Registration Nos: 2-41251
811-2214
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 41 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT / X /
OF 1940
Amendment No. 23 / X /
COLONIAL TRUST I
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(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of Principal Executive Offices)
617-426-3750
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(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).
/ / on (date) pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph
(a)(1).
/ / on (date) pursuant to paragraph (a)(1) of
Rule 485.
/ X / 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.
<PAGE>
COLONIAL TRUST I
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Cross Reference Sheet
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(Colonial Tax-Managed Growth Fund)
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------
Part A
1. Cover page
2. Summary of Expenses
3. Not applicable
4. The Fund's Investment Objective;
Organization and History;
How the Fund Pursues its Objective and
Certain Risk Factors
5. Cover page;
How the Fund is Managed;
Organization and History;
Back cover
6. Organization and History;
Distributions and Taxes;
General Information Regarding Buying and
Selling Shares; Possible Two-Tiered Structure;
Traditional Shares; Gift Shares
7. Cover Page; General Information Regarding
Buying and Selling Shares;
How the Fund Values Its Shares;
12b-1 Plans; Back cover
8. General Information Regarding Buying and
Selling Shares; Exchanges;
Telephone Transactions
9. Not applicable
December , 1996
COLONIAL TAX-MANAGED
GROWTH FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) 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 Tax-Managed Growth Fund (Fund), a diversified portfolio of Colonial
Trust I (Trust), an open-end management investment company, seeks to maximize
long-term capital growth while reducing shareholder exposure to taxes.
The Fund is managed by Stein Roe & Farnham, Inc. (Adviser), an affiliate of the
Administrator and successor to an investment advisory business that was founded
in 1932.
The Fund currently is structured as a traditional mutual fund investing in
individual securities but may in the future be converted to the master/feeder
structure. Under the master/feeder structure, the Fund would seek to achieve its
objective by investing all of its assets in another open-end management
investment company managed by the Adviser and having the same objective and
investment policies as the Fund. Shareholders of the Fund would be notified but
would not have an opportunity to vote on such conversion.
In addition to providing the opportunity for long-term capital growth with
sensitivity to taxes, the Fund is designed to provide a convenient mechanism for
giving a gift to a child, grandchild or other individual. You may either
purchase shares by establishing a traditional individual, joint, custodial,
trust or retirement account (Traditional Shares) or choose between three gifting
options (Gift Shares). If Gift Shares are chosen, your investment will be held
in an irrevocable trust until the date you have directed that it pass to the
beneficiary of the gift. See "Gift Shares."
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 December , 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Administrator 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.
Contents Page
Summary of Expenses
Possible Two-Tiered Structure
The Fund's Investment Objective
How the Fund Pursues its Objective and Certain Risk Factors
How the Fund Measures its Performance
Adviser Performance Information
How the Fund is Managed
How the Fund Values its Shares
Traditional Shares
Gift Shares
General Information Regarding Buying and Selling Shares
Distributions and Taxes
Exchanges
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 estimated
annual expenses for an investment in each Class of the Fund's shares. See "How
the Fund is Managed" and "12b-1 Plans" for a more complete description of the
Fund's costs and expenses.
Shareholder Transaction Expenses (1)(2)
<TABLE>
<CAPTION>
Class A Class B Class E Class F Class G Class H Class I Class J
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Initial Sales Charge Imposed
on a Purchase (as a % of offering
price) (3)(4) 5.75% 0.00% 5.00% 0.00% ___ 4.50% 4.50% ___
Maximum Contingent Deferred Sales
Charge (as a % of offering
price)(3)(4) 1.00% 5.00% 1.00% 5.00% ___ 1.00% 5.00% ___
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See "General Information Regarding Buying and
Selling Shares."
(2) Redemption proceeds exceeding $1,000 sent via federal funds wire will be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the distribution fees applicable to Class B , E, F, G, H, I and J shares, long-term shareholders may
pay more in aggregate sales charges than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. See "12b-1 Plans."
</TABLE>
<TABLE>
<CAPTION>
Estimated Annual Operating Expenses (as a % of average net assets)
Class A Class B Class E Class F Class G Class H Class I Class J
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management and administration fees ___ ___ ___ ___ ___ ___ ___ ___
12b-1 fees ___ ___ ___ ___ ___ ___ ___ ___
Other expenses ___ ___ ___ ___ ___ ___ ___ ___
Total operating expenses ___ ___ ___ ___ ___ ___ ___ ___
</TABLE>
Examples
The following Examples show the estimated 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 reinvestment of dividends and
distributions. 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>
Example 1 (assumes redemption at period end)
Period Class A Class B Class E Class F Class G Class H Class I Class J
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ___ ___ ___ ___ ___ ___ ___ ___
3 years ___ ___ ___ ___ ___ ___ ___ ___
</TABLE>
<TABLE>
<CAPTION>
Example 2 (assumes no redemption)
Period Class A Class B Class E Class F Class G Class H Class I Class J
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year ___ ___ ___ ___ ___ ___ ___ ___
3 years ___ ___ ___ ___ ___ ___ ___ ___
</TABLE>
POSSIBLE TWO-TIERED STRUCTURE
The Fund currently is structured as a traditional mutual fund investing in
individual securities, but may in the future convert to the master/feeder
structure by transferring all of its portfolio assets to a separate open-end
management investment company (Portfolio) with the same investment objective as
the Fund in exchange for an interest in the Portfolio. Thereafter, the Fund
would seek to achieve its objective by investing all of its investable assets in
the Portfolio, and the Portfolio would invest directly in portfolio securities.
See "The Fund's Investment Objective," "How the Fund Pursues its Objective and
Certain Risk Factors" and "How the Fund is Managed" for information concerning
the Fund's investment objective, policies, management and expenses. Shareholders
of the Fund would be notified of but would not have an opportunity to vote on
such conversion.
After any such conversion, in addition to the Fund, other institutional
investors (including other investment companies) also would be able to invest in
the Portfolio. The conversion would be effected to allow other such investors to
invest in the Portfolio, potentially creating economies of scale and providing
additional portfolio management flexibility for the Portfolio which, if
achieved, also would indirectly benefit the Fund and its shareholders. The
following describes certain of the effects and risks of this structure.
After any such conversion, matters submitted by the Portfolio to its investors
for a vote would be passed along by the Fund to its shareholders, and the Fund
would vote its entire interest in the Portfolio in proportion to the votes
received from Fund shareholders. It is possible that other investors in the
Portfolio could alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio. In
addition, large scale redemptions by any other investors in the Portfolio could
result in untimely liquidation of the Portfolio's security holdings, loss of
investment flexibility, and an increase in the operating expenses of the
Portfolio as a percentage of its assets. After any conversion, you would be able
to obtain information about whether there are other investors in the Portfolio
by writing or calling the Administrator at 1-800-248-2828.
After any conversion, the Fund would continue to invest in the Portfolio so long
as the Trust's Board of Trustees determined it was in the best interest of Fund
shareholders to do so. In the event that the Portfolio's investment objective
were changed so as to be inconsistent with the Fund's investment objective, the
Board of Trustees would consider what action might be taken, including changes
to the Fund's investment objective, or withdrawal of the Fund's assets from the
Portfolio and investment of such assets in another pooled investment entity or
the retention of an investment adviser to manage the Fund's investments. Certain
of these actions may require Fund shareholder approval. Withdrawal of the Fund's
assets from the Portfolio could result in a distribution by the Portfolio to the
Fund of portfolio securities in kind (as opposed to a cash distribution), and
the Fund could incur brokerage fees or other transaction costs and could realize
distributable taxable gains in converting such securities to cash. Such a
distribution in kind could also result in a less diversified portfolio of
investments for the Fund.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to maximize long-term capital growth while reducing shareholder
exposure to taxes.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund invests primarily (at least 65%) in common stocks of large and medium
capitalization companies (i.e., companies with at least $1 billion in equity
market capitalization) believed by the Adviser to have above average earnings
growth prospects. The Adviser uses fundamental research analysis and valuation
techniques in order to identify potential investments for the Fund. Up to 35% of
the Fund's total assets may be invested in a combination of (i) common stocks of
non-U.S. companies and (ii) common stocks of small capitalization companies
(i.e., companies with equity market capitalizations of less than $1 billion).
American Depository Receipts (receipts issued in the U.S. by banks or trust
companies evidencing ownership of underlying foreign securities) are considered
U.S. securities for purposes of the limitation on investing in securities of
non-U.S. companies.
While the Fund's overriding objective is long-term capital growth, the Adviser
may use certain investment techniques designed to reduce the payment by the Fund
of taxable distributions to shareholders and thereby reduce the impact of taxes
on shareholder returns. Such techniques will be used only if, in the Adviser's
judgment, the impact on the Fund's pre-tax total return will be no worse than
neutral. Such techniques may include, among others, (i) low portfolio turnover,
which helps to minimize the realization and distribution of taxable capital
gains; (ii) deferring the sale of a security until the realized gain would
qualify as a long-term capital gain rather than short-term; (iii) selling
securities that have declined in value to offset gains realized on the sale of
other securities; (iv) when selling a portion of a holding, selling those
securities with a higher cost basis first; and (v) selling securities "short
against the box" (i.e., selling short a security owned by the Fund). The use of
such techniques will not eliminate the payment by the Fund of taxable
distributions. The Administrator has retained the professional services firm of
____________________ to provide tax consulting services.
Foreign Investments. The Fund may invest up to 15% of its total assets in
foreign securities. 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 such 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 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 "How the Fund Pursues it's Objective and Certain Risk
Factors--Foreign Currency Transactions; Index and Interest Rate Futures;
Options" in this Prospectus and "Foreign Securities" and "Foreign Currency
Transactions" in the Statement of Additional Information for more information
about foreign investments.
Foreign Currency Transactions; Index and Interest Rate Futures; Options. In
connection with its investments in foreign securities, the Fund may (i) purchase
and sell foreign currencies on a spot or forward basis, (ii) enter into foreign
currency futures contracts, (iii) write both put and call options on foreign
currency futures contracts, and (iv) purchase and write both call and put
options on foreign currencies. Such transactions may 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.
In addition, the Fund may enter into (i) index and interest rate futures
contracts, (ii) write put and call options on such futures contracts, (iii)
purchase and write both call and put options on securities and indexes, and (iv)
purchase other types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. The Fund may write a call or put option
only if the option is covered.
A futures contract creates an obligation by the seller to deliver and the buyer
to take delivery of a type of instrument at the time and in the amount specified
in the contract. A sale of a futures contract can be terminated in advance of
the specified delivery date by subsequently purchasing a similar contract; a
purchase of a futures contract can be terminated by a subsequent sale. Gain or
loss on a contract generally is realized upon such termination.
An option generally gives the option holder the right, but not the obligation,
to purchase or sell prior to the option's specified expiration date. If the
option expires unexercised, the holder will lose any amount it paid to acquire
the option.
Transactions in futures, options and similar investments may not achieve the
goals of advancing the Fund's investment objectives, providing additional
revenue or of hedging to the extent there is an imperfect correlation between
the price movements of the contracts and of the underlying asset or benchmark.
In addition, because futures positions may require low margin deposits, the use
of futures contracts involves a high degree of leverage and may result in losses
in excess of the amount of the margin deposit. Finally, if the Adviser's
prediction on interest rates, stock market movements or other market factors is
inaccurate, the Fund may be worse off than if it had not engaged in such
transactions.
See the Statement of Additional Information for information relating to the
Fund's obligations in entering into such transactions.
Small Companies. The smaller, less well established companies in which the Fund
may invest may offer greater opportunities for capital appreciation than larger,
better established companies, but may also involve certain special risks. Such
companies often have limited product lines, markets or financial resources and
depend heavily on a small management group. Their securities may trade less
frequently, in smaller volumes, and fluctuate more sharply in value than
exchange listed securities of larger companies.
Securities Loans; Reverse Repurchase Agreements. The Fund may lend its portfolio
securities to broker-dealers or banks and enter into reverse repurchase
agreements. Under a reverse repurchase agreement, the Fund sells a security to a
dealer and simultaneously agrees to buy it back at a later date. A reverse
repurchase agreement can be viewed as a securities loan. Such loans and reverse
repurchase agreements will be limited to securities not exceeding 33 1/3% in
value of the Fund's total assets. Each such loan and reverse repurchase
agreement will be continuously secured by collateral at least equal at all times
to the market value of the securities loaned or sold. In the event of bankruptcy
or other default of the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned or sold securities and
losses including (a) possible decline in the value of the collateral or in the
value of the securities loaned or sold during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of enforcing its rights.
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
Treasury bills and repurchase agreements. Some or all of the Fund's assets also
may be invested in such investments or in investment grade U.S. or foreign debt
securities, Eurodollar certificates of deposit and obligations of savings
institutions 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 15% of the Fund's net assets will be invested in repurchase agreements
maturing in more than 7 days and other illiquid securities.
