days' written notice to
increase the account value before the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
Colonial funds. Shares will continue to age without regard to the exchange for
purposes of conversion and determining the contingent deferred sales charge, if
any, upon redemption. Carefully read the prospectus of the fund into which the
exchange will go before submitting the request. Call 1-800-248-2828 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended or eliminated on 60
days' written notice.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge previously was
paid. Non-money market fund shares must be held for five months before
qualifying for exchange to a fund with a higher sales charge, after which,
exchanges are made at the net asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund into which the original investment was made.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine and, if it does
not, may be liable for any losses due to unauthorized or fraudulent telephone
transactions. All telephone transactions are recorded. Shareholders and/or their
financial advisers are required to provide their name, address and account
number. Financial advisers are also required to provide their broker number.
Shareholders and/or their financial advisers wishing to redeem or exchange
shares by telephone may experience difficulty in reaching the Fund at its
toll-free telephone number during periods of drastic economic or market changes.
In that event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under "How to
Sell Shares." The Adviser, the Transfer Agent and the Fund reserve the right to
change, modify, or terminate the telephone redemption or exchange services at
any time upon prior written notice to shareholders. Shareholders and/or their
financial advisers are not obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets attributed to each Class of shares. The Fund
also pays the Distributor an annual distribution fee of 0.75% of the average net
assets attributed to its Class B shares. Because the Class B shares bear the
additional distribution fee, their dividends will be lower than the dividends of
Class A shares. Class B shares automatically convert to Class A shares,
approximately eight years after the Class B shares were purchased. The multiple
class structure could be terminated should certain Internal Revenue Service
rulings be rescinded. See the Statement of Additional Information for more
information. The Distributor uses the fees to defray the cost of commissions and
service fees paid to financial service firms which have sold Fund shares, and to
defray other expenses such as sales literature, prospectus printing and
distribution, shareholder servicing costs and compensation to wholesalers.
Should the fees exceed the Distributor's expenses in any year, the Distributor
would realize a profit. The Plans also authorize other payments to the
Distributor and its affiliates (including the Adviser) which may be construed to
be indirect financing of sales of Fund shares.
ORGANIZATION AND HISTORY
The Fund is the successor to Colonial Income Fund, Inc. a Massachusetts
corporation organized in 1969 and to Colonial Income Trust a Massachusetts
business trust organized in 1987. The Fund represents the entire interest in a
separate portfolio of the Trust, which is a Massachusetts business trust
organized in 1985.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative. The risk
of a particular fund incurring financial loss on account of another fund of the
Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
<PAGE>
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
April 29, 1996
COLONIAL INCOME FUND
PROSPECTUS
Colonial Income Fund seeks as high a level of current income and total return,
as is consistent with prudent risk, by investing primarily in corporate debt
securities.
For more detailed information about the Fund, call the Adviser at 1-800-248-2828
for the April 29, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
(Colonial flag logo)
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST I
Cross Reference Sheet
(Colonial Strategic Income Fund)
Item Number Prospectus Location or Caption
of Form N-1A
Part A
1. Cover page
2. Summary of Expenses
3. The Fund's Financial History
4. The Fund's Investment Objective;
Organization and History;
How the Fund Pursues Its Objective
5. Cover page;
How the Fund is Managed;
Organization and History;
Back cover
6. Organization and History;
Distributions and Taxes;
How to Buy Shares
7. How to Buy Shares;
How the Fund Values Its Shares;
12b-1 Plans; Back cover
8. How to Sell Shares;
How to Exchange Shares;
Telephone Transactions
9. Not applicable
April 29, 1996
COLONIAL STRATEGIC
INCOME FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund invest
ing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Colonial Strategic Income Fund (Fund), a diversified portfolio of Colonial Trust
I (Trust), an open-end management investment company seeks as high a level of
current income and total return as is consistent with prudent risk, by
diversifying investments primarily in U.S. and foreign government and lower
rated corporate debt securities. The Fund is managed by the Adviser, an
investment adviser since 1931.
The Fund may invest a significant portion of its assets in lower rated bonds
(commonly referred to as "junk bonds") which are regarded as speculative as to
payment of principal and interest and, therefore, may not be suitable for all
investors. These securities are subject to greater risks, including the risk of
default, than higher rated bonds. See "How the Fund Pursues its Objectives."
Purchasers should carefully assess the risks associated with an investment in
the Fund.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for your future reference. More detailed
information about the Fund is in the April 29, 1996 Statement of Additional
Information, which
SI-01-052C-0496
has been filed with the Securities and Exchange Commission and is obtainable
free of charge by calling the Adviser at 1-800-248-2828. The Statement of
Additional Information is incorporated by reference in (which means it is
considered to be a part of) this Prospectus.
The Fund offers three classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and, in addition, are subject to an annual
distribution fee and a declining contingent deferred sales charge on redemptions
made within six years after purchase; and Class D shares are offered at net
asset value plus a small initial sales charge and are subject to a contingent
deferred sales charge on redemptions made within one year after purchase and an
annual distribution fee. Class B shares automatically convert to Class A shares
after approximately eight years. See "How to Buy Shares."
Contents Page
Summary of Expenses
The Fund's Financial History
The Fund's Investment Objective
How the Fund Pursues its
Objective and Certain Risk
Factors
How the Fund Measures its
Performance
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
Appendix
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSUREDBY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
Shareholder Transaction Expenses(1) (2)
Class A Class B Class D
Maximum Initial Sales Charge
Imposed on a Purchase
(as a % of offering price) (3) 4.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales Charge
(as a % of offering price) (3) 1.00%(4) 5.00% 1.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Sell Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and Class D
shares, long-term Class B and Class D shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted
by the National Association of Securities Dealers, Inc. However, because
the Fund's Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for a
class without a conversion feature.
Annual Operating Expenses (as a % of average net assets)
Class A Class B Class D
Management fee 0.64% 0.64% 0.64%
12b-1 fees 0.21(6) 1.00(6) 1.00
Other expenses 0.33 0.33 0.33
---- ---- ----
Total operating expenses 1.18% 1.97% 1.97%
==== ==== =====
(6) The service fee rate will fluctuate but
will not exceed 0.25%.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example should
not be considered indicative of actual or expected Fund performance or expenses,
both of which will vary:
Class A Class B Class D
Period: (7) (8) (7) (8)
1 year $59 $70 $20 $40 $30
3 years 83 92 62 71 71(10)
5 years 110 126 106 115 115
10 years 184 210(9) 210(9) 237 237
(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class B shares automatically convert to Class A shares after
approximately 8 years; therefore years 9 and 10 reflect Class A share
expenses
(10) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year
<PAGE>
THE FUND'S FINANCIAL HISTORY
The following schedules of financial highlights for a share outstanding
throughout each period has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1995 Annual
Report and is incorporated by reference into the Statement of Additional
Information. The Fund adopted its current objective on November 30, 1994. The
data presented for periods prior to November 30, 1994, represents operations
under an earlier objective.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $6.530 $7.390 $7.010 $7.020 $6.050 $7.250 $7.270
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.621 0.580 0.565 0.669 0.684 0.697 0.661
Net realized and unrealized gain (loss) 0.650 (0.848) 0.448 (0.004) 0.966 (1.177) 0.039
Total from Investment Operations 1.271 (0.268) 1.013 0.665 1.650 (0.480) 0.700
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.581) (0.580) (0.585) (0.673) (0.680) (0.697) (0.661)
In excess of net investment income --- --- --- (0.002) --- --- ---
From net realized gains --- --- --- --- --- --- ---
From capital paid in --- (0.012) (0.048) --- --- (0.023) (0.059)
Total distributions declared to shareholder(0.581) (0.592) (0.633) (0.675) (0.680) (0.720) (0.720)
Net asset value - End of period $7.220 $6.530 $7.390 $7.010 $7.020 $6.050 $7.250
Total return (a) 20.17% (3.67)% 14.95% 9.77% 28.41% (7.04)% 9.93%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.(b) 1.21% 1.19% 1.18% 1.12% 1.12% 1.10%
Net investment income 8.(b) 8.38% 8.42% 9.39% 10.27% 10.27% 8.94%
Portfolio turnover 83% 78% 138% 96% 48% 2% 32%
Net assets at end of period (000) $714,961 $636,824 $660,654 $437,380 $424,824 $410,270 $498,294
_________________________________
</TABLE>
<TABLE>
<CAPTION>
Class A
----------------------------------------------
----------------------------------------------
1988 1987 1986
<S> <C> <C> <C>
Net asset value - Beginning of
period $6.890 $7.580 $8.290
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.387 0.272 0.179
Net realized and unrealized gain (loss) 0.733 0.098 0.211
Total from Investment Operations 1.120 0.370 0.390
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.476) (0.250) (0.170)
In excess of net investment income --- --- ---
From net realized gains (0.044) (0.810) (0.930)
From capital paid in (0.220) --- ---
Total distributions declared to shareholders (0.740) (1.060) (1.100)
Net asset value - End of period $7.270 $6.890 $7.580
Total return (a) 16.66% 3.74% 4.76%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.07% 1.00% 0.99%
Net investment income 5.33% 3.31% 2.21%
Portfolio turnover 28% 82% 134%
Net assets at end of period (000) $631,982 $783,125 $1,068,974
_________________________________
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(b) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
<PAGE>
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------
Year ended December 31
-----------------------------------------------------
1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $6.530 $7.390 $7.010 $7.080
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.569 0.529 0.511 0.385
Net realized and unrealized gain (loss) on investments 0.650 (0.849) 0.448 (0.067)
Total from Investment Operations 1.219 (0.320) 0.959 0.318
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.529) (0.529) (0.535) (0.388)
From capital paid in --- (0.011) (0.044) ---
Total distributions declared to shareholders (0.529) (0.540) (0.579) (0.388)
Net asset value - End of period $7.220 $6.530 $7.390 $7.010
Total return (b) 19.29% (4.40)% 14.11% 2.(c)
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.(e) 1.96% 1.94% 1.(d)
Net investment income 7.(e) 7.63% 7.67% 8.(d)
Portfolio turnover 83% 78% 138% 96%
Net assets at end of period (000) $714,049 $608,348 $475,141 $37,935
</TABLE>
(a) Class B shares were initially offered on May 15, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Not annualized.
(d) Annualized.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income and total return as is
consistent with prudent risk, by diversifying investments primarily in U.S. and
foreign government and lower rated corporate debt securities.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund will seek to achieve its objective by investing its assets in each of
the following sectors of the debt securities markets: (i) securities issued or
guaranteed as to principal and interest by the U.S. government, its agencies,
authorities or instrumentalities (government securities); (ii) debt securities
issued by foreign governments and their political subdivisions; and (iii) lower
rated debt securities, some of which may involve equity features. The Fund may
invest in debt securities of any maturity. The allocation of investments among
these types of securities at any given time is based on the Adviser's estimate
of expected performance and risk of each type of investment. The value of debt
securities (and thus of Fund shares) usually fluctuates inversely to changes in
interest rates.
U.S. Government Securities. U.S. government securities include (1) U.S.
Treasury obligations, (2) obligations issued or guaranteed by U.S. government
agencies and instrumentalities (Agency Securities) which are supported by: (a)
the full faith and credit of the U.S. government, (b) the right of the issuing
agency to borrow under a line of credit with the U.S. Treasury, (c) the
discretionary power of the U.S. government to purchase obligations of the
agency or (d) the credit of the agency, and (3) "when-issued" government
securities.
The Fund may invest in U.S. government securities of any maturity, including (1)
zero coupon securities (zeros) (which are issued at a significant discount from
face value and pay interest only at maturity rather than at intervals during the
life of the security) and (2) certificates representing undivided interests in
the interest or principal of mortgage backed securities (interest only/principal
only), which tend to be more volatile than other types of securities. The Fund
is required to accrue and distribute income from zeros on a current basis even
though the Fund does not receive that income currently in cash. Thus the Fund
may have to sell other investments to obtain cash needed to make income
distributions. The interest only class involves the risk of loss of the entire
value of the investment if the underlying mortgages are prepaid.
The Fund may invest in U.S. government securities of any maturity that pay
fixed, floating or adjustable interest rates. The Fund also may invest in U.S.
government securities (i) that pay interest, at the issuer's option, in
additional securities instead of cash (referred to as pay-in-kind securities) or
(ii) pay interest at predetermined rates that increase over time (referred to as
step coupon bonds).
The values of these securities generally fluctuate inversely with changes in
interest rates. This is less likely to be true for adjustable or floating
rate securities, since interest rate changes are more likely to be
reflected in changes in the rates paid on the securities. However,
reductions in interest rates also may translate into lower distributions paid
by the Fund. Additionally, because zero coupon, pay-in-kind securities and
step coupon bonds may not pay interest, the Fund nevertheless must accrue and
distribute the income deemed to be earned on a current basis. The Fund may have
to sell other investments to raise the cash needed to make income distributions.
CMOs and REMICs. The Fund may also invest in real estate mortgage investment
conduits (REMICs), collateralized mortgage obligations (CMOs) and other
mortgage-backed securities of investment grade which are considered by the
Adviser to be of comparable rating. Certain of these securities may not be U.S.
government securities, although the underlying mortgages will in all cases be
guaranteed by an agency. The Fund may experience costs and delays in liquidating
the collateral if the issuer defaults or enters bankruptcy and may incur a loss.
CMOs are obligations issued by special-purpose trusts, secured by mortgages.
REMICs own mortgages and elect REMIC status under the Internal Revenue Code.
Both CMOs and REMICs issue one or more classes of securities of which one (the
Residual) is in the nature of equity. The Fund will not invest in the Residual
class. Principal on a REMIC, CMO or other mortgage-backed security may be
prepaid if the underlying mortgages are prepaid. Because of the prepayment
feature these investments may not increase in value when interest rates fall.
The Fund may be able to invest prepaid principal only at lower yields. The
prepayment of REMICs, CMOs or other mortgage-backed securities purchased at a
premium may result in losses equal to the premium.
Foreign Investments. Investments in foreign securities have special risks
related to political, economic and legal conditions outside of the U.S. As a
result, the prices of foreign securities may fluctuate substantially more than
the prices of securities of issuers based in the U.S. Special risks associated
with foreign securities include the possibility of unfavorable movements in
currency exchange rates, the existence of less liquid markets, the
unavailability of reliable information about issuers, the existence (or
potential imposition of) exchange control regulations, (including currency
blockage), and political and economic instability, among others. In addition,
transactions in foreign securities may be more costly due to currency conversion
costs and higher brokerage and custodial costs. See "Foreign Securities" and
"Foreign Currency Transactions" in the Statement of Additional Information for
more information about foreign investments.
Foreign Currency Transactions. In connection with its investments in foreign
securities, the Fund may purchase and sell (i) foreign currencies on a spot or
forward basis, (ii) foreign currency futures contracts, and (iii) options on
foreign currencies and foreign currency futures. Such transactions will be
entered into (i) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the Fund,
or (ii) to hedge against a decline in the value, in U.S. dollars or in another
currency, of a foreign currency in which securities held by the Fund are
denominated. The Fund will not attempt, nor would it be able, to eliminate all
foreign currency risk. Further, although hedging may lessen the risk of loss if
the hedged currency's value declines, it limits the potential gain from currency
value increases. See the Statement of Additional Information for information
relating to the Fund's obligations in entering into such transactions.
Lower Rated Debt Securities. Lower rated debt securities (commonly referred to
as junk bonds) are debt securities which, because of the greater possibility
that the issuers will default, are not investment grade (i.e., are rated below
BBB by Standard & Poor's Corporation (S&P) or below Baa by Moody's Investors
Service (Moody's) or are unrated but considered by the Adviser to be of
comparable credit quality). Because of the increased risk of default, these
securities generally have higher nominal or effective interest rates than higher
quality securities.
The Fund may purchase bonds in the lowest rating categories (C for Moody's and D
for S&P) and comparable unrated securities. However, the Fund will only purchase
securities rated Ca or lower by Moody's or CC or lower by S&P if the Adviser
believes the quality of such securities is higher than indicated by the rating,
if as a result holdings of that issuer will not exceed 0.50% of the Fund's net
assets. Lower rated securities in which the Fund may invest include zero coupon
securities described above.
The values of lower rated securities are more likely to fluctuate directly,
rather than inversely, with changes in interest rates. This is because increases
in interest rates often are associated with an improving economy, which may
translate into an improved ability of the issuers to pay off their bonds
(lowering the risk of default). Lower rated bonds also are generally considered
significantly more speculative and likely to default than higher quality bonds.
Relative to other debt securities, their values tend to be more volatile
because: (i) an economic downturn may more significantly impact their potential
for default, and (ii) the secondary market for such securities may at times be
less liquid or respond more adversely to negative publicity or investor
perceptions, making it more difficult to value or dispose of the securities. The
likelihood that these securities will help the Fund achieve its investment
objective is more dependent on the Adviser's own credit analysis.
Weighted average composition of the Fund's portfolio for the year ended
December 31, 1995, was:
Rated Unrated
Investment grade 0.2% 0%
B-BB and equivalent 38.3 1.0
Below B 3.3 0
---- ----
41.8 1.0
Subtotal 42.8
Equities and
Governments 57.2
----
Total 100.0%
This table does not necessarily reflect the current or future composition of the
portfolio.
"When-Issued" Securities. The Fund also may invest in when-issued securities.
"When-issued" securities are contracts to purchase securities for a fixed price
on a date beyond the customary settlement time with no interest accruing until
settlement. If made through a dealer, the contract is dependent on the dealer
completing the sale. The dealer's failure could deprive the Fund of advantageous
yields. These contracts involve the risk that the value of the underlying
security may change prior to settlement. The Fund currently will not purchase
these securities with more than 120 days to settlement. Transactions in
when-issued securities may be limited by certain Internal Revenue Code
requirements.
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
U.S. government securities, Treasury bills and repurchase agreements. Some or
all of the Fund's assets may be invested in such investments during periods of
unusual market conditions. Under a repurchase agreement, the Fund buys a
security from a bank or dealer, which is obligated to buy it back at a fixed
price and time. The security is held in a separate account at the Fund's
custodian and constitutes the Fund's collateral for the bank's or dealer's
repurchase obligation. Additional collateral will be added so that the
obligation will at all times be fully collateralized. However, if the bank or
dealer defaults or enters bankruptcy, the Fund may experience costs and delays
in liquidating the collateral and may experience a loss if it is unable to
demonstrate its right to the collateral in a bankruptcy proceeding. Not more
than 15% of the Fund's net assets will be invested in repurchase agreements
maturing in more than 7 days and other illiquid assets.
Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets; however, the Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental policies may be changed without
shareholder approval. The Fund will notify investors at least 30 days prior to
any material change in the Fund's investment objective. If there is a change in
the investment objective, shareholders should consider whether the Fund remains
an appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in objective. The Fund's fundamental policies listed in
the Statement of Additional Information cannot be changed without the approval
of a majority of the Fund's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 4.75% on Class A shares, the
maximum initial sales charge of 1.00% on Class D shares and the contingent
deferred sales charge applicable to the time period quoted on Class B and Class
D shares. Other total returns differ from average annual total return only in
that they may relate to different time periods, may represent aggregate as
opposed to average annual total returns and may not reflect the initial or
contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent quarter's distributions, annualized, by the maximum
offering price of that Class at the end of the quarter. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All performance
information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial Investment
Services, Inc. (Distributor) is a subsidiary of the Adviser and serves as the
distributor for the Fund's shares. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Adviser, serves as the shareholder
services and transfer agent for the Fund. The Colonial Group, Inc. is a direct
subsidiary of Liberty Financial Companies, Inc. which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty
Mutual is considered to be the controlling entity of the Adviser and its
affiliates. Liberty Mutual is an underwriter of workers' compensation
insurance and a property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.64% of the Fund's average daily net assets for fiscal year 1995.
Carl C. Ericson, Senior Vice President (formerly Vice President), Director and
Manager of the Taxable Fixed Income Group of the Adviser, has managed the Fund
since 1991 and various other Colonial taxable income funds since 1985.
The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million.
The Transfer Agent provides transfer agency and shareholder services to the Fund
for a fee of 0.20% annually of average net assets plus certain out-of-pocket
expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished to it and its affiliates. Subject to seeking best execution,
the Adviser may consider sales of shares of the Fund (and of certain other
Colonial funds) in selecting broker-dealers for portfolio security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close of the New York Stock Exchange (Exchange) each day the
Exchange is open. Portfolio securities for which market quotations are readily
available are valued at market. Short-term investments maturing in 60 days or
less are valued at amortized cost, when it is determined, pursuant to procedures
adopted by the Trustees, that such cost approximates market value. All other
securities and assets are valued at their fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders virtually all net income
and any net realized gain, at least annually. The Fund generally declares
distributions daily and pays them monthly. Distributions are invested in
additional shares of the same Class of the Fund at net asset value unless the
shareholder elects to receive cash. Regardless of the shareholder's election,
distributions of $10 or less will not be paid in cash to shareholders but will
be invested in additional shares of the same Class of the Fund at net asset
value. To change your election, call the Transfer Agent for information.
Whether you receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution. If you
buy shares shortly before a distribution is declared, the distribution will be
taxable although it is in effect a partial return of the amount invested. Each
January, information on the amount and nature of distributions for the prior
year is sent to shareholders.
The Fund has a significant capital loss carry forward, and until it is exhausted
it is unlikely that capital gain distributions will be made. Any capital gains
will, however, be reflected in the net asset value.
HOW TO BUY SHARES
Shares of the Fund are continuously offered. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50 and the minimum initial investment for a Colonial retirement account is $25.
Certificates will not be issued for Class B or Class D shares and there are some
limitations on the issuance of Class A share certificates. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.
Class A Shares. Class A shares are offered at net asset value, subject to a
0.15% annual service fee for shares outstanding on January 1, 1993, and a 0.25%
annual service fee for shares issued thereafter, plus an initial or a contingent
deferred sales charge as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
Retained
by
Financial
Service
Firm
as % of as % of
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than
$100,000 4.71% 4.50% 4.00%
$100,000 to less than 3.63% 3.50% 3.00%
$250,000
$250,000 to less than 2.56% 2.50% 2.00%
$500,000
$500,000 to less than 2.04% 2.00% 1.75%
$1,000,000
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to
the extent the shares remain
outstanding.
Purchases of $1 million to $5 million are subject to a 1.00% contingent deferred
sales charge payable to the Distributor on redemptions within 18 months from the
first day of the month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5 million.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee), a 0.15% annual service fee for shares
outstanding on January 1, 1993, and a 0.25% annual service fee for shares issued
thereafter and a declining contingent deferred sales charge if redeemed within
six years after purchase. As shown below, the amount of the contingent deferred
sales charge depends on the number of years after purchase that the redemption
occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.
Class D Shares. Class D shares are offered at net asset value plus a 1.00%
initial sales charge, subject to a 0.75% annual distribution fee, a 0.25% annual
service fee and a 1.00% contingent deferred sales charge on redemptions made
within one year from the first day of the month after purchase.
The Distributor pays financial service firms an initial commission of 1.85% on
purchases of Class D shares and an ongoing commission of 0.65% annually. Payment
of the ongoing commission is conditioned on receipt by the Distributor of the
0.75% annual distribution fee referred to above. The commission may be reduced
or eliminated if the distribution fee paid by the Fund is reduced or eliminated
for any reason.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account falling below its Base Amount (the total dollar value of purchase
payments (including initial sales charge, if any), in the account, reduced by
prior redemptions on which a contingent deferred sales charge was paid and any
exempt redemptions). See the Statement of Additional Information for more
information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class D shares. Purchases of $250,000 or
more must be for Class A or Class D shares. Purchases of $500,000 must be for
Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced, or without an, initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For more
information about these services or your account call 1-800-345-6611. Some
services are described in the attached account application. A shareholder's
manual explaining all available services will be provided upon request.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Stock Exchange is open, either
directly to the Fund or through your financial service firm. Sale proceeds
generally are sent within seven days (usually on the next business day after
your request is received in good form). However, for shares recently purchased
by check, the Fund will send proceeds as soon as the check has cleared (which
may take up to 15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates, for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. In June of any year, the Fund may deduct
$10 (payable to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a result of share
value depreciation. Shareholders will receive 60 days' written notice to
increase the account value before the fee is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
other Colonial funds. Not all Colonial funds offer Class D shares. Shares will
continue to age without regard to the exchange for purposes of conversion and in
determining the contingent deferred sales charge, if any, upon redemption.
Carefully read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-248-2828 to receive a prospectus and an
exchange authorization form. Call 1-800-422-3737 to exchange shares by
telephone. An exchange is a taxable capital transaction. The exchange service
may be changed, suspended or eliminated on 60 days' written notice.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which, exchanges are made at the net
asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund into which the original investment was made.
Class D Shares. Exchanges of Class D shares will not be subject to the
contingent deferred sales charge. However, if shares are redeemed within one
year after the original purchase, a 1.00% contingent deferred sales charge will
be assessed.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares by telephone and may redeem up to $50,000 of Fund shares by
calling 1-800-422-3737 toll-free any business day between 9:00 a.m. and the time
at which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine and, if it does
not, may be liable for any losses due to unauthorized or fraudulent telephone
transactions. All telephone transactions are recorded. Shareholders and/or their
financial advisers are required to provide their name, address and account
number. Financial advisers are also required to provide their broker number.
Shareholders and/or their financial advisers wishing to redeem or exchange
shares by telephone may experience difficulty in reaching the Fund at its
toll-free telephone number during periods of drastic economic or market changes.
In that event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under "How to
Sell Shares." The Adviser, the Transfer Agent and the Fund reserve the right to
change, modify, or terminate the telephone redemption or exchange services at
any time upon prior written notice to shareholders. Shareholders and/or their
financial advisers are not obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.15%
of the Fund's average net assets outstanding on January 1, 1993, and 0.25% of
the Fund's average net assets issued thereafter attributed to Class A and Class
B shares. The Fund pays the Distributor an annual service fee of 0.25% of the
Fund's average net assets attributed to its Class D shares. The Fund also pays
the Distributor an annual distribution fee of 0.75% of the average net assets
attributed to its Class B and Class D shares. Because the Class B and Class D
shares bear the additional distribution fees, their dividends will be lower than
the dividends of Class A shares. Class B shares automatically convert to Class A
shares, approximately eight years after the Class B shares were purchased. Class
D shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares, and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing costs
and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of Fund
shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1985. The Fund
represents the entire interest in a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust (Declaration) disclaims shareholder liability for acts or
obligations of the Fund and the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trust's Trustees. The Declaration provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Fund would
be unable to meet its obligations and the disclaimer was inoperative. The risk
of a particular fund incurring financial loss on account of another fund of the
Trust is also believed to be remote because it would be limited to circumstances
in which the disclaimer was inoperative and the other fund was unable to meet
its obligations.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from AAA
only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to repay principal and interest than for bonds in the A category.
BB, B, CCC and CC bonds are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus (+) or minus (-) are modifiers relative to the standing within the major
rating categories.
MOODY'S
Aaa bonds 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. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups which Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the 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 are considered as medium grade, 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 are judged to have speculative elements: their future cannot be
considered as well secured. 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 these
bonds.
B bonds 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 are of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
<PAGE>
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
April 29, 1996
COLONIAL STRATEGIC
INCOME FUND
PROSPECTUS
Colonial Strategic Income Fund seeks as high a level of current income and total
return as is consistent with prudent risk, by diversifying investments primarily
in U.S. and foreign government and lower rated corporate debt securities. The
Fund may invest a substantial portion of its assets in lower rated bonds and,
therefore, may not be suitable for all investors.
For more detailed information about the Fund, call the Adviser at 1-800-248-2828
for the April 29, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
COLONIAL TRUST I
Cross Reference Sheet
(Colonial High Yield Securities Fund)
Item Number Statement of Additional
of Form N-1A Information Location or Caption
Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Portfolio Turnover;
Miscellaneous Investment Practices
14. Management of the Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses;
Management of the Funds
17. Fund Charges and Expenses;
Management of the Funds
18. Shareholder Liability
19. How to Buy Shares;
Determination of Net Asset Value;
Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses;
Management of the Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL HIGH YIELD SECURITIES FUND
Statement of Additional Information
April 29, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial High
Yield Securities Fund (Fund). This SAI is not a prospectus and is only
authorized for distribution when accompanied or preceded by the Prospectus of
the Fund dated April 29, 1996. This SAI should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus from Colonial
Investment Services, Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
HY--0496
PART 1
COLONIAL HIGH YIELD SECURITIES FUND
Statement of Additional Information
April 29, 1996
DEFINITIONS
"Trust" Colonial Trust I
"Fund" Colonial High Yield Securities Fund
"Adviser" Colonial Management Associates, Inc., the Fund's investment
adviser
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's shareholder
services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the investment restrictions of the Fund. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectus:
Short-Term Trading
Foreign Securities
Zero Coupon Securities
Step Coupon Bonds
Pay-In-Kind Securities Loans
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options (interest rate futures and
related options)
Foreign Currency Transactions
Except as described below under "Fundamental Investment Policies", the Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
The Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however, the
Fund will not purchase additional portfolio securities while borrowings
exceed 5% of net assets;
2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4. Purchase and sell futures contracts and related options so long as
the total initial margin and premiums on the contracts do not exceed 5%
of its total assets;
5. Underwrite securities issued by others only when disposing of portfolio
securities;
6. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and
through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any one industry or
with respect to 75% of total assets purchase any security (other than
obligations of the U.S. Government and cash items including receivables)
if as a result more than 5% of its total assets would then be invested in
securities of a single issuer, or purchase voting securities of an issuer
if, as a result of such purchase, the Fund would own more than 10% of the
outstanding voting shares of such issuer.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote the Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term credit
to clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities;
3. Own securities of any company if the Trust knows that officers and
Trustees of the Trust or officers and directors of the Adviser who
individually own more than 0.5% of such securities together own more than
5% of such securities;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of its
total assets invested in securities of companies (including
predecessors) less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase, more than 10% of
its total assets would be invested in the securities of issuers which are
restricted as to disposition; and
8. Invest in warrants if, immediately after giving effect to any such
investment, the Fund's aggregate investment in warrants, valued at the
lower of cost or market, would exceed 5% of the value of the Fund's net
assets. Included within that amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants which are not listed on the New
York Stock Exchange or the American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities will be deemed to be without
value.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act
diversification requirement, an issuer is the entity whose revenues support the
security.
