Registration Nos: 2-41251
811-2214
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF / X /
1933
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 41 / X /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
Amendment No. 23 / X /
COLONIAL TRUST I
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
617-426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address of
Agent for Service Copy to
Michael H. Koonce Peter MacDougall, Esq.
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, MA 02111 Boston, MA 02110-2624
It is proposed that this filing will become effective (check
appropriate box):
/ / immediately upon filing pursuant to
paragraph (b).
/ / 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.
MASTER FUND/FEEDER FUND REPRESENTATION
This Registration Statement includes the Prospectus and Statement
of Additional Information for the Colonial Growth Fund, which
uses a master fund/feeder fund structure. In accordance with SEC
requirements, the master fund has executed this Registration
Statement.
COLONIAL TRUST I
Cross Reference Sheet
(Colonial 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 and the Portfolio are
Managed;
Organization and History;
Back cover
6. Organization and History;
Distributions and Taxes;
How to Buy Shares
7. How to Buy Shares;
How the Fund Values Its Shares;
12b-1 Plans; Back cover
8. How to Sell Shares;
How to Exchange Shares;
Telephone Transactions
9. Not applicable
September 30, 1996
COLONIAL
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 Growth Fund (Fund), a diversified portfolio of Colonial Trust I
(Trust), an open-end management investment company seeks long-term capital
appreciation.
Unlike a traditional mutual fund which invests directly in individual
securities, the Fund seeks to achieve its objective by investing all of its
assets in the SR&F Growth Investor Portfolio (Portfolio), a master fund that has
the same objective as the Fund. The Portfolio is a series of the SR&F Base
Trust, an open-end diversified management investment company which was organized
as a trust under the laws of the Commonwealth of Massachusetts on August 23,
1993. The Fund's investment experience will correspond directly to that of the
Portfolio. The Portfolio is managed by Stein Roe & Farnham Incorporated
(Adviser), successor to an investment advisory business that was founded in
1932.
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 September 30, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission
xx-xxx-xxx
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.
The Fund offers three classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and, in addition, are subject to an annual
distribution fee and a declining contingent deferred sales charge on redemptions
made within six years after purchase; and Class D shares are offered at net
asset value plus a small initial sales charge and, are subject to a contingent
deferred sales charge on redemptions made within one year after purchase and a
continuing distribution fee. Class B shares automatically convert to Class A
shares after approximately eight years. See "How to Buy Shares."
Contents Page
Summary of Expenses
Two-Tiered Structure
The Fund's Investment Objective
How the Fund Pursues its Objective
and Certain Risk Factors
How the Fund Measures its Performance
How the Fund and the Portfolio are
Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your estimated
annual expenses for an investment in each Class of the Fund's shares. Estimated
Annual Operating Expenses include the estimated allocable expenses of the
Portfolio. See "How the Fund and the Portfolio are Managed" and "12b-1 Plans"
for more complete descriptions of the Fund's and the Portfolio's various costs
and expenses.
<TABLE>
Shareholder Transaction Expenses (1)(2)
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price) (3) 5.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales Charge
(as a % of offering price) (3) 1.00%(4) 5.00% 1.00%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Sell Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and D shares,
long-term Class B and Class D shareholders may pay more in aggregate sales
charges than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because the Fund's Class B
shares automatically convert to Class A shares after approximately eight
years, this is less likely for Class B shares than for a class without a
conversion feature.
Estimated Annual Operating Expenses (as a % of average net assets)
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C>
Management and administration fees 0.85% 0.85% 0.85%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.75 0.75 0.75
---- ---- ----
Total operating expenses 1.85% 2.60% 2.60%
==== ==== ====
</TABLE>
Amounts in the table reflect operating expenses incurred by the Portfolio's
predecessor, Stein Roe Young Investor Fund (Predecessor Fund) adjusted to
reflect current fees of the Fund and the Portfolio. See "How the Fund and the
Portfolio are Managed." The investment performance disclosed in the Statement of
Additional Information and in any sales or advertising materials for the Fund is
that of the Predecessor Fund, adjusted to reflect applicable sales loads of the
Fund. The Trustees believe that the aggregate expenses of the Fund and the
allocable expenses of the Portfolio would be no greater than what the Fund's
expenses would be if it invested directly in the securities held by the
Portfolio.
<PAGE>
Example (6)
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example should
not be considered indicative of actual or expected Fund performance or expenses,
both of which will vary:
<TABLE>
<CAPTION>
Class A Class B Class D
<S> <C> <C> <C> <C> <C>
Period (7) (8) (7) (8)
1 year $ 75 $ 76 $26 $46 $36
3 years $112 $111 $81 $90 $90(9)
</TABLE>
(6) Expenses used in the Example are based upon the expenses of the Predecessor
Fund adjusted to reflect current fees of the Fund. This Example assumes
reinvestment of all dividends and distributions.
(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year.
<PAGE>
TWO-TIERED STRUCTURE
Unlike other mutual funds which invest directly in individual securities, the
Fund is an open-end management investment company that seeks to achieve its
investment objective by investing all of its assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund and
which invests directly in portfolio securities. See "The Fund's Investment
Objective," "How the Fund Pursues its Objective and Certain Risk Factors" and
"How the Fund and the Portfolio are Managed" for information concerning the
Portfolio's and the Fund's investment objectives, policies, management and
expenses. The following describes certain of the effects and risks of this
structure.
The Fund's and the Portfolio's investment objectives may be changed without
shareholder approval. Fund shareholders will be notified, however, at least 30
days prior to any material change in the Fund's or the Portfolio's investment
objective. Certain shareholders may incur a contingent deferred sales charge if
they redeem shares in response to a change in objective.