Borrowing of Money. The Fund may borrow money from banks as a temporary measure
for extraordinary or emergency purposes up to 33 1/3% of the Fund's total
assets; however, the Fund will not purchase additional portfolio securities
while borrowings exceed 5% of total assets of the Fund.
Other. The Fund may not always achieve its investment 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. The Fund's objective and non-fundamental policies may be changed
without shareholder approval. Additional information concerning certain of the
securities and investment techniques described above is contained in the
Statement of Additional Information.
ADVISER PERFORMANCE INFORMATION
The Fund is newly-organized and has no performance history of its own. The Fund
is managed using an investment strategy that is similar in all material respects
to a strategy used by the Adviser to manage between $1 and $2 million in equity
investments since July 1, 1994. Following are the average annual and cumulative
total returns achieved by the Adviser through September 30, 1996 using this
strategy and the average annual and cumulative total returns of the Standard and
Poors 500 Index (S&P 500 Index) during such period. Also shown are the average
annual and cumulative total returns of the average fund in the Lipper Growth
Fund category during such period.
ADVISER
Average Annual Cumulative Total
Total Returns Returns
One Year ___% ___%
Two Years ___% ___%
Since 6/30/1994 ___% ___%
(inception)
S&P 500
Average Annual Cumulative Total
Total Returns Returns
One Year ___% ___%
Two Years ___% ___%
Since 6/30/94 ___% ___%
AVERAGE LIPPER GROWTH FUND
Average Annual Cumulative Total
Total Returns Returns
One Year ___% ___%
Two Years ___% ___%
Since 6/30/94 ___% ___%
If the Adviser returns shown above had been achieved by a fund included within
the Lipper Growth Fund category, such fund's performance would have been ranked
as follows within such category:
HYPOTHETICAL LIPPER GROWTH FUND
CATEGORY RANKINGS
Average Annual Cumulative Total
Total Returns* Returns*
One Year _/__ _/__
Two Years _/__ _/__
Since 6/30/94 _/__ _/__
*First number shows rank within category/second number shows total number of
funds in category.
The S&P 500 Index returns represent the total returns, assuming reinvestment of
all dividends, earned on an unmanaged group of 500 securities. Index returns do
not reflect sales charges or expenses. The Lipper Growth Fund category includes
all funds classified as growth funds by Lipper Analytical Services, Inc., an
independent mutual fund ranking organization. The Adviser's returns have been
calculated in compliance with standards promulgated by the Association for
Investment Management and Research (AIMR) for calculating and presenting
performance, and assume annual fees and expenses of 1.00%. Actual fees charged
were lower. The returns of the Adviser, of funds in the Lipper Growth Fund
Category and of the S&P 500 Index do not represent past performance, and are not
necessarily indicative of future performance, of the Fund. In particular, the
fees, expenses and sales charges applicable to an investment in the Fund may be
higher than those assumed in calculating the Adviser's returns, which will
negatively impact the Fund's return. In addition, the Adviser's returns do not
reflect the applicability of the various federal securities and tax laws and
rules applicable to mutual funds which, had they applied, might have adversely
affected such returns. Cash flows into and out of the Fund may also negatively
impact the Fund's performance relative to the Adviser's performance.
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 (if any) applicable to the
Class, and the contingent deferred sales charge or redemption fee (if any)
applicable to the time period quoted. 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 year's distributions by the maximum offering price of
that Class at the end of the year. 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 Fund's Trustees formulate the Fund's general policies and oversee the Fund's
affairs. The Fund's investment operations are managed by the Adviser. Subject to
the supervision of the Fund's Trustees, the Adviser makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments. See "Management of the Colonial Funds"
and "Management of the Fund" in the Statement of Additional Information for
information concerning the Trustees and officers of the Trust and the Fund.
The portfolio managers of the Fund are
[ ]
The Adviser places all orders for the purchase and sale of securities for the
Fund. In doing so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors. When the Adviser
believes that more than one broker-dealer is capable of providing the best
combination of price and execution in a particular portfolio transaction, the
Adviser often selects a broker-dealer that furnishes it with research products
or services. For its investment management services, the Adviser receives from
the Fund a monthly fee at an annual rate of ___ of the Fund's average daily net
assets.
The Administrator provides the Fund with certain administrative services and
generally oversees the operation of the Fund. The Fund pays the Administrator a
monthly fee at the annual rate of __% of average daily net assets for these
services. The Administrator also provides pricing and bookkeeping services to
the Fund for a monthly fee at the annual rate of ___% annually of average daily
net assets. Colonial Investment Services, Inc. (Distributor), a subsidiary of
the Administrator, serves as the Fund's distributor. Colonial Investors Service
Center, Inc. (Transfer Agent), an affiliate of the Administrator, serves as the
Fund's shareholder services and transfer agent for a fee of ___% annually of
average net assets plus certain out-of-pocket expenses. Each of the foregoing
fees is subject to any fee waiver or expense reimbursement to which the Adviser
or the Administrator may agree. See "Summary of Expenses" above.
The Administrator, the Distributor, the Adviser, and the Transfer Agent are all
direct or indirect subsidiaries of Liberty Financial Companies, Inc. (Liberty
Financial), which in turn is an indirect 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.
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) (which normally
occurs at 4:00 p.m. Eastern time) 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 Fund's
Trustees.
TRADITIONAL SHARES
Traditional Shares may be purchased by traditional investors (such as
individuals, joint tenants, custodians, individual retirement accounts, or
qualified retirement plan accounts, among others). Investors desiring to
purchase Traditional Shares may choose between Class A shares and Class B
shares, both of which are described below.
Class A Shares. Class A shares are offered at net asset value plus an initial
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 6.10% 5.75% 5.00%
$50,000 to less than
$100,000 4.71% 4.50% 3.75%
$100,000 to less than
$250,000 3.63% 3.50% 2.75%
$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%
From __________ __, 1996 through ___________ __, 1997, the entire initial sales
charge will be retained by the financial service firms through which the
purchase is made. Percentages shown in the table apply after ____________ __,
1997.
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 contingent deferred sales
charge of 1.00% of the purchase price of the shares being redeemed 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 but subject to a ___ % annual distribution fee for approximately
eight years (at which time they automatically convert to Class A shares not
bearing a distribution fee) and a declining contingent deferred sales charge if
redeemed within six years after purchase equaling a percentage of the purchase
price of the shares being redeemed. 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. From _________ __, 1996 through __________ __, 1997, the
Distributor will pay financial service firms a commission of 4.5% on Class B
share purchases. Thereafter, the commission will be 4.00%.
GIFT SHARES
Gift Shares may be purchased by individuals seeking a convenient way to give an
investment in the Fund to a child, grandchild or other individual. Rather than
being held directly by you or the gift's recipient (beneficiary), Gift Shares
are held in an irrevocable trust until the maturity date you specify, at which
time the shares pass to the beneficiary. Subsequent investments into the same
account do not affect the original maturity date; however, no additional
investments into an account (other than reinvestment of distributions) may be
made within two years of the maturity date. The duration of the trust may be as
long as you choose, but must be at least 5 years from the initial purchase into
the trust or until the beneficiary reaches the age of 18, whichever is later. In
any event, the trust will terminate in the event of the beneficiary's death
prior to the maturity date. During the trust's term, neither you nor the
beneficiary may amend its terms in any way.
Gift Shares may be purchased under two different gift programs: the Guardian
Program and the Advantage Program. Under the Advantage Program, you have the
choice of Advantage One or Advantage Two. Each Program has different provisions
for the payment of distributions prior to maturity and different tax
implications for the donor and/or beneficiary. The Program that is most suitable
for you will depend on your specific financial and tax circumstances and your
gift-giving objectives. Each Program is described below:
Guardian Program
If you select the Guardian Program, the beneficiary will have no ability to
access or withdraw the shares until the trust's maturity. Because the gift is
viewed by the Internal Revenue Service as a gift of a future interest, the gift
under this Program will not be eligible for the Federal annual gift tax
exclusion. The trust, not the beneficiary, will be taxed on any income and
capital gains earned by the trust in excess of $100 per year. The trustee will
prepare and file all Federal and state income tax returns that are required each
year, and will satisfy any taxes owed from the assets of the trust by redeeming
Fund shares.
Advantage Program
Gifts under the Advantage Program may be fully or partially eligible for the
Federal annual gift tax exclusion, depending on whether you choose Advantage One
or Advantage Two.
Advantage One. If Advantage One is chosen, the beneficiary will have the right
to withdraw the amount of each contribution during the first 30 days after it
has been made and the entire amount of each contribution will be eligible for
the Federal annual gift tax exclusion. The trustee will provide the beneficiary
with notice of the withdrawal right at the time of each gift. The beneficiary
will be taxed on all of the trust's income and capital gains, and the trustee
may, if requested by the beneficiary or the beneficiary's parent or legal
guardian, redeem Fund shares in order to provide funds for the beneficiary to
pay such taxes. The trustee also may, if requested by the beneficiary or his or
her parent or legal guardian, redeem shares and pay the proceeds directly to a
recognized educational institution to cover the beneficiary's college or
post-graduate educational expenses. The trustee will send an information
statement to the beneficiary each year showing the amount of income and capital
gains to be reported on his or her income tax returns for that year.
Advantage Two. If Advantage Two is chosen, the trustee will distribute to the
beneficiary annually any net income earned by the trust during the trust's term,
and an amount equal to the present value of the income stream to the beneficiary
will be eligible for the Federal annual gift tax exclusion. The trust will be
taxed on its capital gains, and the trustee will pay the taxes from the assets
of the trust by redeeming Fund shares. The beneficiary will be taxed on the
income distributed to him or her. The trustee will send an information statement
to the beneficiary each year showing the amount of income to be reported on his
or her income tax returns for that year.
The foregoing is a general summary only of the tax implications of an investment
in the Fund's Gift Shares. More detailed information is available below under
"Distributions and Taxes" and in the Fund's Statement of Additional Information.
You should consult your financial or tax adviser for specific advice concerning
which Option may be most suitable for you.
Maturity
Under each Program, upon maturity of the trust the shares (matured Gift Shares)
automatically pass to the beneficiary. Prior to maturity a notice will be sent
to the beneficiary notifying him or her of the impending maturity date and the
options available to the beneficiary, and requesting certain information
including the beneficiary's social security number. The beneficiary may be asked
to sign and return a Form W-9. If not redeemed at this time by the beneficiary,
the shares will be reregistered in the beneficiary's name. Thereafter, the
beneficiary may not make additional investments into his or her Gift Share
account other than through reinvestment of distributions. If the beneficiary
dies during the term of the trust, the shares automatically pass to the
beneficiary's executors or administrators to be disposed of as part of the
beneficiary's estate.
Classes of Gift Shares
If you choose to purchase Gift Shares, the Class of shares you may purchase will
depend on the length of time between the purchase date and the designated trust
maturity date. If that period is five years or more but less than ten years, you
have the option of purchasing Class E, F or G shares. If the maturity date is 10
years or more after the initial purchase date, you have the option of purchasing
Class H, I or J Shares. Class E, Class F, Class G, Class H, Class I and Class J
shares are described below.
Five to Ten Year Gift Shares:
Class E Shares. Class E shares are offered at net asset value plus an initial
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 _____ 5.00% 5.00%
$50,000 to less than
$100,000 _____ 4.00% 4.00%
$100,000 to less than
$250,000 _____ 3.00% 3.00%
$250,000 to less than
$500,000 _____ 1.50% 1.50%
$500,000 or more _____ 0% 0%
Class E shares also are subject to a ___% annual distribution fee. In addition
to the amounts shown above as being retained by the financial service firm, the
Distributor will pay to the financial service firm (i) an additional commission
at the time of purchase of 0.75% of the offering price for investments up to but
less than $500,000, and 1.00% for investments of $500,000 or more, and (ii) an
on-going commission of 0.10% annually.
Class F Shares. Class F shares are offered at net asset value without an initial
sales charge and subject to the same declining contingent deferred sales charge
and annual distribution fee described above under Class B shares. Class F shares
convert automatically to Class E shares approximately eight years after
purchase. The Distributor pays financial service firms a commission of 4.75% on
Class F share purchases.
Class G Shares. Class G shares are offered at net asset value plus a ___%
initial sales charge, subject to a ___% annual distribution fee and a contingent
deferred sales charge on redemptions made within one year from the first day of
the month after purchase of ___% of the purchase price (including any initial
sales charge) of the shares being redeemed. The Distributor pays financial
service firms an initial commission of ___% on Class G share purchases and an
ongoing commission of ___% annually. Payment of the ongoing commission is
conditioned on receipt by the Distributor of the ___% 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.