PORTFOLIO TURNOVER (for the fiscal years ended December 31)
1995 1994
---- ----
95% 123%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund, determined at the close of
each business day during the month, at the annual rate of 0.60%.
Recent Fees paid to the Adviser, CISI and CISC (for the fiscal years ended
December 31) (dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Management fee $4,423 $3,832 $3,363
Bookkeeping fee 267 233 206
Shareholder service and transfer agent fee 2,107 1,848 1,591
12b-1 fees:
Service fee 1,846 1,599 1,402
Distribution fee (Class B) 2,254 1,742 1,217
</TABLE>
Brokerage Commissions (for the fiscal years ended December 31) (dollars in
thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Total commissions $ 12 $10 $11
Directed transactions (a) 100 0 2
Commissions on directed 1 0 3
transactions
(a) See "Management of the Colonial Funds - Portfolio Transactions-Brokerage and research services" in Part 2 of this SAI.
</TABLE>
Trustees Fees
For the fiscal year ended December 31, 1995, and the calendar year ended
December 31, 1995, the Trustees received the following compensation for serving
as Trustees:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From Trust and Fund Complex
Compensation Paid to the Trustees for
From Fund For the Fiscal Year the Calendar Year Ended
Trustee Ended December 31, 1995 December 31, 1995 (b)
- ------- ----------------------- ---------------------
<S> <C> <C>
Robert J. Birnbaum(c) $3,466 $ 71,250
Tom Bleasdale 4,058 (d) 98,000(e)
Lora S. Collins 3,829 91,000
James E. Grinnell(c) 3,463 71,250
William D. Ireland, Jr. 4,722 113,000
Richard W. Lowry(c) 3,467 71,250
William E. Mayer 3,793 91,000
James L. Moody, Jr. 3,943(f) 94,500(g)
John J. Neuhauser 3,794 91,000
George L. Shinn 4,278 102,500
Robert L. Sullivan 4,216 101,000
Sinclair Weeks, Jr. 4,676 112,000
(b) At December 31, 1995, the Colonial Funds complex consisted of 33 open-end and 5 closed-end management
investment company portfolios.
(c) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
(d) Includes $2,015 payable in later years as deferred compensation.
(e) Includes $49,000 payable in later years as deferred compensation.
(f) Total compensation of $3,943 will be payable in later years as deferred
compensation.
(g) Total compensation of $94,500 for the calendar year ended December 31, 1995, will be payable in later
years as deferred compensation.
</TABLE>
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly
known as The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service
during the calendar year ended December 31, 1995, and of Liberty Financial Trust
(now known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty
Funds II) for the period January 1, 1995 through March 26, 1995 (h):
Total Compensation Total Compensation
From Liberty Funds II For From Liberty Funds I For
The Period January 1, 1995 The Calendar Year Ended
Trustee through March 26, 1995 December 31, 1995 (i)
- ------- ---------------------- ----------------------
Robert J. Birnbaum $2,900 $16,675
James E. Grinnell $2,900 22,900
Richard W. Lowry $2,900 26,250 (j)
(h) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized into a new portfolio of Colonial
Trust III. Prior to their election as Trustees of the Colonial Funds,
Messrs. Birnbaum, Grinnell and Lowry served as Trustees of Liberty
Funds II; they continue to serve as Trustees or Directors of Liberty
Funds I.
(i) At December 31, 1995, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary
of Liberty Financial Companies, Inc. (an intermediate parent of the
Adviser).
(j) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and Stein Roe & Farnham Incorporated, each an
affiliate of the Adviser.
Ownership of the Fund
At March 31, 1996, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund.
At April 4, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Funds
Operations, 4800 Deer Lake Drive, East 3rd, Jacksonville, FL 32216 owned 10.10%
of the Fund's outstanding Class B shares; Colonial Management Associates, Inc.,
Attn: John Wallace/Controller, One Financial Center, Boston, MA 02111-2621 owned
19.02%, Alan W. Pratt, 604 Carl Drive, Chapel Hill, NC 27516-9345, owned 5.54%,
Jack E. Cowser, Rt. 1 Box 14020, Winnsboro, TX 75494-9619, owned 5.55% and
Bernice Breslau TTEE, u/a dtd 01/28/94, Bernice Breslau Family Trust, 3307
Pauline Drive, Chevy Chase, MD 20815-3919, owned 10.06% of the Fund's
outstanding Class D shares.
At March 31, 1996, there were 22,259 Class A, 14,668 Class B and 29 Class D
shareholders.
Sales Charges (for the fiscal years ended December 31) (dollars in thousands)
<TABLE>
<CAPTION>
Class A Shares
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund shares $1,271 $1,066 $1,904
Initial sales charges retained by CISI 149 159 217
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CISI $635 $684 $254
</TABLE>
12b-1 Plans, CDSCs and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and Class D. The Fund
may in the future offer other classes of shares. The Trustees have approved
12b-1 plans pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays
CISI a service fee at an annual rate of 0.25% of average net assets attributed
to each Class and a distribution fee at an annual rate of 0.75% of average net
assets attributed to Class B and Class D shares. CISI may use the entire amount
of such fees to defray the costs of commissions and service fees paid to
financial service firms (FSFs) and for certain other purposes. Since the
distribution and service fees are payable regardless of the amount of CISI's
expenses, CISI may realize a profit from the fees.
The Plans authorize any other payments by the Fund to CISI and its affiliates
(including the Adviser) to the extent that such payments might be construed to
be indirect financing of the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. The Plans may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plans will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase. Class D shares
are offered at net asset value plus a 1.00% initial sales charge and are subject
to a 1.00% CDSC if redeemed within one year after purchase. The CDSCs are
described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or
on amounts representing capital appreciation. In determining the applicability
and rate of any CDSC, it will be assumed that a redemption is made first of
shares representing capital appreciation, next of shares representing
reinvestment of distributions and finally of other shares held by the
shareholder for the longest period of time.
Approximately eight years after the end of the month in which a Class B share is
purchased, such share and a pro rata portion of any shares issued on the
reinvestment of distributions will be automatically converted into Class A
shares, which are not subject to the distribution fee, having an equal value.
Sales-related expenses (for the fiscal year ended December 31, 1995) (dollars in
thousands) of CISI relating to the Fund were:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C>
Fees to FSFs $1,167 $3,456
Cost of sales material relating to the Fund
(including printing and mailing expenses) 117 187
Allocated travel, entertainment
and other promotional expenses
(including advertising) 270 386
</TABLE>
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended December 31, 1995,
were 8.10% and 7.75%, respectively.
The Fund's average annual total returns at December 31, 1995, were:
<TABLE>
<CAPTION>
Class A Shares
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 12.06% 18.43% 10.38%
Without sales charge 17.65% 19.59% 10.92%
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
June 8, 1992
(commencement of investment operations)
through December 31, 1995
1 year
------
<S> <C> <C>
With applicable CDSC 11.78%(5.00% CDSC) 10.51% (3.00% CDSC)
Without CDSC 16.78% 11.15%
</TABLE>
The Fund's Class A and Class B distribution rates at December 31, 1995, based on
the most recent month's distribution, annualized, and the maximum offering price
at the end of the month, were 8.47% and 8.14%, respectively.
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian. The custodian is
responsible for safeguarding the Fund's cash and securities, receiving and
delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants, providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various SEC filings. The financial statements incorporated by
reference in this SAI have been so incorporated, and the schedule of financial
highlights included in the Prospectus has been so included, in reliance upon the
report of Price Waterhouse LLP given on the authority of said firm as experts in
accounting and auditing.
The financial statements and Report of Independent Accountants appearing on
pages 6 through 26 of the December 31, 1995 Annual Report are incorporated in
this SAI by reference.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated securities. Relative to comparable securities of higher
quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default;
b. the secondary market may at times become less liquid or respond
to adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
c. existing legislation limits and future legislation may further
limit (i) investment by certain institutions or (ii) tax
deductibility of the interest by the issuer, which may adversely
affect value; and
d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate
cash for distributions.
2. the fund's achievement of its investment objective is more
dependent on the Adviser's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes, but
are more sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
<PAGE>
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (but not depreciation) on its holdings of PFICs as of the end of
its fiscal year.
Zero Coupon Securities (Zeros)
The fund may invest in debt securities which do not pay interest, but instead
are issued at a deep discount from par. The value of the security increases over
time to reflect the interest accreted. The value of these securities may
fluctuate more than similar securities which are issued at par and pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the fund and
distributed to its shareholders. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which do not pay interest for a stated
period of time and then pay interest at a series of different rates for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities are subject to the volatility risk of zero coupon
bonds for the period when no interest is paid.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper are promissory notes issued
by businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
fund an amount equal to any dividends or interest received on securities lent.
The fund retains all or a portion of the interest received on investment of the
cash collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is a fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to enter into OTC options transactions only with primary dealers in U.S.
Government Securities and, in the case of OTC options written by the fund, only
pursuant to agreements that will assure that the fund will at all times have the
right to repurchase the option written by it from the dealer at a specified
formula price. The fund will treat the amount by which such formula price
exceeds the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the fund not to enter into any
OTC option transaction if, as a result, more than 15% (10% in some cases, refer
to your fund's Prospectus) of the fund's net assets would be invested in (i)
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the fund, (ii) OTC options purchased by the fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Adviser to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if Colonialthe Adviser believes there
is a liquid secondary market for the option, there is no assurance that the fund
will be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash, cash equivalents or high-grade debt securities, equal in value to the
amount of the fund's obligation under the contract (less any applicable margin
deposits and any assets that constitute "cover" for such obligation), will be
segregated with the fund's custodian. For example, if a fund investing primarily
in foreign equity securities enters into a contract denominated in a foreign
currency, the fund will segregate cash, cash equivalents or high-grade debt
securities equal in value to the difference between the fund's obligation under
the contract and the aggregate value of all readily marketable equity securities
denominated in the applicable foreign currency held by the fund.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government Securities. This
amount is known as "initial margin". The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin", to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
equivalents equal in value to the commodity value (less any applicable margin
deposits) have been deposited in a segregated account of the fund's custodian.
The fund may purchase and write call and put options on futures contracts it may
buy or sell and enter into closing transactions with respect to such options to
terminate existing positions. The fund may use such options on futures contracts
in lieu of writing options directly on the underlying securities or purchasing
and selling the underlying futures contracts. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser `s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of U.S. Treasury security futures contracts and options.
The fund investing in tax-exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on U.S. Treasury
securities when, in the opinion of the Adviser, price movements in Treasury
security futures and related options will correlate closely with price movements
in the tax-exempt securities which are the subject of the hedge. U.S. Treasury
securities futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury futures contract at the specified option exercise
price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in U.S. Treasury security futures contracts and
related options will not correlate closely with price movements in markets for
tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of the index futures by the fund for hedging purposes is also
subject to the Adviser's ability to predict correctly movements in the direction
of the market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased valued
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging". When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the owns or intends to purchase or sell. They
simply establish a rate of exchange which one can achieve at some future point
in time. Additionally, although these techniques tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash, cash equivalents or high-grade
debt securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
TAXES
All discussions of taxation at the shareholder level relate to federal taxes
only. Consult your tax adviser for state and local tax considerations and for
information about special tax considerations that may apply to shareholders that
are not natural persons.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT.
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different than the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the alternative minimum
tax (AMT) at the maximum rate of 28% for individuals and 20% for corporations.
If the fund invests in private activity bonds, shareholders may be subject to
the AMT on that part of the distributions derived from interest income on such
bonds. Other provisions of the Tax Reform Act affect the tax treatment of
distributions for corporations, casualty insurance companies and financial
institutions; interest on all tax-exempt bonds is included in corporate adjusted
current earnings when computing the AMT applicable to corporations. Seventy-five
percent of the excess of adjusted current earnings over the amount of income
otherwise subject to the AMT is included in a corporation's alternative minimum
taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder that
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. In general, any gain or loss realized upon a taxable
disposition of shares by a shareholder will be treated as long-term capital gain
or loss if the shares have been held for more than twelve months, and otherwise
as short-term capital gain or loss assuming such shares are held as a capital
asset. However, any loss realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares will be disallowed if other shares are
purchased within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the Ffund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser, intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of 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 such securities or currencies; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months; (c) diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S. Government securities,
and other securities limited generally with respect to any one issuer to not
more than 5% of the total assets of the fund and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any issuer (other than U.S.
Government securities).
Futures Contracts. Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on the closing out of a futures contract will result in a capital gain or
loss for tax purposes. In addition, certain futures contracts held by the fund
(so-called "Section 1256 contracts") will be required to be "marked-to-market"
(deemed sold) for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales or on
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
However, if a futures contract is part of a "mixed straddle" (i.e., a straddle
comprised in part of Section 1256 contracts), a fund may be able to make an
election which will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of such gains or
losses. In any event, the straddle provisions described below will be applicable
to such mixed straddles.
Special Tax Rules Applicable to "Straddles". The straddle provisions of the Code
may affect the taxation of the fund's options and futures transactions and
transactions in securities to which they relate. A "straddle" is made up of two
or more offsetting positions in "personal property," including debt securities,
related options and futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities, and foreign
currencies and related options and futures.
The straddle rules may operate to defer losses realized or deemed realized on
the disposition of a position in a straddle, may suspend or terminate the fund's
holding period in such positions, and may convert short-term losses to long-term
losses in certain circumstances.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in securities of foreign corporate issuers, the fund may make an
election permitting its shareholders to take a deduction or credit for federal
tax purposes for their portion of certain foreign taxes paid by the fund. The
Adviser will consider the value of the benefit to a typical shareholder, the
cost to the fund of compliance with the election, and incidental costs to
shareholders in deciding whether to make the election. A shareholder's ability
to claim such a foreign tax credit will be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not get a full
credit for the amount of foreign taxes so paid by the fund. Shareholders who do
not itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Certain securities are considered to be Passive Foreign Investment Companies
(PFICS) under the Code, and the fund is liable for any PFIC-related taxes.
MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
"Investment decisions," and "Brokerage and research services," the "Adviser"
refers to Colonial Management Associates, Inc.) The Adviser is the investment
adviser to each of the Colonial funds (except for Colonial Municipal Money
Market Fund, Colonial Global Utilities Fund and Colonial Newport Tiger Fund -see
Part I of each Fund's respective SAI for a description of the investment
adviser). The Adviser is a subsidiary of The Colonial Group, Inc. (TCG), One
Financial Center, Boston, MA 02111. TCG is a direct subsidiary of Liberty
Financial Companies, Inc. (Liberty Financial), which in turn is a direct
subsidiary of LFC Holdings, Inc., which in turn is a direct subsidiary of
Liberty Mutual Equity Corporation, which in turn is a wholly-owned subsidiary of
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S. Liberty Financial's address is 600 Atlantic Avenue, Boston,
MA 02210. Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117.
<PAGE>
Trustees and Officers (this section applies to all of the Colonial funds)
<TABLE>
<CAPTION>
Position with
Name and Address Age Fund Principal Occupation During Past Five Years
- ---------------- --- ---- -------------------------------------------
<S> <C> <C> <C>
Robert J. Birnbaum(1) (2) 68 Trustee Retired since 1994 (formerly Special Counsel, Dechert
313 Bedford Road Price & Rhoads from September, 1988 to December, 1993)
Ridgewood, NJ 07450
Tom Bleasdale 65 Trustee Retired since 1993 (formerly Chairman of the Board and
1508 Ferncroft Tower Chief Executive Officer, Shore Bank & Trust Company from
Danvers, MA 01923 1992-1993), is a Director of The Empire Company since
June, 1995 (3)
Lora S. Collins 60 Trustee Attorney with Kramer, Levin, Naftalis, Nessen, Kamin &
919 Third Avenue Frankel since September, 1986 (3)
New York, NY 10022
James E. Grinnell (1) (2) 66 Trustee Private Investor since November, 1988
22 Harbor Avenue
Marblehead, MA 01945
William D. Ireland, Jr. 72 Trustee Retired since 1990, is a Trustee of certain charitable
103 Springline Drive and non-charitable organizations since February, 1990 (3)
Vero Beach, FL 32963
Richard W. Lowry (1) (2) 59 Trustee Private Investor since August, 1987
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 55 Trustee Dean, College of Business and Management, University of
College Park, MD 20742 Maryland since October, 1992 (formerly Dean, Simon
Graduate School of Business, University of Rochester from
October, 1991 to July, 1992 (3)
James L. Moody, Jr. 64 Trustee Chairman of the Board, Hannaford Bros., Co. since May,
1984 (formerly Chief Executive Officer, Hannaford Bros.
Co. from May, 1984 to May, 1992) (3)
John J. Neuhauser 52 Trustee Dean, Boston College School of Management since 1978 (3)
140 Commonwealth Avenue
Chestnut, Hill MA 02167
George L. Shinn 73 Trustee Financial Consultant since 1989 (formerly Chairman, Chief
The First Boston Corp. Executive Officer and Consultant, The First Boston
Tower Forty Nine Corporation from 1983 to July, 1991) (3)
12 East 49th Street
New York, NY 10017
Robert L. Sullivan 68 Trustee Self-employed Management Consultant since January, 1989
7121 Natelli Woods Lane (3)
Bethesda, MD 20817
<PAGE>
Sinclair Weeks, Jr. 72 Trustee Chairman of the Board, Reed & Barton Corporation since
Bay Colony Corporate Ctr. 1987 (3)
Suite 4550
1000 Winter Street
Waltham, MA 02154
Harold W. Cogger 59 President President of Colonial funds since March, 1996
(formerly Vice (formerly Vice President from July, 1993 to March,
President) 1996); is President since July, 1993, Chief Executive
Officer since March,
1995 and Director
since March, 1984 of
the Adviser
(formerly Executive
Vice President of
the Adviser from
October, 1989 to
July, 1993);
President since
October, 1994, Chief
Executive Officer
since March, 1995
and Director since
October, 1981 of
TCG; Executive Vice
President and
Director, Liberty
Financial (3)
Peter L. Lydecker 41 Controller Controller of Colonial funds since June, 1993 (formerly
(formerly Assistant Controller from March, 1985 to June, 1993);
Assistant Vice President of the Adviser since June, 1993
Controller) (formerly Assistant Vice President of the Adviser from
August, 1988 to June, 1993) (3)
Davey S. Scoon 49 Vice President Vice President of Colonial funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995) (3)
Richard A. Silver 49 Treasurer and Treasurer and Chief Financial Officer of Colonial funds
Chief Financial since July, 1993 (formerly Controller from July, 1980
Officer to July, 1993), is Senior Vice President and Director
(formerly since April, 1988 and Treasurer and Chief Financial
Controller) Officer since July, 1993 of the Adviser (formerly
Assistant Treasurer
from January, 1978
to July, 1993);
Treasurer and Chief
Financial Officer of
TCG since July, 1993
(formerly Assistant
Treasurer of TCG
from January, 1985
to July, 1993) (3)
Arthur O. Stern 56 Secretary Secretary of Colonial funds since 1985, is Director
since 1985, Executive Vice President since July, 1993,
General Counsel, Clerk and Secretary since March, 1985
of the Adviser; Executive Vice President, Legal since
March, 1995 and Clerk since March, 1985 of TCG
(formerly Executive Vice President, Compliance from
March, 1995 to March, 1996 and Vice President - Legal
of TCG from March, 1985 to March, 1995) (3)
</TABLE>
(1) Elected to the Colonial Funds complex on April 21, 1995.
(2) On April 3, 1995, and in connection with the merger of TCG with a
subsidiary of into Liberty Financial which occurred on March 27, 1995,
Liberty Financial Trust (LFT) changed its name to Colonial Trust VII.
Prior to the merger, each of Messrs. Birnbaum, Grinnell, and Lowry was
a Trustee of LFT. Mr. Birnbaum has been a Trustee of LFT since
November, 1994. Each of Messrs. Grinnell and Lowry has been a Trustee
of LFT since August, 1991. Each of Messrs. Grinnell and Lowry continue
to serve as Trustees under the new name, Colonial Trust VII, along with
each of the other Colonial Trustees named above. The Colonial Trustees
were elected as Trustees of Colonial Trust VII effective April 3, 1995.
(3) Elected as a Trustee or officer of the LFC Utilities Trust, the master
fund in Colonial Global Utilities Fund, a series of Colonial Trust III
(LFC Portfolio) on March 27, 1995 in connection with the merger of TCG
with a subsidiary of Liberty Financial.
* Trustees who are "interested persons" (as defined in the Investment
Company Act of 1940) of the fund or the Adviser.
The address of the officers of each Colonial Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint meeting. Committee
chairs receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the Colonial funds based on the fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 30 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 3 open-end management investment
company portfolios (collectively, Colonial funds). Trustees and officers of the
Trust, who are also officers of the Adviser or its affiliates will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $15.5 billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund or Colonial Newport Tiger
Fund) Under a Management Agreement (Agreement), the Adviser has contracted to
furnish each fund with investment research and recommendations or fund
management, respectively, and accounting and administrative personnel and
services, and with office space, equipment and other facilities. For these
services and facilities, each Colonial fund pays a monthly fee based on the
average of the daily closing value of the total net assets of each fund for such
month.
The Adviser's compensation under the Agreement is subject to reduction in any
fiscal year to the extent that the total expenses of each fund for such year
(subject to applicable exclusions) exceed the most restrictive applicable
expense limitation prescribed by any state statute or regulatory authority in
which the Trust's shares are qualified for sale. The most restrictive expense
limitation applicable to a Colonial fund is 2.5% of the first $30 million of the
Trust's average net assets for such year, 2% of the next $70 million and 1.5% of
any excess over $100 million.
Under the Agreement, any liability of the Adviser to the fund and its
shareholders is limited to situations involving the Adviser's own willful
misfeasance, bad faith, gross negligence or reckless disregard of duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the or by the Trustees of the Trust or by a vote of a majority
of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of typesetting for its Prospectuses and the cost of printing
and mailing any Prospectuses sent to shareholders. CISI pays the cost of
printing and distributing all other Prospectuses.
The Agreement provides that the Adviser shall not be subject to any liability to
the Trust or to any shareholder of the Trust for any act or omission in the
course of or connected with rendering services to the Trust in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund and Colonial Newport Tiger
Fund and their respective Trusts)
Under an Administration Agreement with each Fund, Adviser, in its capacity as
the Administrator to each Fund, has contracted to perform the following
administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
Directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required
for compliance by each Fund with applicable laws and
regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees and
shareholders;
(e) coordinating and overseeing the activities of each Fund's
other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to the Colonial Municipal Money Market Fund, the Administration
Agreement for this Fund provides for the following services in addition to the
services referenced above:
(g) monitoring compliance by the Fund with Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act") and
reporting to the Trustees from time to time with respect
thereto; and
(h) monitoring the investments and operations of the SR&F
Municipal Money Market Portfolio (Municipal Money Market
Portfolio) in which Colonial Municipal Money Market Fund
is invested and the LFC Portfolio and reporting to the
Trustees from time to time with respect thereto.
The Administration Agreement has a one year term. The Adviser is paid a monthly
fee at the annual rate of average daily net assets set forth in Part 1 of this
Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping
Agreement has a one-year term. The Adviser, in its capacity as the Administrator
to each of Colonial Municipal Money Market Fund and Colonial Global Utilities
Fund, is paid an annual fee of $18,000, plus 0.0233% of average daily net assets
in excess of $50 million. For each of the other Colonial funds (except for
Colonial Newport Tiger Fund), the Adviser is paid monthly a fee of $2,250 by
each fund, plus a monthly percentage fee based on net assets of the fund equal
to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion; 1/12
of 0.015% of the next $1 billion; and 1/12
of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund for an annual fee of $27,000, plus 0.035% of Colonial Newport Tiger Fund's
average net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund,
Colonial U.S. Fund for Growth ,and Colonial Global Utilities Fund,. For each of
these funds, see Part 1 of its respective SAI. The Adviser of Colonial Newport
Tiger Fund follows the same procedures as those set forth under "Brokerage and
research services."
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund and Colonial Newport Tiger Fund, each of which is
administered by the Adviser, and Colonial U.S. Fund for Growth for which
investment decisions have been delegated by the Adviser to State Street Bank and
Trust Company, the fund's sub-adviser) (as defined under Management of the Fund
herein). The Adviser's affiliate, CASI, advises other institutional, corporate,
fiduciary and individual clients for which CASI performs various services.
Various officers and Trustees of the Trust also serve as officers or Trustees of
other Colonial funds and the other corporate or fiduciary clients of the
Adviser. The Colonial funds and clients advised by the Adviser or the funds
administered by the Adviser sometimes invest in securities in which the Fund
also invests and sometimes engage in covered option writing programs and enter
into transactions utilizing stock index options and stock index and financial
futures and related options ("other instruments"). If the Fund, such other
Colonial funds and such other clients desire to buy or sell the same portfolio
securities, options or other instruments at about the same time, the purchases
and sales are normally made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each. Although in
some cases these practices could have a detrimental effect on the price or
volume of the securities, options or other instruments as far as the Fund is
concerned, in most cases it is believed that these practices should produce
better executions. It is the opinion of the Trustees that the desirability of
retaining the Adviser as investment adviser to the Colonial funds outweighs the
disadvantages, if any, which might result from these practices.
The portfolio managers of Colonial International Fund for Growth, a series of
Colonial Trust III, will use the trading facilities of Stein Roe & Farnham
Incorporated, an affiliate of the Adviser, to place all orders for the purchase
and sale of this fund's portfolio securities, futures contracts and foreign
currencies.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Colonial funds as a
factor in the selection of broker-dealers to execute securities transactions for
a Colonial fund.
The Adviser places the transactions of the Colonial funds with broker-dealers
selected by the Adviser and, if applicable, negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including the purchase and writing of options, the effecting of closing purchase
and sale transactions, and the purchase and sale of underlying securities upon
the exercise of options and the purchase or sale of other instruments. The
Colonial funds from time to time also execute portfolio transactions with such
broker-dealers acting as principals. The Colonial funds do not intend to deal
exclusively with any particular broker-dealer or group of broker-dealers.
Except as described below in connection with commissions paid to a clearing
agent on sales of securities, it is Colonialthe Adviser's policy always to seek
best execution, which is to place the Colonial funds' transactions where the
Colonial funds can obtain the most favorable combination of price and execution
services in particular transactions or provided on a continuing basis by a
broker-dealer, and to deal directly with a principal market maker in connection
with over-the-counter transactions, except when it is believed that best
execution is obtainable elsewhere. In evaluating the execution services of,
including the overall reasonableness of brokerage commissions paid to, a
broker-dealer, consideration is given to, among other things, the firm's general
execution and operational capabilities, and to its reliability, integrity and
financial condition.
Subject to such practice of always seeking best execution, securities
transactions of the Colonial funds may be executed by broker-dealers who also
provide research services (as defined below) to the Adviser and the Colonial
funds. The Adviser may use all, some or none of such research services in
providing investment advisory services to each of its investment company and
other clients, including the fund. To the extent that such services are used by
the Adviser, they tend to reduce the Adviser's expenses. In the Adviser's
opinion, it is impossible to assign an exact dollar value for such services.
Subject to such policies as the Trustees may determine, the Adviser may cause
the Colonial funds to pay a broker-dealer which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction, including the sale of an option or a closing purchase transaction,
for the Colonial funds in excess of the amount of commission which another
broker-dealer would have charged for effecting that transaction. As provided in
Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research
services" include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends
and portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The Adviser must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or the Adviser's overall responsibilities to the Colonial
funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by Colonial funds that write
options and to pay such clearing agent commissions of a fixed amount per share
(currently 1.25 cents) on the sale of the underlying security upon the exercise
of an option written by a fund. The Trustees may further authorize the Adviser
to depart from the present policy of always seeking best execution and to pay
higher brokerage commissions from time to time for other brokerage and research
services as described above in the future if developments in the securities
markets indicate that such would be in the interests of the shareholders of the
Colonial funds.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds shares only
upon receipt of orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund or Colonial funds to CISC or generally by 6 months' notice by
CISC to the Fund or Colonial funds. The agreement limits the liability of CISC
to the Fund or Colonial funds for loss or damage incurred by the Fund or
Colonial funds to situations involving a failure of CISC to use reasonable care
or to act in good faith in performing its duties under the agreement. It also
provides that the Fund or Colonial funds will indemnify CISC against, among
other things, loss or damage incurred by CISC on account of any claim, demand,
action or suit made on or against CISC not resulting from CISC's bad faith or
negligence and arising out of, or in connection with, its duties under the
agreement.
DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m.