Matters submitted by the Portfolio to its investors for a vote will be passed
along by the Fund to its shareholders, and the Fund will vote its interest in
the Portfolio in proportion to the votes actually received from Fund
shareholders. As of the date of this Prospectus, the Predecessor Fund is also an
investor in the Portfolio. In the future, other funds or institutional investors
may also invest in the Portfolio. The Predecessor Fund currently has, and in the
future other investors may have, sufficient voting interests in the Portfolio to
control matters relating to the operation of the Portfolio. You may obtain
additional information about other investors in the Portfolio by writing or
calling the Administrator at 1-800-248-2828.
The Predecessor Fund invests, and other feeder funds or institutions may invest,
in the Portfolio on substantially the same terms and conditions as the Fund.
Each investor in the Portfolio will bear its proportionate share of the
Portfolio's expenses. However, the Predecessor Fund and other mutual fund
investors in the Portfolio will not be required to issue their shares at the
same public offering price as the Fund and may have direct expenses that are
higher or lower than those of the Fund. These differences may result in such
other funds' generating investment returns higher or lower than those of the
Fund. Large scale redemptions by such 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.
The Fund will continue to invest in the Portfolio as long as the Trust's Board
of Trustees determines it is in the best interest of Fund shareholders to do so.
In the event that the Portfolio's investment objective or policies were changed
so as to be inconsistent with the Fund's investment objective or policies, the
Board of Trustees of the Trust would consider what action might be taken,
including changes to the Fund's investment objective or policies, withdrawal of
the Fund's assets from the Portfolio and investment of such assets in another
pooled investment entity or the retention of an investment adviser to manage the
Fund's investments. Certain of these actions would 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 long-term capital appreciation.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund seeks to achieve its objective by investing all its assets in the
Portfolio, which has the same investment objective as the Fund.
The Portfolio invests primarily in common stocks and other equity-type
securities that, in the Adviser's opinion, have long-term appreciation
potential. The Fund is designed for long-term investors who desire to
participate in the stock market and places emphasis on companies that appeal to
young investors. These investors can accept more investment risk and volatility
than the stock market in general but want less investment risk and volatility
than aggressive capital appreciation funds.
The Portfolio normally invests at least 65% of its total assets in securities of
companies that, in the opinion of the Adviser, directly or through one or more
subsidiaries, affect the lives of young people. Such companies may include
companies that produce products or services that children or teenagers use, are
aware of, or could potentially have an interest in. By investing in such
companies, the Portfolio emphasizes various consumer goods sectors.
The Portfolio also may invest up to 35% of its total assets in debt securities.
The debt securities in which the Portfolio invests will be rated at the time of
investment within the four highest grades (generally referred to as "investment
grade") assigned by a nationally recognized statistical rating organization, or
will be comparable unrated securities. Securities rated within the fourth
highest grade may possess speculative characteristics. Such securities will not
necessarily be sold if the rating is subsequently reduced.
Equity Securities Generally. Equity and equity-type securities generally include
common and preferred stock, warrants (rights) to purchase such stock, debt
securities convertible into such stock and sponsored and unsponsored American
Depository Receipts (receipts issued in the U.S. by banks or trust companies
evidencing ownership of underlying foreign securities).
Debt Securities Generally. Debt securities generally include securities of any
maturity that pay fixed, floating or adjustable interest rates.
The values of debt securities generally fluctuate inversely with changes in
interest rates. This is less likely to be true for adjustable or floating rate
securities, since interest rate changes are more likely to be reflected in
changes in the rates paid on the securities.
The Portfolio may invest in equity and debt securities on a "when-issued" or
forward basis. This means that the Portfolio will enter into a contract to
purchase the underlying security for a fixed price on a date beyond the
customary settlement date. No interest accrues until settlement.
Foreign Investments. The Portfolio may invest up to 25% of its total assets in
foreign securities. Investments in foreign securities (both debt and equity) and
American Depository Receipts 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 Securities
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.
In addition to, or in lieu of, such direct investments in foreign securities,
the Portfolio may construct a synthetic foreign position by (a) purchasing a
debt instrument denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a corresponding amount
of that currency in exchange for a different currency on a future date and at a
specified rate of exchange. Because of the availability of a variety of highly
liquid U.S. dollar debt instruments, a synthetic foreign position utilizing such
U.S. dollar instruments may offer greater liquidity than direct investments in
foreign currency debt instruments.
Derivatives. Consistent with its objective, the Portfolio may invest in a broad
array of financial instruments and securities, including exchange-traded and
non-exchange traded options, futures contracts, options on futures contracts,
forward contracts, securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case, the value of
the instrument or security is "derived" from the performance of an underlying
asset or "benchmark" such as a security index, or an interest rate. The
Portfolio does not expect to invest more than 5% of its net assets in any type
of Derivative, except for options, futures contracts and options on futures
contracts.
Derivatives are most often used to manage investment risk or to create an
investment position indirectly because they are more efficient or less costly
than direct investment. They also may be used in an effort to enhance portfolio
returns.
The successful use of Derivatives depends on the Adviser's ability to correctly
predict changes in the levels and directions of movements in security prices,
interest rates and other market factors affecting the Derivative itself or the
value of the underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well established.
Finally, privately negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-traded Derivatives.
Foreign Currency Transactions; Index and Interest Rate Futures; Options. In
connection with its investments in foreign securities, the Portfolio 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 will be entered into (i) to
lock in a particular foreign exchange rate pending settlement of a purchase or
sale of a foreign security or pending the receipt of interest, principal or
dividend payments on a foreign security held by the Portfolio, 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 Portfolio are denominated.