Ten or More Year Gift Shares:
Class H Shares. Class H shares are offered at net asset value plus an initial
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 _____ 4.50% 4.50%
$50,000 to less than
$100,000 _____ 3.50% 3.50%
$100,000 to less than
$250,000 _____ 2.50% 2.50%
$250,000 to less than
$500,000 _____ 1.25% 1.25%
$500,000 or more _____ 0% 0%
Class H shares also are subject to an annual distribution fee of up to ___. In
addition to the amounts shown above as being retained by the financial service
firm, the Distributor will pay to the financial service firm (i) an additional
commission at the time of purchase of 1.75% of the offering price for
investments up to but less than $500,000 and 1.25% for investments of $500,000
or more, and (ii) on-going commissions of 0.10% annually for shares outstanding
for less than five years and 0.25% annually for shares outstanding five years or
more; provided, however, that the additional 0.15% on-going commission payable
after five years will only be paid to financial service firms that pay such
additional amount in full to the individual representative.
Class I Shares. Class I shares are offered at net asset value without an initial
sales charge and subject to the same declining contingent deferred sales charge
and annual distribution fee described above under Class B shares. Class I shares
also convert automatically to Class H shares approximately eight years after
purchase. The Distributor pays financial service firms a commission of 5.25% on
Class I share purchases.
Class J Shares. Class J shares are offered at net asset value plus a ___%
initial sales charge, subject to a ___% annual distribution fee and a contingent
deferred sales charge on redemptions made within one year from the first day of
the month after purchase of ___% of the purchase price (including any initial
sales charge) of the shares being redeemed The Distributor pays financial
service firms an initial commission of ___% on Class J share purchases and an
ongoing commission of ___% annually. Payment of the ongoing commission is
conditioned on receipt by the Distributor of the ___% 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 INFORMATION REGARDING BUYING AND SELLING SHARES
Buying 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. For purchases of Gift Shares, a signed adoption agreement
must be received within ten days following the purchase.
The minimum initial investment generally is $2,500; the minimum subsequent
investment generally is $250. For Colonial retirement accounts, the minimum
initial and subsequent investments are each $25. Certificates generally will be
issued only for Class A 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.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Purchasers of Traditional Shares may choose between
Class A and Class B shares. Purchasers of Gift Shares with trust terms of at
least five but less than ten years may choose among Class E, Class F and Class G
shares; Gift Share purchasers with trust terms of ten years or more may choose
among Class H, Class I and Class J shares. Investors generally should compare
any initial and/or deferred sales charges and distribution fees applicable to
each class, given the expected length of the investment or trust term, in
deciding which Class is most suitable for them. Investors also should consider
whether they prefer to have 100% of the purchase price invested immediately (as
is the case with Classes B, F and I). Purchases of $250,000 or more must be for
Class A, E or H shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different Classes of shares. Payment of the ongoing commissions applicable to
Classes E, G, H and J are conditioned upon receipt by the Distributor of such
amounts from the Fund. The commission may be reduced or eliminated if the
distribution fees paid by the Fund are reduced or eliminated for any reason. The
Distributor may pay additional compensation to financial service firms which
have made or may make significant sales. Initial or contingent deferred sales
charges may be reduced or eliminated for certain persons or organizations
purchasing Fund shares alone or in combination with certain other Colonial
funds. See "Programs for Reducing or Eliminating Sales Charges" and "How to Sell
Shares" in the Statement of Additional Information for more information.
Selling Shares. Traditional Shares and matured Gift Shares may be sold on any
day the Exchange is open, either directly to the Fund or through your financial
service firm. The sale price is the net asset value (less any contingent
deferred sales charge or redemption fee) next calculated after the request and
any necessary documentation are received in proper form. Sale proceeds generally
are sent within seven days (usually on the next business day after your request
is received in good form). However, for Traditional Shares recently purchased by
check, the Fund will send proceeds as soon as 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 the Transfer Agent, along with any certificates for shares
to be sold. 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
For sales through financial service firms, the firm must receive the sales
request prior to the time at which the Fund values its shares to receive that
day's price. The firm is responsible for furnishing all necessary documentation
to the Transfer Agent and may charge for this service.
The sale of shares is a taxable transaction for income tax purposes and may
involve the payment of a contingent deferred sales charge. Contingent deferred
sales charges 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
charges, if any) in the account, reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). The
amount of the contingent deferred sales charge is the applicable percentage
shown above for each Class, applied to the cost (including any initial sales
charge) of the shares at the time of purchase. 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. The Fund also may deduct annual maintenance and processing fees
(payable to the Transfer Agent) in connection with certain retirement plan
accounts. See "Special Purchase Programs/Investor Services" in the Statement of
Additional Information for more information.
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.
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 annually. Distributions on Traditional Shares and
matured Gift Shares are reinvested in additional shares of the same Class of the
Fund at net asset value unless the shareholder elects to receive cash.
Distributions on Gift Shares under the Guardian Program and the Advantage One
Program are automatically reinvested until the trust's maturity. Capital gain
distributions on Gift Shares under the Advantage Two Program are automatically
reinvested; income distributions are paid to the beneficiary. Regardless of the
shareholder's election, distributions on Traditional Shares of $10 or less will
be reinvested. To change your election on Traditional Shares or matured Gift
Shares, call the Transfer Agent for information.
Whether received in cash or in additional shares, distributions must be reported
as taxable income unless they are held in a tax qualified account or by a
tax-exempt institution. Under the Guardian Program, the trustee will file all
income tax returns and pay all income taxes for income earned prior to the
trust's maturity. Under the Advantage One Program, the beneficiary will be
obligated to report any income earned by the trust on his or her tax returns and
to pay any applicable income taxes thereon. Under the Advantage Two Program, the
trustee will report and pay any required income taxes on capital gains, and will
distribute in cash to the beneficiary, who must report and pay income taxes on,
the ordinary income earned by the trust. 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 making of a gift through the purchase of the Fund's Gift Shares is subject
to the reporting requirements of Federal gift tax laws. In general, a Federal
gift tax return must be filed reporting all gifts made by an individual during
any calendar year, unless the gift qualifies for the Federal annual gift tax
exclusion. To so qualify, the gift must be a gift of a "present interest" and
must not exceed $10,000 ($20,000 for a married couple who elect gift-splitting)
when combined with any other gifts made to the beneficiary during the calendar
year. Whether a gift made through the purchase of the Fund's Gift Shares
qualifies for the annual exclusion depends on the Program selected by the donor
in the adoption agreement as well as on the amount of any other gifts made to
the beneficiary by the donor during the particular year. In general, if no other
gifts are made during the year to the beneficiary, a gift under the Advantage
One Program will qualify for the Federal gift tax exclusion to the extent it
does not exceed the $10,000/$20,000 maximum, a gift under the Advantage Two
Program will qualify only with respect to the present value of the beneficiary's
income interest in the shares held by the trust, and a gift under the Guardian
Program will not qualify for the annual exclusion. Under the Advantage Two
Program, the present value of the income interest is the present value of the
beneficiary's right to receive the trust income for the 40 year term of the
trust (without regard to the possibility that the trust may terminate sooner) or
until the beneficiary's earlier death, using actuarial tables and interest rate
assumptions prescribed by the Internal Revenue Service in effect on the date of
the gift. Using the assumptions currently in effect, the income interest portion
of a gift under the Advantage Two Program for beneficiaries aged 15, 20, 25, 30
and 35 would be ___%, ___%, ___%, ___% and ___%, respectively, of the value of
the shares at the time of the gift. A gift tax return reporting the amount of
the gift under the Guardian Program or the amount under the Advantage Two
Program not qualifying for the annual exclusion must be filed by the donor.
A purchase of Gift Shares may also be subject to state gift tax reporting
requirements under the laws of the state in which the donor of the gift resides.
See "Gift Shares" above and "Additional Tax Matters Concerning Gift Shares" in
the Fund's Statement of Additional Information for more detailed information
about these and other tax matters applicable to an investment in the Fund. Due
to the complexity of Federal and state laws pertaining to gifts in trust, you
should consult your financial or tax adviser before investing in the Fund's Gift
Shares.
EXCHANGES
Shares of the Fund may not be exchanged for shares of any other Colonial fund.
TELEPHONE TRANSACTIONS
Telephone redemption privileges may be elected for Traditional Shares on the
account application by completing the Telephone Withdrawal Option section
including the Bank Information. Such privileges also may be elected for Gift
Shares after the trust matures by providing such information at or after trust
maturity to the Transfer Agent. Once elected, telephone redemptions may be made
by calling toll-free 1-800-422-3737 any business day between 9:00 a.m. Boston
time and the time at which the Fund values its shares. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable to the extent reasonable procedures are
not employed. 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. 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. Despite the employment of the
foregoing procedures, a shareholder may suffer a loss from unauthorized
transactions.
Shareholders and/or their financial advisers wishing to redeem 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 by mail as described above under "General Information Regarding
Buying and Selling Shares." The Administrator, the Transfer Agent and the Fund
reserve the right to change, modify, or terminate the telephone redemption
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. The Fund also pays the Distributor annual
distribution fees at the following rates: ___% of the average net assets
attributed to its Class B, Class F, Class G, Class I and Class J shares; ___% of
average net assets attributed to Class E shares; and up to ___% of average net
assets attributed to Class H shares. The actual fee with respect to Class H
shares will be ___% on Class H assets attributed to shares outstanding for less
than five years and ___% on Class H assets attributable to shares outstanding
for five years or more. Because the Class B, E, F, G, H, I and J shares bear the
additional distribution fees, their total returns and dividends will be lower
than the returns and dividends of Class A shares. Class B, F and I shares
automatically convert to Class A, E and H shares, respectively, approximately
eight years after the original shares were purchased. 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
Administrator and the Adviser) which may be construed to be indirect financing
of sales of Fund shares.
ORGANIZATION AND HISTORY
The Fund was organized in 1996 as a separate portfolio of the Trust, which is a
Massachusetts business trust established in 1985. At inception, the
Administrator owned 100% of each Class of shares of the Fund and, therefore, may
be deemed to "control" the Fund.
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. The trustee of trusts holding Gift
Shares will send notices, proxy statements and proxies for shareholder meetings
to the trusts' beneficiaries to enable them to attend meetings in person or vote
by proxy. The trustee will vote all Gift Shares in accordance with instructions
received from such beneficiaries and will vote all shares for which instructions
are not received in the same proportion as those for which instructions are
received.
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.
Investment Adviser
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
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.
December , 1996
COLONIAL TAX-MANAGED
GROWTH FUND
PROSPECTUS
Colonial Tax-Managed Growth Fund seeks to maximize long-term capital growth
while reducing shareholder exposure to taxes.
For more detailed information about the Fund, call the Administrator at
1-800-248-2828 for the December , 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
<PAGE>
Part A of Post-Effective Amendment No. 40 filed with the Commission on April 15,
1996 (Colonial High Yield Securities Fund, Colonial Strategic Income Fund and
Colonial Income Fund), is incorporated herein in its entirety by reference.
<PAGE>
COLONIAL TRUST I
Cross Reference Sheet
(Colonial Tax-Managed Growth Fund)
Location or Caption in Statement
Item Number of Form N-1A of Additional Information
- ------------------------ -------------------------
Part B
- ------
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Policies;
Portfolio Turnover
14. Management of the Fund
15. Management of the Fund
16. Management of the Fund
17. Management of the Fund
18. Shareholder Meetings; Shareholder Liability
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charges; How to
Sell Shares
20. Taxes-General; Additional Tax Matters
Concerning Gift Shares
21. Management of the Fund
22. Performance Measures
23. Management of the Fund
COLONIAL TAX-MANAGED GROWTH FUND
Statement of Additional Information
December , 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
Tax-Managed Growth 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 December , 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.
TABLE OF CONTENTS
Page
Definitions
Investment Policies
Additional Information Concerning Investment
Practices Taxes - General
Additional Tax Matters Concerning Gift Shares
Management of the Fund
Portfolio Turnover
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
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
Appendix I
<PAGE>
DEFINITIONS
"Trust" Colonial Trust I
"Fund" Colonial Tax-Managed Growth Fund
"Administrator" Colonial Management Associates, Inc., the Fund's
administrator
"CISI" Colonial Investment Services, Inc., the distributor of
the Fund and each of the open-end mutual funds in the
Colonial funds complex
"CISC" Colonial Investors Service Center, Inc., shareholder
services and transfer agent to the Fund and each of
the open-end mutual funds in the Colonial funds
complex
"Adviser" Stein Roe & Farnham Incorporated, the Fund's
investment adviser
INVESTMENT POLICIES
The Fund is subject to the following fundamental investment policies, which may
not be changed without the affirmative vote of a majority of the Fund's
outstanding voting securities. 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 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.
As fundamental investment policies, the Fund may not:
1. Issue senior securities other than 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. Own real estate except real estate having a value no more than 5% of the
Fund's total assets acquired as the result of owning securities;
3. Purchase and sell futures contracts and related options to the extent
that total initial margin and premiums on the contracts exceed 5% of its
total assets;
4. Underwrite securities issued by others except to the extent the Fund could
be deemed an underwriter when disposing of portfolio securities;
5. Make loans, except through (i) lending of securities not exceeding 30% of
total assets, (ii) through the purchase of debt instruments or similar
evidences of indebtedness typically sold privately to financial
institutions and (iii) through repurchase agreements; and
6. 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.