Eastern time, 3:00 p.m. Chicago time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. Funds with portfolio securities which are primarily
listed on foreign exchanges may experience trading and changes in NAV on days on
which such Fund does not determine NAV due to differences in closing policies
among exchanges. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. The net asset
value of the Municipal Money Market Portfolio will not be determined on days
when the Exchange is closed unless, in the judgment of the Municipal Money
Market Portfolio's Board of Trustees, the net asset value of the Municipal Money
Market Portfolio should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time. Debt securities generally
are valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or where the
Adviser deems it appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on NASDAQ are valued at
the last sale price. Listed securities for which there were no sales during the
day and unlisted securities are valued at the last quoted bid price. Options are
valued at the last sale price or in the absence of a sale, the mean between the
last quoted bid and offering prices. Short-term obligations with a maturity of
60 days or less are valued at amortized cost pursuant to procedures adopted by
the Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Portfolio
positions for which there are no such valuations and other assets are valued at
fair value as determined in good faith under the direction of the Trust's
Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each Colonial fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
(The following two paragraphs are applicable only to Colonial Newport Tiger Fund
- - "Adviser" in these two paragraphs refers to the Fund's Adviser which is
Newport Fund Management, Inc.)
Trading in securities on stock exchanges and over -the-counter markets in the
Far East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II- see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different than that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action to: realize gains or losses; shorten the
portfolio's maturity; withhold distributions; redeem shares in kind; or convert
to the market value method (in which case the NAV per share may differ from
$1.00). All investments will be determined pursuant to procedures approved by
the Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Government Money Market Fund for a specimen price sheet showing the
computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CISI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CISI retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). CISI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse CISI for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with CISI.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, D, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your
fFundamatic purchase is by electronic funds transfer, you may request the
Fundamatic purchase for any day. Further information and application forms are
available from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B and D). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same Class of shares of funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.
Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
CISI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including Individual Retirement Accounts, and Pension and Profit-Sharing Plans
for individuals, corporations, employees and the self-employed. The minimum
initial Retirement Plan investment in these funds is $25. The First National
Bank of Boston is the Trustee and charges a $10 annual fee. Detailed information
concerning these Retirement Plans and copies of the Retirement Plans are
available from CISI.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Colonial cash connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic dividend diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing Open Account with the particular fund. Call CISC for more
information at 1-800- 422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, D, T and Z shares of the Colonial funds. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all Colonial funds' Class A shares held by the
shareholder (except shares of any Colonial money market fund, unless
such shares were acquired by exchange from Class A shares of another
Colonial fund other than a money market fund and Class B, C, D, T
and Z shares).
CISI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C D, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CISI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CISI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800- 345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a statement of intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
Statement of Intent
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. CISI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, D or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc.) i. Class A shares
of certain funds may be sold at NAV to the following individuals whether
currently employed or retired: Trustees of funds advised or administered by the
Adviser ; directors, officers and employees of the the Adviser , CISI and other
companies affiliated with the Adviser l; registered representatives and
employees of FSFs (including their affiliates) that are parties to dealer
agreements or other sales arrangements with CISI; and such persons' families and
their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in, sales expense, and therefore the reduction in
sales charge will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements.
Net Asset Value Exchange Privilege (in this section, the "Adviser" refers to
Colonial Management Associates, Inc.). Class A shares of certain funds may also
be purchased at reduced or no sales charge by investors moving from another
mutual fund complex or a discretionary account and by participants in certain
retirement plans. In lieu of the commissions described in the Prospectus, the
Adviser will pay the FSF a quarterly service fee which is the service fee
established for each applicable Colonial fund .
Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc.) (Classes A, B, and D)
CDSCs may be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year
following the death of (i) the sole shareholder on an
individual account, (ii) a joint tenant where the surviving
joint tenant is the deceased's spouse, or (iii) the
beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform
Transfers to Minors Act (UTMA) or other custodial account.
If, upon the occurrence of one of the foregoing, the account
is transferred to an account registered in the name of the
deceased's estate, the CDSC will be waived on any redemption
from the estate account occurring within one year after the
death. If the Class B shares are not redeemed within one
year of the death, they will remain subject to the
applicable CDSC, when redeemed from the transferee's
account. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will
be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly,
quarterly or semi-annual
SWP established with the Adviser , to the extent the
redemptions do not exceed, on an annual basis, 12% of the
account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for
a period at least equal to the period of the SWP (e.g., if
it is a quarterly SWP, distributions must have been
reinvested at least for the three month period prior to the
first SWP redemption); otherwise CDSCs will be charged on
SWP redemptions until this requirement is met; this
requirement does not apply if the SWP is set up at the time
the account is established, and distributions are being
reinvested. See below under "Investors Services" -
Systematic Withdrawal Plan.
3. Disability. CDSCs may be waived on redemptions occurring
within one year after the sole shareholder on an individual
account or a joint tenant on a spousal joint tenant account
becomes disabled (as defined in Section 72(m)(7) of the
Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and
(ii) the disabled shareholder must have been under age 65 at
the time of the initial determination of disability. If the
account is transferred to a new registration and then a
redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions
occurring upon dissolution of a revocable living or grantor
trust following the death of the sole trustee where (i) the
grantor of the trust is the sole trustee and the sole life
beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the
trust upon the trustee's death. If the account is
transferred to a new registration (including that of a
successor trustee), the applicable CDSC will be charged upon
any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on
redemptions required to return excess contributions made to
retirement plans or individual retirement accounts, so long
as the FSF agrees to return the applicable portion of any
commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on
redemptions required to make distributions from qualified
retirement plans following (i) normal retirement (as stated
in the Plan document) or (ii) separation from service. CDSCs
also will be waived on SWP redemptions made to make required
minimum distributions from qualified retirement plans that
have invested in Colonial funds for at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's . Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's Account Balance is at least $5,000, the shareholder may
establish a (SWP). A specified dollar amount or percentage of the then current
net asset value of the shareholder's investment in any Colonial fund designated
by the shareholder will be paid monthly, quarterly or semi-annually to a
designated payee. The amount or percentage the shareholder specifies generally
may not, on an annualized basis, exceed 12% of the value, as of the time the
shareholder makes the election of the shareholder's investment. Withdrawals from
Class B and Class D shares of the fund under a SWP will be treated as
redemptions of shares purchased through the reinvestment of fund distributions,
or, to the extent such shares in the shareholder's account are insufficient to
cover Plan payments, as redemptions from the earliest purchased shares of such
fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a
SWP of 12% or less, even if, after giving effect to the redemption, the
shareholder's Account Balance is less than the shareholder's base amount.
Qualified plan participants who are required by Internal Revenue Code regulation
to withdraw more than 12%, on an annual basis, of the value of their Class B and
Class D share account may do so but will be subject to a CDSC ranging from 1% to
5% of the amount withdrawn. If a shareholder wishes to participate in a SWP, the
shareholder must elect to have all of the shareholder's income dividends and
other fund distributions payable in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's Account Balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All shareholders and/or their financial advisers are
automatically eligible to redeem up to $50,000 of the fund's shares by calling
1-800-422-3737 toll free any business day between 9:00 a.m. and the close of
trading of the Exchange (normally 4:00 p.m. Eastern time). Telephone redemption
privileges for larger amounts may be elected on the Application. CISC will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Telephone redemptions are not available on accounts with
an address change in the preceding 30 days and proceeds and confirmations will
only be mailed or sent to the address of record. Shareholders and/or their
financial advisers will be required to provide their name, address and account
number. Financial advisers will also be required to provide their broker number.
All telephone transactions are recorded. A loss to a shareholder may result from
an unauthorized transaction reasonably believed to have been authorized. No
shareholder is obligated to execute the telephone authorization form or to use
the telephone to execute transactions.
Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc.) (Available only on the Class A and Class C shares of certain
Colonial funds) Shares may be redeemed by check if a shareholder completed an
Application and Signature Card. The Adviser will provide checks to be drawn on
The First National Bank of Boston (the "Bank"). These checks may be made payable
to the order of any person in the amount of not less than $500 nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's Open Account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account.
Non cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
invested in your account.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Municipal Money Market Fund will be
earned starting with the day after that fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. Class T and Z shares may be
exchanged for Class A shares of the other Colonial funds. The prospectus of each
Colonial fund describes its investment objective and policies, and shareholders
should obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange. Shares of certain Colonial funds are not
available to residents of all states. Consult CISC before requesting an
exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes and shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available from the Colonial
Literature Department by calling 1-800-248-2828.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or CISC. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other Colonial open-end funds generally may exchange their
shares at NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Colonial fund may not suspend shareholders' right of redemption or postpone
payment for more than seven days unless the Exchange is closed for other than
customary weekends or holidays, or if permitted by the rules of the SEC during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for protection of investors.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for
the purpose of obtaining the signatures necessary to demand a shareholder's
meeting to consider removal of a Trustee, request information regarding the
Trust's shareholders, the Trust will provide appropriate materials (at the
expense of the requesting shareholders). Except as otherwise disclosed in the
Prospectus and this SAI, the Trustees shall continue to hold office and may
appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns differ from
standardized average annual total returns only in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or in that the sales charge or CDSC is not deducted.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non money market. The yield for each class of shares is determined by (i)
calculating the income (as defined by the SEC for purposes of advertising yield)
during the base period and subtracting actual expenses for the period (net of
any reimbursements), and (ii) dividing the result by the product of the average
daily number of shares of the Colonial fund entitled to dividends for the period
and the maximum offering price of the fund on the last day of the period, (iii)
then annualizing the result assuming semi-annual compounding. Tax-equivalent
yield is calculated by taking that portion of the yield which is exempt from
income tax and determining the equivalent taxable yield which would produce the
same after tax yield for any given federal and state tax rate, and adding to
that the portion of the yield which is fully taxable. Adjusted yield is
calculated in the same manner as yield except that expenses voluntarily borne or
waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares is calculated
by annualizing the most current period's distributions and dividing by the
maximum offering price on the last day of the period. Generally, the fund 's
distribution rate reflects total amounts actually paid to shareholders, while
yield reflects the current earning power of the fund's portfolio securities (net
of the fund's expenses). The fund's yield for any period may be more or less
than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by Colonialthe Adviser to be reputable, and
publications in the press pertaining to a fund's performance or to the Adviser
or its affiliates , including comparisons with competitors and matters of
national and global economic and financial interest. Examples include Forbes,
Business Week, MONEY Magazine, The Wall Street Journal, The New York Times, The
Boston Globe, Barron's National Business & Financial Weekly, Financial Planning,
Changing Times, Reuters Information Services, Wiesenberger Mutual Funds
Investment Report, Lipper Analytical Services Corporation, Morningstar, Inc.,
Sylvia Porter's Personal Finance Magazine, Money Market Directory, SEI Funds
Evaluation Services, FTA World Index and Disclosure Incorporated.
All data is based on past performance and does not predict future results.
<PAGE>
APPENDIX I
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and
pay interest is very strong, and in the majority of instances, they
differ from AAA only in small degree.
A bonds have a strong capacity to repay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to repay principal and interest than for bonds in the A
category.
BB, B, CCC, and CC bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and principal in accordance
with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree.
While likely to have some quality and protection characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in
arrears. Plus(+) or minus (-) are modifiers relative to the standing
within the major rating 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 comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
<PAGE>
MOODY'S
Aaa bonds 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. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all
standards. Together with Aaa bonds they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities. Those bonds in the Aa through B groups that Moody's believes possess
the strongest investment attributes are designated by the symbol Aa1, A1 and
Baa1.
A bonds possess many of the 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 that
suggest a susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade, 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 are judged to have speculative elements: their future cannot be
considered as well secured. 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
these bonds.
B bonds 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 are of poor standing. They may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in
default or having other marked shortcomings.
C bonds are the lowest rated class of bonds and 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
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
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 the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
<PAGE>
APPENDIX II
1994
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Donoghue Tax-Free Funds 2.25
Donoghue U.S. Treasury Funds 3.34
Dow Jones Industrials 5.03
Morgan Stanley Capital International EAFE Index 8.06
Morgan Stanley Capital International EAFE GDP Index 8.21
Libor Six-month Libor 6.9375
Lipper Adjustable Rate Mortgage -2.20
Lipper California Municipal Bond Funds -7.52
Lipper Connecticut Municipal Bond Funds -7.04
Lipper Closed End Bond Funds -6.86
Lipper Florida Municipal Bond Funds -7.76
Lipper General Bond Fund -5.98
Lipper General Municipal Bonds -6.53
Lipper General Short-Term Tax-Exempt Bonds -0.28
Lipper Global Flexible Portfolio Funds -3.03
Lipper Growth Funds -2.15
Lipper Growth & Income Funds -0.94
Lipper High Current Yield Bond Funds -3.83
Lipper High Yield Municipal Bond Debt -4.99
Lipper Fixed Income Funds -3.62
Lipper Insured Municipal Bond Average -6.47
Lipper Intermediate Muni Bonds -3.53
Lipper Intermediate (5-10) U.S. Government Funds -3.72
Lipper Massachusetts Municipal Bond Funds -6.35
Lipper Michigan Municipal Bond Funds -5.89
Lipper Mid Cap Funds -2.05
Lipper Minnesota Municipal Bond Funds -5.87
Lipper U.S. Government Money Market Funds 3.58
Lipper Natural Resources -4.20
Lipper New York Municipal Bond Funds -7.54
Lipper North Carolina Municipal Bond Funds -7.48
Lipper Ohio Municipal Bond Funds -6.08
Lipper Small Company Growth Funds -0.73
Lipper Specialty/Miscellaneous Funds -2.29
Lipper U.S. Government Funds -4.63
Shearson Lehman Composite Government Index -3.37
Shearson Lehman Government/Corporate Index -3.51
Shearson Lehman Long-term Government Index -7.73
S&P 500 S&P 1.32
S&P Utility Index S&P -7.94
Bond Buyer Bond Buyer Price Index -18.10
First Boston High Yield Index -0.97
Swiss Bank 10 Year U.S. Government (Corporate Bond) -6.39
Swiss Bank 10 Year United Kingdom (Corporate Bond) -5.29
Swiss Bank 10 Year France (Corporate Bond) -1.37
Swiss Bank 10 Year Germany (Corporate Bond) 4.09
Swiss Bank 10 Year Japan (Corporate Bond) 7.95
Swiss Bank 10 Year Canada (Corporate Bond) -14.10
Swiss Bank 10 Year Australia (Corporate Bond) 0.52
Morgan Stanley Capital International 10 Year Hong Kong (Equity) -28.90
Morgan Stanley Capital International 10 Year Belgium (Equity) 9.43
Morgan Stanley Capital International 10 Year Spain (Equity) -3.93
SOURCE CATEGORY RETURN (%)
Morgan Stanley Capital International 10 Year Austria (Equity) -6.05
Morgan Stanley Capital International 10 Year France (Equity) -4.70
Morgan Stanley Capital International 10 Year Netherlands (Equity) 12.66
Morgan Stanley Capital International 10 Year Japan (Equity) 21.62
Morgan Stanley Capital International 10 Year Switzerland (Equity) 4.18
Morgan Stanley Capital International 10 Year United Kingdom (Equity) -1.63
Morgan Stanley Capital International 10 Year Germany (Equity) 5.11
Morgan Stanley Capital International 10 Year Italy (Equity) 12.13
Morgan Stanley Capital International 10 Year Sweden (Equity) 18.80
Morgan Stanley Capital International 10 Year United States (Equity) 2.00
Morgan Stanley Capital International 10 Year Australia (Equity) 6.48
Morgan Stanley Capital International 10 Year Norway (Equity) 24.07
Inflation Consumer Price Index 2.67
FHLB-San Francisco 11th District Cost-of-Funds Index 4.367
Federal Reserve Six-Month Treasury Bill 6.49
Federal Reserve One-Year Constant-Maturity Treasury Rate 7.14
Federal Reserve Five-Year Constant-Maturity Treasury Rate 7.78
Bloomberg NA NA
Credit Lyonnais NA NA
Lipper Pacific Region Funds -12.07
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>
*in U.S. currency
<PAGE>
INVESTMENT PORTFOLIO
DECEMBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS & NOTES - 95.9% PAR VALUE
- ------------------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS & NOTES - 89.8%
- ------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 27.0%
CHEMICALS - 8.4%
Agricultural Minerals Co., Limited
Partnership,
10.750% 09/30/03 $ 12,000 $ 13,140
Applied Extrusion Technologies, Inc.,
11.500% 04/01/02 7,000 7,490
Energy Ventures, Inc.,
10.250% 03/15/04 3,850 4,081
Huntsman Corp.,
11.000% 04/15/04 9,000 10,316
N.L. Industries, Inc.:
11.750% 10/15/03 6,500 6,939
stepped coupon, (13.000% 10/15/98)
(a) 10/15/05 10,000 7,725
Revlon Consumer Products Corp.,
Series B:
9.375% 04/01/01 3,000 3,038
10.500% 02/15/03 10,000 10,225
Revlon Worldwide Corp.,
(b) 03/15/98 8,000 5,920
--------
68,874
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 2.2%
Amphenol Corp.:
10.450% 11/01/01 4,000 4,400
12.750% 12/15/02 4,000 4,560
Berg Electronics, Inc.,
11.375% 05/01/03 8,000 8,800
--------
17,760
--------
FABRICATED METAL - 0.3%
Fairchild Industries, Inc.,
12.250% 02/01/99 2,100 2,242
--------
FOOD & KINDRED PRODUCTS - 3.2%
Doskocil Companies, Inc.,
9.750% 07/15/00 8,000 7,640
Gillett Holdings, Inc.,
12.250% 06/30/02 6,984 7,316
Pilgrim's Pride Corp.,
10.875% 08/01/03 3,600 3,303
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Van De Kamps, Inc.,
12.000% 09/15/05(c) $ 8,000 $ 8,280
--------
26,539
--------
MISCELLANEOUS MANUFACTURING - 1.7%
American Standard Co.:
11.375% 05/15/04 7,500 8,287
stepped coupon, (10.500% 06/01/98)
(a) 06/01/05 6,500 5,574
--------
13,861
--------
PAPER PRODUCTS - 3.5%
Container Corp. of America,
Series A,
11.250% 05/01/04 6,000 6,165
Gaylord Container Corp.,
stepped coupon, (12.750% 05/15/96)
(a) 05/15/05 4,000 3,920
Repap Wisconsin, Inc.,
9.250% 02/01/02 8,500 8,033
Stone Container Corp.,
10.750% 10/01/02 10,000 10,325
--------
28,443
--------
PETROLEUM REFINING - 0.7%
Flores & Rucks, Inc.,
13.500% 12/01/04 5,000 5,688
--------
PRIMARY METAL - 2.7%
A.K. Steel Corp.,
10.750% 04/01/04 13,000 14,397
Inland Steel Co.,
12.750% 12/15/02 2,000 2,250
Magma Copper Co.,
12.000% 12/15/01 5,000 5,544
--------
22,191
--------
PRINTING & PUBLISHING - 0.3%
K-III Communications Corp.,
10.625% 05/01/02 2,000 2,130
--------
RUBBER & PLASTIC - 1.2%
Atlantis Group, Inc.,
11.000% 02/15/03 3,200 2,784
Berry Plastics Corp.,
12.250% 04/15/04 3,500 3,745
Calmar, Inc.,
11.500% 08/15/05(c) 3,000 3,045
--------
9,574
--------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- -------------------------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS &
NOTES - CONT. PAR VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - CONT.
Stone, Clay, Glass & Concrete - 1.8%
Owens-Illinois, Inc.:
9.950% 10/15/04 $ 4,000 $ 4,240
10.500% 06/15/02 6,000 6,413
11.000% 12/01/03 4,000 4,520
--------
15,173
--------
TRANSPORTATION EQUIPMENT - 1.0%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 7,500 7,913
--------
.................................................................................................
MINING & ENERGY - 9.6%
Crude Petroleum & Natural Gas - 1.5%
Triton Energy Corp.:
(b) 11/01/97 11,000 9,488
stepped coupon, (9.750% 12/15/96)
(a) 12/15/00 3,000 2,820
--------
12,308
--------
OIL & GAS EXTRACTION - 7.0%
Falcon Drilling Co., Inc., Series B,
9.750% 01/15/01 5,000 5,100
Gulf Canada Resources Ltd.:
9.250% 01/15/04 13,000 13,390
9.625% 07/01/05(d) 2,000 2,085
Maxus Energy Corp.,
11.250% 05/01/13 353 359
Mesa Capital Corp.,
12.750% 06/30/98 11,000 9,762
Nuevo Energy Co.,
12.500% 06/15/02 4,000 4,370
OPI International, Inc.,
12.875% 07/15/02 3,000 3,397
Plains Resources, Inc.,
12.000% 10/01/99 3,000 3,142
Rowan Companies, Inc.,
11.875% 12/01/01 4,500 4,882
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 5,000 5,519
TransTexas Gas Corp.,
11.500% 06/15/02 5,000 5,150
--------
57,156
--------
OIL & GAS FIELD SERVICES - 1.1%
Tuboscope Vetco International Corp.,
10.750% 04/15/03 5,000 4,950
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
United Meridian Corp.,
10.375% 10/15/05 $ 3,500 $ 3,692
--------
8,642
--------
.................................................................................................
RETAIL TRADE - 4.8%
FOOD STORES - 3.7%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 10,000 10,650
Pathmark Stores, Inc.:
9.625% 05/01/03 6,000 5,820
11.625% 06/15/02 8,500 8,606
stepped coupon, (10.750% 11/01/99)
(a) 11/01/03 9,000 5,513
--------
30,589
--------
MISCELLANEOUS RETAIL - 1.1%
Barry's Jewelers, Inc.,
12.625% 05/15/96 9 9
Thrifty Payless Holdings, Inc.,
11.750% 04/15/03 8,250 8,951
--------
8,960
--------
.................................................................................................
SERVICES - 16.5%
AMUSEMENT & RECREATION - 9.3%
Bally's Grand, Inc., Series B,
10.375% 12/15/03 15,000 15,300
Boyd Gaming Corp.,
10.750% 09/01/03 13,440 14,045
Empress River Casino Finance Corp.,
10.750% 04/01/02 3,500 3,587
Falcon Holdings Group, PIK,
11.000% 09/15/03 2,718 2,609
GNF Corp., Series B,
10.625% 04/01/03 9,000 8,370
Grand Casinos, Inc.,
10.125% 12/01/03 2,250 2,346
Harrah's Operating, Inc.,
10.875% 04/15/02 5,000 5,387
Showboat, Inc.,
13.000% 08/01/09 5,725 6,469
Stratosphere Corp.,
14.250% 05/15/02 2,000 2,270
Trump Taj Mahal Funding, Inc., PIK,
11.350% 11/15/99 16,178 15,571
--------
75,954
--------
BUSINESS SERVICES - 0.6%
Darling International, Inc.,
11.000% 07/15/00 261 261
Figgie International, Inc.,
9.875% 10/01/99 3,800 3,791
</TABLE>
9
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS &
NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICES - CONT.
Business Services - Cont.
Southeastern Public Service Co.,
11.875% 02/01/98 $ 1,255 $ 1,255
--------
5,307
--------
HEALTH SERVICES - 5.3%
Community Health Systems, Inc.,
10.250% 11/30/03 6,000 6,480
Genesis Health Ventures, Inc.,
9.750% 06/15/05 6,000 6,330
Integrated Health Services, Inc.,
10.750% 07/15/04 2,000 2,140
OrNda Health Corp.:
11.375% 08/15/04 8,000 8,980
12.250% 05/15/02 5,000 5,500
Tenet Healthcare Corp.,
10.125% 03/01/05 7,000 7,753
Wright Medical Technology,
10.750% 07/01/00 6,000 6,120
--------
43,303
--------
HOTELS, CAMPS & LODGING - 1.3%
HMC Acquisition Properties,
9.000% 12/15/07(c) 3,500 3,535
HMH Properties, Inc.,
9.500% 05/15/05 7,000 7,140
--------
10,675
--------
............................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 31.4%
AIR TRANSPORTATION - 0.9%
US Air, Inc.,
10.375% 03/01/13 5,000 4,700
World Corp., Inc.,
13.875% 08/15/97 2,500 2,506
--------
7,206
--------
BROADCASTING - 6.1%
Act III Broadcasting, Inc.,
10.250% 12/15/05 8,000 8,180
Allbritton Communications Co.,
11.500% 08/15/04 8,500 8,967
NWCG Holding Corp.,
(b) 06/15/99 11,000 7,590
SCI Television, Inc.,
11.000% 06/30/05 12,250 13,016
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Sinclair Broadcast Group, Inc.,
10.000% 12/15/03 $ 4,500 $ 4,601
Young Broadcasting Corp.:
10.125% 02/15/05 1,000 1,056
11.750% 11/15/04 6,000 6,713
--------
50,123
--------
CABLE - 11.9%
Bell Cablemedia, Inc.,
stepped coupon, (11.950% 07/15/99)
(a) 07/15/04 10,500 7,429
CF Cable TV, Inc.,
9.125% 07/15/07 2,000 2,050
Cablevision Systems Corp.:
9.875% 02/15/13 4,185 4,457
9.875% 04/01/23 2,000 2,065
10.750% 04/01/04 8,000 8,440
Comcast Corp.,
10.625% 07/15/12 9,000 10,159
Comcast UK Cable Partners Ltd.,
stepped coupon, (11.200%, 11/15/00)
(a) 11/15/07 4,000 2,320
Continental Cablevision, Inc.:
9.500% 08/01/13 4,500 4,770
11.000% 06/01/07 13,500 15,103
Diamond Cable Corp.,
stepped coupon, (11.750% 12/15/00)
(a) 12/15/05 3,000 1,766
Groupe Videotron,
10.625% 02/15/05(d) 10,000 10,750
Insight Communications Co.,
stepped coupon, (11.250% 02/29/96)
8.250% 03/01/00 5,250 5,316
Jones Intercable, Inc.,
9.625% 03/15/02 3,000 3,225
Marcus Cable Co.,
11.875% 10/01/05 4,500 4,843
Rogers Cablesystems, Inc.,
10.000% 03/15/05 3,000 3,221
Telewest Communication PLC,
stepped coupon, (11.000% 10/01/00)
(a) 10/01/07 13,250 7,967
Videotron Holding Co.:
stepped coupon, (11.125% 07/01/99)
(a) 07/01/04 1,250 869
stepped coupon, (11.000% 08/15/00)
(a) 08/15/05 4,000 2,490
--------
97,240
--------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- ----------------------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS &
NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
GAS SERVICES - 1.2%
California Energy Co., Inc.,
9.875% 06/30/03 $ 6,750 $ 7,054
Midland Funding Corp.,
10.330% 07/23/02 2,771 2,854
--------
9,908
--------
TELECOMMUNICATIONS - 11.3%
American Telecasting, Inc., Units,
stepped coupon, (14.500% 08/15/00)
(a) 08/15/05(c)(e) 9 5,493
CAI Wireless Systems, Inc.,
12.250% 09/15/02 6,000 6,420
Echostar Communications Corp.
stepped coupon, (12.875% 06/01/99)
(a) 06/01/04 8,000 5,440
GST Telecommunications, Inc., Units,
stepped coupon, (13.875% 12/15/00)
(a) 12/15/05(c)(f) 1 5,448
Intelcom (USA) Inc.,
stepped coupon, (13.500% 09/15/00)
(a) 09/15/05(c) 3,000 1,710
MFS Communications Company, Inc.,
stepped coupon, (9.375% 01/15/99)
(a) 01/15/04 11,000 8,855
Metrocall, Inc.,
10.375% 10/01/07 8,000 8,520
Mobilemedia Corp.,
9.375% 11/01/07 5,500 5,637
Nextel Communications, Inc.,
stepped coupon, (9.750% 02/15/99)
(a) 08/15/04 8,500 4,632
Paging Network, Inc.,
10.125% 08/01/07 7,000 7,630
Panamsat Limited Partnership Corp.,
stepped coupon, (11.375% 08/01/98)
(a) 08/01/03 14,000 11,410
PriCellular Wireless Corp.,
stepped coupon, (14.000% 11/15/97)
(a) 11/15/01 4,000 3,480
USA Mobile Communications Holdings, Inc.:
9.500% 02/01/04 500 495
14.000% 11/01/04 1,500 1,751
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Winstar Communications, Inc., Units,
stepped coupon, (14.000% 10/15/00)
(a) 10/15/05(c)(g) $ 5 $ 8,348
Wireless One, Inc., Units,
13.000% 10/15/03(h) 6 6,890
--------
92,159
--------
..............................................................................................
WHOLESALE TRADE - 0.5%
NONDURABLE GOODS
SD Warren Co.,
12.000% 12/15/04 4,000 4,380
--------
TOTAL CORPORATE FIXED INCOME BONDS & NOTES
(cost of $706,607) 734,298
--------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 6.1 %
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
7.250% 05/15/04 10,000 11,100
7.625% 02/15/25 5,000 6,114
8.500% 11/15/00 20,000 22,625
--------
39,839
--------
U.S. Treasury Notes:
5.875% 11/15/05 5,000 5,113
7.750% 01/31/00 5,000 5,431
--------
10,544
--------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(cost of $48,481) 50,383
--------
TOTAL BONDS & NOTES (cost of $755,088) 784,681
--------
<CAPTION>
PREFERRED STOCKS - 0.7% SHARES
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 0.2%
PRINTING & PUBLISHING
K-III Communications Corp., 60 1,635
--------
Sr. Exchangeable $2.850
..............................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.5%
CABLE
Cablevision Systems Corp.,
11.75%, Series G (c) 40 4,150
--------
TOTAL PREFERRED STOCKS (cost of $5,500) 5,785
--------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- -----------------------------------------------------------------------------------------
COMMON STOCKS - 0.5% SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 0.3%
CHEMICALS - 0.0%
UCC Investors Holdings, Inc. (i) (j) 15 $ 208
---------
FOOD & KINDRED PRODUCTS - 0.1%
Darling International, Inc. (j) 18 472
Dr. Pepper Bottling Co. (c) (j) 80 280
---------
752
---------
MEASURING & ANALYZING INSTRUMENTS - 0.2%
Bucyrus-Erie Co. (j) 135 1,094
---------
.........................................................................................