In addition, the Portfolio 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 Portfolio 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. 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.
Transactions in futures, options and other Derivatives may not precisely achieve
the goals of advancing the Fund's investment objective, 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, if the Adviser's prediction on interest rates, stock market
movements or other market factors is inaccurate, the Portfolio may be worse off
than if it had not engaged in such transactions.
See the Statement of Additional Information for information relating to the
Portfolio's obligations in entering into such transactions.
Small Companies. The smaller, less well established companies in which the
Portfolio 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 Portfolio may lend its
portfolio securities to broker-dealers or banks and enter into reverse
repurchase agreements. Under a reverse repurchase agreement, the Portfolio 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 Portfolio'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 Portfolio 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 Portfolio seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period, and (c)
expenses of enforcing its rights.
Leverage. The purchase of securities on a "when-issued" basis and the purchase
and sale of derivatives may present additional risks associated with the use of
leverage. Leverage may magnify the effect on Fund shares of fluctuations in the
values of the securities underlying these transactions. In accordance with
Securities and Exchange Commission pronouncements, to reduce (but not
necessarily eliminate) leverage, the Portfolio will either "cover" its
obligations under such transactions by holding the securities (or rights to
acquire the securities) it is obligated to deliver under such transactions, or
deposit and maintain in a segregated account with its custodian cash or high
quality liquid debt securities equal in value to the Portfolio's obligations
under such transactions.
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 Portfolio'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 Portfolio 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 Portfolio's custodian, and constitutes the Portfolio'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 Portfolio 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 5% of the Portfolio's net
assets will be invested in repurchase agreements maturing in more than 7 days
and other illiquid securities.
Borrowing of Money. The Fund or the Portfolio may borrow money from banks for
temporary or emergency purposes up to 33 1/3% of total assets of the Fund or
Portfolio, as the case may be; however, the Portfolio will not purchase
additional portfolio securities while borrowings exceed 5% of total assets of
the Fund or the Portfolio.
In addition, the Portfolio may borrow money from or lend money to other funds
which are advised by the Adviser, primarily to meet shareholder redemptions of
the Fund. The Portfolio would borrow cash from another fund only if the terms
were at least as favorable as the terms on which it could borrow from a bank.
The Portfolio would lend money only if the rate earned was at least as favorable
as the rate it could earn on a repurchase agreement or other short-term
investment. With respect to borrowing, there is a risk that the Portfolio could
have such a loan recalled by the lending fund on one day's notice. In this
event, the Portfolio might have to borrow from a bank at a higher interest cost
if money were not available from another fund. With respect to loans, there is a
risk that the Portfolio could experience a delay in obtaining repayment and,
unlike with a repurchase agreement, the Portfolio would not necessarily have
received collateral for its loan. A delay in obtaining prompt payment could
cause the Portfolio to miss an investment opportunity or to incur costs to
borrow money to replace loaned funds.
Other. The Portfolio, and, therefore, the Fund, may not always achieve its
investment objective. The Fund's and the Portfolio's fundamental policies listed
in the Statement of Additional Information cannot be changed without the
approval of a majority of the Fund's or the Portfolio's outstanding voting
securities. The Fund's and the Portfolio's 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.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares and
1.00% on Class D shares, and the contingent deferred sales charge applicable to
the time period quoted on Class B and Class D shares. Other total returns differ
from average annual total return only in that they may relate to different time
periods, may represent aggregate as opposed to average annual total returns and
may not reflect the initial or contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent year's distributions, annualized, 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 AND THE PORTFOLIO ARE MANAGED
The Fund's Trustees formulate the Fund's general policies and oversee the Fund's
affairs. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio is managed by the Adviser.
Subject to the supervision of the Portfolio's Trustees, the Adviser makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments. The
Adviser is an indirect subsidiary 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. See
"Management of the Colonial Funds" and "Management of the Portfolio" in the
Statement of Additional Information for information concerning the Trustees and
officers of the Trust and the Portfolio.
The portfolio managers of the Portfolio are Erik P. Gustafson and Arthur J.
McQueen, each a Senior Vice President and David P. Brady, a Vice President, of
the Adviser. Before joining the Adviser, Mr. Gustafson was an attorney with
Fowler, White, Burnett, Hurley, Banick & Strickroot from 1989 to 1992. He holds
a B.A. from the University of Virginia (1985) and M.B.A. and J.D. degrees (1989)
from Florida State University. Mr. McQueen earned a B.S. from Villanova
University (1980) and an M.B.A. from the Wharton School of the University of
Pennsylvania (1987). He has been employed by the Adviser as an equity analyst
since 1987 and was previously employed by Citibank and GTE. Mr. Brady, who
joined the Adviser in 1993, was an equity investment analyst with State Farm
Mutual Automobile Insurance Company from 1986 to 1993. A chartered financial
analyst, Mr. Brady earned a B.S. in Finance, graduating Magna Cum Laude, from
the University of Arizona in 1986, and an M.B.A. from the University of Chicago
in 1989.
The Adviser places all orders for the purchase and sale of securities for the
Portfolio. 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 management services, the Adviser receives from the Portfolio a monthly
fee at an annual rate of 0.60% of the Portfolio's first $500 million of average
daily net assets, 0.55% of the next $500 million and 0.50% thereafter. The
Adviser also provides bookkeeping and accounting services to the Portfolio for
an annual fee of $25,000 plus 0.0025% of average daily net assets over $50
million. Stein Roe Services, Inc., a wholly-owned indirect subsidiary of Liberty
Mutual, serves as the transfer agent to the Portfolio for an annual fee of $500.