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but it 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. Invest in interests in oil, gas or other mineral exploration or
development programs, including leases;
4. Pledge more than 33% of its total assets;
5. Invest more than 15% of its net assets in illiquid assets.
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.
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT PRACTICES
Additional information concerning certain of the Fund's investments and
investment practices is set forth below.
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.
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 is 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 the Prospectus,
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
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.
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 the 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 the 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.
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 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 values
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 Fund 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.
Rule 144A Securities
The Fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the 1933 Act. That Rule
permits certain qualified institutional buyers, such as the Fund, to trade in
privately placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of Trustees, will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the Fund's investment restriction on illiquid securities. A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the trading
markets for the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Fund's holdings of
illiquid securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than its investment
restriction on illiquid securities allows. Investing in Rule 144A securities
could have the effect of increasing the amount of the Fund's assets invested in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities.
TAXES - GENERAL
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 alternative minimum tax (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.
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.
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 fund.
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.
ADDITIONAL TAX MATTERS CONCERNING GIFT SHARES
Federal Gift Taxes. An investment in Gift Shares may be a taxable gift for
federal tax purposes, depending upon the options selected and other gifts that
the donor and his or her spouse may make during the year.
If the donor selects the Advantage Two Program, the entire amount of the gift
will be a "present interest" that qualifies for the federal gift tax annual
exclusion. In that case, the donor will be required to file a federal gift tax
return on account of this gift only if (i) the aggregate present interest gifts
to the donor to the particular beneficiary (including the gift of Fund shares)
exceeds $10,000 or (ii) the donor wishes to elect gift splitting on gifts with
his or her spouse for the year. The trustee will notify the beneficiary of his
or her right of withdrawal promptly following any contribution under the
Advantage Two Program.
If the donor selects the Guardian Program, the entire amount of the gift will be
a "future interest" for federal gift tax purposes, so that none of the gift will
qualify for the federal gift tax annual exclusion. Consequently, the donor will
have to file a federal gift tax return IRS (Form 709) reporting the entire
amount of the gift, even if the gift is less than $10,000.
If the donor selects the Advantage Two Program, the portion of the gift
representing the beneficiary's income interest will be a "present interest" that
will qualify for the federal gift tax annual exclusion, and the balance will be
a "future interest" that will not so qualify. The value of the income interest
is the present value of the beneficiary's right to receive the trust income for
the 40 year term of the trust (without regard to the possibility that the trust
may be terminated sooner during the beneficiary's lifetime) or until the
beneficiary's earlier death, using actuarial tables and interest rate
assumptions prescribed by the Internal Revenue Service in effect on the date of
the gift. Using the assumptions currently in effect, the income interest portion
of a Gift Share investment using the Advantage Two Program and created for a
Beneficiary aged 15, 20, 25, 30 and 35 would be ___%, ____%, ____%, ____% and
____%, respectively. Nevertheless, the donor will have to file a federal gift
tax return in any event reporting the gift and identifying the portion that does
not represent a present interest, no matter how small.
No federal gift tax will be payable by the donor until his or her cumulative
taxable gifts (i.e., gifts other than those qualifying for the annual exclusion
or otherwise exempt) exceed the federal gift and estate tax exemption equivalent
amount (currently, $600,000). Any gift of Fund shares that does not qualify as a
present interest or that exceeds the available annual exclusion amount will
reduce the amount of the Federal gift and estate tax exemption that would
otherwise be available for future gifts or to the donor's estate. The donor and
his or her spouse may elect "gift-splitting" for any gift of Fund shares (other
than a gift to such spouse), meaning that the donor and his or her spouse may
elect to treat the gift as having been made one-half by each of them.
The donor's gift of Fund shares may also have to be reported for state gift tax
purposes, if the state in which the donor resides imposes a gift tax. Many
states do not impose such a tax. Some states follow the Federal rules concerning
the types of transfers subject to tax and the availability of the annual
exclusion.
Generation-Skipping Transfer Taxes
If the beneficiary of a gift of Gift Shares is a relative who is two generations
or more younger than the donor, or is not a relative and is more than 37 1/2
years younger than the donor, the gift will be subject in whole or in part to
the generation-skipping transfer tax (the "GST tax") unless the gift is made
under the Advantage Two Program and does not exceed the available annual
exclusion amount. A $1,000,000 exemption (the "GST exemption") is allowed
against this tax, and so long as the GST exemption has not been used by other
transfers it will be automatically allocated to a gift of Gift Shares unless the
donor elects otherwise. Such an election is made by reporting the gift on a
timely filed gift tax return and paying the applicable GST tax. The GST tax is
imposed at a flat rate of 55% on the amount of the gift, and payment of the tax
by the donor is treated as an additional gift for gift tax purposes.
Income Taxes
The Internal Revenue Service takes the position that a trust beneficiary who is
given a power of withdrawal over contributions to the trust should be treated as
the "owner" of the portion of the trust that was subject to the power for
Federal income tax purposes. Accordingly, if the donor selects the Advantage Two
Program, the beneficiary will be treated as the "owner" of all of the Fund
shares in the account for Federal income tax purposes, and will be required to
report all of the income and capital gains earned in the trust on his or her
personal Federal income tax return. The trust will not pay Federal income taxes
on any of the trust's income or capital gains, and the "throwback rules" of the
Code will not apply when the trust terminates. The trustee will prepare and file
the Federal income tax information returns that are required each year (and any
state income tax returns that may be required), and will send the beneficiary a
statement following each year showing the amounts (if any) that the beneficiary
must report on his or her income tax returns for that year. If the beneficiary
is under fourteen years of age, these amounts may be subject to Federal income
taxation at the marginal rate applicable to the beneficiary's parents. The
beneficiary may at any time after the creation of the trust irrevocably elect to
require the trustee to pay him or her a portion of the trust's income and
capital gains annually thereafter to provide funds with which to pay any
resulting income taxes, which the trustee will do by redeeming Fund shares. The
amount distributed will be a fraction of the trust's ordinary income and
short-term capital gains and the trust's long-term capital gains equal to the
highest marginal Federal income tax rate imposed on each type of income
(currently, 39.6% and 28%, respectively). If the beneficiary selects this
option, he or she will receive those fractions of his or her trust's income and
capital gains annually for the duration of the trust.
Under the Advantage Two Program, the beneficiary will also be able to require
the trustee to pay his or her tuition, room and board and other expense of his
or her college or post-graduate education, and the trustee will raise the cash
necessary to fund these distributions by redeeming Fund shares. Any such
redemption will result in the realization of capital gain or loss on the shares
redeemed, which will be reportable by the beneficiary on his or her income tax
returns for the year in which the shares are redeemed, as described above.
Payments must be made directly to the educational institution.
If the donor selects the Guardian Program, the trust that he or she creates will
be subject to Federal income tax on all income and capital gains realized by it,
less a $100 annual exemption (in lieu of the personal exemption allowed to
individuals). The amount of the tax will be determined under the tax rate
schedule applicable to estates and trusts, which is more sharply graduated than
the rate schedule for individuals, reaching the same maximum marginal rate for
ordinary income or short-term capital gains (currently, 39.6%), but at a much
lower taxable income level (for 1996 $7,900) than would apply to an individual.
It is anticipated, however, that most of the gains taxable to the trust will be
long-term capital gain, on which the Federal income tax rate is currently
limited to 28%. The trustee will raise the cash necessary to pay any Federal or
state income taxes by redeeming Fund shares. The beneficiary will not pay
Federal income taxes on any of the trust's income or capital gains, except those
earned in the year when the trust terminates. If the trust terminates after the
beneficiary reaches age 21, the distribution of the balance of the trust fund
will be treated in part as an "accumulation distribution" under the so-called
"throwback rules" of the Code, which could result in the imposition of
additional income tax on the beneficiary. The trustee will prepare and file all
Federal and state income tax returns that are required each year, and will send
the beneficiary an information statement for the year in which the trust
terminates showing the amounts (if any) that the beneficiary must report on his
or her Federal and state income tax returns for that year and the amount (if
any) of any accumulation distribution subject to the "throwback rules" of the
Code.
If the donor selects the Advantage Two Program, the trust will be subject to
Federal income tax only on capital gains earned by the trust (which would
include all capital gains distributions on the shares of the Fund held in the
trust), less a $300 exemption (in lieu of the personal exemption allowed to
individuals). The amount of the tax will be determined under the tax rate
schedule applicable to estates and trusts, which is more sharply graduated than
the rate schedule used for individuals, reaching the same maximum marginal rate
for ordinary income or short-term capital gain (currently, 39.6%) but at a much
lower taxable income level (for 1996, $7,900) than would apply to an individual.
It is anticipated, however, that the most of the income taxable to the trust
will be long-term capital gain, on which the Federal tax rate is currently
limited to 28%. The trustee will raise the cash necessary to pay any Federal or
state income tax by redeeming Fund shares. The trustee will receive any net
investment income dividends paid by the Fund in cash, and will distribute them
to the beneficiary who will be subject to Federal income tax on all
distributions received from the trust each year. The beneficiary will not pay
Federal income taxes on any of the trust's capital gains, except those earned in
the year of the trust's termination, and the "throwback rules" of the Code will
not apply when the trust terminates. The trustee will prepare and file all
Federal and state income tax returns that are required each year, and will send
the beneficiary an information statement each year showing the amounts (if any)
that the beneficiary must report on his or her Federal and state income tax
returns for that year.
When the trust terminates, the distribution of the remaining Fund shares held in
the trust to the beneficiary will not be treated as a taxable disposition of the
shares. Any Fund shares received by the beneficiary will have the same cost
basis as they had in the trust at the time of termination. Any Fund shares
received by the beneficiary's estate will have a basis equal to the value of the
shares at the beneficiary's death (or the alternate valuation date for Federal
estate tax purposes, if elected).
Consultation with Qualified Adviser
Due to the complexity of Federal and state gift, GST and income tax laws
pertaining to all gifts in trust, prospective donors should consider consulting
with their financial or tax adviser before investing in Gift Shares.
MANAGEMENT OF THE FUND
Each of the Adviser, the Administrator, CISC and CISI is a direct or indirect
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.
<TABLE>
<CAPTION>
Trustees and Officers
Name and Address Age Position with 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) 60 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, 1973 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 (3)
7121 Natelli Woods Lane
Bethesda, MD 20817
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
(formerly Vice Vice President from July, 1993 to March, 1996); is
President) 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 42 Chief Financial Chief Financial Officer, Chief Accounting Officer and
Officer, Chief Controller of Colonial funds since June, 1993 (formerly
Accounting Assistant Controller from March, 1985 to June, 1993);
Officer and is Vice President of the Adviser since June, 1993
Controller (formerly Assistant Vice President of the Adviser from
(formerly August, 1988 to June, 1993) (3)
Assistant
Controller)
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)
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 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 Fund) 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 the Fund is One Financial Center, Boston, MA
02111.
The Trustees serve as trustees of all Colonial funds. For such service, each
Trustee receives 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 each fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds.
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.
Trustees Fees
For the calendar year ended December 31, 1995, the Trustees of the Trust
received the following compensation for serving as Trustees:
<TABLE>
<CAPTION>
Total Compensation From Trust and Fund
Complex Paid To The Trustees For The
Trustee Aggregate Compensation From Fund (a) Calendar Year Ended December 31, 1995(b)
- ------- ------------------------------------ ------------------- --------------------
<S> <C> <C>
Robert J. Birnbaum(c) $ $ 71,250
Tom Bleasdale $ 98,000 (d)
Lora S. Collins $ 91,000
James E. Grinnell(c) $ 71,250
William D. Ireland, Jr. $ 113,000
Richard W. Lowry(c) $ 71,250
William E. Mayer $ 91,000
James L. Moody, Jr. $ 94,500 (e)
John J. Neuhauser $ 91,000
George L. Shinn $ 102,500
Robert L. Sullivan $ 101,000
Sinclair Weeks, Jr. $ 112,000
</TABLE>
(a) Since the Fund has not completed its first full fiscal year,
compensation is estimated based upon future payments that will be made.
(b) At December 31, 1995, the Colonial Funds complex consisted of 33
open-end and 5 closed-end management investment company portfolios.
(c) Elected to the Colonial funds complex on April 21, 1995.
(d) Includes $49,000 payable in later years as deferred compensation.
(e) 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 (f):
Total Compensation From Total Compensation
Liberty Funds II For The From Liberty Funds I For
Period January 1, 1995 The Calendar Year Ended
Trustee through March 26, 1995 December 31, 1995 (g)
- ------- ---------------------- ---------------------
Robert J. Birnbaum $2,900 $16,675
James E. Grinnell 2,900 22,900
Richard W. Lowry 2,900 26,250 (h)
(f) 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 as 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.
(g) 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. (Liberty Financial)
(an intermediate parent of the Adviser).
(h) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Fund (formerly known as Liberty All-Star World Fund)
(Liberty Newport) during the calendar year ended December 31, 1995. At
December 31, 1995, Liberty Newport was managed by Newport Pacific
Management, Inc. and the Adviser, each an affiliate of the
Administrator.