RETAIL TRADE - 0.2%
MISCELLANEOUS RETAIL - 0.1%
Barry's Jewelers, Inc. (j) 95 382
Macleod-Stedman, Inc. (i) (j) 425 4
Pharmhouse Corp. (j) 1 2
---------
388
---------
RESTAURANTS - 0.1%
Host Marriott Corp. (j) 8 100
Marriott International, Inc. 8 288
---------
388
---------
.........................................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
COMMUNICATIONS - 0.0%
EchoStar Communications Corp. (j) 9 218
---------
ELECTRIC SERVICES - 0.0%
Great Bay Power Corp. (i) (j) 15 121
---------
GAS SERVICES - 0.0%
United Gas Holdings Corp. (c) (i) (j) 22 312
---------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.500% Escrow
Receipt (i) (j) 2 (k)
Greyhound Lines, Inc., 13.000% Escrow
Receipt (i) (j) 1 (k)
---------
(k)
---------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (i) (j) 79 157
Sun Carriers, Inc. (c) (i) (j) 326 3
---------
160
---------
TOTAL COMMON STOCKS (cost of $6,808) 3,641
---------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- -----------------------------------------------------------------------------------------
WARRANTS (j) - 0.0%
- -----------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 0.0%
RUBBER & PLASTIC
BPC Holdings Corp.,
expires 04/15/04 4 $ 44
---------
OIL & GAS EXTRACTION
Forest Oil Corp.,
expires 10/01/96 18 16
---------
.........................................................................................
RETAIL TRADE - 0.0%
FOOD STORES
Southland Corp.,
expires 03/05/96 10 20
---------
.........................................................................................
SERVICES - 0.0%
HEALTH SERVICES - 0.0%
Wright Medical Technology,
expires 06/15/03 (c) 1 238
---------
HOTELS, CAMPS & LODGING - 0.0%
Capital Gaming International, Inc.,
expires 02/01/99 (c) 6 1
---------
TOTAL WARRANTS (cost of $121) 319
---------
TOTAL INVESTMENTS - 97.1% (cost of $767,517) (l) 794,426
---------
<CAPTION>
SHORT -TERM OBLIGATIONS - 1.7% PAR
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Bankers Trust
Securities Corp., dated 12/29/95, due 01/02/96
at 5.700%, collateralized by U.S. Treasury notes
with various maturities to 2000, market value $9,620
(repurchase proceeds $9,424) $9,418 9,418
Repurchase agreement with Chase
Securities, Inc., dated 12/29/95, due 01/02/96
at 5.500%, collateralized by a U.S. Treasury note
maturing in 1996, market value $4,868
(repurchase proceeds $4,764) 4,761 4,761
---------
TOTAL SHORT-TERM OBLIGATIONS 14,179
---------
OTHER ASSETS & LIABILITIES, NET - 1.2% 9,368
- -----------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 817,973
=========
</TABLE>
15
<PAGE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Currently zero coupon. Shown parenthetically is the interest to be paid and
the date the Fund will begin accruing this rate.
(b) Zero coupon bond.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1993. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At year end, the
value of these securities amounted to $40,843 or 5.0% of net assets.
(d) This security is Canadian. Par amount is stated in U.S. dollars.
(e) Each unit consists of one senior discount note and one warrant to purchase
common stock.
(f) Each unit consists of eight senior discount notes and one convertible senior
subordinated discount note.
(g) Each unit consists of two senior discount notes and one convertible senior
subordinated discount note.
(h) Each unit consists of one senior discount note and three warrants to
purchase common stock.
(i) The value of this security represents fair value as determined in good faith
under the direction of the Trustees.
(j) Non-income producing.
(k) Rounds to less than one.
(l) Cost for federal income tax purposes is $767,842.
Acronym Name
------- ---------------
PIK Payment-In-Kind
See notes to financial statements.
16
<PAGE>
STATEMENTS OF ASSETS & LIABILITIES
DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $767,517) $ 794,426
Short-term obligations 14,179
---------
808,605
Receivable for:
Interest $ 16,123
Investments sold 3,047
Fund shares sold 2,095
Dividends 1
Other 39 21,305
--------- ---------
Total Assets 829,910
LIABILITIES
Payable for:
Investments purchased 9,811
Fund shares repurchased 2,083
Accrued:
Deferred Trustees fees 4
Other 39
---------
Total Liabilities 11,937
---------
NET ASSETS $ 817,973
=========
Net asset value & redemption price per share -
Class A ($466,905/69,210) $ 6.75
=========
Maximum offering price per share - Class A
($6.75/0.9525) $ 7.09(a)
=========
Net asset value & offering price per share -
Class B ($351,068/52,043) $ 6.75(b)
=========
COMPOSITION OF NET ASSETS
Capital paid in $ 865,563
Undistributed net investment income 99
Accumulated net realized loss (74,598)
Net unrealized appreciation 26,909
---------
$ 817,973
=========
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
17
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Interest $ 76,048
Dividends 272
---------
Total investment income 76,320
EXPENSES
Management fee $ 4,423
Service fee 1,846
Distribution fee - Class B 2,254
Transfer agent 2,107
Bookkeeping fee 267
Trustees fee 43
Custodian fee 19
Audit fee 48
Legal fee 11
Registration fee 63
Reports to shareholders 19
Other 49 11,149
--------- ---------
Net Investment Income 65,171
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON
PORTFOLIO POSITIONS
Net realized loss on:
Investments (6,728)
Foreign currency transactions (3)
---------
Net Realized Loss (6,731)
Net unrealized appreciation during
the period on:
Investments 57,928
Foreign currency transactions 3
---------
Net Unrealized Appreciation 57,931
---------
Net Gain 51,200
---------
Net Increase in Net Assets from Operations $ 116,371
=========
</TABLE>
See notes to financial statements.
18
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
(in thousands) December 31
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
<S> <C> <C>
Operations:
Net investment income $ 65,171 $ 55,891
Net realized loss (6,731) (18,758)
Net unrealized appreciation (depreciation) 57,931 (40,420)
--------- ---------
Net Increase (Decrease) from Operations 116,371 (3,287)
Distributions:
From net investment income - Class A (40,139) (38,370)
From net investment income - Class B (25,372) (20,184)
In excess of net investment income - Class A (922) --
In excess of net investment income - Class B (583) --
--------- ---------
49,355 (61,841)
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 125,401 101,116
Value of distributions reinvested - Class A 18,081 15,346
Cost of shares repurchased - Class A (95,780) (128,358)
--------- ---------
47,702 (11,896)
--------- ---------
Receipts for shares sold - Class B 112,679 122,449
Value of distributions reinvested - Class B 13,181 9,440
Cost of shares repurchased - Class B (48,173) (78,401)
--------- ---------
77,687 53,488
--------- ---------
Net Increase from Fund Share Transactions 125,389 41,592
--------- ---------
Total Increase (Decrease) 174,744 (20,249)
NET ASSETS
Beginning of period 643,229 663,478
--------- ---------
End of period (including undistributed net
investment income of $99 and $340, respectively) $ 817,973 $ 643,229
========= =========
NUMBER OF FUND SHARES
Sold - Class A 19,185 15,239
Issued for distributions reinvested - Class A 2,749 2,325
Repurchased - Class A (14,576) (19,165)
--------- ---------
7,358 (1,601)
--------- ---------
Sold - Class B 17,179 18,466
Issued for distributions reinvested - Class B 2,003 1,434
Repurchased - Class B (7,357) (11,706)
--------- ---------
11,825 8,194
--------- ---------
</TABLE>
See notes to financial statements.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
ORGANIZATION: Colonial High Yield Securities Fund (the Fund), a series of
Colonial Trust I, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Fund's objective is to seek high current
income and total return by investing primarily in lower rated corporate debt
securities. The Fund may issue an unlimited number of shares. The Fund offers
Class A shares sold with a front-end sales charge and Class B shares which are
subject to an annual distribution fee and a contingent deferred sales charge.
Class B shares will convert to Class A shares when they have been outstanding
approximately eight years. The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The following significant accounting policies are
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a
pricing service based upon market transactions for normal, institutional-size
trading units of similar securities. When management deems it appropriate, an
over-the-counter or exchange bid quotation is used.
Equity securities are valued at the last sale price or, in the case of unlisted
or listed securities for which there were no sales during the day, at current
quoted bid prices.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost. The value of all assets and liabilities quoted in foreign
currencies are translated into U.S. dollars at that day's exchange rate.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee), realized and unrealized
gains (losses) are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
20
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
Class B per share data and ratios are calculated by adjusting the expense and
net investment income per share data and ratios for the Fund for the entire
period by the distribution fee applicable to Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; premium and
market discount are not amortized or accreted.
The value of additional securities received as an interest or dividend payment
is recorded as income and as the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
The character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the Fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gain (loss) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on securities transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividend and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) from investments.
OTHER: Corporate actions are recorded on the ex-date (except for certain
foreign securities which are recorded as soon after ex-date as the Fund
becomes aware of such), net of nonrebatable tax withholdings. Where a high
level of uncertainty as to collection exists, income on securities is recorded
net of all tax withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-
market daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
21
<PAGE>
Notes to Financial Statements/December 31, 1995
- -------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.60% annually of the Fund's
average net assets.
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services and receives a monthly
fee equal to 0.25% annually of the Fund's average net assets and receives a
reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended December 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $148,590 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $634,558 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee equal to 0.25% annually of the Fund's net assets as of the 20th of
each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% of the average net assets attributable to Class B
shares only.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
................................................................................
INVESTMENT ACTIVITY: During the year ended December 31, 1995, purchases and
sales of investments, other than short-term obligations, were $772,119,258 and
$673,013,408, respectively, of which $66,504,656 and $74,806,551, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at December 31, 1995, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 33,910,945
Gross unrealized depreciation (7,326,834)
----------------------
Net unrealized appreciation $ 26,584,111
======================
</TABLE>
22
<PAGE>
Notes to Financial Statements/December 31, 1995
- -------------------------------------------------------------------------------
CAPITAL LOSS CARRYFORWARDS: At December 31, 1995, capital loss
carryforwards available (to the extent provided in regulations) to
offset future realized gains were approximately as follows:
<TABLE>
<CAPTION>
Year of Capital loss
expiration carryforward
---------------- -------------------
<S> <C>
1997 $ 4,192,000
1998 5,104,000
1999 38,162,000
2000 4,852,000
2002 9,495,000
2003 16,521,000
-------------------
$ 78,326,000
-------------------
</TABLE>
Of the loss carryforwards expiring in 1997, 1998, and 1999, $855,000,
$4,129,000, and $40,000, respectively, were acquired in the merger with Colonial
VIP High Income Fund (CVIPHIF).
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may taxable to
shareholders as ordinary income.
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of currency exchange or
other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
23
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------------------------------
1995 1994
Class A Class B Class A Class B
----------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 6.300 $ 6.300 $ 6.950 $ 6.950
============ ============ ============ ============
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.615 0.566 0.599 0.549
Net realized and
unrealized gain (loss) 0.452 0.452 (0.622) (0.622)
------------ ------------ ------------ ------------
Total from Investment
Operations 1.067 1.018 (0.023) (0.073)
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.603) (0.555) (0.627) (0.577)
In excess of net investment income (0.014) (0.013) -- --
------------ ------------ ------------ ------------
Total from Distributions
Declared to Shareholders (0.617) (0.568) (0.627) (0.577)
------------ ------------ ------------ ------------
Net asset value - End of period $ 6.750 $ 6.750 $ 6.300 $ 6.300
============ ============ ============ ============
Total return (b) 17.65% 16.78% (0.34%) (1.09%)
============ ============ ============ ============
RATIOS TO AVERAGE NET ASSETS
Expenses 1.21%(d) 1.96%(d) 1.23% 1.98%
Net investment income 9.14%(d) 8.39%(d) 9.03% 8.28%
Portfolio turnover 95% 95% 123% 123%
Net assets at end
of period (000) $ 466,905 $ 351,068 $ 389,791 $ 253,438
</TABLE>
(a) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Not annualized.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year ratios are net of benefits received,
if any.
(e) Annualized.
24
<PAGE>
FINANCIAL HIGHLIGHTS -- CONT.
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------------------------------
1993 1992 1991
Class A Class B Class A Class B(a) Class A
--------------------------------- --------------------------------- ------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 6.400 $ 6.400 $ 5.860 $ 6.360 $ 4.640
============ ============ ============ ============ ============
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.634 0.585 0.669 0.332 0.726
Net realized and
unrealized gain (loss) 0.576 0.576 0.531 0.057 1.207
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations 1.210 1.161 1.200 0.389 1.933
------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.660) (0.611) (0.660) (0.349) (0.713)
In excess of net investment income -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total from Distributions
Declared to Shareholders (0.660) (0.611) (0.660) (0.349) (0.713)
------------ ------------ ------------ ------------ ------------
Net asset value - End of period $ 6.950 $ 6.950 $ 6.400 $ 6.400 $ 5.860
============ ============ ============ ============ ============
Total return (b) 19.69% 18.83% 21.15% 5.53%(c) 43.88%
============ ============ ============ ============ ============
RATIOS TO AVERAGE NET ASSETS
Expenses 1.23% 1.98% 1.26% 2.01%(e) 1.36%
Net investment income 9.55% 8.80% 10.64% 9.89%(e) 13.41%
Portfolio turnover 122% 122% 66% 66% 37%
Net assets at end
of period (000) $ 440,942 $ 222,536 $ 346,225 $ 94,653 $ 299,587
</TABLE>
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST I AND THE SHAREHOLDERS OF
COLONIAL HIGH YIELD SECURITIES FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial High Yield Securities Fund
(a series of Colonial Trust I) at December 31, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of portfolio positions
at December 31, 1995 by correspondence with the custodian and brokers, and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion exppressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1996
COLONIAL TRUST I
Cross Reference Sheet
(Colonial Income Fund)
Item Number Statement of Additional
of Form N-1A Information Location or Caption
Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Portfolio Turnover;
Miscellaneous Investment Practices
14. Management of the Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses;
Management of the Funds
17. Fund Charges and Expenses;
Management of the Funds
18. Shareholder Liability
19. How to Buy Shares;
Determination of Net Asset Value;
Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses;
Management of the Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL INCOME FUND
Statement of Additional Information
April 29, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Income Fund (Fund). This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the Prospectus of the Fund dated
April 29, 1996. This SAI should be read together with the Prospectus. Investors
may obtain a free copy of the Prospectus from Colonial Investment Services,
Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
IF-16/057C-0496
<PAGE>
Part 1
COLONIAL INCOME FUND
Statement of Additional Information
April 29, 1996
DEFINITIONS
"Trust" Colonial Trust I
"Fund" Colonial Income Fund
"Adviser" Colonial Management Associates, Inc., the
Fund's investment adviser
"CISI" Colonial Investment Services, Inc.,
the Fund's distributor
"CISC" Colonial Investors Service Center, Inc.,
the Fund's shareholder services and
transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the investment restrictions of the Fund. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectus:
Short-Term Trading
Securities Loans
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options (interest rate futures
and related options only)
Foreign Securities
Foreign Currency Transactions
Step Coupon Securities
Zero Coupon Securities
Pay-in-Kind Securities
Except as described below under "Fundamental Investment Policies," the Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act
diversification requirement, an issuer is the entity whose revenues support the
security.
The Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however, the
Fund will not purchase additional portfolio securities while borrowings
exceed 5% of net assets;
2. Only own real estate acquired as a result of owning securities and not
more than 5% of total assets;
3. Invest up to 10% of its net assets in illiquid assets;
4. Purchase and sell futures contracts and related options so long as
the total initial margin and premiums on contracts do not exceed 5% of its
total assets;
5. Underwrite securities issued by others only when disposing of portfolio
securities;
6. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and
through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any one industry, or
with respect to 75% of total assets purchase any security (other than
obligations of the U.S. Government and cash items including receivables)
if as a result more than 5% of its total assets would then be invested in
securities of a single issuer, or purchase voting securities of an issuer
if, as a result of such purchase, the Fund would own more than 10% of the
outstanding voting shares of such issuer.
<PAGE>
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term
credit to clear securities transactions and may make initial or
maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns,or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities;
3. Own securities of any company if the Trust knows that officers and
Trustees of the Trust or officers and directors of the Adviser who
individually own more than 0.5% of such securities together own more than
5% of such securities;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of its
total assets invested in securities of companies (including predecessors)
less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase, more than 10%
of its total assets would then be invested in securities of issuers
which are restricted as to disposition; and
8. Invest in warrants if, immediately after giving effect to any such
investment, the Fund's aggregate investment in warrants, valued at the
lower of cost or market, would exceed 5% of the value of the Fund's net
assets. Included within that amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants which are not listed on the New
York Stock Exchange or the American Stock Exchange. Warrants acquired by
the Fund in units or attached to securities will be deemed to be without
value.
PORTFOLIO TURNOVER
Year ended December 31
1995 1994
85% 16%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund at the annual rate of 0.50%.
Recent Fees paid to the Adviser, CISI and CISC (for the fiscal years ended
December 31) (dollars in thousands)
1995 1994 1993
---- ---- ----
Management fee $849 $814 $852
Bookkeeping fee 69 67 69
Shareholder services and
transfer agent fee 384 377 381
12b-1 fees:
Service fee 426 406 426
Distribution fee (Class B) 223 161 101
Brokerage Commissions
The Fund did not pay brokerage commissions during the fiscal years ended
December 31, 1995, 1994 and 1993.
<PAGE>
Trustees Fees
For the fiscal year ended December 31, 1995, and the calendar year ended
December 31, 1995, the Trustees received the following compensation for serving
as Trustees:
Total Compensation
Aggregate From Trust And
Compensation Fund Complex Paid To
From Fund For The The Trustees For The
Fiscal Year Ended Calendar Year Ended
Trustee December 31, 1995 December 31, 1995(a)
- ------- ----------------- --------------------
Robert J. Birnbaum(b) $1,386 $ 71,250
Tom Bleasdale 1,630(c) 98,000 (d)
Lora S. Collins 1,537 91,000
James E. Grinnell(b) 1,384 71,250
William D. Ireland, Jr. 1,894 113,000
Richard W. Lowry(b) 1,387 71,250
William E. Mayer 1,523 91,000
James L. Moody, Jr. 1,590(e) 94,500 (f)
John J. Neuhauser 1,523 91,000
George L. Shinn 1,719 102,500
Robert L. Sullivan 1,696 101,000
Sinclair Weeks, Jr. 1,875 112,000
(a) At December 31, 1995, the Colonial Funds complex consisted of 33 open-end
and 5 closed-end management investment company portfolios.
(b) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
(c) Includes $805 payable in later years as deferred compensation.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) Total compensation of $1,590 for the fiscal year ended December 31, 1995
will be payable in later years as deferred compensation.
(f) Total compensation of $94,500 for the calendar year ended December 31,
1995 will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly
known as The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service
during the calendar year ended December 31, 1995, and of Liberty Financial Trust
(now known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty
Funds II) for the period January 1, 1995 through March 26, 1995 (g):
Total Compensation Total Compensation
From Liberty Funds II For From Liberty Funds I For
The Period January 1, 1995 The Calendar Year Ended
Trustee through March 26, 1995 December 31, 1995 (h)
- ------- ---------------------- ---------------------
Robert J. Birnbaum $2,900 $16,675
James E. Grinnell 2,900 22,900
Richard W. Lowry 2,900 26,250 (i)
(g) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized into a new portfolio of Colonial Trust
III. Prior to their election as Trustees of the Colonial Funds, Messrs.
Birnbaum, Grinnell and Lowry served as Trustees of Liberty Funds II;
they continue to serve as Trustees or Directors of Liberty Funds I.
(h) At December 31, 1995, the Liberty Funds I were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (an intermediate parent
of the Adviser).
(i) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and Stein Roe & Farnham Incorporated, each an
affiliate of the Adviser.
Ownership of the Fund
At March 31, 1996, the officers and Trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Fund.
At March 31, 1995, Merrill Lynch Pierce Fenner & Smith Inc., Attn: Book Entry,
Mutual Fund Operations, 4800 Deer Lake Drive, E 3rd FL, Jacksonville, FL 32216,
owned 14.58% of the Fund's outstanding Class B Shares.
At March 31, 1996, there were 8559 Class A and 2,334 Class B shareholders.
Sales Charges (for the fiscal years ended December 31)(dollars in thousands)
<PAGE>
Class A Shares
1995 1994 1993
Aggregate initial sales charges
on Fund share sales $204 $179 $321
Initial sales charges retained by CISI 24 22 42
Class B Shares
1995 1994 1993
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retained by CISI $82 $60 $23
12b-1 Plans, CDSC and Conversion of Shares
The Fund offers two classes of shares - Class A and Class B. The Fund may in the
future offer other classes of shares. The Trustees have approved 12b-1 plans
pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays CISI a
service fee at an annual rate of 0.25% of average net assets attributed to each
Class of shares and a distribution fee at an annual rate of 0.75% of average net
assets attributed to Class B shares. CISI may use the entire amount of such fees
to defray the costs of commissions and service fees paid to financial service
firms (FSFs) and for certain other purposes. Since the distribution and service
fees are payable regardless of the amount of CISI's expenses, CISI may realize a
profit from the fees.
The Plans also authorize any other payments by the Fund to CISI and its
affiliates (including the Adviser) to the extent that such payments might be
construed to be indirectly financing the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. The Plans may not be
amended to increase materially the fee without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plans will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase. The CDSCs are
described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or
on amounts representing capital appreciation. In determining the applicability
and rate of any CDSC, it will be assumed that a redemption is made first of
shares representing capital appreciation, next of shares representing
reinvestment of distributions and finally of other shares held by the
shareholder for the longest period of time.
Approximately eight years after the end of the month in which a Class B share is
purchased, such share and a pro rata portion of any shares issued on the
reinvestment of distributions will be automatically converted into Class A
shares having an equal value, which are not subject to the distribution fee.
<PAGE>
Sales-related expenses (dollars in thousands) of CISI relating to the Fund for
the fiscal year ended December 31, 1995 were:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C>
Fees to FSFs $348 $360
Cost of sales material relating to the Fund (including
printing and
mailing expenses) 25 36
Allocated travel, entertainment and other promotional
expenses
(including advertising) 27 40
</TABLE>
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended December 31, 1995,
were 6.89% and 6.49%, respectively.
The Fund's average annual total returns at December 31, 1995, were:
<TABLE>
<CAPTION>
Class A Shares
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 14.58% 9.75% 8.36%
Without sales charge 20.30% 10.82% 8.89%
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
May 15, 1992
(commencement of
investment operations)
1 year through December 31, 1995
------ -------------------------
<S> <C> <C>
With applicable CDSC 14.42% (5.00% CDSC) 7.72% (3.00% CDSC)
Without CDSC 19.42% 8.39%
</TABLE>
The Fund's Class A and Class B distribution rates at December 31, 1995, based on
the most recent month's distributions, annualized, and the maximum offering
price at the end of the month, were 6.89% and 6.49%, respectively.
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian. The custodian is
responsible for safeguarding the Fund's cash and securities, receiving and
delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various SEC filings. The financial statements incorporated by
reference in this SAI have been so incorporated, and the schedule of financial
highlights included in the Prospectus has been so included, in reliance upon the
report of Price Waterhouse LLP given on the authority of said firm as experts in
accounting and auditing.
The financial statements and the Report of Independent Accountants appearing on
pages 6 through 20 of the December 31, 1995 Annual Report, are incorporated in
this SAI by reference.
<PAGE>
INVESTMENT PORTFOLIO
DECEMBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE FIXED-INCOME BONDS & NOTES - 68.8% PAR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 2.0%
BUILDING CONSTRUCTION - 0.9%
USG Corp.,
9.250% 09/15/01 $ 1,500 $ 1,598
-----------
HEAVY CONSTRUCTION-NON BUILDING CONSTRUCTION - 1.1%
Foster Wheeler Corp.,
6.750% 11/15/05 2,000 2,048
-----------
- --------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 14.3%
DEPOSITORY INSTITUTIONS - 6.6%
Banc One Corp.,
7.000% 07/15/05 2,000 2,108
Capital One Bank, Inc.,
8.125% 03/01/00 2,000 2,141
First Bank System, Inc.,
7.625% 05/01/05 2,000 2,190
Great Western Financial Corp.,
8.600% 02/01/02 3,000 3,364
NCNB Corp.,
9.125% 10/15/01 2,000 2,293
-----------
12,096
-----------
FINANCIAL SERVICES - 1.3%
United States Leasing International Inc.,
8.750% 12/01/01 2,000 2,272
-----------
HOLDING & OTHER INVESTMENT COMPANIES - 2.0%
Countrywide Funding Corp.,
6.875% 09/15/05 3,500 3,624
-----------
NONDEPOSITORY CREDIT INSTITUTIONS - 3.2%
General Motors Acceptance Corp.,
8.400% 10/15/99 2,000 2,166
Green Tree Financial Corp.,
10.250% 06/01/02 3,000 3,633
-----------
5,799
-----------
SECURITY BROKERS & DEALERS - 1.2%
Lehman Brothers Holdings, Inc.,
8.500% 05/01/07 2,000 2,261
-----------
- --------------------------------------------------------------------------------------------
MANUFACTURING - 19.4%
CHEMICALS - 2.2%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 1,500 1,642
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Rohm & Haas Co.,
9.375% 11/15/19 $ 2,000 $ 2,439
-----------
4,081
-----------
FABRICATED METAL - 1.2%
Masco Corp.,
9.000% 10/01/01 2,000 2,277
-----------
FOOD & KINDRED PRODUCTS - 4.8%
Coca-Cola Bottling Co.,
9.000% 11/15/03 1,500 1,504
ConAgra, Inc.,
9.750% 03/01/21 2,000 2,616
Nabisco, Inc.,
6.850% 06/15/05 2,000 2,040
Ralston Purina Co.,
9.300% 05/01/21 2,000 2,499
-----------
8,659
-----------
LUMBER & WOOD PRODUCTS - 1.0%
Georgia Pacific Corp.,
9.625% 03/15/22 1,500 1,756
-----------
MACHINERY & COMPUTER EQUIPMENT - 1.4%
Tenneco Corp.,
10.000% 03/15/08 2,000 2,588
-----------
PAPER PRODUCTS - 2.0%
Buckeye Cellulose Corp.,
8.500% 12/15/05 2,000 2,045
Stone Container Corp.,
10.750% 10/01/02 1,500 1,549
-----------
3,594
-----------
PETROLEUM REFINING - 1.4%
Pennzoil Co.,
10.125% 11/15/09 1,025 1,324
Sun Co., Inc.,
9.375% 06/01/16 1,000 1,200
-----------
2,524
-----------
PRIMARY METAL - 1.3%
International Minerals & Chemicals Corp.,
9.875% 03/15/11 2,000 2,325
-----------
PRINTING & PUBLISHING - 0.9%
Viacom International, Inc.,
7.750% 06/01/05 1,500 1,592
-----------
RUBBER & PLASTIC - 2.1%
Armstrong World Industries, Inc.,
9.750% 04/15/08 2,050 2,644
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - CONT.
RUBBER & PLASTIC - CONT.
Premark International, Inc.,
10.500% 09/15/00 $ 1,000 $ 1,174
-----------
3,818
-----------
STONE, CLAY, GLASS & CONCRETE - 1.1%
Owens-Illinois, Inc.,
10.000% 08/01/02 2,000 2,088
-----------
- --------------------------------------------------------------------------------------------
MINING & ENERGY - 8.0%
CRUDE PETROLEUM & NATURAL GAS - 0.9%
AmeriGas Partners, L.P.,
Series B,
10.125% 04/15/07 1,500 1,605
-----------
METAL MINING - 1.1%
Freeport-McMoran Resource Partners,
8.750% 02/15/04 2,000 2,050
-----------
OIL & GAS EXTRACTION - 6.0%
Gulf Canada Resources, Ltd.,
9.625% 07/01/05 (a) 2,000 2,085
NGC Corp.,
6.750% 12/15/05 2,000 2,055
Occidental Petroleum Corp.,
11.125% 08/01/10 2,500 3,507
Oryx Energy Co.,
10.000% 04/01/01 1,500 1,667
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 1,500 1,656
-----------
10,970
-----------
- --------------------------------------------------------------------------------------------
RETAIL TRADE - 2.7%
FOOD STORES - 1.4%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 1,000 1,065
Pathmark Stores, Inc.,
stepped coupon,
(10.750% 11/01/99) 11/01/03 (b) 2,500 1,531
-----------
2,596
-----------
GENERAL MERCHANDISE STORES - 1.3%
May Department Stores Co.,
8.375% 10/01/22 2,000 2,243
-----------
- --------------------------------------------------------------------------------------------
SERVICES - 3.6%
AMUSEMENT & RECREATION - 0.5%
Trump Taj Mahal Funding, Inc., PIK,
11.350% 11/15/99 1,000 962
-----------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH SERVICES - 1.9%
Columbia/HCA Healthcare Corp.,
6.910% 06/15/05 $ 2,000 $ 2,084
Tenet Healthcare Corp.,
10.125% 03/01/05 1,250 1,385
-----------
3,469
-----------
HOTELS, CAMPS & LODGING - 1.2%
Marriott International, Inc.,
7.125% 06/01/07 2,000 2,093
- --------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 18.8%
AIR TRANSPORTATION - 1.4%
Federal Express Corp.,
9.650% 06/15/12 2,000 2,501
-----------
COMMUNICATIONS - 7.5%
CBS, Inc.,
8.875% 06/01/22 2,000 2,015
Continental Cablevision, Inc.,
8.875% 09/15/05 1,500 1,579
Cox Communication, Inc.