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 0.25% 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 $18,000 plus 0.0233% annually
of average daily net assets over $50 million. 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 0.25% annually of average net assets plus certain
out-of-pocket expenses. The Administrator, the Distributor and the Transfer
Agent are all indirectly controlled by Liberty Mutual.
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.
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) (normally 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 Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders virtually all net income
and any net realized gain, at least annually. The Fund generally declares and
pays distributions annually. Distributions are invested in additional shares of
the same Class of the Fund at net asset value unless the shareholder elects to
receive cash. Regardless of the shareholder's election, distributions of $10 or
less will not be paid in cash to shareholders but will be invested in additional
shares of the same Class of the Fund at net asset value. To change your
election, call the Transfer Agent for information.
Whether you receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution. If you
buy shares shortly before a distribution is declared, the distribution will be
taxable although it is in effect a partial return of the amount invested. Each
January, information on the amount and nature of distributions for the prior
year is sent to shareholders.
HOW TO BUY SHARES
Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50 and the minimum initial investment for a Colonial retirement account is $25.
Certificates will not be issued for Class B or Class D shares and there are some
limitations on the issuance of Class A certificates. The Fund may refuse any
purchase order for its shares. See the Statement of Additional Information for
more information.
Class A Shares. Class A shares are offered at net asset value plus an initial or
a contingent deferred sales charge as follows:
_______Initial Sales Charge______
Retained
by Financial
Service
Firm
_____as % of______ as % of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 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%
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the shares remain outstanding.
Purchases of $1 million to $5 million are subject to a 1.00% contingent deferred
sales charge payable to the Distributor on redemptions within 18 months from the
first day of the month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5 million.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they convert to Class A shares not
bearing a distribution fee) and a declining contingent deferred sales charge if
redeemed within six years after purchase. As shown below, the amount of the
contingent deferred sales charge depends on the number of years after purchase
that the redemption occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.
Class D Shares. Class D shares are offered at net asset value plus a 1.00%
initial sales charge, and are subject to a 0.75% annual distribution fee and a
1.00% contingent deferred sales charge on redemptions made within one year from
the first day of the month after purchase.
The Distributor pays financial service firms an initial commission of 1.85% on
purchases of Class D shares and an ongoing commission of 0.65% annually. Payment
of the ongoing commission is conditioned upon receipt by the Distributor of the
0.75% annual distribution fee referred to above. The commission may be reduced
or eliminated if the distribution fee paid by the Fund is reduced or eliminated
for any reason.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales charges, if any) in the account,
reduced by prior redemptions on which a contingent deferred sales charge was
paid and any exempt redemptions). See the Statement of Additional Information
for more information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class D shares. Purchases of $250,000 or
more must be for Class A or Class D shares. Purchases of $500,000 or more must
be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. 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 the Statement of Additional Information for
more information.
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.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares at a reduced, or without an, initial or contingent
deferred sales charge. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges" and "How to Sell Shares."
Shareholder Services. A variety of shareholder services are available. For more
information about these services or your account, call 1-800-345-6611. Some
services are described in the attached account application. A shareholder's
manual explaining all available services will be provided upon request.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds only after the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.
The Fund 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.
HOW TO EXCHANGE SHARES
Fund shares generally may be exchanged at net asset value for the same class of
shares of most Colonial funds. Not all Colonial funds offer all classes, so you
may not be able to exchange into all of the other Colonial funds. Shares will
continue to age without regard to the exchange for purposes of conversion and
determining the contingent deferred sales charge, if any, upon redemption.
Carefully read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-248-2828 to receive a prospectus and an
exchange authorization form. Call 1-800-422-3737 to exchange shares by
telephone. An exchange is a taxable capital transaction. The exchange service
may be changed, suspended or eliminated on 60 days' written notice.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund into which the original investment was made.
Class D Shares. Exchanges of Class D shares will not be subject to the
contingent deferred sales charge. However, if shares are redeemed within one
year after the original purchase, a 1.00% contingent deferred sales charge will
be assessed.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and may redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address or record.
Telephone redemptions are not available on accounts with an address change in
the preceding 30 days. The Administrator, the Transfer Agent and the Fund will
not be liable when following telephone instructions reasonably believed to be
genuine, and a shareholder may suffer a loss from unauthorized transactions. The
Transfer Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. All telephone transactions are recorded.
Shareholders and/or their financial advisers are required to provide their name,
address and account number. Financial advisers are also required to provide
their broker number. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
above under "How to Sell Shares." The Administrator, the Transfer Agent and the
Fund reserve the right to change, modify, or terminate the telephone redemption
or exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee of 0.25%
of the Fund's average net assets. The Fund also pays the Distributor an annual
distribution fee of 0.75% of the average net assets attributed to its Class B
and Class D shares. Because the Class B and Class D shares bear the additional
distribution fees, their dividends will be lower than the dividends of Class A
shares. Class B shares automatically convert to Class A shares, approximately
eight years after the Class B shares were purchased. Class D shares do not
convert. The multiple class structure could be terminated should certain
Internal Revenue Service rulings be rescinded. See the Statement of Additional
Information for more information. The Distributor uses the fees to defray the
cost of commissions and service fees paid to financial service firms which have
sold Fund shares, and to defray other expenses such as sales literature,
prospectus printing and distribution, shareholder servicing costs and
compensation to wholesalers. Should the fees exceed the Distributor's expenses
in any year, the Distributor would realize a profit. The Plans also authorize
other payments to the Distributor and its affiliates (including the
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. 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.
<PAGE>
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
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02107
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.
September 30, 1996
COLONIAL
GROWTH FUND
PROSPECTUS
Colonial Growth Fund seeks long-term capital appreciation.
For more detailed information about the Fund, call the Administrator at
1-800-248-2828 for the September , 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
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.