Investment Adviser
Under its Management Agreement with the Fund, the Adviser provides the Fund with
discretionary investment services. Specifically, the Adviser is responsible for
supervising and directing the investments of the Fund in accordance with the
Fund's investment objective, program, and restrictions as provided in the Fund's
prospectus and this SAI. The Adviser is also responsible for effecting all
security transactions on behalf of the Fund, including the allocation of
principal business and portfolio brokerage and the negotiation of commissions
(see "Fund Transactions" below). The Management Agreement provides for the
payment to the Adviser of the fee described in the Prospectus."
The Adviser is the successor to an investment advisory business that was founded
in 1932. The Adviser acts as investment adviser to wealthy individuals,
trustees, pension and profit sharing plans, charitable organizations and other
institutional investors. As of June 30, 1996, the Adviser managed over $24.7
billion in net assets: over $ 7.4 billion in equities and over $17.3 billion in
fixed-income securities (including $1.2 billion in municipal securities). The
$24.7 billion in managed assets included over $7 billion held by open-end mutual
funds managed by the Adviser (approximately 16% of the mutual fund assets were
held by clients of the Adviser). These mutual funds were owned by over 189,000
shareholders. The $7 billion in mutual fund assets included over $660 million in
over 38,000 Individual Retirement Accounts (IRAs). In managing those assets, the
Adviser utilizes a proprietary computer-based information system that maintains
and regularly updates information for approximately 6,500 companies. The Adviser
also monitors over 1,400 issues via a proprietary credit analysis system. At
June 30, 1996, the Adviser employed approximately 16 research analysts and 32
account managers. The average investment-related experience of these individuals
is 20 years.
The directors of the Adviser are Kenneth R. Leibler, C. Allen Merritt, Jr.,
Timothy K. Armour, N. Bruce Callow and Hans P. Ziegler. Mr. Leibler is
President and Chief Executive Officer of Liberty Financial; Mr. Merritt is
Senior Vice President and Treasurer of Liberty Financial; Mr. Armour is
President of the Adviser's Mutual Funds division; Mr. Callow is President of the
Adviser's Investment Counsel division; and Mr. Ziegler is Chief Executive
Officer of the Adviser. The business address of Messrs. Leibler and Merritt is
600 Atlantic Avenue, Federal Reserve Plaza , Boston, Massachusetts 02210; that
of Messrs. Armour, Callow and Ziegler is One South Wacker Drive, Chicago,
Illinois 60606.
Under the Management Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or the Fund in
connection with the matters to which such Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard of its obligations and
duties under the Agreement.
Portfolio Transactions
The Adviser places the orders for the purchase and sale of the Fund's portfolio
securities and options and futures contracts. The Adviser's overriding objective
in effecting portfolio transactions is to seek to obtain the best combination of
price and execution. The best net price, giving effect to brokerage commissions,
if any, and other transaction costs, normally is an important factor in this
decision, but a number of other judgmental factors may also enter into the
decision. These include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the nature of the
security being traded; the size of the transaction; the desired timing of the
trade; the activity existing and expected in the market for the particular
security; confidentiality; the execution, clearance and settlement capabilities
of the broker or dealer selected and others which are considered; the Adviser's
knowledge of the financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the value of these
factors, the Fund may pay a brokerage commission in excess of that which another
broker or dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of brokerage commissions, based on the
foregoing factors, are made on an ongoing basis by the Adviser's staff while
effecting portfolio transactions. The general level of brokerage commissions
paid is reviewed by the Adviser, and reports are made annually to the Board of
Trustees of the Fund.
With respect to issues of securities involving brokerage commissions, when more
than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Fund, the Adviser often selects a broker or dealer that has
furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, the Adviser uses an internal allocation procedure
to identify those brokers or dealers who provide it with research products or
services and the amount of research products or services they provide, and
endeavors to direct sufficient commissions generated by its clients' accounts in
the aggregate, including the Fund, to such brokers or dealers to ensure the
continued receipt of research products or services that the Adviser feels are
useful. In certain instances, the Adviser receives from brokers and dealers
products or services which are used both as investment research and for
administrative, marketing, or other non-research purposes. In such instances,
the Adviser makes a good faith effort to determine the relative proportions of
such products or services which may be considered as investment research. The
portion of the costs of such products or services attributable to research usage
may be defrayed by the Adviser (without prior agreement or understanding, as
noted above) through transaction charges generated by transactions by clients
(including the Fund), while the portions of the costs attributable to
non-research usage of such products or services is paid by the Adviser in cash.
No person acting on behalf of the Fund is authorized, in recognition of the
value of research products or services, to pay a commission in excess of that
which another broker or dealer might have charged for effecting the same
transaction. Research products or services furnished by brokers and dealers may
be used in servicing any or all of the clients of the Adviser and not all such
research products or services are used in connection with the management of the
Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, the Adviser may also consider
the part, if any, played by the broker or dealer in bringing the security
involved to the Adviser's attention, including investment research related to
the security and provided to the Fund. The Fund has arranged for its custodian
to act as a soliciting dealer to accept any fees available to the custodian as a
soliciting dealer in connection with any tender offer for the Fund's portfolio
securities held by the Fund. The custodian will credit any such fees received
against its custodial fees. In addition, the Board of Trustees has reviewed the
legal developments pertaining to and the practicability of attempting to
recapture underwriting discounts or selling concessions when portfolio
securities are purchased in underwritten offerings. However, the Board has been
advised by counsel that recapture by a mutual fund currently is not permitted
under the Rules of Fair Practice of the National Association of Securities
Dealers.
Administration Agreement
Pursuant to an Administration Agreement with the Fund, the Administrator
provides certain administrative services including: (i) providing office space,
equipment and clerical personnel, (ii) preparing and, if applicable, filing all
documents required for compliance by the Fund with applicable laws and
regulations, (iii) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees and shareholders, (iv)
coordinating and overseeing the activities of the Fund's other third-party
service providers, (v) maintaining certain books and records of the Fund, and
(vi) monitoring the investments results and operations of the Fund and reporting
to the Trustees from time to time with respect thereto. The Administration
Agreement has a one year term. The Administrator is paid a monthly fee at the
annual rate of average daily net assets set forth in the Prospectus. The
Administrator and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Administrator currently serves as investment
adviser and administrator for 33 open-end and 5 closed-end management investment
company portfolios, and is the administrator for 5 open-end management
investment company portfolios (collectively, Colonial funds). Officers of the
Trust who are also officers of the Administrator or its affiliates will benefit
from the administration fees, sales commissions and other 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 $16.3 billion in
assets.
Pricing and Bookkeeping Agreement
The Administrator provides pricing and bookkeeping services to the Fund pursuant
to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping Agreement
has a one-year term. The Administrator is paid an annual fee of $18,000, plus
0.0233% of average daily net assets in excess of $50 million.
Principal Underwriter
CISI is the principal underwriter of the Fund's shares. CISI has no obligation
to buy shares, and purchases shares only upon receipt of orders from authorized
financial service firms (FSFs) or investors.
12b-1 Plans
The Fund offers eight classes of shares - Class A, Class B, Class E, Class F,
Class G, Class H, Class I and Class J. The Fund may in the future offer other
classes of shares. The Trustees have approved 12b-1 Plans (Plans) pursuant to
Rule 12b-1 under the Act. Under the Plans, the Fund pays CISI service and
distribution fees at the annual rates described in the Prospectus. CISI may use
the entire amount of such fees to defray the cost of commissions and service
fees paid to 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 and the Administrator) 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.
Shareholder Servicing and Transfer Agent
CISC is the Fund's shareholder servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees as described in the Fund's
Prospectus which are paid monthly by the Fund. The agreement continues
indefinitely but may be terminated by 90 days' notice by the Fund to CISC or
generally by six months' notice by CISC to the Fund. The agreement limits the
liability of CISC to the Fund for loss or damage incurred by the Fund 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 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.
Custodian of the Fund
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 of the Fund
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.
Ownership of the Fund
At inception, the Administrator owned 100% of each Class of the Fund and,
therefore, may be deemed to "control" the Fund. At inception, the officers and
Trustees of the Trust as a group did not own any shares of the Fund.
PORTFOLIO TURNOVER
The portfolio turnover rate may vary significantly from year to year, but is not
expected to exceed 50% under normal market conditions. A high rate of portfolio
turnover may result in increased transaction expenses and the realization of
capital gains and losses.
DETERMINATION OF NET ASSET VALUE
The 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.
The Fund may invest in securities which are primarily listed on foreign
exchanges that are open and allow trading on days on which the Fund does not
determine NAV. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. Debt
securities generally are valued by a pricing service which determines valuations
based upon market transactions for normal, institutional-size trading units of
similar securities. However, in circumstances where such prices are not
available or where 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 Fund's Trustees. The values
of foreign securities quoted in foreign currencies are translated into U.S.
dollars at the exchange rate for that day. Fund 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 Fund'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 the 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 Fund's Trustees.
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. Purchases of Gift Shares
require the completion and delivery of additional documentation, and will not be
processed until such documentation is received by CISC in good order.
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"), and except that CISI may from time to time reallow additional
amounts to all or certain FSFs. CISI generally retains some or all of any
asset-based sales charge (distribution fee) or contingent deferred sales
charges. 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 will subject the purchaser 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 _________ in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, E, F, G,
H , I or J shares. 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. (Classes A and B only) As a convenience to investors, Class
A and Class B shares of the Fund may be purchased through the Colonial
Fundamatic Program. Preauthorized monthly bank drafts or electronic funds
transfer for a fixed amount of at least $250 are used to purchase Fund 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 Fundamatic 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.
Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including IRAs, and Pension and Profit-Sharing Plans for individuals,
corporations, employees and the self-employed. The minimum initial Retirement
Plan investment is $25. The First National Bank of Boston is the Trustee of CISI
prototype plans 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, beneficiaries
or their FSFs 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, on Class A or Class B shares or on
matured Gift Shares 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.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Rights of Accumulation and Statement of Intent (Class A, Class E and Class H
only). Reduced sales charges on Class A, E and H shares can be effected by
combining a current purchase with prior purchases of 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 fund shares held by the shareholder
(except Class A 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).
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, E and
H 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 Colonial fund shares held by the
shareholder on the date of the Statement in Colonial funds (except Class A
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, E or H 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 , E or H 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.
Reinstatement Privilege. An investor who has redeemed Fund shares may, upon
request, reinstate within one year a portion or all of the proceeds of such sale
in shares of the same Class of the 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.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Privileges of Colonial Employees or Financial Service Firms. Class A, E and H
shares of the Fund 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 Administrator, CISI and other
companies affiliated with the Administrator; 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, E and H shares of the Fund 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 Fund reserves the right to revise the terms of or to suspend or
discontinue sales pursuant to sponsored plans at any time.
Class A, E and H shares of the Fund 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 Fund is included as
an investment option in programs involving fee-based compensation arrangements.
Waiver of Contingent Deferred Sales Charges (CDSCs) (Class B shares and matured
Class F and I shares only) CDSCs may be waived on redemptions in the following
situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions of Class B shares or
matured Class F or I shares 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 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 of Class B shares or matured Class F or
I shares occurring pursuant to a monthly, quarterly or semi-annual
SWP established with CISC, 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 to Class B accounts if the SWP is set up at the time
the account is established, and distributions are being reinvested.
See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions of Class B shares
or matured Class F or I shares 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 of Class B
shares or matured Class F or I shares 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
of Class B shares or matured Class F or I shares required to return
excess contributions made to retirement plans or IRAs, 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 of
Class B shares or matured Class F or H shares 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 of Class B
shares or matured Class F or I shares 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 FSF. 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).
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 IRA
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 (Class A and B shares and matured Gift Shares only)
If a shareholder's Account Balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in the Fund designated by the
shareholder will be paid monthly, quarterly or 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, F
and I 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 the 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, F or H share account may do so but
will be subject to a CDSC ranging from 1% to 5% of the excess over 12%. 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.
The Fund may terminate a shareholder's SWP if the shareholder's Account Balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, 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. Telephone redemption privileges are described in the
Prospectus.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of the Fund's net asset
value, the Fund may make the payment or a portion of the payment with portfolio
securities held by the Fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
SUSPENSION OF REDEMPTIONS
The Fund may suspend shareholders' right of redemption or postpone payment for
more than seven days (i) if the Exchange is closed for other than customary
weekends or holidays, (ii) during certain periods when trading on the Exchange
is restricted, (iii) 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 (v) during any other period permitted by order of the SEC for
protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
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.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus, 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 shareholders' 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
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), (ii) dividing the result by the product of the average
daily number of shares of the Fund entitled to dividends for the period and the
maximum offering price of the fund on the last day of the period, and (iii) then
annualizing the result assuming semi-annual compounding. 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.
Performance Depictions and Comparisons.