6.875% 06/15/05 2,000 2,075
Mobilemedia Corp.,
9.375% 11/01/07 1,500 1,537
News America Holding Corp.,
8.625% 02/01/03 2,000 2,244
Tele-Communications, Inc.,
9.250% 01/15/23 2,000 2,191
Time Warner, Inc.
7.750% 06/15/05 2,000 2,087
-----------
13,728
-----------
ELECTRIC SERVICES - 3.9%
Boston Edison Co.,
9.875% 06/01/20 2,000 2,212
Commonwealth Edison Co.,
7.000% 07/01/05 2,000 2,057
9.875% 06/15/20 1,000 1,200
Utilicorp United, Inc.,
9.000% 11/15/21 1,500 1,680
-----------
7,149
-----------
GAS SERVICES - 2.0%
California Energy Co., Inc.,
9.875% 06/30/03 1,250 1,306
Panhandle Eastern Corp.,
8.625% 04/15/25 2,000 2,252
-----------
3,558
-----------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
MOTOR FREIGHT & WAREHOUSING - 1.2%
Consolidated Freightways, Inc.,
9.125% 08/15/99 $ 2,000 $ 2,173
-----------
PIPELINES - 1.6%
McDermott, Inc.,
9.375% 03/15/02 2,500 2,876
-----------
RAILROAD - 1.2%
Union Pacific Corp.,
7.600% 05/01/05 2,000 2,184
-----------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $115,737) 125,157
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 26.2%
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES - 5.2%
Federal Farm Credit Bank,
11.900% 10/20/97 5,000 5,555
-----------
Federal National Mortgage Association,
10.350% 12/10/15 2,000 2,906
-----------
Government National Mortgage Association:
Coupon Maturities
----------------------
10.000% 2017-2019 58 64
10.500% 2020 276 309
11.500% 2013 111 127
12.500% 2010-2014 368 434
13.000% 2011 57 68
14.000% 2011-2012 14 17
-----------
1,019
-----------
U.S. GOVERNMENT OBLIGATIONS - 21.0%
U.S. Treasury Bonds:
8.500% 11/15/00 11,217 12,689
10.750% 05/15/03 3,349 4,392
11.625% 11/15/02 4,000 5,382
12.000% 08/15/13 3,167 4,880
U.S. Treasury Notes:
6.500% 05/15/05 2,000 2,128
10.375% 11/15/12 1,488 2,057
11.875% 11/15/03 4,834 6,753
-----------
38,281
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(cost of $46,923) 47,761
-----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------------------
PREFERRED STOCK - 0.7% SHARES
- --------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.7%
GAS SERVICES
Enron Capital Corp. 8.00% (cost of $1,250) 50 $ 1,275
-----------
TOTAL INVESTMENTS - 95.7% (cost of $163,910) (c) 174,193
-----------
SHORT-TERM OBLIGATIONS - 2.7% PAR
------------------------------------------------------------------------------------------
Repurchase agreement with Bankers Trust
Securities Corp. dated 12/29/95, due 1/02/96
at 5.700%, collateralized by U.S. Treasury notes
with various maturities to 2000, market
value $3,294 (repurchase proceeds $3,362)
$ 3,291 $ 3,291
Repurchase agreement with Chase Securities,
Inc. dated 12/29/95, due 1/02/96 at 5.500%,
collateralized by U.S. Treasury notes
with various maturities to 1996, market
value $1,666 (repurchase proceeds $1,699)
1,664 1,664
-----------
TOTAL SHORT-TERM OBLIGATIONS 4,955
-----------
OTHER ASSETS & LIABILITIES, NET - 1.6% 2,889
- --------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 182,037
-----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- -------------------------------------------------------------------------------
(a) This is a Canadian security. Par amount is stated in US dollars.
(b) Currently zero coupon. Shown parenthetically is the next interest rate to be
paid and the date the Fund will begin accruing this rate.
(c) Cost for federal income tax purposes is the same.
Acronym Name
-------------- -------------------------------
PIK Payment-In-Kind
See notes to financial statements.
11
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
(in thousands except for per share amounts
and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $163,910) $ 174,193
Short-term obligations 4,955
---------
179,148
Receivable for:
Interest $ 2,870
Fund shares sold 197
Dividends 8
Other 29 3,104
--------- ---------
Total Assets 182,252
LIABILITIES
Payable for:
Fund shares repurchased 199
Accrued:
Deferred Trustees fees 2
Other 14
---------
Total Liabilities 215
---------
NET ASSETS $ 182,037
=========
Net asset value & redemption price per share -
Class A ($143,834/21,671) $ 6.64
=========
Maximum offering price per share - Class A
($6.64/0.9525) $ 6.97(a)
=========
Net asset value & offering price per share -
Class B ($38,203/5,756) $ 6.64(b)
=========
COMPOSITION OF NET ASSETS
Capital paid in $ 190,936
Undistributed net investment income 56
Accumulated net realized loss (19,238)
Net unrealized appreciation 10,283
---------
$ 182,037
=========
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
12
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Interest $14,414
Dividends 100
-------
14,514
EXPENSES
Management fee $ 849
Service fee 426
Distribution fee - Class B 223
Transfer agent 384
Bookkeeping fee 69
Trustees fee 16
Custodian fee 8
Audit fee 40
Legal fee 9
Registration fee 24
Reports to shareholders 9
Other 27
-------
2,084
-------
Net Investment Income 12,430
NET REALIZED & UNREALIZED GAIN ON PORTFOLIO POSITIONS
Net realized gain 847
Net unrealized appreciation during the period 17,487
-------
Net Gain 18,334
-------
Net Increase in Net Assets from Operations $30,764
-------
</TABLE>
See notes to financial statements.
13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
(in thousands) December 31
--------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
--------- ---------
<S> <C> <C>
Operations:
Net investment income $ 12,430 $ 12,533
Net realized gain (loss) 847 (1,616)
Net unrealized appreciation (depreciation) 17,487 (18,562)
--------- ---------
Net Increase (Decrease) from Operations 30,764 (7,645)
Distributions:
From net investment income - Class A (10,607) (11,213)
From net investment income - Class B (2,027) (1,553)
--------- ---------
18,130 (20,411)
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 25,742 10,341
Value of distributions reinvested - Class A 5,505 5,653
Cost of shares repurchased - Class A (31,959) (24,102)
--------- ---------
(712) (8,108)
--------- ---------
Receipts for shares sold - Class B 20,614 9,212
Value of distributions reinvested - Class B 1,165 834
Cost of shares repurchased - Class B (9,525) (4,402)
--------- ---------
12,254 5,644
--------- ---------
Net Increase (Decrease) from Fund
Share Transactions 11,542 (2,464)
--------- ---------
Total Increase (Decrease) 29,672 (22,875)
NET ASSETS
Beginning of period 152,365 175,240
--------- ---------
End of period (including undistributed net
investment income of $56 and $253, respectively) $ 182,037 $ 152,365
--------- ---------
NUMBER OF FUND SHARES
Sold - Class A 4,064 1,620
Issued for distributions reinvested - Class A 864 914
Repurchased - Class A (5,033) (3,874)
--------- ---------
(105) (1,340)
--------- ---------
Sold - Class B 3,230 1,470
Issued for distributions reinvested - Class B 182 135
Repurchased - Class B (1,489) (714)
--------- ---------
1,923 891
--------- ---------
</TABLE>
See notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
................................................................................
ORGANIZATION: Colonial Income Fund (the Fund), a series of Colonial Trust I, is
a diversified portfolio of a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as an open-end, management
investment company. The Fund's objective is to seek as high a level of current
income and total return, as is consistent with prudent risk, by investing
primarily in corporate debt securities. The Fund may issue an unlimited number
of shares. The Fund offers Class A shares sold with a front-end sales charge and
Class B shares which are subject to an annual distribution fee and a contingent
deferred sales charge. Class B shares will convert to Class A shares when they
have been outstanding approximately eight years.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies that are consistently followed by the Fund in
the preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a
pricing service based upon market transactions for normal, institutional-size
trading units of similar securities. When management deems it appropriate, an
over-the-counter or exchange bid quotation is used.
Equity securities are valued at the last sale price or, in the case of unlisted
or listed securities for which there were no sales during the day, at current
quoted bid prices.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee), realized and unrealized
gains (losses), are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
Class B per share data and ratios are calculated by adjusting the expense and
net investment income per share data and ratios for the Fund for the entire
period by the distribution fee applicable to Class B shares only.
15
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable and tax-exempt
income, no federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; market
discount is not accreted. Premium is amortized against interest income with a
corresponding decrease in the cost basis.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions
daily and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
OTHER: The Fund's custodian takes possession through the federal book-entry
system of securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying assets
remains sufficient to protect the Fund. The Fund may experience costs and delays
in liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.50% annually of the Fund's
average net assets.
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services for a monthly fee equal
to 0.18% annually of the Fund's average net assets and receives a reimbursement
for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. During the year ended December 31, 1995, the Fund has
been advised that the Distributor retained net underwriting discounts of $24,221
on sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $81,803 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires payment of a service fee to the
Distributor equal to 0.25% annually of the Fund's net assets as of the 20th of
each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% annually of the average net assets attributable to
Class B shares only.
16
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended December 31, 1995, purchases and
sales of investments, other than short-term obligations, were $149,748,420 and
$137,797,906, respectively, of which $2,513,732 and $2,765,781, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at December 31, 1995, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 11,395,623
Gross unrealized depreciation (1,113,083)
--------------
Net unrealized appreciation $ 10,282,540
==============
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At December 31, 1995, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
<TABLE>
<CAPTION>
Year of Capital loss
expiration carryforward
----------------------- ------------
<S> <C>
1996.................... $ 248,000
1997.................... 2,834,000
1998.................... 4,686,000
1999.................... 10,466,000
2002.................... 1,007,000
------------
$ 19,241,000
============
</TABLE>
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable to
shareholders as ordinary income.
OTHER: The Fund may focus its investments in certain industries, subjecting it
to greater risk than a fund that is more diversified.
17
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each
period are as follows:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------------------------
1995 1994
Class A Class B Class A Class B
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 5.950 $ 5.950 $ 6.720 $ 6.720
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.472 0.425 0.487 0.440
Net realized and
unrealized gain (loss) 0.698 0.698 (0.761) (0.761)
------------ ------------ ------------ ------------
Total from Investment
Operations 1.170 1.123 (0.274) (0.321)
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net
investment income (0.480) (0.433) (0.496) (0.449)
------------ ------------ ------------ ------------
Net asset value -
End of period $ 6.640 $ 6.640 $ 5.950 $ 5.950
============ ============ ============ ============
Total return (b) 20.30% 19.42% (4.09%) (4.82%)
============ ============ ============ ============
RATIOS TO AVERAGE NET ASSETS
Expenses 1.09%(c) 1.84%(c) 1.11% 1.86%
Net investment income 7.45%(c) 6.70%(c) 7.80% 7.05%
Portfolio turnover 85% 85% 16% 16%
Net assets at end
of period (000) $ 143,834 $ 38,203 $ 129,560 $ 22,805
</TABLE>
(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year ratios are net of benefits received,
if any.
(d) Not annualized.
(e) Annualized.
18
<PAGE>
FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------------------------------------------------
1993 1992 1991
Class A Class B Class A Class B (a) Class A
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 6.460 $ 6.460 $ 6.460 $ 6.390 $ 5.970
------------ ------------ ------------ ------------ ------------
0.501 0.451 0.546 0.290 0.587
0.261 0.261 0.001 0.088 0.487
------------ ------------ ------------ ------------ ------------
0.762 0.712 0.547 0.378 1.074
------------ ------------ ------------ ------------ ------------
(0.502) (0.452) (0.547) (0.308) (0.584)
------------ ------------ ------------ ------------ ------------
$ 6.720 $ 6.720 $ 6.460 $ 6.460 $ 6.460
============ ============ ============ ============ ============
12.05% 11.23% 8.83% 6.00%(d) 18.80%
============ ============ ============ ============ ============
1.10% 1.85% 1.24% 1.99%(e) 1.25%
7.45% 6.70% 8.49% 7.74%(e) 9.46%
46% 46% 68% 68% 44%
$ 155,543 $ 19,787 $ 149,309 $ 6,092 $ 146,905
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST I AND THE SHAREHOLDERS
OF COLONIAL INCOME FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial Income Fund (a series of
Colonial Trust I) at December 31, 1995, the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
in conformity with generally accepted accounting principles. These financial
statements and the financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of portfolio positions at December 31, 1995
by correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1996
COLONIAL TRUST I
Cross Reference Sheet
(Colonial Strategic Income Fund)
Item Number Statement of Additional
of Form N-1A Information Location or Caption
Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Portfolio Turnover;
Miscellaneous Investment Practices
14. Management of the Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses;
Management of the Funds
17. Fund Charges and Expenses;
Management of the Funds
18. Shareholder Liability
19. How to Buy Shares;
Determination of Net Asset Value;
Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses;
Management of the Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL STRATEGIC INCOME FUND
Statement of Additional Information
April 29, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Strategic Income Fund (Fund). This SAI is not a prospectus and is authorized for
distribution only when accompanied or preceded by the Prospectus of the Fund
dated April 29, 1996. This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus from Colonial Investment
Services, Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
SI-16/064C-0496
<PAGE>
Part 1
COLONIAL STRATEGIC INCOME FUND
Statement of Additional Information
April 29, 1996
DEFINITIONS:
"Trust" Colonial Trust I
"Fund" Colonial Strategic Income Fund
"Adviser" Colonial Management Associates, Inc., the
Fund's investment adviser
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and policies. Part I of
this SAI includes additional information concerning, among other things,
fundamental investment policies of the Fund. Part 2 contains additional
information about the following securities and investment techniques that are
described or referred to in the Prospectus:
Short-Term Trading
Lower Rated Bonds
Foreign Securities
Zero Coupon Securities
Step Coupon Bonds
Pay-In-Kind Securities
Forward Commitments
Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Foreign Currency Transactions
Except as described below under "Fundamental Investment Policies", the Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act
diversification requirement, an issuer is the entity whose revenues support the
security.
The Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Only own real estate acquired as a result of owning securities and
not more than 5% of total assets;
3. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums
on contracts do not exceed 5% of its total assets;
4. Underwrite securities issued by others only when disposing of
portfolio securities;
5. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar evidences
of indebtedness typically sold privately to financial institutions
and through repurchase agreements; and
6. Not concentrate more than 25% of its total assets in any one industry
or, with respect to 75% of total assets, purchase any security (other
than obligations of the U.S. Government and cash items including
receivables) if as a result more than 5% of its total assets would
then be invested in securities of a single issuer or purchase the
voting securities of an issuer if, as a result of such purchases, the
Fund would own more than 10% of the outstanding voting shares of such
issuer.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term
credit to clear securities transactions and may make initial or
maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns
rights (exercisable without payment) to acquire, an equal amount of
such securities;
3. Own securities of any company if the Trust knows that officers and
Trustees of the Trust or officers and directors of the Adviser who
individually own more than 0.5% of such securities together own more
than 5% of such securities;
4. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases;
5. Purchase any security resulting in the Fund having more than 5% of
its total assets invested in securities of companies (including
predecessors) less than three years old;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase, more than
10% of its total assets would be invested in securities which are
restricted as to disposition;
8. Invest more than 15% of its net assets in illiquid assets; and
9. Invest in warrants if, immediately after giving effect to any such
investment, the Fund's aggregate investment in warrants, valued at
the lower of cost or market, would exceed 5% of the value of the
Fund's net assets. Included within that amount, but not to exceed 2%
of the value of the Fund's net assets, may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities will
be deemed to be without value.
PORTFOLIO TURNOVER (for the fiscal years ended December 31)
1995 1994
---- ----
83% 78%
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund, determined at the close of
each business day during the month, at the following annual rates:
0.65% on the first $1 billion and 0.60% of any excess over $1 billion.
Recent Fees paid to the Adviser, CISI and CISC (for the fiscal years ended
December 31)(in thousands)
1995 1994 1993
---- ---- ----
Management fee $8,488 $8,132 $4,606
Bookkeeping fee 442 428 257
Shareholder service and
transfer agent fee 3,254 3,065 1,726
12b-1 fees:
Service fee (Class A) 1,424 1,382 694
Service fee (Class B) 1,617 1,480 586
Distribution fee (Class B) (a) 4,931 4,501 1,433
(a) Class B shares were initially offered on May 15, 1992.
Brokerage Commissions (for the fiscal years ended December 31) (in thousands)
1995 1994 1993
---- ---- ----
Total commissions $ 24 $0 $0
Directed transactions (b) 584 0 0
Commissions on directed transactions 6 0 0
(b) See "Management of the Colonial Funds Portfolio-Transaction-
Brokerage and Research Services" in Part 2 of this SAI.
Trustees Fees
For the year ended December 31, 1995, the Trustees received the following
compensation for serving as Trustees:
Total Compensation
Aggregate From Trust and Fund
Compensation From Complex Paid to the
Fund For The Trustees For The
Fiscal Year Ended Calendar Year Ended
Trustee December 31, 1995 December 31, 1995(c)
- ------- ----------------- --------------------
Robert J. Birnbaum(h) $5,691 $ 71,250
Tom Bleasdale 6,762(d) $ 98,000 (e)
Lora S. Collins 6,279 $ 91,000
James E. Grinnell(h) 5,693 $ 71,250
William D. Ireland, Jr. 7,800 $113,000
Richard W. Lowry(h) 5,689 $ 71,250
William E. Mayer 6,282 $ 91,000
James L. Moody, Jr. 6,525(f) $ 94,500 (g)
John J. Neuhauser 6,282 $ 91,000
George L. Shinn 7,086 $102,500
Robert L. Sullivan 6,969 $101,000
Sinclair Weeks, Jr. 7,729 $112,000
(c) At December 31, 1995, the Colonial Funds complex consisted of
33 open-end and 5 closed-end management investment company portfolios.
(d) Includes $3,357 payable in later years as deferred compensation.
(e) Includes $49,000 payable in later years as deferred compensation.
(f) Total compensation of $6,525 for the fiscal year ended December 31,
1995, will be payable in later years as deferred compensation.
(g) Total compensation of $94,500 for the calendar year ended December 31,
1995, will be payable in later years as deferred compensation.
(h) Elected as a Trustee of the Colonial Funds complex on April 21, 1995.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly
known as The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service
during the calendar year ended December 31, 1995, and of Liberty Financial Trust
(now known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty
Funds II) for the period January 1, 1995 through March 26, 1995 (i):
Total Compensation Total Compensation
From Liberty Funds I For From Liberty Funds II
The Period January 1, 1995 For The Calendar Year
Trustee through March 26, 1995 Ended December 31, 1995(j)
- ------ ---------------------- -----------------------
Robert J. Birnbaum $2,900 $16,675
James E. Grinnell 2,900 22,900
Richard W. Lowry 2,900 26,250 (k)
(i) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized into a new portfolio of Colonial Trust
III. Prior to their election as Trustees of the Colonial Funds, Messrs.
Birnbaum, Grinnell and Lowry served as Trustees of Liberty Funds II;
they continue to serve as Trustees or Directors of Liberty Funds I.
(j) At December 31, 1995, the Liberty Funds were advised by Liberty
Asset Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (an
intermediate parent of the Adviser).
(k) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and Stein Roe & Farnham Incorporated, each an
affiliate of the Adviser.
Ownership of the Fund
At March 31, 1996, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund. Merrill Lynch, Pierce Fenner &
Smith, Inc., Attn. Book Entry, 4800 Deer Lake Drive E., 3rd Floor, Jacksonville,
FL 33216, owned 8.67% of outstanding Class B shares of the Fund.
At March 31, 1996, there were 45,349 Class A and 33,971 Class B shareholders.
Sales Charges (for the fiscal years ended December 31) (in thousands)
Class A Shares
1995 1994 1993
---- ---- ----
Aggregate initial sales charges on Fund share $1,521 $3,118 $8,126
sales
Initial sales charges retained by CISI 177 $348 $570
Class B Shares
1995 1994 1993
---- ---- ----
Aggregate contingent deferred
sales charges (CDSC) on Fund redemptions
retained by CISI $2,035 $2,267 $270
12b-1 Plans, CDSCs and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and Class D. The Fund
may in the future offer other classes of shares. The Trustees have approved
12b-1 Plans pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays
CISI a service fee at an annual rate of 0.15% of the Fund's average net assets
attributed to Class A and Class B shares issued on or before January 1, 1993, a
service fee of 0.25% of the Fund's average net assets attributed to Class A, B
and Class D shares issued and outstanding thereafter and a distribution fee at
an annual rate of 0.75% of average net assets attributed to Class B and Class D
shares. CISI may use the entire amount of such fees to defray the costs of
commissions and service fees paid to financial service firms (FSFs) and for
certain other purposes. Since the distribution and service fees are payable
regardless of CISI's expenses, CISI may realize a profit from the fees. The
Plans authorize any other payments by the Fund to CISI and its affiliates
(including the Adviser) to the extent that such payments might be construed to
be indirect financing of the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. The Plans may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plans will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase. Class D shares
are offered at net asset value plus a 1.00% initial sales charge and are subject
to a 1.00% CDSC on redemptions within one year after purchase. The CDSCs are
described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions on
or amounts representing capital appreciation. In determining the applicability
and rate of any CDSC, it will be assumed that a redemption is made first of
shares representing capital appreciation, next of shares representing
reinvestment of distributions and finally of other shares held by the
shareholder for the longest period of time.
Approximately eight years after the end of the month in which a Class B share is
purchased, such share and a pro rata portion of any shares issued on the
reinvestment of distributions will be automatically converted into Class A
shares; having an equal value, which are not subject to the distribution fee.
Sales-related expenses (for the fiscal year ended December 31, 1995) (in
thousands) of CISI relating to the Fund were:
Class A Shares Class B Shares
Fees to FSFs $1,482 $5,000
Cost of sales material
relating to the Fund
(including printing and mailing expenses) 110 235
Allocated travel, entertainment
and other promotional
expenses (including advertising) 236 491
<PAGE>
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended December 31, 1995,
were 6.86% and 6.44%, respectively.
The Fund's average annual total returns at December 31, 1995, were:
<TABLE>
<CAPTION>
Class A Shares
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 14.46% 12.31% 8.75%
Without sales charge 20.17% 13.40% 9.28%
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
May 15, 1992
commencement of investment operations)
1 year through December 31, 1995
------ -------------------------
<S> <C> <C>
With applicable CDSC 14.29% (5.00% CDSC) 8.17% (3.00% CDSC)
Without CDSC 19.29% 8.84%
</TABLE>
The Fund's Class A and Class B distribution rates at December 31, 1995, based on
the most recent quarter's distribution, annualized, and the maximum offering
price at the end of the quarter, were 7.60% and 7.23%, respectively.
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian. The custodian is
responsible for safeguarding the Fund's cash and securities, receiving and
delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various SEC filings. The financial statements incorporated by
reference in this SAI have been so incorporated, and the schedule of financial
highlights included in the Prospectus has been so included in reliance upon the
report of Price Waterhouse LLP given on the authority of said firm as experts in
accounting and auditing.
The financial statements and Report of Independent Accountants appearing on
pages 6 through 30 of the December 31, 1995 Annual Report are incorporated in
this SAI by reference.
<PAGE>
INVESTMENT PORTFOLIO
DECEMBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
BONDS & NOTES - 95.8% PAR VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE FIXED-INCOME BONDS & NOTES - 38.8%
- -------------------------------------------------------------------------------------------
CONSTRUCTION - 1.3%
BUILDING CONSTRUCTION - 1.0%
Toll Corp.,
10.500% 03/15/02 $3,000 $ 3,158
USG Corp.,
9.250% 09/15/01 6,000 6,390
U.S. Home Corp.,
9.750% 06/15/03 4,500 4,601
-------
14,149
-------
SPECIAL TRADE CONTRACTORS - 0.3%
Building Materials Corp. of America,
stepped coupon, (11.750% 07/01/99)
(a) 07/01/04 7,000 4,760
-------
- -------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
NONDEPOSITORY CREDIT INSTITUTIONS
Drum Financial Corp., (b)(c)
12.875% 09/15/99 1,000 10
-------
- -------------------------------------------------------------------------------------------
MANUFACTURING - 10.1%
CHEMICALS - 1.8%
Agricultural Minerals Co., L.P.,
10.750% 09/30/03 7,200 7,884
Energy Ventures, Inc.,
10.250% 03/15/04 2,500 2,650
Huntsman Corp.,
11.000% 04/15/04 7,000 8,024
N.L. Industries, Inc.,
11.750% 10/15/03 6,340 6,768
-------
25,326
-------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.7%
Amphenol Corp.:
10.450% 11/01/01 6,000 6,600
12.750% 12/15/02 2,500 2,850
Kollmorgen Corp.,
8.750% 05/01/09 622 619
-------
10,069
-------
FABRICATED METAL - 0.1%
Haynes International, Inc.,
13.500% 08/15/99 3,000 1,980
-------
</TABLE>
6
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
FOOD & KINDRED PRODUCTS - 0.6%
Pilgrim's Pride Corp.,
10.875% 08/01/03 $ 4,600 $ 4,221
Van De Kamps, Inc.,
12.000% 09/15/05 3,750 3,881
-------
8,102
-------
LUMBER & WOOD PRODUCTS - 0.5%
Triangle Pacific Corp.,
10.500% 08/01/03 6,000 6,360
-------
MISCELLANEOUS MANUFACTURING - 1.0%
American Standard Co.,
stepped coupon, (10.500% 06/01/98)
(a) 06/01/05 11,000 9,432
Coleman Holdings Co., Series B,
(d) 05/27/98 6,000 4,845
-------
14,277
-------
PAPER PRODUCTS - 2.5%
Container Corp. of America,
Series A,
11.250% 05/01/04 7,500 7,706
Gaylord Container Corp,
stepped coupon, (12.750% 05/15/96)
(a) 05/15/05 5,000 4,900
Repap Wisconsin, Inc.,
9.875% 05/01/06 9,000 8,505
SD Warren Co.,
12.000% 12/15/04 6,500 7,118
Stone Container Corp.:
10.750% 10/01/02 2,000 2,065
11.875% 12/01/98 3,750 3,928
12.625% 07/15/98 1,000 1,060
-------
35,282
-------
PETROLEUM REFINING - 0.3%
Flores & Rucks, Inc.,
13.500% 12/01/04 3,825 4,351
-------
PRIMARY METAL - 0.5%
A.K. Steel Corp.,
10.750% 04/01/04 5,000 5,537
UCAR Global Enterprises, Inc.,
12.000% 01/15/05 1,870 2,146
-------
7,683
-------
</TABLE>
7
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT. PAR VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING - CONT
PRINTING & PUBLISHING - 0.4%
K-III Communications Corp.,
10.625% 05/01/02 $5,000 $ 5,325
-------
RUBBER & PLASTIC - 0.6%
Atlantis Group, Inc.,
11.000% 02/15/03 3,100 2,697
Berry Plastics Corp.,
12.250% 04/15/04 3,000 3,210
Calmar, Inc.,
11.500% 08/15/05(e) 1,000 1,015
Portola Packaging, Inc.,
10.750% 10/01/05 2,000 2,060
-------
8,982
-------
STONE, CLAY, GLASS & CONCRETE - 0.4%
Owens-Illinois, Inc.,
9.950% 10/15/04 6,000 6,360
-------
TEXTILE MILL PRODUCTS - 0.0%
Guilford Mills, Inc.,
6.000% 09/15/12 700 661
-------
TOBACCO PRODUCTS - 0.1%
Consolidated Cigar Corp.,
10.500% 03/01/03 1,000 1,030
-------
TRANSPORTATION EQUIPMENT - 0.6%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 2,500 2,637
Harvard Industries, Inc.,
11.125% 08/01/05 4,000 4,020
Lear Seating Corp.,
11.250% 07/15/00 1,500 1,584
-------
8,241
-------
- ----------------------------------------------------------------------------
MINING & ENERGY - 4.9%
CRUDE PETROLEUM & NATURAL GAS - 0.8%
Ferrellgas Finance Corp., L.P.,
10.000% 08/01/01 2,500 2,675
Triton Energy Corp.:
stepped coupon,
(d) 11/01/97 5,000 4,313
(d) 12/15/00 4,500 4,230
-------
11,218
-------
</TABLE>
8
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
METAL MINING - 0.3%
Freeport-McMoRan Resource
Partners,
8.750% 02/15/04 $3,500 $ 3,587
-------
OIL & GAS EXTRACTION - 3.2%
Falcon Drilling Co., Inc., Series B,
9.750% 01/15/01 5,000 5,100
Global Marine, Inc.,
12.750% 12/15/99 3,000 3,322
Gulf Canada Resources Ltd.,
9.250% 01/15/04 7,500 7,725
Maxus Energy Corp.,
9.875% 10/15/02 3,000 3,007
Mesa Capital Corp.,
12.750% 06/30/98 4,000 3,550
Occidental Petroleum Corp.,
11.750% 03/15/11 1,000 1,060
Plains Resources, Inc.,
12.000% 10/01/99 4,000 4,190
Rowan Companies, Inc.,
11.875% 12/01/01 4,000 4,340
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 7,000 7,726
TransTexas Gas Corp.