[COLONIAL FLAG LOGO]
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 7.
To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S. citizen status.
__Joint Tenant: Print all names, the Social Security # for the first person,
and his/her U.S. citizen status.
__Uniform Gift to Minors: Names of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? ___Yes ___No
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or D shares. If no distribution
option is selected, distributions will be reinvested in additional Fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.
Fund Fund Fund
________________ ___________________ _____________________
$_______________ $__________________ $____________________
Amount Amount Amount
Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (Adjustable Rate
U.S. Government Fund only)
___ D Shares (less than $500,000, available on certain funds; see prospectus)
Method of Payment
Choose one
___Check payable to the Fund
___Bank wired on ____/____/____
(Date) Wire/Trade confirmation #__________________
Ways to Receive Your Distributions
Choose one
___Reinvest dividends and capital gains
___Dividends and capital gains in cash
___Dividends in cash; reinvest capital gains
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection Complete Bank Information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House (ACH).
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that his/her actions are
authorized.
I have received and read each appropriate Fund prospectus and understand that
its terms are incorporated by reference into this application. I understand
that this application is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales charge. It is agreed
that the Fund, all Colonial Companies and their officers, directors, agents,
and employees will not be liable for any loss, liability, damage, or expense
for relying upon this application or any instruction believed genuine.
I certify, under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is correct.
You must cross out Item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.
2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholdings.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following features. Complete only
the section(s) that apply to the features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks from your account in
any amount you select, with certain limitations. Your redemption checks can
be sent to you at the address of record for your account, to your bank
account, or to another person you choose. The value of the shares in your
account must be at least $5,000 and you must reinvest all of your
distributions. Checks will be processed on the 10th calendar day of the month
or the following business day. If you receive your SWP payment via electronic
funds transfer (EFT), you may request it to be processed any day of the month.
Withdrawals in excess of 12% annually of your current account value will not be
accepted. Redemptions made in addition to SWP payments may be subject to a
contingent deferred sales charge for Class B or Class D shares. Please consult
your financial or tax adviser before electing this option.
Funds for Withdrawal:
___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day, if indicating EFT,month).
___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day,if indicating EFT,month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via EFT. Please complete the Bank Information section below.
All EFT transactions will be made two business days after the processing date.
Your bank must be a member of the Automated Clearing House system.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
B. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.
1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or EFT. Telephone redemptions over $1,000 will be sent via federal fund wire,
usually on the next business day ($7.50 will be deducted). Redemptions of
$1,000 or less will be sent by check to your designated bank.
3. On-Demand EFT Redemption
__I would like the On-Demand EFT Redemption Privilege. Proceeds paid via EFT
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from your fund account
by telephone and send your money to your bank account. If you are adding this
service to an existing account, complete the Bank Information section below
and have all shareholder signatures guaranteed.
Colonial's and the Fund's liability is limited when following telephone
instructions; a shareholder may suffer a loss from an unauthorized transaction
reasonably believed by Colonial to have been authorized.
Bank Information (For Sections A and B Above)
I authorize deposits to the following bank account:
____________________________________________________________
Bank name City Bank account number
____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)
X__________________________________
Signature of account owner(s)
X__________________________________
Signature of account owner(s) Place signature guarantee here.
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing distributions from one fund into
another Colonial fund. These investments will be made in the same share class
and without sales charges. Accounts must be identically registered. I have
carefully read the prospectus for the fund(s) listed below.
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial fund in
which you have a balance of at least $5,000 exchanged into the same share
class of up to four other identically registered Colonial accounts, on a
monthly basis. The minimum amount for each exchange is $100. Please complete
the section below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
1____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
2____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
C. Fundamatic/On-Demand EFT Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial fund account by electronic funds transfer on
any specified day of the month. You will receive the applicable price two
business days after the receipt of your request. Your bank needs to be a
member of the Automated Clearing House System. Please attach a blank check
marked "VOID." Also, complete the section below.
1____________________________________
Fund name
_________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
2___________________________________
Fund name
________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
__On-Demand Purchase (will be automatically established if you choose
Fundamatic)
__Fundamatic Frequency
__Monthly or __Quarterly
Check one:
__EFT- Choose any day of the month_____________________
__Paper Draft-Choose either the:
__5th day of the month
__20th day of the month
Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. Do Not Detach. Make sure all depositors on the bank account sign to
the far right. Please attach a blank check marked "VOID" here. See reverse
for bank instructions.
I authorize Colonial to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial fund. Colonial and my bank are not
liable for any loss arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and Colonial may reverse
the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to Reduce Your Sales Charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial funds, you may be eligible for a reduced sales charge. The combined
value of your accounts must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from another Colonial fund.
The sales charge for your purchase will be based on the sum of the purchase(s)
added to the value of all shares in other Colonial funds at the previous
day's public offering price.
__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
_____________________________________
Name on account
_____________________________________
Account number
_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.
7-------------Financial Service Firm---------------------
To be completed by a Representative of your financial service firm.
This application is submitted in accordance with our selling agreement with
Colonial Investment Services, Inc. (CISI), the Fund's prospectus, and this
application. We will notify CISI, Inc., of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
8----------Request for a Combined Quarterly Statement Mailing-----------
Colonial can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my accounts. Please
indicate accounts to be linked.______________________
Fundamatic (See Reverse Side)
Applications must be received before the start date for processing.
This program's deposit privilege can be revoked by Colonial without prior
notice if any check is not paid upon presentation. Colonial has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service Center, Inc. to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of Colonial Investors
Service Center, Inc., Colonial Investment Services, Inc., hereby indemnifies
and holds you harmless from any loss (including reasonable expenses) you may
suffer from honoring such draw, except any losses due to your payment of any
draw against insufficient funds.