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 CISI or the
Administrator to be reputable, and publications in the press pertaining to the
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 are based on past performance and do not predict future results.
Tax-Related Illustrations. The Fund also may present hypothetical illustrations
(i) comparing the Fund's and other mutual fund's pre-tax and after-tax total
returns, and (ii) showing the effects of income, capital gain and estate taxes
on performance.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX I
1995
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Donoghue Tax-Free Funds 3.39
Donoghue U.S. Treasury Funds 5.19
Dow Jones Industrials 36.95
Lipper Global Funds 16.05
Lipper Growth Funds 30.79
Lipper Growth & Income Funds 30.82
Lipper Mid Cap Funds 32.04
Lipper U.S. Government Money Market Funds 5.26
Lipper Small Company Growth Funds 31.55
S&P 500 S&P 37.54
S&P Utility Index S&P 42.39
S&P Barra Growth 38.13
S&P Barra Value 37.00
S&P Midcap 400 28.56
Morgan Stanley Capital International Pacific Region Funds Ex-Japan 12.95
Inflation Consumer Price Index N/A
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Federal Reserve Six-Month Treasury Bill N/A
Federal Reserve One-Year Constant-Maturity Treasury Rate N/A
Federal Reserve Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell & Co. Russell 2000 28.45
Frank Russell & Co. Russell 1000 Value 38.35
Frank Russell & Co. Russell 1000 Growth 37.19
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
*in U.S. currency
</TABLE>
<PAGE>
Part B of Post-Effective Amendment No. 40 filed with the Commission on April 15,
1996 (Colonial High Yield Securities Fund, Colonial Strategic Income Fund and
Colonial Income Fund), is incorporated herein in its entirety by reference.
<PAGE>
Part C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
----------------------------------
(a) Financial statements:
Included in Part A
------------------
Summary of expenses (for Colonial High Yield Securities Fund,
Colonial Income Fund and Colonial Strategic Income Fund,
incorporated herein by reference to Part A of Post-Effective
Amendment No. 40 filed with the Commission on April 15, 1996)
The Fund's financial history (for Colonial High Yield Securities
Fund, Colonial Income Fund and Colonial Strategic Income
Fund, incorporated herein by reference to Part A of Post-
Effective Amendment No. 40 filed with the Commission on April 15,
1996)
Summary of expenses (Colonial Tax Managed Growth Fund)
The Fund's financial history (Not applicable to Colonial Tax Managed
Growth Fund)
Included in Part B
------------------
Colonial High Yield Securities Fund (CHYSF)(incorporated herein by
reference to Part B of Post-Effective Amendment No. 40 filed with
the Commission on April 15, 1996)
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) (incorporated herein by reference to Part
B of Post-Effective Amendment No. 40 filed with the Commission on
April 15, 1996)
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) (incorporated herein by
reference to Part B of Post-Effective Amendment No. 40 filed with
the Commission on April 15, 1996)
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 Tax Managed Growth Fund (CTMGF) (Not
applicable)
(b) Exhibits
--------
1. Amendment No. 3 to the Agreement and
Declaration of Trust (c)
2. By-Laws as amended (2/16/96) (f)
3. Not applicable
4. Form of Specimen of share certificate (c)
5. (i) Management Agreement between Colonial
Trust I, with respect to CHYSF and
Colonial Management Associates, Inc. (f)
(ii) Management Agreement between Colonial
Trust I, with respect to CIF and Colonial
Management Associates, Inc. (f)
(iii) Management Agreement between Colonial
Trust I, with respect to CSIF and
Colonial Management Associates, Inc. (f)
(iv) Form of Management Agreement between
Colonial Trust I, with respect to CTMGF
and Stein Roe & Farnham Incorporated
6. (i)(b) Form of Distributor's Contract with
Colonial Investment Services, Inc.
(incorporated herein by reference to
Exhibit 6(a) to Post-Effective Amendment
No. 10 to the Registration Statement of
Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the
Commission on September 27, 1996)
(ii) Form of Selling Agreement with Colonial
Investment Services (incorporated herein
by reference to Exhibit 6(b) to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on
September 27, 1996)
(iii) Investment Account Application
(CHYSF, CSIF, CIF)
(iv) Form of Bank and Bank Affiliated Selling
Agreement (incorporated herein by
reference to Exhibit 6(c) to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on
September 27, 1996)
(v) Form of Asset Retention Agreement
(incorporated herein by reference to
Exhibit 6(d) to Post-Effective Amendment
No. 10 to the Registration Statement of
Colonial Trust VI Registration Nos.
33-45117 and 811-6529, filed with the
Commission September 27, 1996)
7. Not applicable
8. (i)(a) Form of proposed Custodian Contract with
State Street Bank and Trust Company (CTMGF) (c)
(i)(b) Custody Agreement with Boston Safe
Deposit and Trust Company (incorporated
herein by reference to Exhibit 8 to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust
VI, File Nos.33-45117 and 811-6529, filed
with the Commission on September 27, 1996)
(i)(c) Amendment to Custody Agreement with
Boston Safe Deposit and Trust Company
(incorporated herein by reference to
Exhibit 8.(a) to Post-Effective Amendment
No. 10 to the Registration Statement of
Colonial Trust VI, File Nos.33-45117 and
811-6529, filed with the Commission on
September 27, 1996)
(ii) Form of Customer, Safekeeping and
Procedural Agreements (d)
9. (i) Pricing and Bookkeeping Agreement with
Colonial Management Associates, Inc.
(incorporated herein by reference to
Exhibit 9.(b) to Post-Effective Amendment
No. 10 to the Registration Statement of
Colonial Trust VI, File Nos.33-45117 and
811-6529, filed with the Commission on
September 27, 1996)
(ii) Form of Administration Agreement with
Colonial Management Associates, Inc.
(CTMGF)
(iii) Amended and Restated Shareholders'
Servicing and Transfer Agent Agreement,
as amended (incorporated herein by
reference to Exhibit No. 9(a) to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust
VI, Registration Statement Nos. 33-45117
& 811-6529, filed with the Commission on
September 27, 1996)
(iv) Form of proposed Agreement and Plan of
Reorganization (CHYSF) (a)
(v) 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)
(vi) Form of Agreement and Plan of
Reorganization (CIF, CSIF) (c)
(vii) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
(incorporated herein by reference to
Exhibit No. 9(c) to Post-Effective
Amendment No. 10 to the Registration
Statement of Colonial Trust VI,
Registration Statement Nos. 33-45117 &
811-6529, filed with the Commission on
September 27, 1996)
(viii) Form of Colonial Tax-Managed Growth Fund
Gift Shares Trust
10. Opinion and Consent of Counsel (CHYSF,
CTMGF) (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 (CSIF,
CIF, CHYSF)
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)(f)
(b) Calculation of Yield (CHYSF) (f)
(c) Calculation of Performance Information
(CIF) (f)
(d) Calculation of Yield (CIF) (f)
(e) Calculation of Performance Information
(CSIF) (f)
(f) Calculation of Yield (CSIF) (f)
(g) Calculation of Performance Information (CTMGF)
17. (a) Financial Data Schedule (Class A)(CHYSF)(f)
(b) Financial Data Schedule (Class B)(CHYSF)(f)
(c) Financial Data Schedule (Class A)(CIF) (f)
(d) Financial Data Schedule (Class B)(CIF) (f)
(e) Financial Data Schedule (Class A)(CSIF)(f)
(f) Financial Data Schedule (Class B)(CSIF)(f)
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.
(f) Incorporated by reference to Post-Effective Amendment No.
40 filed with the Commission via EDGAR on April 15, 1996.
Item 25. Persons Controlled by our under Common Control with
---------------------------------------------------
Registrant
----------
None (CIF,CSIF,CHYSF)
All of the outstanding shares of CTMGF representing all of the
interests in the series on the date Registrant's Registration
Statement becomes effective, will be held by Colonial Management
Associates, Inc.
Item 26. Number of Holders of Securities
-------------------------------
(1) (2)
Title of Class Number of Record Holders as of 9/30/96
- -------------- --------------------------------------
Shares of beneficial interest 23,114 Class A recordholders (CHYSF)
16,280 Class B recordholders (CHYSF)
167 Class D recordholders (CHYSF)
Shares of beneficial interest 8,140 Class A recordholders (CIF)
2,511 Class B recordholders (CIF)
Shares of beneficial interest 44,224 Class A recordholders (CSIF)
35,750 Class B recordholders (CSIF)
Shares of beneficial interest 0 Class A recordholders (CTMGF)
0 Class B recordholders (CTMGF)
0 Class D recordholders (CTMGF)
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 the Adviser. (see next page):
ITEM 28.
- --------
Registrant's investment adviser (CHYSF, CIF, CSIF), 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 7/1/96. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Andersen, Peter V.P.
Archer, Joseph A. V.P.
Berliant, Allan V.P.
Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal
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.
Feloney, Joseph L. V.P. Colonial Investment Services, A.V.P.
Inc.
Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. V.P.
Franklin, Sr. V.P.
Fred J.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Gibson, Stephen Dir.; The Colonial Group, Inc. Exec. V.P.
E. Exec. 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.
Jacoby, Timothy J. Sr. 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.
McGregor, Dir.; Colonial Investment Services, Pres.; CEO;
Jeffrey L. Sr.V.P. Inc. Dir.
Newman, Maureen 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.
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 28.
- --------
The following sets forth business and other
connections of each Director and officer of Stein
Roe & Farnham Incorporated (only with respect to
Colonial Tax-Managed Growth Fund (Fund)) managed
by Stein Roe & Farnham Incorporated.
Stein Roe & Farnham Incorporated (Manager), the investment
manager of the Fund, is a wholly owned subsidiary of
SteinRoe Services Inc. (SSI), which in turn is a wholly owned
subsidiary of Liberty Financial Companies, Inc. (LFCI), which in
turn is a subsidiary of Liberty Mutual Equity Corporation, which
in turn is a subsidiary of Liberty Mutual Insurance Company
(LMIC). The Manager acts as investment adviser to individuals,
trustees, pension and profit-sharing plans, charitable
organizations, and other investors. In addition to the
Portfolio, it also acts as investment adviser to other investment
companies having different investment policies.
During the past two years, neither the Manager nor any of its
directors or officers, except for Kenneth R. Leibler, C. Allen
Merritt, Jr., Bruno Bertocci, and David P.
Harris, have been engaged in any business, profession, vocation,
or employment of a substantial nature either on their own account
or in the capacity of director, officer, partner or trustee,
other than as an officer or associate of the Manager. Mr.
Leibler is President and Chief Executive Officer of LFCI; Mr. Merritt
is Senior Vice President and Treasurer of LFCI; Messrs. Bertocci and Harris
were global equity portfolio managers with Rockefeller & Co.
prior to May, 1995, and are, commencing January 1, 1996, dually
employed by Colonial Management Associates, Inc. as Vice Presidents
and portfolio managers.
Certain directors and officers of the Manager also serve and have
during the past two years served in various capacities as
officers, directors or trustees of SSI, the SR&F Base Trust or
investment companies managed by the Manager, as shown below.
(The listed entities are all located at One South Wacker Drive,
Chicago, IL 60606; the address of SteinRoe Variable Investment
Trust and LFC Utilities is Federal Reserve Plaza, 600 Atlantic
Avenue, Boston, MA 02110).
Position Formerly
Current Position Held Within Past
Two Years
SteinRoe Services Inc.
- ----------------------
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President;
Secretary
Kenneth J. Kozanda Vice President;
Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice
President
Hans P. Ziegler Director; President; Vice Chairman
Chairman
SR&F Base Trust
- ---------------
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour Pres.; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Ann H. Benjamin Vice President
Philip D. Hausken Vice President
Michael T. Kennedy Vice President
Lynn C. Maddox Vice President
Jane M. Naeseth Vice President
Thomas R. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee
Stein Roe Income Trust
- ---------------------
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
Michael T. Kennedy Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee
Stein Roe Investment Trust
- --------------------------
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Alfred F. Kugel Trustee
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Stein Roe Municipal Trust
- ------------------------
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Thomas W. Butch Vice President
Joanne T. Costopoulos Vice President
Philip J. Crosley Vice President
Lynn C. Maddox Vice President
M. Jane McCart Vice President
Anne E. Marcel Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee
SteinRoe Variable Investment Trust
- ----------------------------------
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
Stein Roe Trust and Stein Roe Adviser
- -------------------------------------
Gary A. Anetsberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Stein Roe Institutional Trust
- -------------------------------------
Gary A. Anetsberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
LFC Utilities Trust
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
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 I, Colonial Trust II, Colonial Trust III, Colonial
Trust IV, Colonial Trust V 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
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
Feloney, Joseph L. 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
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
Lloyd, Judith H. Sr. V.P. None
McGregor, Jeffrey L. Director, CEO, None
President, COO
Meriwether, Jan V.P.