11.500% 06/15/02 3,500 3,605
Trident NGL, Inc.,
10.250% 04/15/03 2,500 2,775
-------
46,400
-------
OIL & GAS FIELD SERVICES - 0.6%
Tuboscope Vetco International
Corp.,
10.750% 04/15/03 4,000 3,960
United Meridian Corp.,
10.375% 10/15/05 3,750 3,956
-------
7,916
-------
- -------------------------------------------------------------------------------------
RETAIL TRADE - 2.1%
AUTO DEALERS & GAS STATIONS - 0.0%
Iroquois Brands Ltd., (b)(f)
12.000% 09/15/99 1,000 10
-------
FOOD STORES - 1.0%
Dominick's Finer Foods, Inc.,
10.875% 05/01/05 4,000 4,260
</TABLE>
9
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAIL TRADE - CONT
FOOD STORES - CONT
Pathmark Stores, Inc.:
stepped coupon,
(10.750% 11/01/99) (a) 11/01/03 $13,500 $ 8,269
9.625% 05/01/03 2,250 2,183
-------
14,712
-------
MISCELLANEOUS RETAIL - 1.1%
Barry's Jewelers, Inc.,
12.625% 05/15/96 3 3
Brylane Capital Corp., Series B,
10.000% 09/01/03 5,000 4,425
Finlay Fine Jewelry Corp.,
10.625% 05/01/03 5,000 4,750
Thrifty Payless Holdings, Inc.,
11.750% 04/15/03 6,000 6,510
-------
15,688
-------
SERVICES - 6.8%
AMUSEMENT & RECREATION - 2.8%
Bally's Grand, Inc., Series B,
10.375% 12/15/03 7,500 7,650
Boyd Gaming Corp.,
10.750% 09/01/03 3,000 3,135
Empress River Casino Finance Corp.,
10.750% 04/01/02 4,000 4,100
Falcon Holdings, PIK,
11.000% 09/15/03 4,555 4,373
GNF Corp.,
10.625% 04/01/03 7,000 6,510
Grand Casinos, Inc.,
10.125% 12/01/03 5,500 5,734
Trump Taj Mahal Funding, Inc., PIK,
11.350% 11/15/99 9,000 8,663
-------
40,165
-------
BUSINESS SERVICES - 0.2%
Darling International, Inc.,
11.000% 07/15/00 401 401
Figgie International, Inc.,
9.875% 10/01/99 3,000 2,992
-------
3,393
-------
HEALTH SERVICES - 2.8%
Abbey Healthcare Group, Inc.,
9.500% 11/01/02 7,000 7,455
Community Health Systems, Inc.,
10.250% 11/30/03 6,000 6,480
</TABLE>
10
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Genesis Health Ventures,
9.750% 06/15/05 $ 1,500 $ 1,582
GranCare, Inc.,
9.375% 09/15/05 5,750 5,807
HealthSouth Rehabilitation Corp.,
9.500% 04/01/01 3,500 3,732
Integrated Health Services, Inc.,
10.750% 07/15/04 3,000 3,210
OrNda Health Corp.:
11.375% 08/15/04 2,500 2,806
12.250% 05/15/02 3,000 3,300
Tenet Healthcare Corp.,
10.125% 03/01/05 5,000 5,538
-------
39,910
-------
HOTELS, CAMPS & LODGING - 1.0%
California Hotel Finance,
11.000% 12/01/02 5,000 5,300
HMC Acquisition Properties,
9.000% 12/15/07(e) 3,500 3,535
HMH Properties, Inc.,
9.500% 05/15/05 5,100 5,202
-------
14,037
-------
- ----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 13.1%
AIR TRANSPORTATION - 0.2%
World Corp., Inc.,
13.875% 08/15/97 2,500 2,506
-------
COMMUNICATIONS - 12.6%
Act III Broadcasting,
10.250% 12/15/05 8,500 8,691
Allbritton Communications Co.,
11.500% 08/15/04 7,000 7,385
Bell Cablemedia PLC,
stepped coupon,
(11.950% 07/15/99) (a) 07/15/04(g) 10,000 7,075
CAI Wireless Systems, Inc.,
12.250% 09/15/02 8,000 8,560
Cablevision Systems Corp.,
10.750% 04/01/04 5,000 5,275
Cellular Communications Units,
(d) 08/15/00(h) 2 1,537
Cencall Communications Corp.,
stepped coupon, (10.125% 01/15/99)
(a) 01/15/04 6,000 3,390
</TABLE>
11
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - CONT PAR VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT
COMMUNICATIONS - CONT
Clearnet Communicatons Units,
stepped coupon,
(14.750% 12/15/00) (a) 12/15/05 (i) $ 7 $ 3,900
Comcast Cable Partners Ltd.,
stepped coupon,
(11.200% 11/15/00) (a) 11/15/07 (g) 6,500 3,770
Comcast Corp.,
9.125% 10/15/06 2,000 2,082
Continental Cablevision, Inc.,
11.000% 06/01/07 10,000 11,187
GST Telecommunications Units,
stepped coupon,
(13.875% 12/15/00) (a) 12/15/05 (e)(j) 1 5,472
Heritage Media Corp.,
11.000% 06/15/02 1,500 1,609
International CableTel, Inc.,
stepped coupon,
(12.750% 04/15/00) (a) 04/15/05 5,500 3,492
Jones Intercable, Inc.:
9.625% 03/15/02 2,000 2,150
10.500% 03/01/08 2,500 2,737
11.500% 07/15/04 2,500 2,775
Le Groupe Videotron,
10.625% 02/15/05 3,000 3,225
Lenfest Communications, Inc.,
8.375% 11/01/05 3,750 3,750
MFS Communications Company, Inc.,
stepped coupon,
(9.375% 01/15/99) (a) 01/15/04 7,750 6,239
Metrocall, Inc.,
10.375% 10/01/07 1,500 1,598
Mobilemedia Communications, Inc.,
stepped coupon,
(10.500% 12/1/98) (a) 12/01/03 3,500 2,704
Mobilemedia Corp.,
9.375% 11/01/07 4,000 4,100
NWCG Holding Corp.,
(d) 06/15/99 6,000 4,140
Paging Network, Inc.:
8.875% 02/01/06 2,000 2,050
10.125% 08/01/07 2,000 2,180
11.750% 05/15/02 2,500 2,769
PanAmSat Corp.,
stepped coupon,
(11.375% 08/01/98) (a) 08/01/03 6,000 4,890
</TABLE>
12
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PriCellular Wireless Corp.,
stepped coupon,
(14.000% 11/15/97) (a) 11/15/01 $ 6,000 $ 5,220
Rogers Cablesystems, Inc.:
10.000% 03/15/05 3,000 3,221
10.875% 04/15/04 3,000 3,135
SCI Television, Inc.,
11.000% 06/30/05 5,000 5,313
Telewest Communication PLC,
stepped coupon,
(11.000% 10/01/00) (a) 10/01/07 (g) 9,000 5,411
USA Mobile Communications
Holdings, Inc.:
9.500% 02/01/04 3,000 2,970
14.000% 11/01/04 3,000 3,503
Viacom International, Inc.,
8.000% 07/07/06 4,000 4,080
Videotron Holding PLC,
stepped coupon:
(11.125% 07/01/99) (a) 07/01/04 (g) 13,000 9,035
(11.000% 08/15/00) (a) 08/15/05 (g) 4,000 2,490
Winstar Communications, Inc. Units,
stepped coupon,
(14.000% 10/15/00) (a) 10/15/05 (e)(k) 5 7,354
Wireless One, Inc.,Units,
13.000% 10/15/03 (l) 1 1,590
Young Broadcasting Corp.:
10.125% 02/15/05 3,000 3,169
11.750% 11/15/04 4,000 4,475
--------
179,698
--------
ELECTRIC SERVICES - 0.1%
System Energy Resources, Inc.,
11.375% 09/01/16 1,123 1,206
--------
GAS SERVICES - 0.2%
California Energy Co., Inc.,
9.875% 06/30/03 3,600 3,762
--------
- -------------------------------------------------------------------------------------------------------
WHOLESALE TRADE - 0.5%
NONDURABLE GOODS
Revlon Consumer Products Corp.,
Series B,
9.375% 04/01/01 2,000 2,025
Revlon Worldwide Corp.,
(d) 03/15/98 7,500 5,550
--------
7,575
--------
</TABLE>
13
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $591,131) $554,731
--------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 35.1% CURRENCY PAR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina Par Brady,
stepped coupon,
(5.250% 04/01/96) 5.000% 03/31/23(m) AR 55,750 31,638
Government of Finland Bond:
9.500% 03/15/04 FN 155,000 40,188
10.000% 09/15/01 FN 77,000 20,406
Kingdom of Denmark,
8.000% 05/15/03 DK 850,473 162,685
Republic of Poland (Brady),
Past Due Interest,
stepped coupon,
(4.000% 10/27/96) 3.750% 10/27/14(m) PL 45,000 28,912
Republic of South Africa,
12.000% 02/28/05 SA 110,000 26,786
Treasury Corp. of Victoria.,
12.000% 09/22/01 A$ 75,414 66,142
United Kingdom Treasury,
10.000% 09/08/03 UK 48,301 86,840
Western Australia Treasury,
12.000% 08/01/01 A$ 43,500 38,060
-------
TOTAL FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS (cost of $424,100) 501,657
-------
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - 21.9%
- --------------------------------------------------------------------------------------------
Maturities
Coupon From/To
------ -------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp.:
7.500% 2016 $ 355 369
8.000% 2006-2016 1,815 1,888
8.500% 2007-2010 1,940 2,034
8.750% 2005-2008 787 819
9.000% 2004-2022 2,164 2,279
9.250% 2007-2016 1,773 1,859
9.500% 2008-2016 1,505 1,613
9.750% 2008-2016 163 172
10.000% 2009-2019 2,207 2,411
10.500% 2011-2024 1,976 2,190
10.750% 2008-2013 2,013 2,246
11.250% 2010-2015 1,422 1,591
------
19,471
------
</TABLE>
14
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
U.S. GOVERNMENT &
AGENCY OBLIGATIONS - CONT.
- -----------------------------------------------------------------------------------------------
Maturities
Coupon From/To
------ -------
<S> <C> <C> <C> <C>
Federal National Mortgage Association:
7.500% 2003-2011 $ 1,147 $ 1,193
8.000% 2002-2009 1,467 1,532
8.250% 2007-2009 488 505
8.500% 2008-2021 3,685 3,883
9.000% 2003-2021 6,118 6,501
9.250% 2016 478 505
10.000% 2013-2016 2,016 2,215
10.500% 2007-2016 2,780 3,066
---------
19,400
---------
Government National Mortgage Association:
8.500% 2006 73 78
9.000% 2008-2017 19,616 20,937
9.500% 2009-2017 9,251 10,048
10.000% 2000-2021 3,558 3,901
10.500% 2001-2021 1,002 1,119
11.000% 2009-2016 4,309 4,870
11.750% 2013-2015 239 273
12.000% 2014 16 19
---------
41,245
---------
U.S. Treasury Bonds:
8.000% 1999 45,725 49,683
10.750% 2003 5,741 7,529
12.000% 2013 32,091 49,445
---------
106,657
---------
U.S. Treasury Notes:
10.375% 2012 50,531 69,859
11.875% 2003 40,517 56,603
---------
126,462
---------
TOTAL U.S. GOVERMENT &
AGENCY OBLIGATIONS (cost of $300,773) 313,235
---------
TOTAL BONDS & NOTES (cost of $1,316,004) 1,369,623
---------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS - 0.5% SHARES VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION - 0.1%
BUILDING CONSTRUCTION
Calton, Inc. (c) 356 156
U.S. Home Corp. (c) 31 909
-----
1,065
-----
</TABLE>
15
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
COMMON STOCKS - CONT. SHARES VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 0.2%
FOOD & KINDRED PRODUCTS - 0.1%
Darling International, Inc. (c) 27 $ 726
FoodBrands America, Inc. (c) 14 167
Spreckels Industries, Inc. (c) 70 958
------
1,851
------
PRIMARY METAL - 0.1%
LTV Corp. (c) 20 275
Texas Industries, Inc. 15 771
------
1,046
------
RETAIL TRADE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. (c) 30 833
------
MISCELLANEOUS RETAIL - 0.0%
Pharmhouse Corp. (c) 4 13
------
- -----------------------------------------------------------------------------------
SERVICES - 0.1%
HEALTH SERVICES
Total Renal Care Holdings, Inc. (c) 33 974
------
- -----------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
GAS SERVICES - 0.0%
United Gas Holdings Corp. (b)(c)(e) 30 416
------
LOCAL & SUBURBAN TRANSIT - 0.0%
Greyhound Lines, Inc., 12.50% Escrow
Receipts (b)(c) 1 (n)
------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (b)(c) 31 63
Sun Carriers, Inc. (b)(c)(e) 130 1
------
64
------
WHOLESALE TRADE - 0.0%
DURABLE GOODS
Continental Health Affiliates, Inc. (c) 530 563
------
TOTAL COMMON STOCKS (cost of $7,803) 6,825
------
PREFERRED STOCK - 0.0%
- -----------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.0%
HOLDING & OTHER INVESTMENT OFFICES
Riggs National Corp., 10.75%
(cost of $474) 19 527
------
</TABLE>
16
<PAGE>
Investment Portfolio/December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
WARRANTS - 0.0% (c)
- -----------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 0.0%
RUBBER & PLASTIC
BPC Holdings Corp. 3 $ 38
----------
- -----------------------------------------------------------------------------
MINING & ENERGY - 0.0%
OIL & GAS EXTRACTION
Forest Oil Corp. 82 72
----------
- -----------------------------------------------------------------------------
SERVICES - 0.0%
HOTELS, CAMPS & LODGING
Capital Gaming International, Inc. (e) 6 1
----------
- -----------------------------------------------------------------------------
TOTAL WARRANTS (cost of $127) 111
TOTAL INVESTMENTS - 96.3% (cost of $1,324,408)(o) 1,377,086
----------
<CAPTION>
SHORT-TERM OBLIGATIONS - 0.9% PAR
- -----------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Bankers Trust
Securities Corp., dated 12/29/95, due 01/02/96
at 5.700%, collateralized by U.S. Treasury notes
with various maturities to 2000, market
value $8,372 (repurchase proceeds $8,201) $ 8,196 8,196
Repurchase agreement with Chase Securities
Corp., dated 12/29/95, due 01/02/96 at 5.500%,
collateralized by a U.S. Treasury note
maturing in 1996, market value $4,236
(repurchase proceeds $4,146) 4,143 4,143
----------
12,339
----------
FORWARD CURRENCY CONTRACTS - 0.0%(p) (833)
- -----------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 2.8% 40,418
- -----------------------------------------------------------------------------
NET ASSETS - 100% $1,429,010
----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- -----------------------------------------------------------------------------
(a) Currently zero coupon. Shown parenthetically is the interest rate to be
paid and the date the Fund will begin accruing this rate.
(b) Represents fair value as determined in good faith under the direction of
the Trustees.
(c) This issuer is in default of certain debt covenants. Income is not being
accrued.
(d) Zero coupon bond.
17
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.:
- --------------------------------------------------------------------------------
(e) Securities exempt from registration under Rule 144A of the
Securities Act of 1993. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1995, the value of these
securities amounted to $17,794 or 1.2% of net assets.
(f) This issuer has filed under Chapter 11 of the Federal Bankruptcy Code.
Income is not being accrued.
(g) This is a British security. Par amount is stated in U.S. dollars.
(h) Each unit consists of one senior discount note and one warrant.
(i) Each unit consists of ten senior discount notes and thirty-three warrants.
(j) Each unit consists of eight senior discount notes and one convertible
bond.
(k) Each unit consists of two senior discount notes and one convertible bond.
(l) Each unit consists of one senior discount note and three warrants.
(m) Shown parenthetically is the interest rate to be paid and the date the
Fund will begin accruing this rate.
(n) Rounds to less than one.
(o) Cost for federal income tax purposes is $1,324,445.
(p) As of December 31, 1995, the Fund had entered into the following forward
currency exchange contracts:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S. $)
---------- ----------- ---------- --------------
<S> <C> <C> <C>
DK 233,390 USD 41,666 01/04/96 (213)
USD 41,833 DK 233,390 01/04/96 46
UK 14,154 USD 21,636 01/04/96 (182)
USD 21,776 UK 14,154 01/04/96 43
UK 14,154 USD 21,650 01/04/96 (169)
USD 21,776 UK 14,154 01/04/96 42
DK 233,132 USD 41,687 01/05/96 (200)
FM 69,448 USD 16,174 01/05/96 249
DK 233,390 USD 41,858 02/05/96 (111)
UK 28,308 USD 43,518 02/05/96 (338)
-----
$(833)
-----
</TABLE>
18
<PAGE>
Investment Portfolio/December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Summary of Securities
by Currency Currency Value % of Total
- -------------------------------------------------------
<S> <C> <C> <C>
United States $ 875,428 63.6
Denmark DK 162,685 11.8
Australia A$ 104,202 7.6
United Kingdom UK 86,840 6.3
Finland FN 60,594 4.4
Argentina AR 31,638 2.3
Poland PL 28,913 2.1
South Africa SA 26,786 1.9
---------- -----
$1,377,086 100.0
---------- -----
</TABLE>
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
Acronym Name
------- ----
PIK Payment-In-Kind
See notes to financial statements.
19
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1995
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $1,324,408) $ 1,377,086
Short-term obligations 12,339
----------
1,389,425
Receivable for:
Interest $ 33,431
Investments sold 6,846
Fund shares sold 1,649
Other 91 42,017
----------- ----------
Total Assets 1,431,442
LIABILITIES
Unrealized depreciation on forward
currency contracts $ 833
Payable for:
Fund shares repurchased 1,446
Accrued:
Deferred Trustees fees 7
Transfer agent Out-of-Pocket fees 40
Other 106
-----------
Total Liabilities 2,432
----------
NET ASSETS $1,429,010
----------
Net asset value & redemption price per share -
Class A ($714,961/98,974) $7.22
----------
Maximum offering price per share - Class A
($7.22/0.9525) $7.58(a)
----------
Net asset value & offering price per share -
Class B ($714,049/98,854) $7.22(b)
----------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
20
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $127,595
Dividends 341
--------
127,936
EXPENSES
Management fee $ 8,488
Service fee - Class A 1,424
Service fee - Class B 1,617
Distribution fee - Class B 4,931
Transfer agent 3,254
Bookkeeping fee 442
Trustees fee 77
Custodian fee 337
Audit fee 70
Legal fee 15
Registration fee 37
Reports to shareholders 32
Other 190 20,914
-------- --------
Net Investment Income 107,022
--------
NET REALIZED & UNREALIZED GAIN
(LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 586
Foreign currency transactions (1,864)
--------
Net Realized Loss (1,278)
Net unrealized appreciation (depreciation)
during the period on:
Investments 134,651
Foreign currency transactions (823)
--------
Net Unrealized Appreciation 133,828
--------
Net Gain 132,550
--------
Net Increase in Net Assets From Operations $239,572
--------
</TABLE>
See notes to financial statements.
21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended December 31
-------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Operations:
Net investment income $ 107,022 $ 102,096
Net realized loss (1,278) (52,069)
Net unrealized appreciation (depreciation) 133,828 (104,252)
----------- ------------
Net Increase (Decrease) from Operations 239,572 (54,225)
Distributions:
From net investment income - Class A (56,681) (56,419)
From capital Paid in - Class A -- (1,168)
In excess of net investment income - Class A -- (13)
From net investment income - Class B (50,315) (45,965)
From capital Paid in - Class B -- (951)
In excess of net investment income - Class B -- (10)
----------- ------------
132,576 (158,751)
----------- ------------
Fund Share Transactions:
Receipts for shares sold - Class A 76,500 139,735
Value of distributions reinvested - Class A 28,865 29,165
Cost of shares repurchased - Class A (94,406) (109,086)
----------- ------------
10,959 59,814
----------- ------------
Receipts for shares sold - Class B 112,405 285,091
Value of distributions reinvested - Class B 23,759 22,255
Cost of shares repurchased - Class B (95,861) (99,032)
----------- ------------
40,303 208,314
----------- ------------
Net Increase from Fund Share Transactions 51,262 268,128
----------- ------------
Total Increase 183,838 109,377
----------- ------------
NET ASSETS
Beginning of period 1,245,172 1,135,795
----------- ------------
End of period (including undistributed and net of
overdistributed net investment income of $7,974
and $23, respectively) $ 1,429,010 $ 1,245,172
----------- ------------
NUMBER OF FUND SHARES
Sold - Class A 11,030 19,709
Issued for distributions reinvested - Class A 4,151 4,270
Repurchased - Class A (13,680) (15,921)
----------- ------------
1,501 8,058
----------- ------------
Sold - Class B 16,221 40,112
Issued for distributions reinvested - Class B 3,417 3,267
Repurchased - Class B (13,902) (14,569)
----------- ------------
5,736 28,810
----------- ------------
</TABLE>
See notes to financial statements.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Strategic Income Fund (the Fund), a series of Colonial
Trust I, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund's objective is to seek as high a level
of current income and total return as is consistent with prudent risk, by
diversifying investments primarily in U.S. and foreign government and lower
rated corporate debt securities. The Fund may issue an unlimited number of
shares. The Fund offers Class A shares sold with a front-end sales charge and
Class B shares which are subject to an annual distribution fee and a contingent
deferred sales charge. Class B shares will convert to Class A shares when they
have been outstanding approximately eight years. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities (and disclosure of
contingent assets and liabilities) at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a
pricing service based upon market transactions for normal, institutional-size
trading units of similar securities. When management deems it appropriate, an
over-the-counter or exchange bid quotation is used.
Equity securities are valued at the last sale price or, in the case of unlisted
or listed securities for which there were no sales during the day, at current
quoted bid prices.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee and Class A and Class B
service fees), realized and unrealized gains (losses) are allocated to each
class proportionately on a daily basis for purposes of determining the net asset
value of each class.
Class A and Class B per share data and ratios are calculated by adjusting the
expense and net investment income per share data and ratios for the Fund for the
entire period by the service fee applicable to both Class A and Class B shares
and by the distribution fee applicable to Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis, premium and
market discount are not amortized or accreted.
The value of additional securities received as an interest payment is recorded
as income and as the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
The character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Reclassifications are made to the Fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange rates on
gains (losses) between trade and settlement dates on security transactions,
gains (losses) arising from the disposition of foreign currency and currency
gains (losses) between the accrual and payment dates on dividends and interest
income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains or losses which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are
24
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
included in net realized and unrealized gains (losses) on foreign currency
transactions. Forward currency contracts do not eliminate fluctuations in the
prices of the Fund's portfolio securities. While the maximum potential loss from
such contracts is the aggregate face value in U.S. dollars at the time the
contract was opened, exposure is typically limited to the change in value of the
contract (in U.S. dollars) over the period it remains open. Risks may also arise
if counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee based on the Fund's average net assets as
follows:
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion....... 0.65%
Over $2 billion........ 0.60%
</TABLE>
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus a percentage of the Fund's average net assets as follows:
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $50 million...... No charge
Next $950 million...... 0.035%
Next $1 billion........ 0.025%
</TABLE>
TRANSFER AGENT: Colonial Investors Service Center, Inc.(the Transfer Agent), an
affiliate of the Adviser, provides shareholder services and receives a monthly
fee equal to 0.20% annually of the Fund's average net assets and receives a
reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. For the year ended December 31, 1995, the Fund has been
advised that the Distributor retained net underwriting discounts of $177,196 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $2,035,407 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
25
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
distribution fee equal to 0.75% annually of the average net assets attributable
to Class B shares. The plan also requires the payment to the Distributor of a
service fee on Class A and Class B shares as follows:
<TABLE>
<CAPTION>
Value of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------------- ------
<S> <C>
Prior to January 1, 1993...... 0.15%
On or after January 1, 1993....... 0.25%
</TABLE>
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended December 31, 1995, purchases and
sales of investments, other than short-term obligations, were $1,086,646,751 and
$1,067,653,832, respectively, of which $225,683,153 and $198,957,157,
respectively, were U.S. government securities.
Unrealized appreciation (depreciation) at December 31, 1995, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 66,190,195
Gross unrealized depreciation (13,549,253)
------------
Net unrealized appreciation $ 52,640,942
------------
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At December 31, 1995, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
<TABLE>
<CAPTION>
Year of Capital loss
expiration carryforward
---------- ------------
<S> <C>
1996 $ 106,389,000
1997 122,574,000
1998 5,118,000
1999 36,511,000
2000 23,761,000
2001 3,442,000
2002 42,652,000
2003 18,825,000
-------------
$ 359,272,000
-------------
</TABLE>
26
<PAGE>
Notes to Financial Statements/December 31, 1995
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION - CONT.
- --------------------------------------------------------------------------------
Of the loss carryforwards expiring in 1996 and 1997, $31,908,027 and $1,549,000,
respectively, were acquired in the merger with Colonial Income Plus Fund.
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable to
shareholders as ordinary income.
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of foreign currency
exchange or the imposition of other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
At December 31, 1995, net assets consisted of:
Capital paid in $1,695,271
Undistributed net investment income 7,974
Accumulated net realized loss (326,408)
Net unrealized appreciation (depreciation) on:
Investments 52,678
Foreign currency transactions (505)
----------
$1,429,010
----------
</TABLE>
27
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 6.530 $ 6.530 $ 7.390 $ 7.390 $ 7.010 $ 7.010
--------- --------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income 0.621 0.569 0.580 0.529 0.565 0.511
Net realized and
unrealized gain (loss) 0.650 0.650 (0.848) (0.849) 0.448 0.448
--------- --------- -------- -------- -------- --------
Total from Investment
Operations 1.271 1.219 (0.268) (0.320) 1.013 0.959
--------- --------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment
income (0.581) (0.529) (0.580) (0.529) (0.585) (0.535)
In excess of net
investment income -- -- -- -- -- --
From capital paid in -- -- (0.012) (0.011) (0.048) (0.044)
--------- --------- -------- -------- -------- --------
Total distributions
declared to
shareholders (0.581) (0.529) (0.592) (0.540) (0.633) (0.579)
--------- --------- -------- -------- -------- --------
Net asset value -
End of period $ 7.220 $ 7.220 $ 6.530 $ 6.530 $ 7.390 $ 7.390
--------- --------- -------- -------- -------- --------
Total return (a) 20.17% 19.29% (3.67)% (4.40)% 14.95% 14.11%
--------- --------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18%(b) 1.97%(b) 1.21% 1.96% 1.19% 1.94%
Net investment
income 8.42%(b) 7.63%(b) 8.38% 7.63% 8.42% 7.67%
Portfolio turnover 83% 83% 78% 78% 138% 138%
Net assets at end
of period (000) $ 714,961 $ 714,049 $636,824 $608,348 $660,654 $475,141
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(b) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year ratios are net of benefits
received, if any.
28
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1992 1991
Class A Class B(a) Class A
--------- ------- --------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 7.020 $ 7.080 $ 6.050
--------- ------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.669 0.385 0.684
Net realized and
unrealized gain (loss) (0.004) (0.067) 0.966
--------- ------- --------
Total from Investment
Operations 0.665 0.318 1.650
--------- ------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.673) (0.388) (0.680)
In excess of net investment
income (0.002) -- --
From capital paid in -- -- --
--------- ------- --------
Total distributions
declared to shareholders (0.675) (0.388) (0.680)
--------- ------- --------
Net asset value -
End of period $ 7.010 $ 7.010 $ 7.020
--------- ------- --------
Total return (b) 9.77% 2.48%(c) 28.41%
--------- ------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% 1.93%(d) 1.12%
Net investment income 9.39% 8.64%(d) 10.27%
Portfolio turnover 96% 96% 48%
Net assets at end
of period (000) $ 437,380 $37,935 $424,824
</TABLE>
(a) Class B shares were initially offered on May 15, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) Not annualized.
(d) Annualized.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST I AND THE SHAREHOLDERS OF COLONIAL STRATEGIC
INCOME FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Colonial Strategic Income Fund
(a series of Colonial Trust I) at December 31, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
portfolio positions at December 31, 1995 by correspondence with the custodian
and brokers, and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 9, 1996
Part C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements:
Included in Part A
Summary of expenses
The Fund's financial history
Included in Part B
Colonial High Yield Securities Fund (CHYSF)
Investment portfolio, December 31, 1995
Statement of assets and liabilities, December 31,
1995
Statement of operations, Year ended December 31,
1995
Statement of changes in net assets, Years ended
December 31, 1995 and December 31, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Income Fund (CIF)
Investment portfolio, December 31, 1995
Statement of assets and liabilities, December 31,
1995
Statement of operations, Year ended December 31,
1995
Statement of changes in net assets, Years ended
December 31, 1995 and December 31, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Strategic Income Fund (CSIF)
Investment portfolio, December 31, 1995
Statement of assets and liabilities, December 31,
1995
Statement of operations, Year ended December 31,
1995
Statement of changes in net assets, Years ended
December 31, 1995 and December 31, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
(b) Exhibits
1. Amendment No. 3 to the Agreement and
Declaration of Trust (c)
2. By-Laws as amended (2/16/96)
3. Not applicable
4. Form of Specimen of share certificate (c)
5. (i)(a) Management Agreement between Colonial
Trust I, with respect to CHYSF and
Colonial Management Associates, Inc.
(i)(b) Management Agreement between Colonial
Trust I, with respect to CIF and Colonial
Management Associates, Inc.
(i)(c) Management Agreement between Colonial
Trust I, with respect to CSIF and Colonial
Management Associates, Inc.