SH-938B-0396
COLONIAL TRUST I
Cross Reference Sheet
Colonial 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 Objective and
Policies; Fundamental Investment
Policies; Other Investment
Policies; Miscellaneous
Investment Practices; Portfolio
Turnover
14. Fund Charges and Expenses;
Management of the Colonial Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses;
Management of the Colonial Funds
17. Fund Charges and Expenses;
Management of the Colonial Funds
18. Shareholder Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange
Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
COLONIAL GROWTH FUND
Statement of Additional Information
September 30, 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
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 September 30, 1996. This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus from Colonial Investment
Services, Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Other Information Concerning the Portfolio
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
XX-XXX-XXXx
<PAGE>
PART 1
COLONIAL GROWTH FUND
Statement of Additional Information
September 30, 1996
DEFINITIONS
"Trust" Colonial Trust I
"Fund" Colonial Growth Fund
"Administrator" Colonial Management Associates, Inc., the Fund's
administrator and the investment manager to each of
the Colonial funds except for the Fund, Colonial
Municipal Money Market Fund, a series of Colonial
Trust IV, Colonial Global Utilities Fund, a series of
Colonial Trust III, Colonial Newport Japan Fund and
Colonial Newport Tiger Cub Fund, each a series of
Colonial Trust II, and Colonial Newport Tiger Fund, a
series of Colonial Trust VII
"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
"Portfolio" SR&F Growth Investor Portfolio, a series of the
Base Trust
"Base Trust" SR&F Base Trust, a Massachusetts trust, of which
the Portfolio is a series
"Adviser" Stein Roe & Farnham Incorporated, the Portfolio's
investment adviser
INVESTMENT OBJECTIVE AND POLICIES
As described in the Fund's Prospectus, the Fund currently seeks to achieve its
objective by investing all its assets in the Portfolio. Part 1 includes
additional information concerning the Fund and the Portfolio, including a
description of the Fund's and the Portfolio's fundamental investment policies.
Except where otherwise indicated, references to the Fund in connection with
descriptions of investment policies and practices shall include the Portfolio.
Part 2 of this SAI contains additional information about the following
securities and investment practices that may be utilized by the Portfolio:
Foreign Securities
Money Market Instruments
Forward Commitments
Reverse Repurchase Agreements
Repurchase Agreements
Futures Contracts and Related Options
Foreign Currency Transactions
Securities Lending
Zero Coupon Securities
Pay-in-Kind Securities
Options on Securities
Rule 144A Securities
Short Sales
Except as described below under "Fundamental Investment Policies," the Fund's
and the Portfolio's investment policies are not fundamental, and the Fund's or
the Portfolio's Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund or the Portfolio, or (2)
67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act's
diversification requirement, an issuer is the entity whose revenues support the
security.
None of the following restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company having the same
investment objective and substantially the same investment policies as the Fund.
As fundamental policies, neither the Fund nor the Portfolio may:
1. With respect to 75% of the Portfolio's total assets, invest more
than 5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the Government of the U.S. or
any of its agencies or instrumentalities or repurchase agreements
for such securities and except that all or substantially all of the
assets of the Fund may be invested in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund;
2. Acquire more than 10%, taken at the time of a particular purchase,
of the outstanding voting securities of any one issuer, except that
all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment
objective and substantially similar investment policies as the Fund;
3. Act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 in
disposition of securities acquired subject to legal or contractual
restrictions on resale, except that all or substantially all of the
assets of the Fund may be invested in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund;
4. Purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein or securities issued by
companies which invest in real estate or interests therein),
commodities, or commodity contracts, except that it may enter into
(a) futures and options on futures and (b) forward contracts for the
purpose of facilitating payment for a foreign security;
5. Make loans, although it may (a) lend portfolio securities and
participate in an interfund lending program with other Stein Roe
Funds provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 33 1/3% of the value of its
total assets (taken at market value at the time of such loans), (b)
purchase money market instruments and enter into repurchase
agreements, and (c) acquire publicly distributed or privately-placed
debt securities;
6. Borrow, except that it may (a) borrow for non-leveraging, temporary
or emergency purposes, (b) engage in reverse repurchase agreements
and make other borrowings, provided that the combination of (a) and
(b) shall not exceed 33 1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than
borrowings) or such other percentage permitted by law, and (c) enter
into futures and options transactions; it may borrow from banks,
other Stein Roe Funds, and other persons to the extent permitted by
applicable law;
7. Invest in a security if more than 25% of its total assets (taken at
market value at the time of a particular purchase) would be invested
in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and that
all of the assets of the Fund may be invested in another investment
company having the same objective and substantially similar
investment policies as the Fund; or
8. Issue any senior security except to the extent permitted under the
Act.
OTHER INVESTMENT POLICIES
None of the following restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company having the same
investment objective and substantially the same investment policies as the Fund.