Moberly, Ann R. Sr. V.P. None
Murphy, Robert F. Sr. V.P. None
O'Neill, Charles A. Exec. V.P. None
Palmer, Laura V.P. None
Potter, Cheryl Regional V.P. None
Reed, Christopher B. Regional V.P. None
Scott, Michael W. Sr. V.P. None
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.
<PAGE>
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,CTMGF)
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 (CHYSF,CIF, CSIF)
The Registrant, with respect to Colonial Tax Managed Growth Fund,
undertakes to file a post-effective amendment, including
financial statements which need not be certified, within 4 to 6
months from the effective date of this Registration Statement
under the Securities Act of 1933, as amended.
<PAGE>
******************
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Colonial Trust I, has duly caused this
Post-Effective Amendment No. 41 to its Registration Statement under the
Securities Act of 1933 and the Post-Effective Amendment No. 23 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 October, 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 October 15, 1996
Harold W. Cogger (Principal
executive
officer)
/s/PETER L. LYDECKER Controller October 15, 1996
Peter L. Lydecker (Principal
financial and
accounting
officer)
<PAGE>
/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 */s/ MICHAEL H.KOONCE
William D. Ireland, Jr. Michael H. Koonce
Attorney-in-fact
For each Trustee
October 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.
<PAGE>
Exhibit Index
Exhibit
5.(iv) Form of Management Agreement between Colonial
Trust I and Stein Roe & Farnham Incorporated
9.(ii) Form of Administration Agreement with Colonial
Management Associates, Inc.
9.(viii) Form of Colonial Tax-Managed Growth Fund Gift
Shares Trust
11. Consent of Independent Accountants (CSIF, CIF, CHYSF)
MANAGEMENT AGREEMENT
AGREEMENT dated as of , between COLONIAL TRUST I, a Massachusetts business trust
(Trust), with respect to COLONIAL TAX-MANAGED GROWTH FUND (Fund), and STEIN ROE
& FARNHAM INCORPORATED, a Delaware 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 ____%
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 TAX-MANAGED GROWTH FUND
By: __________________________
Title: Controller
STEIN ROE & FARNHAM INCORPORATED
By: ________________________________
Title:
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.
ADMINISTRATION AGREEMENT
AGREEMENT dated as of , between COLONIAL
TRUST I, a Massachusetts business trust (Trust), with
respect to Colonial Tax-Managed Growth Fund (Fund), and
COLONIAL MANAGEMENT ASSOCIATES, INC., a Massachusetts
corporation (Administrator).
In consideration of the promises and covenants herein, the
parties agree as follows:
1.Subject to the general direction and control of the Board
of Trustees of the Trust, the Administrator shall perform
such administrative services as may from time to time be
reasonably requested by the Trust, which shall include
without limitation: (a) providing office space,
equipment and clerical personnel necessary for
maintaining the organization of the Fund and for
performing the administrative functions herein set forth;
(b) arranging, if desired by the Trust, for Directors,
officers and employees of the Administrator to serve as
Trustees, officers or agents of the Fund if duly elected
or appointed to such positions and subject to their
individual consent and to any limitations imposed by law;
(c) preparing and, if applicable, filing all documents
required for compliance by the Fund with applicable laws
and regulations, including registration statements,
registration fee filings, semi-annual and annual reports
to shareholders, proxy statements and tax returns; (d)
preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders; (e) monitoring compliance by the Fund
with Rule 2a-7 under the Investment Company Act of 1940
(1940 Act) and reporting to the Trustees from time to
time with respect thereto; (f) monitoring the investments
and operations of any open-end investment company in
which the Fund may invest and reporting to the Trustees
from time to time with respect thereto; (g) coordinating
and overseeing the activities of the Fund's other third-
party service providers; and (h) maintaining books and
records of the Fund (exclusive of records required by
Section 31(a) of the 1940 Act). Notwithstanding the
foregoing, the Administrator shall not be deemed to have
assumed any duties with respect to, and shall not be
responsible for, the management of the Fund's assets or
the rendering of investment advice with respect thereto,
or of insuring that any investment company in which the
Fund may invest complies with Rule 2a-7 under the 1940
Act, nor shall the Administrator be deemed to have
assumed or have any responsibility with respect to
functions specifically assumed by any transfer agent or
custodian of the Fund.
2.The Administrator shall be free to render similar
services to others so long as its services hereunder are
not impaired thereby.
3.The Fund shall pay the Administrator monthly a fee at the
annual rate of ____% of the average daily net assets of
the Fund.
4.This Agreement shall become effective as of the date of
its execution, and may be terminated without penalty by
the Board of Trustees of the Trust or by the
Administrator, in each case on sixty days' written notice
to the other party.
5.This Agreement may be amended only by a writing signed by
both parties.
6.In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Administrator, or reckless
disregard of its obligations and duties hereunder, the
Administrator shall not be subject to any liability to
the Trust or 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 Tax-Managed Growth Fund
By: _____________________________
Title: Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: _____________________________
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.
COLONIAL TAX MANAGED GROWTH FUND GIFT SHARES TRUST
Important Information to Consider Before Investing
This Trust is irrevocable and its provisions cannot be changed in any way.
Contributions to the Trust will also be irrevocable and cannot be canceled or
returned once made.
A contribution to this Trust may require the filing of a federal or state gift
tax return, depending upon the trust option chosen in the Adoption Agreement,
the amount of the contribution (and the amount(s) of any other gifts made) and
the laws of the state of domicile of the donor. There also may be
generation-skipping tax implications in the creation of trusts. See the
Prospectus and Statement of Additional Information for details.
This Trust Instrument is provided as a convenience to investors wishing to
establish trust accounts in the Colonial Tax Managed Growth Fund. Neither
Colonial Tax Managed Growth Fund, Colonial Management Associates, Inc. or their
respective affiliates, officers or employees can advise whether gifts to the
Trust are appropriate to an investor's particular circumstances. Investors are
advised to consult an attorney and/or tax adviser before signing the Adoption
Agreement and making gifts to the Trust.
TRUST INSTRUMENT
This Trust Instrument has been provided by Colonial Tax Managed Growth Fund
("CTMGF"), with [Insert Name and Address of Trustee], as trustee, to enable
investors to make irrevocable gifts to be held in trust for others. Each person
making a gift under this Instrument ("Donor") must complete and execute a
separate instrument ("Adoption Agreement") specifying the individual for whom
the gift is made ("Beneficiary"), the amount of the gift ("Initial
Contribution") and the Donor's choices as to the payment or accumulation of
income and regarding other matters. A Beneficiary must be a person, and only one
Beneficiary may be named per Trust Instrument. The original executed Trust
Instrument must be delivered to Colonial Investors Service Center, Inc., P.O.
Box 1722, Boston, MA 02105-1722.
Upon receipt and acceptance of a properly completed and executed Adoption
Agreement and collection of the Initial Contribution ("Receipt Date"), the
Trustee will hold the Initial Contribution, together with all additional
contributions ("Additional Contributions") and undistributed gains and income
(collectively, the "Trust Fund"), in trust ("Trust") for the benefit of the
Beneficiary, in accordance with the terms and conditions of this Trust
Instrument and the Adoption Agreement.
1. Trust Investment
(a) The Trustee shall invest the Trust Fund in shares of CTMGF.
(b) The Trustee shall reinvest all net investment income, dividends and capital
gains distributions that are not required to be distributed currently to
the Beneficiary in additional shares of CTMGF.
(c) Notwithstanding (a) and (b) above, if the Donor selects "Advantage Two
Shares" in the Adoption Agreement, at the Beneficiary's request, the
Trustee shall redeem all Trust Fund shares in CTMGF and reinvest the net
proceeds in shares of a money market fund to be selected by the Trustee in
its sole and absolute discretion. The Trustee is expressly authorized to
select a money market fund that is managed by or is otherwise affiliated
with Colonial Management Associates or its affiliates. ("CMA").
(d) If shares of CTMGF become unavailable for any reason, the Trustee may
invest the Trust Fund in a comparable investment, temporarily in the event
that CTMGF shares again become available for purchase, to be selected by
the Trustee in its sole and absolute discretion. The Trustee is expressly
authorized to select a money market mutual fund that is managed by or is
otherwise affiliated with Colonial Management Associates, Inc. or its
affiliates ("CMA").
(e) The Trustee shall not be liable or responsible for any loss resulting to
the Trust Fund or to any Beneficiary by reason of the investment in shares
of CTMGF, the money market fund selected pursuant to (c) above or any
investment substituted pursuant to (d) above.
2. Income and Principal Distributions
(a) If the Donor selects "Advantage One Shares" in the Adoption Agreement, the
Beneficiary may notify the Trustee to make tax equalization distributions,
and thereafter, until the termination of the Trust, the Trustee shall pay
the tax equalization distributions amount to the Beneficiary within 90 days
after the end of each calendar year. The amount of tax equalization
distribution shall be determined by multiplying each class of income earned
by the Trust (ordinary income or capital gains) by the highest marginal
Federal tax rate for unmarried individuals applicable to that class of
income. A notice given pursuant to this paragraph shall be irrevocable and
will apply to the taxable year in which made and all subsequent taxable
years until the termination of the Trust.
(b) If the Donor selects the "Advantage Two Shares" in the Adoption Agreement,
the Trustee shall pay all of the net income of the Trust to the Beneficiary
annually or more frequently as the Trustee, in its sole and absolute
discretion, determines. For this purpose, "net income" means investment
income (dividends and interest) received by the Trust less expenses of the
Trust, but does not include short-term or long-term capital gains
distributions received or short-term or long-term capital gains realized by
the Trust.
3. Withdrawal Rights - If the Donor selects the "Advantage One Shares" in the
Adoption Agreement:
(a) Within 30 days after receipt and collection by the Trustee of the Initial
Contribution or any Additional Contribution, the Beneficiary shall have the
right to either (i) withdraw the shares of CTMGF held by the Trustee in the
account in respect of said Contribution, or (ii) direct the Trustee to
redeem such shares of CTMGF and distribute the net proceeds of redemption
to the Beneficiary. The Trustee shall notify the Beneficiary of this right
of withdrawal promptly after receipt of the Initial Contribution or any
Additional Contribution and the Beneficiary shall respond, if at all,
within 30 days after such receipt date.
(b) If the Donor has so authorized in the Adoption Agreement, Beneficiary may
request that the Trustee to pay, in its sole and absolute discretion, the
Beneficiary's expenses of college or post-graduate education upon
presentation of a bill or statement from an accredited college or
university. While discretionary, it is anticipated that the Trustee will
pay such expenses directly to the college or university by redeeming Trust
shares sufficient to pay the amount of the bill or statement. For purposes
of this paragraph, the term "expenses of the Beneficiary's college or
post-graduate education" means the charges of an accredited college or
university for tuition, room and board and such other fees and expenses
(such as laboratory fees and student activity fees). The Trustee, may rely,
without further investigation, upon any college or university bill or
statement that appears to the Trustee to be genuine.
4. Tax Withholding - Notwithstanding any other provisions of this Instrument,
the Trustee is authorized to withhold from any distribution under this
Instrument any Federal, state or local taxes that may be required to be withheld
with respect to the payment of such distribution under applicable Federal, state
or local law, and to pay the amounts withheld to the appropriate taxing
authorities.
5. Tax Filings - The Trustee shall prepare and file all income tax returns
required to be filed by the Trust with the Internal Revenue Service and the
Commonwealth of Massachusetts. Taxes owed by the Trust shall be paid by the
Trustee by redemption of shares from the Trust Fund. The Trustee shall also
provide annual tax information statements regarding Trust Fund income and/or
gains as to which tax payments may be payable by the Beneficiary. The Trustee
shall not be responsible for the filing or payment of any Federal or state gift
or generation - skipping transfer tax of Donor or any other person who may make
gifts to the Trust.
6.Trust Termination
(a) If the Donor selects "Advantage One Shares" or "Guardian Shares" in
the Adoption Agreement, the Trust will terminate on the date specified
by the Donor in the Adoption Agreement, but not earlier than the age
of 21 for any minor Beneficiary.
(b) If the Donor selects "Advantage Two Shares" in the Adoption Agreement,
the Trust will terminate 40 years after the Receipt Date above, or on
such earlier date as the Trustee may determine, at the request of the
Beneficiary. In no event, however, may the Trust terminate before the
expiration of the minimum term specified by the Donor in the Adoption
Agreement or the age of 21 for any minor Beneficiary.
(c) Upon termination of the Trust, the Trustee shall distribute the entire
Trust Fund to the Beneficiary. If the Beneficiary dies before the
termination date, the Trust shall thereupon terminate and the Trustee
shall distribute the Trust Fund to the executors or administrators of
the Beneficiary's estate.
7. Additional Contributions - The Donor or any other person may add to the Trust
by making Additional Contributions (except during the final two years of the
Trust), which shall be subject to this Instrument and the Adoption Agreement.
Confirmation of Additional Contributions made by a person other than the Donor
will be sent only to the Beneficiary (and Donor if so executed on the Adoption
Agreement).