6. (i)(b) Form of Distributor's Contract with
Colonial Investment Services, Inc. (e)
(ii) Form of Selling Agreement with Colonial
Investment Services (incorporated herein
by reference to Exhibit 6(b) to Post-
Effective Amendment No. 87 to the
Registration Statement of Colonial Trust
III, Registration Nos. 2-15184 and 811-
881, filed with the Commission on February
9, 1994)
(iii) Investment Account Application
(incorporated by reference)
(iv) Form of Bank and Bank Affiliated Selling
Agreement (incorporated herein by
reference to Exhibit 6(c) to Post-
Effective Amendment No. 5 to the
Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 & 811-6529,
filed with the Commission on October 11,
1994)
(v) Mutual Fund Agreement between NCNB
Securities, Inc. and Colonial Investment
Services, Inc. (incorporated herein by
reference to Exhibit 6(f) to Post-
Effective Amendment No. 3 to the
Registration Statement of Colonial
Massachusetts Tax-Exempt Trust,
Registration Statement Nos. 33-12109 & 811-
5030, filed with the Commission on May 11,
1989)
(vi) Form of Asset Retention Agreement -
(incorporated herein by reference to
Exhibit 6(e) to Post-Effective Amendment
No. 5 to the Registration Statement of
Colonial Trust VI Registration Nos. 33-
45117 & 811-6529, filed with the
Commission on
October 11, 1994)
7. Not applicable
8. (i)(c) Form of proposed Custodian Contract with
State Street Bank and Trust Company
(CHYSF, CIF) (c)
(i)(d) Form of proposed Custodian Contract with
The First National Bank of Boston (CSIF)
(c)
(i)(e) Form of proposed Custody Agreement with
The Boston Company (incorporated herein by
reference to Exhibit 8 to Post-Effective
Amendment No. 19 to the Registration
Statement of Colonial Trust II, File Nos.
2-66976 & 811-3009, filed with the
Commission on February 19, 1993)
(iii) Form of Customer, Safekeeping and
Procedural Agreements (d)
(iv) SubCustodian Agreement between State
Street Bank and Trust Company and The
First National Bank of Boston
(incorporated herein by reference to
Exhibit 8(c) to Post-Effective Amendment
No. 3 to the Registration Statement of
Colonial California Tax-Exempt Trust,
Registration Nos. 33-2640 & 811-4557,
filed with the Commission on February 26,
1988) (CHYSF, CIF)
9. (i)(d) Form of proposed Pricing and Bookkeeping
Agreement with Colonial Management
Associates, Inc.(c)
(ii) Form of Amended and Restated Shareholders'
Servicing and Transfer Agent Agreement
with Citadel Service Company, Inc. and
Colonial Management Associates, Inc.
(incorporated herein by reference to
Exhibit No. 9(a) to Post-Effective
Amendment No. 5 to the Registration
Statement of Colonial Trust VI,
Registration Statement Nos. 33-45117 & 811-
6529, filed with the Commission on October
11, 1994)
(iii) Form of proposed Agreement and Plan of
Reorganization (CHYSF) (a)
(iii)(a) Form of Agreement and Plan of
Reorganization (incorporated herein by
reference to Exhibit 9(c) to Post-
Effective Amendment No. 39 to the
Registration Statement of Colonial Income
Trust, Registration Nos. 2-34923 & 811-
1948, filed with the Commission on
February 27, 1987) (CIF)
(iii)(b) Form of Agreement and Plan of
Reorganization (CIF, CSIF) (c)
10. Opinion and Consent of Counsel (CHYSF) (b)
(i)(a) Opinion and Consent of Counsel
(incorporated herein by reference to
Exhibit 9(c) to Post-Effective Amendment
No. 39 to the Registration Statement of
Colonial Income Trust, Registration Nos. 2-
34923 & 811-1948, filed with the
Commission on February 27, 1987) (CIF)
(i)(b) Opinion and Consent of Counsel
(incorporated herein by reference to
Exhibit 10, to Post-Effective Amendment
No. 18 to the Registration Statement of
Colonial Strategic Income Trust,
Registration Nos. 2-58179 & 811-2728,
filed with the Commission on March 21,
1983 (CSIF)
11. Consent of Independent Accountants
12. Not applicable
13. Not applicable
14. (i) Form of Colonial Group of Mutual Funds
Money Purchase Pension and Profit Sharing
Plan Document and Trust Agreement
(incorporated herein by reference to
Exhibit 14(a) to Post- Effective Amendment
No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-
45117 and 811-6529, filed with the
Commission on October 11, 1994)
(ii) Form of Colonial Group of Mutual Funds
Money Purchase Pension and Profit Sharing
Establishment Book (incorporated herein by
reference to Exhibit 14(b) to Post-
Effective Amendment No. 5 to the
Registration Statement of Colonial Trust
VI Registration Nos. 33-45117 and 811-
6529, filed with the Commission on October
11, 1994)
(iii) Form of Colonial Group of Mutual Funds
Individual Retirement Account
(incorporated herein by reference to
Exhibit 14(c) to Post-Effective Amendment
No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 3-
45117 and 811-6529, filed with the
Commission on October 11, 1994)
(iv) Form of Colonial Group of Mutual Funds
Simplified Employee Plan and Salary
Reduction Simplified Employee Plan
(incorporated herein by reference to
Exhibit 14(d) to Post-Effective Amendment
No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-
45117 and 811-6529, filed with the
Commission on October 11, 1994)
(v) Form of Colonial Group of Mutual Funds
401(k) Plan Document and Trust Agreement
(incorporated herein by reference to
Exhibit 14(e) to Post-Effective Amendment
No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-
45117 and 811-6529, filed with the
Commission on October 11, 1994)
(vi) Form of Colonial Group of Mutual Funds
401(k) Plan Establishment Booklet
(incorporated herein by reference to
Exhibit 14(f) to Post-Effective Amendment
No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-
45117 and 811-6529, filed with the
Commission on October 11, 1994)
(vii) Form of Colonial Mutual Funds 401(k)
Employee Reports Booklet (incorporated
herein by reference to Exhibit 14(g) to
Post-Effective Amendment No. 5 to the
Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 and 811-
6529, filed with the Commission on October
11, 1994)
15. (i)(a) Distribution Plan adopted pursuant to
Section 12b-1 of the Investment Company
Act of 1940, incorporated by reference to
the Distributor's Contract filed as
Exhibit 6(i)(b) hereto
16. (a) Calculation of Performance Information
(CHYSF)
(b) Calculation of Yield (CHYSF)
(c) Calculation of Performance Information
(CIF)
(d) Calculation of Yield (CIF)
(e) Calculation of Performance Information
(CSIF)
(f) Calculation of Yield (CSIF)
17. (a) Financial Data Schedule (Class A)(CHYSF)
(b) Financial Data Schedule (Class B)(CHYSF)
(c) Financial Data Schedule (Class A)(CIF)
(d) Financial Data Schedule (Class B)(CIF)
(e) Financial Data Schedule (Class A)(CSIF)
(f) Financial Data Schedule (Class B)(CSIF)
18. Power of Attorney for: Robert J. Birnbaum,
Tom Bleasdale, Lora S. Collins, James E.
Grinnell, William D. Ireland, Jr., Richard
W. Lowry, William E. Mayer, James L.
Moody, Jr., John J. Neuhauser, George L.
Shinn, Robert L. Sullivan and Sinclair
Weeks, Jr. (incorporated herein by
reference to Exhibit 18 to Post-Effective
Amendment No. 42 to the Registration
Statement of Colonial Trust IV,
Registration Nos. 2-62492 and 811-2865,
filed with the Commission via EDGAR on
March 22, 1996)
(a) Incorporated by reference to Post-Effective Amendment No.
26 filed with the Commission on 3/1/85.
(b) Incorporated by reference to Post-Effective Amendment No.
27 filed with the Commission on 4/29/85.
(c) Incorporated by reference to Post-Effective Amendment No.
35 filed with the Commission on 3/3/92.
(d) Incorporated by reference to Post-Effective Amendment No.
37 filed with the Commission on 3/1/93.
(e) Incorporated by reference to Post-Effective Amendment No.
39 filed with the Commission via EDGAR on April 20, 1995.
Item 25. Persons Controlled by our under Common Control with
Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders as of
3/31/96
Shares of beneficial 22,259 Class A recordholders (CHYSF)
interest 14,668 Class B recordholders (CHYSF)
29 Class D recordholders (CHYSF)
Shares of beneficial 8,559 Class A recordholders (CIF)
interest 2,334 Class B recordholders (CIF)
Shares of beneficial 45,349 Class A recordholders (CSIF)
interest 33,971 Class B recordholders (CSIF)
Item 27. Indemnification
See Article VII of Amendment No. 3 to the Agreement
and Declaration of Trust filed as Exhibit 1 hereto.
Item 28. Business and other Connections of Investment
Adviser
The following sets forth business and other
connections of each director and officer of
Colonial Management Associates, Inc. (see next
page):
ITEM 28.
- --------
Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940
(1940 Act). Colonial Advisory Services, Inc. (CASI), an affiliate of Colonial
Management Associates, Inc., is also registered as an investment adviser under
the 1940 Act. As of the end of its fiscal year, December 31, 1995, CASI had
one institutional, corporate or other account under management or supervision,
the market value of which was approximately $31.4 million. As of the end of
its fiscal year, December 31, 1995, Colonial Management Associates, Inc. was
the investment adviser and/or administrator to 38 mutual funds in the Colonial
Group of Funds, the market value of which investment companies was
approximately $16,439.3 million. Colonial Investment Services, Inc., a
subsidiary of Colonial Management Associates, Inc., is the principal
underwriter and the national distributor of all of the funds in the Colonial
Group of Funds, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 4/11/96. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Archer, Joseph A. V.P.
Berliant, Allan V.P.
Bertelson, Lisa V.P.
Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal
Bissonette, Michael V.P. Colonial Advisory Services, V.P.
Inc.
Boatman, Bonny E. Dir.;
Sr.V.P.;
IPC Mbr.
Campbell, Kimberly V.P.
Carnabucci,
Dominick V.P.
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.;Pres.; The Colonial Group, Inc. Dir.; Pres.;
Chairman; CEO; Chrm.
CEO;IPC Mbr. Colonial Trusts I through VII Pres.
Exe. Cmte. Colonial High Income
Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Colonial Advisory Services, Dir. Chrm.,
Inc. CEO & Pres.
Colonial Investors Service
Center, Inc. Dir.
Collins, Anne V.P.
Conlin, Nancy V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Colonial Investment Services,
Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Cordes, Susan V.P.
Daniszewski, V.P. Colonial Investment Services,
Joseph J. Inc. V.P.
DiSilva, Linda V.P.
Ericson, Carl C. Dir; Sr. Colonial Intermediate High
V.P. Income Fund V.P.
Colonial Advisory Services,
Inc. V.P.
Evans, C. Frazier Dir.; Colonial Investment Services,
Sr.V.P. Inc. Sr. V.P.
Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. V.P.
Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. V.P.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Harasimowicz, V.P. Colonial Investment Services,
Stephen Inc. V.P.
Harris, David V.P. Stein Roe Global Capital Mngmt. Principal
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. V.P.
Johnson, Gordon V.P.
Koonce, Michael H. V.P.; Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec.; Municipal Trust Asst. Sec.
Asst. Colonial InterMarket Income
Clerk & Trust I Asst. Sec.
Counsel Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Colonial Investors Service
Center, Inc. Asst. Clerk
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services,
Inc. Asst. Clerk
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lilienfeld, V.P.
Jonathan
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VII Controller
Asst. Colonial High Income
Treasurer Municipal Trust Controller
Colonial InterMarket Income
Trust I Controller
Colonial Intermediate High
Income Fund Controller
Colonial Investment Grade
Municipal Trust Controller
Colonial Municipal Income
Trust Controller
MacKinnon, Dir.;
Donald S. Sr.V.P.
McCue, Gerard A. V.P. Colonial Advisory Services,
Inc. V.P.
McGregor, Dir.; Colonial Investment Services, Pres.; CEO;
Jeffrey L. Sr.V.P. Inc. Dir.
O'Brien, David V.P.
O'Neill, Charles A. Sr.V.P.; Colonial Investment Services,
Dir. Inc. Exec. V.P.
Peters, Helen F. Dir.; Colonial Advisory Services,
Sr.V.P.; Inc. Sr. V.P.
IPC Mbr.
Rao, Gita V.P.
Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Sr. V.P.
Dir.
Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Exec. Comm. Municipal Trust V.P.
Mbr. Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Seibel, Sandra L. V.P.
Shore, Janet V.P. and Colonial High Income
Compliance Municipal Trust Asst. Sec.
Offr.; Colonial InterMarket Income
IPC Mbr. Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Trusts I through VII Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Silver, Richard A. Dir.; Colonial Advisory Services,
Sr.V.P.; Inc. Treasurer
Treasurer Colonial High Income Treasurer &
& CFO Municipal Trust CFO
Colonial InterMarket Income Treasurer &
Trust I CFO
Colonial Intermediate High Treasurer &
Income Fund CFO
Colonial Investment Grade Treasurer &
Municipal Trust CFO
Colonial Municipal Income Treasurer &
Trust CFO
Colonial Trusts I through VII Treasurer &
CFO
Colonial Investors Service Treasurer
Center, Inc.
The Colonial Group, Inc. Treasurer &
CFO
Colonial Investment Services, Treasurer,
Inc. CFO & Dir.
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk
Sec.; Colonial High Income
Clrk. & Municipal Trust Secretary
Gnrl. Colonial InterMarket Income
Counsel; Trust I Secretary
IPC Mbr. Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Colonial Trusts I through VII Secretary
Colonial Investors Service
Center, Inc. Clerk
The Colonial Group, Inc. Exec. V.P.;
Clerk; General
Counsel
Colonial Investment Services, Dir., Chrmn.
Inc. Counsel; Clrk.
Stevens, Richard V.P.
Waas, Robert S. V.P.
Wallace, John V.P.- Corp. Colonial Advisory Services,
Finance and Inc. Controller
Controller
- ------------------------------------------------
*The Principal address of all of the officers and
directors of the investment adviser is One Financial
Center, Boston, MA 02111.
Item 29 Principal Underwriter
- ------- ---------------------
(a) Colonial Investment Services, Inc. a subsidiary of Colonial
Management Associates, Inc., Registrant's principal
underwriter, also acts in the same capacity to
Colonial Trust II, Colonial Trust III, Colonial Trust IV, Colonial
Trust V, Colonial Trust VI and Colonial Trust VII; and
sponsor for Colony Growth Plans (public offering of which were
discontinued June 14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
Business Address* with Principal Offices with
Underwriter Registrant
- ------------------ ------------------- --------------
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Barsokas, David Regional V.P. None
Cairns, David Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Sr. V.P. None
Donovan, John Regional V.P. None
Eckelman, Bryan Sr. V.P. None
Eldridge, Kenneth Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia G. V.P. None
Evans, C. Frazier Sr. V.P. None
Feldman, David Regional V.P. None
Flaherty, Michael Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Goldberg, Matthew Regional V.P. None
Hannon, Lisa Regional V.P. None
Harasimowicz, V.P. None
Stephen
Hayes, Mary V.P. None
Elizabeth
Hodgkins, Joseph Regional V.P. None
Howard, Craig Sr. V.P. None
Karagiannis, Sr. V.P. None
Marilyn
Kavolius, Mark Regional V.P. None
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Kilkenny Ann R. Sr. V.P. None
Lloyd, Judith H. Sr. V.P. None
McGregor, Jeffrey L. Director, CEO, None
President, COO
Meriwether, Jan V.P.
Murphy, Robert F. Sr. V.P. None
O'Neill, Charles A. Exec. V.P. None
Palmer, Laura V.P. None
Penitsch, Marilyn L. Regional V.P. None
Potter, Cheryl Regional V.P. None
Reed, Christopher B. Regional V.P. None
Ross, Gary J. Regional V.P. None
Scott, Michael W. Sr. V.P. None
Silver, Richard A. Director, Treasurer, Treasurer, CFO
CFO
Sorrells, Sr. V.P. None
Elizabeth
Stern, Arthur O. Clerk and Secretary
Counsel, Dir.,
Chairman
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
Wallace, John V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
Item 30. Location of Accounts and Records
Registrant's accounts and records required to be
maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder are in
the physical possession of the following:
Registrant
Rule 31a-1 (b) (4)
Rule 31a-2 (a) (1)
Colonial Management Associates, Inc.
One Financial Center, Boston, MA 02111
Rule 31a-1 (b) (1), (2), (3), (5), (6), (7), (8),
(9), (10), (11), (12)
Rule 31a-1 (d), (f)
Rule 31a-1 (a) (1), (2), (c), (e)
Colonial Investment Services, Inc.
One Financial Center, Boston, MA 02111
Rule 31a-1(d)
Rule 31a-2(c)
State Street Bank and Trust Company (CHYSF, CIF)
225 Franklin Street, Boston, MA 02110
Rule 31a-1 (b), (2), (3)
Rule 31a-2 (a), (2)
The First National Bank of Boston (CSIF)
100 Federal Street, Boston, MA 02110
Rule 31a-1 (b), (2), (3)
Rule 31a-2 (a), (2)
Colonial Investors Service Center, Inc.
P.O. Box 1722, Boston, MA 02105-1722
Rule 31a-1 (b) (2)
Rule 31a-1 (a) (2)
Item 31. Management Services
See Item 5, Part A and Item 16, Part B
Item 32. Undertakings
Not Applicable
Exhibit Index
Exhibit
2. By-Laws as amended (2/16/96)
5.(i)(a) Management Agreement (CHYSF)
5.(i)(b) Management Agreement (CIF)
5.(i)(c) Management Agreement (CSIF)
11. Consent of Independent Accountants
16.(a) Calculation of Performance Information (CHYSF)
16.(b) Calculation of Yield (CHYSF)
16.(c) Calculation of Performance Information (CIF)
16.(d) Calculation of Yield (CIF)
16.(e) Calculation of Performance Information (CSIF)
16.(f) Calculation of Yield (CSIF)
17.(a) Financial Data Schedule (Class A)(CHYSF)
17.(b) Financial Data Schedule (Class B)(CHYSF)
17.(c) Financial Data Schedule (Class A)(CIF)
17.(d) Financial Data Schedule (Class B)(CIF)
17.(e) Financial Data Schedule (Class A)(CSIF)
17(f) Financial Data Schedule (Class B)(CSIF)
******************
NOTICE
A copy of the Agreement and Declaration of Trust, as
amended, of Colonial Trust I is on file with the Secretary of The
Commonwealth of Massachusetts and notice is hereby given
that the instrument has been executed on behalf of the
Trust by an officer of the Trust as an officer and by its
Trustees as trustees and not individually and the
obligations of or arising out of this instrument are not
binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and
property of the Trust.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, Colonial
Trust I, certifies that it meets all of the requirements for
effectiveness of the Registration Statement pursuant to Rule
485(b) and has duly caused this Post-Effective Amendment No. 40
to its Registration Statement under the Securities Act of 1933
and the Post-Effective Amendment No. 22 under the Investment
Company Act of 1940, to be signed in this City of Boston, and The
Commonwealth of Massachusetts on the 15th day of April, 1996.
COLONIAL TRUST I
By:/s/ HAROLD W. COGGER
Harold W. Cogger,
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following
persons in their capacities and on the date indicated.
SIGNATURES TITLE DATE
/s/HAROLD W. COGGER President April 15, 1996
Harold W. Cogger
/s/RICHARD A. SILVER Treasurer and April 15, 1996
Richard A. Silver Chief
Financial Officer
/s/PETER L. LYDECKER Controller April 15, 1996
Peter L. Lydecker
/s/ROBERT J. BIRNBAUM Trustee
Robert J. Birnbaum
/s/TOM BLEASDALE Trustee
Tom Bleasdale
/s/LORA S. COLLINS Trustee
Lora S. Collins
/s/JAMES E. GRINNELL Trustee
James E. Grinnell
/s/WILLIAM D. IRELAND, Jr. Trustee MICHAEL H. KOONCE
William D. Ireland, Jr. Michael H. Koonce
Attorney-in-fact
For each Trustee
April 15, 1996
/s/RICHARD W. LOWRY Trustee
Richard W. Lowry
/s/WILLIAM E. MAYER Trustee
William E. Mayer
/s/JAMES L. MOODY, JR. Trustee
James L. Moody, Jr.
/s/JOHN J. NEUHAUSER Trustee
John J. Neuhauser
/s/GEORGE L. SHINN Trustee
George L. Shinn
/s/ROBERT L. SULLIVAN Trustee
Robert L. Sullivan
/s/SINCLAIR WEEKS, JR. Trustee
Sinclair Weeks, Jr.
Amended 10/9/92 - Sec. 11
Amended 2/16/96 - Sec. 3.1, Paragraph 2
BY-LAWS
OF
COLONIAL TRUST I
Section 1. Agreement and Declaration of Trust and Principal
Office
1.1 Agreement and Declaration of Trust. These By-Laws
shall be subject to the Agreement and Declaration of
Trust, as from time to time in effect (the "Declaration
of Trust"), of Colonial Trust I, a Massachusetts
business trust established by the Declaration of Trust
(the "Trust").
1.2 Principal Office of the Trust. The principal office of
the Trust shall be located in Boston, Massachusetts.
Section 2. Shareholders
2.1 Shareholder Meetings. A meeting of the shareholders of
the Trust or of any one or more series or classes of
shares may be called at any time by the Trustees, by
the president or, if the Trustees and the president
shall fail to call any meeting of shareholders for a
period of 30 days after written application of one or
more shareholders who hold at least 10% of all
outstanding shares of the Trust, if shareholders of all
series are required under the Declaration of Trust to
vote in the aggregate and not by individual series at
such meeting, or of any series or class, if
shareholders of such series or class are entitled under
the Declaration of Trust to vote by individual series
or class at such meeting, then such shareholders may
call such meeting. If the meeting is a meeting of the
shareholders of one or more series or classes of
shares, but not a meeting of all shareholders of the
Trust, then only the shareholders of such one or more
series or classes shall be entitled to notice of and to
vote at the meeting. Each call of a meeting shall
state the place, date, hour and purpose of the meeting.
2.2 Place of Meetings. All meetings of the shareholders
shall be held at the principal office of the Trust, or,
to the extent permitted by the Declaration of Trust, at
such other place within the United States as shall be
designated by the Trustees or the president of the
Trust.
2.3 Notice of Meetings. A written notice of each meeting
of shareholders, stating the place, date and hour and
the purposes of the meeting, shall be given at least
seven days before the meeting to each shareholder
entitled to vote thereat by leaving such notice with
him or her or at his or her residence or usual place of
business or by mailing it, postage prepaid, and
addressed to such shareholder at his or her address as
it appears in the records of the Trust. Such notice
shall be given by the secretary or an assistant
secretary or by an officer designated by the Trustees.
No notice of any meeting of shareholders need be given
to a shareholder if a written waiver of notice,
executed before or after the meeting by such
shareholder or his or her attorney thereunto duly
authorized, is filed with the records of the meeting.
2.4 Ballots. No ballot shall be required for any election
unless requested by a shareholder present or
represented at the meeting and entitled to vote in the
election.
2.5 Proxies. Shareholders entitled to vote may vote either
in person or by proxy in writing dated not more than
six months before the meeting named therein, which
proxies shall be filed with the secretary or other
person responsible to record the proceedings of the
meeting before being voted. Unless otherwise
specifically limited by their terms, such proxies shall
entitle the holders thereof to vote at any adjournment
of such meeting but shall not be valid after the final
adjournment of such meeting. The placing of a
shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify
that such instructions have been authorized by such
shareholder shall constitute execution of such proxy by
or on behalf of such shareholder.
Section 3. Trustees
3.1 Committees and Advisory Board. The Trustees may
appoint from their number an executive committee and
other committees. Except as the Trustees may otherwise
determine, any such committee may make rules for
conduct of its business. The Trustees may appoint an
advisory board to consist of not less than two nor more
than five members. The members of the advisory board
shall be compensated in such manner as the Trustees may
determine and shall confer with and advise the Trustees
regarding the investments and other affairs of the
Trust. Each member of the advisory board shall hold
office until the first meeting of the Trustees
following the next meeting of the shareholders and
until his or her successor is elected and qualified, or
until he or she sooner dies, resigns, is removed or
becomes disqualified, or until the advisory board is
sooner abolished by the Trustees.
In addition, the Trustees may appoint a Dividend
Committee of not less than three persons, who may (but
need not) be Trustees.
No special compensation shall be payable to members of
the Dividend Committee. Each member of the Dividend
Committee will hold office until the successors are
elected and qualified or until the member dies,
resigns, is removed, becomes disqualified or until the
Committee is abolished by the Trustees.
3.2 Regular Meetings. Regular meetings of the Trustees may
be held without call or notice at such places and at
such times as the Trustees may from time to time
determine, provided that notice of the first regular
meeting following any such determination shall be given
to absent Trustees.
3.3 Special Meetings. Special meetings of the Trustees may
be held at any time and at any place designated in the
call of the meeting, when called by the president or
the treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the
secretary or an assistant secretary or by the officer
or one of the Trustees calling the meeting.
3.4 Notice. It shall be sufficient notice to a Trustee to
send notice by mail at least forty-eight hours or by
telegram at least twenty-four hours before the meeting
addressed to the Trustee at his or her usual or last
known business or residence address or to give notice
to him or her in person or by telephone at least twenty-
four hours before the meeting. Notice of a meeting
need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the
meeting, is filed with the records of the meeting, or
to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the
lack of notice to him or her. Neither notice of a
meeting nor a waiver of a notice need specify the
purposes of the meeting.
3.5 Quorum. At any meeting of the Trustees one-third of
the Trustees then in office shall constitute a quorum;
provided, however, a quorum shall not be less than two.
Any meeting may be adjourned from time to time by a
majority of the votes cast upon the question, whether
or not a quorum is present, and the meeting may be held
as adjourned without further notice.
Section 4. Officers and Agents
4.1 Enumeration; Qualification. The officers of the Trust
shall be a president, a treasurer, a secretary and such
other officers, if any, as the Trustees from time to
time may in their discretion elect or appoint. The
Trust may also have such agents, if any, as the
Trustees from time to time may in their discretion
appoint. Any officer may be but none need be a Trustee
or shareholder. Any two or more offices may be held by
the same person.
4.2 Powers. Subject to the other provisions of these By-
Laws, each officer shall have, in addition to the
duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly
incident to his or her office as if the Trust were
organized as a Massachusetts business corporation and
such other duties and powers as the Trustees may from
time to time designate, including without limitation
the power to make purchases and sales of portfolio
securities of the Trust pursuant to recommendations of
the Trust's investment adviser in accordance with the
policies and objectives of that series of shares set
forth in its prospectus and with such general or
specific instructions as the Trustees may from time to
time have issued.
4.3 Election. The president, the treasurer and the
secretary shall be elected annually by the Trustees.
Other elected officers are elected by the Trustees.
Assistant officers are appointed by the elected
officers.
4.4 Tenure. The president, the treasurer and the secretary
shall hold office until their respective successors are
chosen and qualified, or in each case until he or she
sooner dies, resigns, is removed or becomes
disqualified. Each other officer shall hold office at
the pleasure of the Trustees. Each agent shall retain
his or her authority at the pleasure of the Trustees.
4.5 President and Vice Presidents. The president shall be
the chief executive officer of the Trust. The
president shall preside at all meetings of the
shareholders and of the Trustees at which he or she is
present, except as otherwise voted by the Trustees.
Any vice president shall have such duties and powers as
shall be designated from time to time by the Trustees.
4.6 Treasurer and Controller. The treasurer shall be the
chief financial officer of the Trust and subject to any
arrangement made by the Trustees with a bank or trust
company or other organization as custodian or transfer
or shareholder services agent, shall be in charge of
its valuable papers and shall have such other duties
and powers as may be designated from time to time by
the Trustees or by the president. Any assistant
treasurer shall have such duties and powers as shall be
designated from time to time by the Trustees.
The controller shall be the chief accounting officer of
the Trust and shall be in charge of its books of
account and accounting records. The controller shall
be responsible for preparation of financial statements
of the Trust and shall have such other duties and
powers as may be designated from time to time by the
Trustees or the president.
4.7 Secretary and Assistant Secretaries. The secretary
shall record all proceedings of the shareholders and
the Trustees in books to be kept therefor, which books
shall be kept at the principal office of the Trust. In
the absence of the secretary from any meeting of
shareholders or Trustees, an assistant secretary, or if
there be none or he or she is absent, a temporary clerk
chosen at the meeting shall record the proceedings
thereof in the aforesaid books.
Section 5. Resignations and Removals
Any Trustee, officer or advisory board member may resign at
any time by delivering his or her resignation in writing to
the president, the treasurer or the secretary or to a
meeting of the Trustees. The Trustees may remove any
officer elected by them with or without cause by the vote of
a majority of the Trustees then in office. Except to the
extent expressly provided in a written agreement with the
Trust, no Trustee, officer, or advisory board member
resigning, and no officer or advisory board member removed
shall have any right to any compensation for any period
following his or her resignation or removal, or any right to
damages on account of such removal.
Section 6. Vacancies
A vacancy in any office may be filled at any time. Each
successor shall hold office for the unexpired term, and in
the case of the presidents, the treasurer and the secretary,
until his or her successor is chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed
or becomes disqualified.
Section 7. Shares of Beneficial Interest
7.1 Share Certificates. No certificates certifying the
ownership of shares shall be issued except as the
Trustees may otherwise authorize. In the event that
the Trustees authorize the issuance of share
certificates, subject to the provisions of Section 7.3,
each shareholder shall be entitled to a certificate
stating the number of shares owned by him or her, in
such form as shall be prescribed from time to time by
the Trustees. Such certificate shall be signed by the
president or a vice president and by the treasurer or
an assistant treasurer. Such signatures may be
facsimiles if the certificate is signed by a transfer
agent or by a registrar, other than a Trustee, officer
or employee of the Trust. In case any officer who has
signed or whose facsimile signature has been placed on
such certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by
the Trust with the same effect as if he or she were
such officer at the time of its issue.