As non-fundamental investment policies which may be changed without a
shareholder vote, neither the Fund nor the Portfolio may:
1. Invest in any of the following: (i) interests in oil, gas, or other
mineral leases or exploration or development programs (except
readily marketable securities, including, but not limited to master
limited partnership interests, that may represent indirect interests
in oil, gas, or other mineral exploration or development programs);
(ii) puts, calls, straddles, spreads, or any combination thereof
(except that it may enter into transactions in options, futures, and
options on futures; (iii) shares of other open-end investment
companies, except in shares of the Portfolio or in connection with a
merger, consolidation, acquisition, or reorganization; and (iv)
limited partnerships in real estate unless they are readily
marketable;
2. Invest in companies (other than the Portfolio) for the purpose of
exercising control or management;
3. Purchase more than 3% of the stock of another investment company or
purchase stock of other investment companies equal to more than 5%
of its total assets (valued at the time of purchase) in the case
of any one other investment company and 10% of such assets
(valued at the time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are
to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary
broker's commission, except for securities of the
Portfolio or securities acquired as part of a merger, consolidation
or acquisition of assets;
4. Purchase or hold securities of an issuer if 5% of the securities of
such issuer are owned by those officers, trustees, or directors of
the Trust or of its investment adviser, who each own beneficially
more than 1/2 of 1% of the securities of that issuer;
5. Mortgage, pledge, or hypothecate its assets, except as may be
necessary in connection with permitted borrowings or in connection
with options, futures, and options on futures;
6. Invest more than 5% of its net assets (valued at the time of
purchase) in warrants, nor more than 2% of its net assets in
warrants not listed on the New York or American Stock Exchange;
7. Write an option on a security unless the option is issued by the
Options Clearing Corporation, an exchange,or similar entity;
8. Invest more than 25% of its total assets (valued at time of
purchase) in securities of foreign issuers (other than securities
represented by American Depositary Receipts (ADRs) or securities
guaranteed by a U.S. person);
9. Buy or sell an option on a security, a futures contract, or an
option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on a
recognized exchange or similar entity;
10. Purchase a put or call if the aggregate premiums paid for all put
and call options exceed 20% of its net assets (less the amount by
which any such positions are in-the-money), excluding put and call
options purchased as closing transactions;
11. Purchase securities on margin (except for use of short-term credits
as are necessary for the clearance of transactions), or sell
securities short unless (i) it owns or has the right to obtain
securities equivalent in kind and amount to those sold short at no
added cost or (ii) the securities sold are "when issued" or "when
distributed" securities which it expects to receive in a
recapitalization, reorganization, or other exchange for securities
it contemporaneously owns or has the right to obtain and provided
that transactions in options, futures, and options on futures are
not treated as short sales;
12. Invest more than 5% of its total assets (taken at market value at
the time of a particular investment) in securities of issuers (other
than issuers of federal agency obligations or securities issued or
guaranteed by any foreign country or asset-backed securities) that,
together with any predecessors or unconditional guarantors, have
been in continuous operation for less than three years ("unseasoned
issuers");
13. Invest more than 5% of its total assets (taken at market value at
the time of a particular investment) in restricted securities, other
than securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933;
14. Invest more than 15% of its total assets (taken at market value at
the time of a particular investment) in restricted securities and
securities of unseasoned issuers; and
15. Invest more than 5% of its net assets (taken at market value at the
time of a particular investment) in illiquid securities, including
repurchase agreements maturing in more than seven days.
PORTFOLIO TURNOVER
Although the Portfolio does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time portfolio securities
must be held. Accordingly, the portfolio turnover rate may vary significantly
from year to year, but is not expected to exceed 100% under normal market
conditions. A high rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains and losses.
FUND CHARGES AND EXPENSES
Aggregate Fund expenses include the Fund's proportionate share of the expenses
of the Portfolio, which are borne indirectly by the Fund, and the Fund's direct
expenses. The Portfolio's expenses include (i) a management fee paid to the
Adviser at an annual rate of 0.60% of the first $500 million of the Portfolio's
average daily net assets, 0.55% of the next $500 million and 0.50% thereafter,
(ii) an annual bookkeeping and accounting services fee paid to the Adviser at
the rate of $25,000 plus 0.0025% of average net assets over $50 million, (iii) a
annual transfer agent fee of $500 and (iv) custody, legal and audit fees and
other miscellaneous expenses. The Fund's direct expenses include (i) an
administrative fee paid to the Administrator at the annual rate of 0.25% of
average daily net assets, (ii) a transfer agency and shareholder services fee
paid to CISC at the annual rate of 0.25% of average daily net assets plus CISC's
out-of-pocket expenses, (iii) the Rule 12b-1 fees paid to CISI described below,
(iv) a pricing and bookkeeping fee paid to the Administrator in the amount of
$18,000 per year plus 0.0233% of average daily net assets in excess of $50
million, and (v) custody, legal and audit fees and other miscellaneous expenses.
<PAGE>
<TABLE>
Trustees Fees
For the calendar year ended December 31, 1995, the Trustees of the Trust
received the following compensation for serving as Trustees:
<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>
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 Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and the Adviser, each an affiliate of the
Administrator.
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.
12b-1 Plans, Initial Sales Charges, CDSCs and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and Class D. The Fund
may in the future offer other classes of shares. The Trustees have approved
12b-1 Plans pursuant to Rule 12b-1 under the Act. Under the Plans, the Fund pays
CISI a service fee at an annual rate of 0.25% of average net assets and a
distribution fee at an annual rate of 0.75% of average net assets attributed to
Class B and Class D shares. CISI may use the entire amount of such fees to
defray the cost of commissions and service fees paid to financial service firms
(FSFs) and for certain other purposes. Since the distribution and service fees
are payable regardless of CISI's expenses, CISI may realize a profit from the
fees. The Plans authorize any other payments by the Fund to CISI and its
affiliates (including the Adviser 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.
Class A shares are offered at net asset value plus varying sales charges which
may include a contingent deferred sales charge (CDSC). Class B shares are
offered at net asset value and are subject to a CDSC if redeemed within six
years after purchase. Class D shares are offered at net asset value plus a 1.00%
initial sales charge and are subject to a 1.00% CDSC on redemptions within one
year after purchase. The sales charges are described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions on
or amounts representing capital appreciation. In determining the applicability
and rate of any CDSC, it will be assumed that a redemption is made first of
shares representing capital appreciation, next of shares representing
reinvestment of distributions and finally of other shares held by the
shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares, having an
equal value, which are not subject to the distribution fee.