8. Payments and Elections During Minority - If and for so long as the
Beneficiary is under the age of 21, (i) all distributions required to be made to
the Beneficiary under this Instrument shall be paid to the individual specified
in the Adoption Agreement as authorized to act on behalf of the Beneficiary
during his or her minority (the "Representative"), (ii) all of the rights and
powers given to the Beneficiary by this Instrument shall be exercisable by the
Representative and (iii) all notices, statements, proxies and other
communications required to be sent to the Beneficiary under this Instrument
shall be sent to the Representative. The Representative shall be authorized to
appoint another individual to serve as successor Representative. If the
Representative dies or becomes disabled without having appointed a successor
Representative, his or her executors or administrators may appoint a successor
Representative. The Trustee may rely, and shall be protected in acting upon any
request, consent or election made by the Representative on behalf of a
Beneficiary under the age of 21.
9. Assignment or Invasion of the Trust Fund Prohibited - The Beneficiary shall
have no power to assign, transfer, encumber or otherwise dispose of any interest
in the Trust Fund, and all sums payable to the Beneficiary under this Instrument
shall be free and clear of the Beneficiary's liabilities, debts, contracts and
assignments and from levies, attachments or similar proceedings of any kind,
including claims for alimony, child support or similar obligations, and free
from the control of his or her spouse. No provision of law that would otherwise
authorize a court to direct that the Trust Fund be invaded for any purpose shall
apply to the Trust.
10. Trustee Powers - In addition to and not in limitation of any powers
conferred upon fiduciaries by law, the Trustee is expressly authorized, in its
sole and absolute discretion:
(a) To appoint agents, accountants, experts and counsel, including
individuals and entities affiliated with the Trustee, CTMGF or CMA,
and to authorize any one or more of them to perform the Trustee's
ministerial acts hereunder, including, but not limited to, the
acceptance of investments, maintenance of financial and other records,
collection and remittance of fees and expenses, issuance of reports
and accountings to beneficiaries, distribution of the Trust Fund at
the termination of the Trust and preparation, execution and filing of
tax returns and tax information statements and payment of taxes shown
to be due on such returns.
(b) To pay from the Trust Fund expenses, costs, fees, taxes, penalties or
other charges, including compensation to any agents, accountants,
experts and counsel whose services may be required In the
administration of the Trust.
(c) To hold property in its own name, unregistered, in the name of a
nominee, in such form as will pass by delivery or in book-entry form.
(d) To determine the form of any notices required in connection with any
rights or powers exercisable by the Beneficiary under this Instrument
and any reasonable conditions on the exercise of such rights or powers
that the Trustee finds necessary or convenient for the efficient
administration of the Trust.
11. Voting of CTMGF Shares - The Trustee shall deliver, or arrange for delivery
of, notices of meetings of CTMGF shareholders, CTMGF proxy statements and CTMGF
proxies in sufficient time to enable the Beneficiary to attend such meeting in
person or vote by proxy. The Trustee shall vote all shares of CTMGF for which no
proxies are returned (and which are not present in person at the meeting) in the
same proportion as CTMGF shares for which proxies are returned.
12. Accounting Reports
The Trustee is authorized to send to the Beneficiary (or to the executors or
administrators of the Beneficiary's estate, if the Beneficiary has died),
annually or more frequently as the Trustee shall determine, a written account of
its administration of the Trust (which may be or include a periodic statement of
the Trust Fund setting forth (i) all investments, receipts and disbursements and
other transactions effected during the period from the Receipt Date, or from the
close of any preceding period covered by such an account, to the closing date of
such account selected by the Trustee, (ii) all cash, securities and other
property held at the close of such period and the current value thereof and
(iii) such other information as may be required of the Trustee under applicable
law. The Trustee shall also send copies of such accounts to the Donor if elected
on the Adoption Agreement. The failure of the Beneficiary (or the executors or
administrators of his or her estate) to object to any such account within 60
days after receipt of a copy of such account shall be deemed to be approval of
such account.
(b) Nothing contained in this Section shall be construed as a limitation
upon or prohibition against the Trustee's right to have its accounting
judicially settled.
13. Liability of Trustees and Agents - No Trustee or agent of the Trustee shall
be subject to any personal liability whatsoever, in tort, contract or otherwise,
to any person in connection with the Trust Fund or the affairs of this Trust,
except for his, her or its own acts constituting bad faith, willful misconduct
or gross negligence, and all such persons shall look solely to the Trust Fund
for satisfaction of claims of any nature arising in connection with affairs of
the Trust. Without limiting the generality of the foregoing (and except as to
acts of the Trustee constituting bad faith, willful misconduct or gross
negligence):
(a) The Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Instrument, and no implied covenants or obligations shall be read into
this Instrument against the Trustee.
(b) The Trustee shall not be liable for any action taken in good faith in
reliance upon the advice or opinion of any legal counsel, accountant
or other expert or professional, and such advice or opinion shall be
full and complete personal protection to the Trustee and agents of the
Trustee in respect of any action taken or suffered by it in good
faith, and in reliance on, or in accordance with, such advice or
opinion.
(c) The Trustee may rely, and shall be protected in acting upon, any
notice, request, consent, order or other paper or document reasonable
believed by the Trustee to be genuine and to have been signed or
presented by the proper party or parties.
(d) The Trustee shall not be liable for any error of judgment made in good
faith.
14. Indemnification of Trustee
(a) The Trustee and each of its agents shall be indemnified by, and
receive reimbursements from, the Trust Fund against and from any and
all loss, liability, damage or expense that the Trustee or any of its
agents may incur or sustain for or by reason of (i) any change in the
Beneficiary's domicile without notice to the Trustee or any of its
agents, (ii) failure of the Beneficiary's executors, administrators or
heirs to provide timely notice to the Trustee or any of its agents of
the Beneficiary's death, (iii) failure of the Donor or other person
making Additional Contributions to the Trust to file any Federal or
state gift or generation-skipping transfer tax return or to pay any
Federal or state gift or generation-skipping transfer tax or (iv)
failure of the Beneficiary to file any Federal or state estate tax
return or to pay any Federal or state income or estate tax.
(b) The rights accruing to the Trustee and its agents by reason of the
foregoing shall not be deemed to exclude any other right to which it
or they may legally be entitled, nor shall anything else contained
herein restrict the right of the Trustee or any of its agents to
contribution under applicable law.
15. Resignation, Removal and Replacement of the Trustee
(a) Any Trustee may resign at any time upon 60 days notice in writing to
CTMGF, whereupon a successor Trustee shall be selected in the manner
provided in paragraph (c) below.
(b) CMA or a majority of the disinterested Trustees of CTMGF may, upon 10
days notice in writing to the Trustee, remove any Trustee at any time
acting hereunder with or without cause.
(c) Whenever any Trustee shall cease to act for any reason, its successor
shall be such individual or entity as may be selected by CMA or a
majority of the disinterested Trustees of CTMGF. When the successor
Trustee assumes office, notice thereof shall be sent to the
Beneficiary.
(d) No successor Trustee shall be liable or responsible for any act or
default of any predecessor Trustee, nor shall any successor Trustee be
required to inquire into or take any notice of the prior
administration of the Trust Fund.
16. Amendment - The Instrument may be amended by the Trustee, with the consent
of CMA at any time or from time to time, to promote the prompt and efficient
administration of the Trust under this Instrument or to carry out the purposes
of the Trust; provided, however, that no such amendment may (i) adversely affect
the rights of the Beneficiary in any significant respect, (ii) affect any
election or option selected by the Donor, (iii) result in the return of any
interest in or power over the Trust to the Donor or the Donor's spouse, (iv)
expand the amendment powers of the Trustee under this paragraph or (v) violate
any applicable statute or rule of law. Any such amendment shall become effective
only after 30 days prior written notice to the Beneficiary.
17. Notices - Any and all notices required to be sent under this Instrument
shall be in writing and sent by first class mail to the address of record. Any
change of residence of the Donor or Beneficiary must be promptly reported to the
Trustee.
18. Governing Law - This Instrument shall be construed and enforced, to the
extent possible, according to the laws of The Commonwealth of Massachusetts and
all provisions hereof shall be administered according to the laws of said
Commonwealth.
19. Severability - If any provision of this Instrument is found to be invalid,
illegal or unenforceable in any respect, such provision shall be deemed to have
been excised, and the balance of this Instrument shall remain in effect and
shall be construed without regard to such provision, and each other provision of
this Instrument shall be valid and enforceable to the fullest extent permitted
by law.
Colonial Tax Managed Growth Fund Gift Shares
TRUST ADOPTION AGREEMENT
DONOR
- --------------------------------------------------------------------------------
NAME (FIRST, MI, LAST) SOCIAL SECURITY NO.
- -------------------------------------------------------------------------------
STREET ADDRESS
- -------------------------------------------------------------------------------
CITY STATE ZIP TELEPHONE
- --------------------------------------------------------------------------------
BENEFICIARY
(Must be a citizen or permanent resident of the United States)
- -------------------------------------------------------------------------------
NAME (FIRST, MI, LAST) SOCIAL SECURITY NO.
- -------------------------------------------------------------------------------
STREET ADDRESS
- -------------------------------------------------------------------------------
CITY STATE ZIP TELEPHONE
- -------------------------------------------------------------------------------
DATE OF BIRTH (MM/DD/YY) RELATIONSHIP TO DONOR
BENEFICIARY'S REPRESENTATIVE
(if Beneficiary is a minor)
- --------------------------------------------------------------------------------
NAME (FIRST, MI, LAST) SOCIAL SECURITY NO.
- -------------------------------------------------------------------------------
STREET ADDRESS
- -------------------------------------------------------------------------------
CITY STATE ZIP TELEPHONE
AMOUNT OF GIFT
(Minimum Initial Contribution: $2,500)
Minimum Additional Contribution: $250)
- --------------------------------------------------------------------------------
MAKE CHECK PAYABLE TO COLONIAL TAX MANAGED GROWTH FUND
TRUST OPTIONS
O Guardian Shares - Qualifies for the $10,000 Federal annual gift tax
exclusion.
O Advantage One Shares - Does not qualify for the federal annual gift
tax exclusion. The Trust, not the Beneficiary, will pay income taxes
on the Trust's income.
O CHECK HERE if you authorize the Beneficiary to request
withdrawal of funds for college or post-graduate
education expenses.
O Advantage Two Shares - Part of the gift may qualify for the Federal
annual gift tax exclusion. The Trust will pay the income taxes on its
capital gains and the Beneficiary will pay income taxes on income
distributed to him or her. .
TERMINATION DATE This Trust will terminate on:
---------------------------------------------------------------
(Month, Day, Year) The Date Must Be At Least 5 Years From the Date Of Gift
and not Earlier than the Age of 21 for a Minor Beneficiary
MINIMUM TERM The Minimum Term of this Trust Is (select one)
O 5 years (Additional O 10 years (Additional Contributions
Contributions not accepted not accepted in 9th and 10th years)
in 4th and 5th years)
____years (Insert any number greater than 5 or 10 years; Additional
Contributions not accepted in final 2 years)
CLASS OF SHARES Minimum 5 Year Trust Term
-------------------------
See Prospectus for
more information
O E Shares - offered at net asset value plus an initial sales charge
O F Shares - offered at net asset value with a declining contingent
deferred sales charge and annual distribution fee (converts to A
Shares after approximately 8 years
O G Shares - offered at net asset value plus an initial sales charge,
annual distribution fee and contingent deferred sales charge.
Minimum 10 Year Trust Term
--------------------------
O H Shares - offered at net asset value plus an initial sales charge
O I Shares - offered at net asset value with a declining contingent
deferred sales charge and annual distribution fee (converts to A
Shares after approximately 8 years)
O J Shares - offered at net asset value plus an initial sales charge,
annual distribution fee and contingent deferred sales charge
DUPLICATE STATEMENTS
O Please send a copy of the periodic account statements to Donor.
I, the Donor named above, hereby adopt the terms of the Colonial Tax Managed
Growth Fund Gift Shares Trust and agree that the gift described in this Adoption
Agreement shall be governed by the terms and conditions of the Colonial Tax
Managed Growth Fund Gift Shares Trust, subject to the Options selected in this
Adoption Agreement. I understand that this gift is irrevocable and cannot be
returned to me, and that I will have no control over the trust that I have
created. I have received and read the current Prospectus for Colonial Tax
Managed Growth Fund and the section of The Colonial Tax Managed Growth Fund's
current Statement of Additional Information concerning Federal gift,
generation-skipping transfer and income tax matters relating to Colonial Tax
Managed Growth Fund Gift Shares Trust. I understand that I may be required to
file a gift tax return reporting this gift, and that it is my responsibility to
determine whether a gift tax return will be required.
- ------------------------------------- ----------------------------
SIGNATURE OF DONOR DATE
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective
Amendment No. 41 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 reference to us under
the heading "Independent Accountants of the Fund" in the Statement of
Additional Information.
PRICE WATERHOUSE LLP
- --------------------
Price Waterhouse LLP
Boston, Massachusetts
October 14, 1996