In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue
receipts therefor or keep accounts upon the books of
the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes
hereunder, to be the holders of certificates for such
shares as if they had accepted such certificates and
shall be held to have expressly assented and agreed to
the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss
or destruction or the mutilation of a share
certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees may
prescribe.
7.3 Discontinuance of Issuance of Certificates. The
Trustees may at any time discontinue the issuance of
share certificates and may, by written notice to each
shareholder, require the surrender of share
certificates to the Trust for cancellation. Such
surrender and cancellation shall not affect the
ownership of shares in the Trust.
Section 8. Record Date and Closing Transfer Books
The Trustees may fix in advance a time, which shall not be
more than 90 days before the date of any meeting of
shareholders or the date for the payment of any dividend or
making of any other distribution to shareholders, as the
record date for determining the shareholders having the
right to notice and to vote at such meeting and any
adjournment thereof or the right to receive such dividend or
distribution, and in such case only shareholders of record
on such record date shall have such right, notwithstanding
any transfer of shares on the books of the Trust after the
record date; or without fixing such record date the Trustees
may for any of such purposes close the transfer books for
all or any part of such period.
Section 9. Seal
The seal of the Trust shall, subject to alteration by the
Trustees, consist of a flat-faced circular die with the word
"Massachusetts" together with the name of the Trust and the
year of its organization, cut or engraved thereon; but,
unless otherwise required by the Trustees, the seal shall
not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other
paper executed and delivered by or on behalf of the Trust.
Section 10. Execution of Papers
Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all
deeds, leases, transfers, contracts, bonds, notes, checks,
drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and all transfers of securities
standing in the name of the Trust shall be executed, by the
president or by one of the vice presidents or by the
treasurer or by whomsoever else shall be designated for that
purpose by the vote of the Trustees and need not bear the
seal of the Trust.
Section 11. Fiscal Year
Except as from time to time otherwise provided by the
Trustees, President, Secretary, Controller or Treasurer, the
fiscal year of the Trust shall end on December 31.
Section 12. Amendments
These By-Laws may be amended or repealed, in whole or in
part, by a majority of the Trustees then in office at any
meeting of the Trustees, or by one or more writings signed
by such a majority.
MANAGEMENT AGREEMENT
AGREEMENT dated as of March 27, 1995, between COLONIAL TRUST I, a
Massachusetts business trust (Trust), with respect to COLONIAL
HIGH YIELD SECURITIES FUND (Fund), and COLONIAL MANAGEMENT
ASSOCIATES, INC., a Massachusetts corporation (Adviser).
In consideration of the promises and covenants herein, the
parties agree as follows:
1. The Adviser will manage the investment of the assets of the
Fund in accordance with its prospectus and statement of
additional information and will perform the other services
herein set forth, subject to the supervision of the Board of
Trustees of the Trust. The Adviser may delegate its
investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the
Adviser shall:
(a) evaluate such economic, statistical and financial
information and undertake such investment research as it
shall believe advisable; (b) purchase and sell securities and
other investments for the Fund in accordance with the
procedures described in its prospectus and statement of
additional information; and (c) report results to the Board
of Trustees of the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b)
executive and other personnel for managing the affairs of the
Fund (including preparing financial information of the Fund
and reports and tax returns required to be filed with public
authorities, but exclusive of those related to custodial,
transfer, dividend and plan agency services, determination of
net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as
amended, and the rules thereunder (1940 Act)); and (c)
compensation of Trustees who are directors, officers,
partners or employees of the Adviser or its affiliated
persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to
others so long as its services hereunder are not impaired
thereby.
5. The Fund shall pay the Adviser monthly a fee at the annual
rate of 0.60% of the average daily net assets of the Fund.
6. If the operating expenses of the Fund for any fiscal year
exceed the most restrictive applicable expense limitation for
any state in which shares are sold, the Adviser's fee shall
be reduced by the excess but not to less than zero.
Operating expenses shall not include brokerage, interest,
taxes, deferred organization expenses, Rule 12b-1
distribution fees, service fees and extraordinary expenses,
if any. The Adviser may waive its compensation (and bear
expenses of the Fund) to the extent that expenses of the Fund
exceed any expense limitation the Adviser declares to be
effective.
7. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, shall continue until two
years from its date of execution and from year to year
thereafter so long as approved annually in accordance with
the 1940 Act; (b) may be terminated without penalty on
sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority
of the outstanding shares of the Fund; (c) shall
automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Adviser on
sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940
Act.
9. For the purpose of the Agreement, the terms "vote of a
majority of the outstanding shares", "affiliated person" and
"assignment" shall have their respective meanings defined in
the 1940 Act and exemptions and interpretations issued by the
Securities and Exchange Commission under the 1940 Act.
10 In the absence of willful misfeasance, bad faith or gross
. negligence on the part of the Adviser, or reckless disregard
of its obligations and duties hereunder, the Adviser shall
not be subject to any liability to the Trust or the Fund, to
any shareholder of the Trust or the Fund or to any other
person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST I on behalf of
COLONIAL HIGH YIELD SECURITIES FUND
By: PETER L. LYDECKER
-----------------
Title: Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: ARTHUR O. STERN
---------------
Title: Executive Vice President
A copy of the document establishing the Trust is filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement
is executed by officers not as individuals and is not binding
upon any of the Trustees, officers or shareholders of the Trust
individually but only upon the assets of the Fund.
funds/general/contract/chysfman
MANAGEMENT AGREEMENT
AGREEMENT dated as of March 27, 1995, between COLONIAL TRUST I, a
Massachusetts business trust (Trust), with respect to COLONIAL
INCOME FUND (Fund), and COLONIAL MANAGEMENT ASSOCIATES, INC., a
Massachusetts corporation (Adviser).
In consideration of the promises and covenants herein, the
parties agree as follows:
1. The Adviser will manage the investment of the assets of the
Fund in accordance with its prospectus and statement of
additional information and will perform the other services
herein set forth, subject to the supervision of the Board of
Trustees of the Trust. The Adviser may delegate its
investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the
Adviser shall:
(a) evaluate such economic, statistical and financial
information and undertake such investment research as it
shall believe advisable; (b) purchase and sell securities and
other investments for the Fund in accordance with the
procedures described in its prospectus and statement of
additional information; and (c) report results to the Board
of Trustees of the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b)
executive and other personnel for managing the affairs of the
Fund (including preparing financial information of the Fund
and reports and tax returns required to be filed with public
authorities, but exclusive of those related to custodial,
transfer, dividend and plan agency services, determination of
net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as
amended, and the rules thereunder (1940 Act)); and (c)
compensation of Trustees who are directors, officers,
partners or employees of the Adviser or its affiliated
persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to
others so long as its services hereunder are not impaired
thereby.
5. The Fund shall pay the Adviser monthly a fee at the annual
rate of 0.50% of the average daily net assets of the Fund.
6. If the operating expenses of the Fund for any fiscal year
exceed the most restrictive applicable expense limitation for
any state in which shares are sold, the Adviser's fee shall
be reduced by the excess but not to less than zero.
Operating expenses shall not include brokerage, interest,
taxes, deferred organization expenses, Rule 12b-1
distribution fees, service fees and extraordinary expenses,
if any. The Adviser may waive its compensation (and bear
expenses of the Fund) to the extent that expenses of the Fund
exceed any expense limitation the Adviser declares to be
effective.
7. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, shall continue until two
years from its date of execution and from year to year
thereafter so long as approved annually in accordance with
the 1940 Act; (b) may be terminated without penalty on
sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority
of the outstanding shares of the Fund; (c) shall
automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Adviser on
sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940
Act.
9. For the purpose of the Agreement, the terms "vote of a
majority of the outstanding shares", "affiliated person" and
"assignment" shall have their respective meanings defined in
the 1940 Act and exemptions and interpretations issued by the
Securities and Exchange Commission under the 1940 Act.
10 In the absence of willful misfeasance, bad faith or gross
. negligence on the part of the Adviser, or reckless disregard
of its obligations and duties hereunder, the Adviser shall
not be subject to any liability to the Trust or the Fund, to
any shareholder of the Trust or the Fund or to any other
person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST I on behalf of
COLONIAL INCOME FUND
By: PETER L. LYDECKER
-----------------
Title: Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: ARTHUR O. STERN
----------------
Title: Executive Vice President
A copy of the document establishing the Trust is filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement
is executed by officers not as individuals and is not binding
upon any of the Trustees, officers or shareholders of the Trust
individually but only upon the assets of the Fund.
MANAGEMENT AGREEMENT
AGREEMENT dated as of March 27, 1995, between COLONIAL TRUST I, a
Massachusetts business trust (Trust), with respect to COLONIAL
STRATEGIC INCOME FUND (Fund), and COLONIAL MANAGEMENT ASSOCIATES,
INC., a Massachusetts corporation (Adviser).
In consideration of the promises and covenants herein, the
parties agree as follows:
1. The Adviser will manage the investment of the assets of the
Fund in accordance with its prospectus and statement of
additional information and will perform the other services
herein set forth, subject to the supervision of the Board of
Trustees of the Trust. The Adviser may delegate its
investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the
Adviser shall:
(a) evaluate such economic, statistical and financial
information and undertake such investment research as it
shall believe advisable; (b) purchase and sell securities and
other investments for the Fund in accordance with the
procedures described in its prospectus and statement of
additional information; and (c) report results to the Board
of Trustees of the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b)
executive and other personnel for managing the affairs of the
Fund (including preparing financial information of the Fund
and reports and tax returns required to be filed with public
authorities, but exclusive of those related to custodial,
transfer, dividend and plan agency services, determination of
net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as
amended, and the rules thereunder (1940 Act)); and (c)
compensation of Trustees who are directors, officers,
partners or employees of the Adviser or its affiliated
persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to
others so long as its services hereunder are not impaired
thereby.
5. The Fund shall pay the Adviser monthly a fee at the annual
rate of 0.65% of the first $1 billion of the average daily
net assets of the Fund and 0.60% in excess of $1 billion.
6. If the operating expenses of the Fund for any fiscal year
exceed the most restrictive applicable expense limitation for
any state in which shares are sold, the Adviser's fee shall
be reduced by the excess but not to less than zero.
Operating expenses shall not include brokerage, interest,
taxes, deferred organization expenses, Rule 12b-1
distribution fees, service fees and extraordinary expenses,
if any. The Adviser may waive its compensation (and bear
expenses of the Fund) to the extent that expenses of the Fund
exceed any expense limitation the Adviser declares to be
effective.
7. This Agreement shall become effective as of the date of its
execution, and
(a) unless otherwise terminated, shall continue until two
years from its date of execution and from year to year
thereafter so long as approved annually in accordance with
the 1940 Act; (b) may be terminated without penalty on
sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority
of the outstanding shares of the Fund; (c) shall
automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Adviser on
sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940
Act.
9. For the purpose of the Agreement, the terms "vote of a
majority of the outstanding shares", "affiliated person" and
"assignment" shall have their respective meanings defined in
the 1940 Act and exemptions and interpretations issued by the
Securities and Exchange Commission under the 1940 Act.
10 In the absence of willful misfeasance, bad faith or gross
. negligence on the part of the Adviser, or reckless disregard
of its obligations and duties hereunder, the Adviser shall
not be subject to any liability to the Trust or the Fund, to
any shareholder of the Trust or the Fund or to any other
person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST I on behalf of
COLONIAL STRATEGIC INCOME FUND
By: PETER L. LYDECKER
-----------------
Title: Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: ARTHUR O. STERN
---------------
Title: Executive Vice President
A copy of the document establishing the Trust is filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement
is executed by officers not as individuals and is not binding
upon any of the Trustees, officers or shareholders of the Trust
individually but only upon the assets of the Fund.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 40 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated February 9, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 Annual
Reports to Shareholders of Colonial High Yield Securities Fund, Colonial
Income Fund and Colonial Strategic Income Fund, each a series of Colonial
Trust I, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under
the headings "The Fund's Financial History" in the Prospectuses and
"Independent Accountants" in the Statements of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
April 12, 1996
<TABLE>
<CAPTION>
PERFORMANCE CALCULATION
COLONIAL HIGH YIELD SECURITIES FUND - CLASS A SHARES
Year End: 12/31/95
1 YEAR ENDED 12/31/95 5 YEARS ENDED 12/31/95 10 YEARS ENDED 12/31/95
Standard Non-Standard Standard Non-Standard Standard Non-Standard
------------- --------------- ----------- ------------------ ------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 4.75% 4.75% 4.75%
Amt. Invested $952.50 $1,000.00 $952.50 $1,000.00 $952.50 $1,000.00
Initial NAV $6.30 $6.30 $4.64 $4.64 $7.55 $7.55
Initial Shares 151.190 158.730 205.280 215.517 126.159 132.450
Shares From Dis 14.820 15.560 139.898 146.871 271.745 285.291
End of Period N $6.75 $6.75 $6.75 $6.75 $6.75 $6.75
Total Return 12.06% 17.65% 133.00% 144.61% 168.59% 181.98%
Average Annual
Total Return 12.06% 17.65% 18.43% 19.59% 10.38% 10.92%
</TABLE>
<TABLE>
<CAPTION>
3/20/96 /WLK
PERFORMANCE CALCULATION
COLONIAL HIGH YIELD SECURITIES - CLASS B
Year End: 12/31/95
Inception Date: 6/8/92
SINCE INCEPTION
1 YEAR ENDED 12/31/95 6/8/92 TO 12/31/95
Standard Non-Standard Standard Non-Standard
---------- ------------------ --------- ------------------
<S> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00 $1,000.00 $1,000.00
Initial NAV $6.30 $6.30 $6.36 $6.36
Initial Shares 158.730 158.730 157.233 157.233
Shares From Dist. 14.280 14.280 58.785 58.785
End of Period NAV $6.75 $6.75 $6.75 $6.75
CDSC 5.00% 3.00%
Total Return 11.78% 16.78% 42.81% 45.81%
Average Annual
Total Return 11.78% 16.78% 10.51% 11.15%
</TABLE>
WLK/ 03/20/96
COLONIAL HIGH YIELD SECURITIES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 12/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
a = dividends and interest earned during
the month ................................ $6,481,394
b = expenses (exclusive of distribution fee)
accrued during the month.................. 823,277
c = average dividend shares outstanding
during the month ......................... 120,142,291
d = class A maximum offering price per share
on the last day of the month ............. $7.09
CLASS A YIELD ........................... 8.10%
======
CLASS B YIELD ........................... 7.75%
======
WLK/ 3/20/96
<TABLE>
<CAPTION>
PERFORMANCE CALCULATION
COLONIAL INCOME FUND - CLASS A SHARES
Fiscal Year End: 12/31/95
1 YEAR ENDED 12/31/95 5 YEARS ENDED 12/31/95 10 YEARS ENDED 12/31/95
Standard Non-Standard Standard Non-Standard Standard Non-Standard
------------ ------------------ ------------ ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 4.75% 4.75% 4.75%
Amt. Invested $952.50 $1,000.00 $952.50 $1,000.00 $952.50 $1,000.00
Initial NAV $5.95 $5.95 $5.97 $5.97 $7.18 $7.18
Initial Shares 160.084 168.067 159.548 167.504 132.660 139.276
Shares From Dist. 12.478 13.103 80.224 84.224 203.583 213.741
End of Period NAV $6.64 $6.64 $6.64 $6.64 $6.64 $6.64
Total Return 14.58% 20.30% 59.21% 67.15% 123.27% 134.40%
Average Annual
Total Return 14.58% 20.30% 9.75% 10.82% 8.36% 8.89%
</TABLE>
WLK/ 3/20/96
<TABLE>
<CAPTION>
PERFORMANCE CALCULATION
COLONIAL INCOME FUND - CLASS B
Fiscal Year End: 12/31/95
Inception Date: 5/15/92
SINCE INCEPTION
1 YEAR ENDED 12/31/95 5/15/92 TO 12/31/95
Standard Non-Standard Standard Non-Standard
------------ ------------------ ------------ ------------------
<S> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00 $1,000.00 $1,000.00
Initial NAV $5.95 $5.95 $6.39 $6.39
Initial Shares 168.067 168.067 156.495 156.495
Shares From Dist. 11.779 11.779 45.335 45.335
End of Period NAV $6.64 $6.64 $6.64 $6.64
CDSC 5.00% 3.00%
Total Return 14.42% 19.42% 31.01% 34.01%
Average Annual
Total Return 14.42% 19.42% 7.72% 8.39%
</TABLE>
20-Mar-96 /WLK
COLONIAL INCOME FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 12/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
a = dividends and interest earned during
the month ................................ $1,031,289
b = expenses (exclusive of distribution fee)
accrued during the month.................. 161,825
c = average dividend shares outstanding
during the month ......................... 27,126,362
d = class A maximum offering price per share
on the last day of the month ............. $6.97
CLASS A YIELD ........................... 5.58%
=======
CLASS B YIELD ........................... 5.10%
=======
3/20/96
<TABLE>
<CAPTION>
PERFORMANCE CALCULATION
COLONIAL STRATEGIC INCOME FUND - CLASS A SHARES
Fiscal Year End: 12/31/95
1 YEAR ENDED 12/31/95 5 YEARS ENDED 12/31/95 10 YEARS ENDED 12/31/95
Standard Non-Standard Standard Non-Standard Standard Non-Standard
------------- ------------------- -------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 4.75% 4.75% 4.75%
Amt. Invested $952.50 $1,000.00 $952.50 $1,000.00 $952.50 $1,000.00
Initial NAV $6.53 $6.53 $6.05 $6.05 $8.29 $8.29
Initial Shares 145.865 153.139 157.438 165.289 114.897 120.627
Shares From Dist. 12.666 13.299 89.997 94.489 205.672 215.930
End of Period NAV $7.22 $7.22 $7.22 $7.22 $7.22 $7.22
Total Return 14.46% 20.17% 78.65% 87.56% 131.45% 142.99%
Average Annual
Total Return 14.46% 20.17% 12.31% 13.40% 8.75% 9.28%
</TABLE>
3/20/96
PERFORMANCE CALCULATION
<TABLE>
<CAPTION>
COLONIAL STRATEGIC INCOME FUND - CLASS B
Fiscal Year End: 12/31/95
Inception Date: 5/15/92
SINCE INCEPTION
1 YEAR ENDED 12/31/95 5/15/92 TO 12/31/95
Standard Non-Standard Standard Non-Standard
------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00 $1,000.00 $1,000.00
Initial NAV $6.53 $6.53 $7.08 $7.08
Initial Shares 153.139 153.139 141.243 141.243
Shares From Dist. 12.076 12.076 47.151 47.151
End of Period NAV $7.22 $7.22 $7.22 $7.22
CDSC 5.00% 3.00%
Total Return 14.29% 19.29% 33.02% 36.02%
Average Annual
Total Return 14.29% 19.29% 8.17% 8.84%
</TABLE>
20-Mar-96 /WLK
COLONIAL STRATEGIC INCOME FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 12/31/95
a-b 6
FUND YIELD = 2 ----- +1 -1
c-d
a = dividends and interest earned during
the month ................................ $9,880,680
b = expenses (exclusive of distribution fee)
accrued during the month.................. 1,464,436
c = average dividend shares outstanding
during the month ......................... 197,067,618
d = class A maximum offering price per share
on the last day of the month ............. $7.58
CLASS A YIELD ........................... 6.86%
=======
CLASS B YIELD ........................... 6.44%
=======
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YIELD SECURITIES FUND, CLASS A YEAR END DEC-31-1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL HIGH YIELD SECURITIES FUND, CLASS A
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST I
<SERIES>
<NUMBER> 1
<NAME> COLONIAL HIGH YIELD SECURITIES FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 781696
<INVESTMENTS-AT-VALUE> 808605
<RECEIVABLES> 21266
<ASSETS-OTHER> 39
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 829910
<PAYABLE-FOR-SECURITIES> 9811
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2126
<TOTAL-LIABILITIES> 11937
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 524006
<SHARES-COMMON-STOCK> 69210
<SHARES-COMMON-PRIOR> 61852
<ACCUMULATED-NII-CURRENT> 99
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (74598)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26909
<NET-ASSETS> 817973
<DIVIDEND-INCOME> 272
<INTEREST-INCOME> 76048
<OTHER-INCOME> 0
<EXPENSES-NET> 11149
<NET-INVESTMENT-INCOME> 65171
<REALIZED-GAINS-CURRENT> (6731)
<APPREC-INCREASE-CURRENT> 57931
<NET-CHANGE-FROM-OPS> 116371
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40139
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 922
<NUMBER-OF-SHARES-SOLD> 19185
<NUMBER-OF-SHARES-REDEEMED> 14576
<SHARES-REINVESTED> 2749
<NET-CHANGE-IN-ASSETS> 174744
<ACCUMULATED-NII-PRIOR> 340
<ACCUMULATED-GAINS-PRIOR> (66269)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4423
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11149
<AVERAGE-NET-ASSETS> 436795
<PER-SHARE-NAV-BEGIN> 6.300
<PER-SHARE-NII> 0.615
<PER-SHARE-GAIN-APPREC> 0.452
<PER-SHARE-DIVIDEND> 0.603
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.014
<PER-SHARE-NAV-END> 6.750
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YILED SECURITIES FUND, CLASS B YEAR END DEC-31-1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL HIGH YILED SECURITIES FUND, CLASS B YEAR END DEC-31-1995
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST I
<SERIES>
<NUMBER> 1
<NAME> COLONIAL HIGH YIELD SECURITIES FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 781696
<INVESTMENTS-AT-VALUE> 808605
<RECEIVABLES> 21266
<ASSETS-OTHER> 39
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 829910
<PAYABLE-FOR-SECURITIES> 9811
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2126
<TOTAL-LIABILITIES> 11937
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 341557
<SHARES-COMMON-STOCK> 54043
<SHARES-COMMON-PRIOR> 40218
<ACCUMULATED-NII-CURRENT> 99
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (74598)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26909
<NET-ASSETS> 817973
<DIVIDEND-INCOME> 272
<INTEREST-INCOME> 76048
<OTHER-INCOME> 0
<EXPENSES-NET> 11149
<NET-INVESTMENT-INCOME> 65171
<REALIZED-GAINS-CURRENT> (6731)
<APPREC-INCREASE-CURRENT> 57931
<NET-CHANGE-FROM-OPS> 116371
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25372
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 583
<NUMBER-OF-SHARES-SOLD> 17179
<NUMBER-OF-SHARES-REDEEMED> 7357
<SHARES-REINVESTED> 2003
<NET-CHANGE-IN-ASSETS> 174744
<ACCUMULATED-NII-PRIOR> 340
<ACCUMULATED-GAINS-PRIOR> (66269)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4423
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11149
<AVERAGE-NET-ASSETS> 300624
<PER-SHARE-NAV-BEGIN> 6.300
<PER-SHARE-NII> 0.066
<PER-SHARE-GAIN-APPREC> 0.452
<PER-SHARE-DIVIDEND> 0.555
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.013
<PER-SHARE-NAV-END> 6.750
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL INCOME FUND, CLASS A YEAR END DEC-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
INCOME FUND, CLASS A YEAR END DEC-31-1995.
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST I
<SERIES>
<NUMBER> 2
<NAME> COLONIAL INCOME FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 168865
<INVESTMENTS-AT-VALUE> 179148
<RECEIVABLES> 3075
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 182252
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 215
<TOTAL-LIABILITIES> 215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153530
<SHARES-COMMON-STOCK> 21671
<SHARES-COMMON-PRIOR> 21776
<ACCUMULATED-NII-CURRENT> 56
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19238)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10283
<NET-ASSETS> 182037
<DIVIDEND-INCOME> 14414
<INTEREST-INCOME> 100
<OTHER-INCOME> 0
<EXPENSES-NET> 2084
<NET-INVESTMENT-INCOME> 12430
<REALIZED-GAINS-CURRENT> 847
<APPREC-INCREASE-CURRENT> 17487
<NET-CHANGE-FROM-OPS> 30764
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10607
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4064
<NUMBER-OF-SHARES-REDEEMED> (5033)
<SHARES-REINVESTED> 864
<NET-CHANGE-IN-ASSETS> 29672
<ACCUMULATED-NII-PRIOR> 253
<ACCUMULATED-GAINS-PRIOR> (20087)
<OVERDISTRIB-NII-PRIOR> 253
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 849
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2084
<AVERAGE-NET-ASSETS> 139997
<PER-SHARE-NAV-BEGIN> 5.95
<PER-SHARE-NII> 0.472
<PER-SHARE-GAIN-APPREC> 0.698
<PER-SHARE-DIVIDEND> 0.480
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.64
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COLONIAL
INCOME FUND, CLASS B YEAR END DEC-31-1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL INCOME FUND, CLASS B YAR END
DEC-31-1995
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST I
<SERIES>
<NUMBER> 2
<NAME> COLONIAL INCOME FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 168865
<INVESTMENTS-AT-VALUE> 179148
<RECEIVABLES> 3075
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 182252
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 215
<TOTAL-LIABILITIES> 215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37406
<SHARES-COMMON-STOCK> 5756
<SHARES-COMMON-PRIOR> 3833
<ACCUMULATED-NII-CURRENT> 56
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19238)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10283
<NET-ASSETS> 182037
<DIVIDEND-INCOME> 14414
<INTEREST-INCOME> 100
<OTHER-INCOME> 0
<EXPENSES-NET> 2084
<NET-INVESTMENT-INCOME> 12430
<REALIZED-GAINS-CURRENT> 847
<APPREC-INCREASE-CURRENT> 17487
<NET-CHANGE-FROM-OPS> 30764
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2027
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3230
<NUMBER-OF-SHARES-REDEEMED> (1489)
<SHARES-REINVESTED> 182
<NET-CHANGE-IN-ASSETS> 29672
<ACCUMULATED-NII-PRIOR> 253
<ACCUMULATED-GAINS-PRIOR> (20087)
<OVERDISTRIB-NII-PRIOR> 253
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 849
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2084
<AVERAGE-NET-ASSETS> 29780
<PER-SHARE-NAV-BEGIN> 5.95
<PER-SHARE-NII> 0.425
<PER-SHARE-GAIN-APPREC> 0.698
<PER-SHARE-DIVIDEND> 0.433
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.64
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL STRATEGIC INCOME FUND, CLASS A YEAR END DEC-31-1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
STRATEGIC INCOME FUND, CLASS A YEAR END DEC-31-1995.
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST I
<SERIES>
<NUMBER> 3
<NAME> COLONIAL STRATEGIC INCOME FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1336747
<INVESTMENTS-AT-VALUE> 1389425
<RECEIVABLES> 41926
<ASSETS-OTHER> 91
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1431442
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2432
<TOTAL-LIABILITIES> 2432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 980573
<SHARES-COMMON-STOCK> 98974
<SHARES-COMMON-PRIOR> 97473
<ACCUMULATED-NII-CURRENT> 7974
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (326408)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52173
<NET-ASSETS> 1429010
<DIVIDEND-INCOME> 341
<INTEREST-INCOME> 127595
<OTHER-INCOME> 0
<EXPENSES-NET> 20914
<NET-INVESTMENT-INCOME> 107022
<REALIZED-GAINS-CURRENT> (723)
<APPREC-INCREASE-CURRENT> 133828
<NET-CHANGE-FROM-OPS> 240127
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 56681
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11030
<NUMBER-OF-SHARES-REDEEMED> 13680
<SHARES-REINVESTED> 4151
<NET-CHANGE-IN-ASSETS> 184393
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (316751)
<OVERDISTRIB-NII-PRIOR> (23)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20914
<AVERAGE-NET-ASSETS> 674115
<PER-SHARE-NAV-BEGIN> 6.53
<PER-SHARE-NII> 0.621
<PER-SHARE-GAIN-APPREC> 0.650
<PER-SHARE-DIVIDEND> (0.581)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.22
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMARY FIANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL STRATEGIC INCOME FUND, CLASS B YEAR END DEC-31-1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL STRATEGIC INCOME FUND, CLASS B YEAR END DEC-31-1995
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST I
<SERIES>
<NUMBER> 3
<NAME> COLONIAL STRATEGIC INCOME FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1336747
<INVESTMENTS-AT-VALUE> 1389425
<RECEIVABLES> 41926
<ASSETS-OTHER> 91
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1431442
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2432
<TOTAL-LIABILITIES> 2432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 716825
<SHARES-COMMON-STOCK> 98858
<SHARES-COMMON-PRIOR> 93118
<ACCUMULATED-NII-CURRENT> 7974
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (326408)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52173
<NET-ASSETS> 1429010
<DIVIDEND-INCOME> 341
<INTEREST-INCOME> 127595
<OTHER-INCOME> 0
<EXPENSES-NET> 20914
<NET-INVESTMENT-INCOME> 107022
<REALIZED-GAINS-CURRENT> (723)
<APPREC-INCREASE-CURRENT> 133828
<NET-CHANGE-FROM-OPS> 240127
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 50315
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16221
<NUMBER-OF-SHARES-REDEEMED> 13902
<SHARES-REINVESTED> 3417
<NET-CHANGE-IN-ASSETS> 184393
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (316751)
<OVERDISTRIB-NII-PRIOR> (23)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20914
<AVERAGE-NET-ASSETS> 657564
<PER-SHARE-NAV-BEGIN> 6.53
<PER-SHARE-NII> 0.569
<PER-SHARE-GAIN-APPREC> 0.650
<PER-SHARE-DIVIDEND> (0.529)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.22
<EXPENSE-RATIO> 1.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