INVESTMENT PERFORMANCE
The Portfolio did not commence investment operations until September , 1996. The
investment performance disclosed for the Portfolio is that of SteinRoe Young
Investor Fund (Predecessor Fund), which has been advised by the Adviser since it
commenced investment operations on April 29, 1994, as a series of the Stein Roe
Investment Trust. The Portfolio's investment objective, policies and
restrictions are generally the same as those of the Predecessor Fund which
converted to a master fund/feeder fund structure on September , 1996, and is now
a feeder fund of the Portfolio. The returns referenced below do not take into
account the fees and expenses associated with the master fund/feeder fund
structure.
The Portfolio's average annual returns at March 31, 1996 (adjusted to reflect
the Fund's applicable sales loads) were:
<TABLE>
<CAPTION>
Class A
Six Months 1 Year Since Inception
<S> <C> <C> <C>
With sales charge of 5.75% 7.81% 35.98% 25.63%
Without sales charge 14.39% 44.27% 29.56%
</TABLE>
<TABLE>
<CAPTION>
Class B
Six Months 1 Year Since Inception
<S> <C> <C> <C>
With applicable CDSC 9.39%(5.00% CDSC) 39.27%(5.00% CDSC) 27.91%(4.00% CDSC)
Without CDSC 14.39% 44.27% 29.56%
</TABLE>
<TABLE>
<CAPTION>
Class D
Six Months 1 Year Since Inception
<S> <C> <C> <C>
With sales charge and
applicable CDSC 12.24%(1.00% CDSC) 41.83%(1.00% CDSC) 28.88%(i)
Without sales charge or CDSC 14.39% 44.27% 29.56%
</TABLE>
(i) No CDSC applies to shares sold after one year from the date of purchase.
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN OF THE FUND
State Street Bank and Trust Company is the Fund's custodian. The custodian is
responsible for maintaining the Fund's open account.
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.
MANAGEMENT OF THE PORTFOLIO
Trustees and Officers of the Base Trust(j)
Gary A. Anetsberger, (Age 40), Senior Vice President, is Senior Vice President
of the Adviser since April, 1996, Controller of the Mutual Funds division of the
Adviser (formerly Vice President of the Adviser from January, 1991 to April,
1996)
Timothy K. Armour(k), (Age 47), President and Trustee, is President of the
Mutual Funds division of the Adviser and Director of the Adviser since June,
1992 (formerly Senior Vice President and Director of Marketing of Citibank
Illinois from February, 1989 to June, 1992)
Jilaine Hummel Bauer, (Age 40), Executive Vice President and Secretary, is
General Counsel since November, 1995 and Senior Vice President since April, 1992
and Secretary since November, 1995 of the Adviser (formerly Vice President of
the Adviser, January, 1988 to March, 1992)
Kenneth L. Block, (Age 76), Trustee, is Chairman Emeritus of A. T.
Kearney, Inc. (international management consultants) since February, 1986
William W. Boyd, (Age 69), Trustee, is Chairman and Director of Sterling
Plumbing Group, Inc. (manufacturer of plumbing products) since 1992 (formerly
President and Chief Executive Officer of Sterling Plumbing Group, Inc., over
five years)
N. Bruce Callow, (Age 50), Executive Vice President, is President of
the Investment Counsel division of the Adviser since June, 1994 (formerly Senior
Vice President of trust and financial services for The Northern Trust, over five
years)
Lindsay Cook(k), (Age 44), Trustee, is Senior Vice President of Liberty
Financial (over five years)
Douglas A. Hacker, (Age 40), Trustee, is Senior Vice President and Chief
Financial Officer, United Airlines since July, 1994(formerly Senior Vice
President - Finance, United Airlines, February 1993 to July 1994; Vice
President - Corporate & Fleet Planning, American Airlines 1991-1993)
Philip D. Hausken, (Age 38) Vice President, is Vice President of the
Adviser since November, 1995 and Corporate Counsel for the Adviser since July,
1994 (formerly Assistant Regional Director, Midwest Regional office of the
Securities and Exchange Commission, over five years)
Stephen P. Lautz, (Age 39), Vice President, is Vice President of the Adviser
since May, 1994 (formerly Associate of the Adviser, since March, 1985)
Francis W. Morley, (Age 76),Trustee, is Chairman of Employer Plan
Administrators and Consultants Co.(designer, administrator, and
communicator of employee benefits plans), over five years
Charles R. Nelson, (Age 53), Trustee, is Van Voorhis Professor of Political
Economy of the University of Washington, Seattle, Washington 98195 since
January, 1995 and Professor, Department of Economics, University of
Washington, over five years
Nicolette D. Parrish, (Age 46), Vice President and Assistant Secretary, is
Senior Compliance Administrator of the Adviser, since April, 1995 (formerly
Senior Legal Assistant, over five years)
Sharon R. Robertson, (Age 34) Controller, is Accounting Manager for the
Adviser's mutual funds division, since 1987
Janet B. Rysz, (Age 40) Assistant Secretary, is Senior Compliance
Administrator of the Adviser, since January, 1988
Thomas C.Theobald, (Age 58), Trustee, is Managing Partner of William Blair
Capital Partners (private equity fund since 1994)(formerly Chief Executive
Officer and Chairman of the Board of Directors of Continental Bank Corporation
from 1987 to 1994)
Gordon R. Worley, (Age 76) Trustee, has been a private investor since
June, 1983
Hans P. Ziegler, (Age 55) Executive Vice President, is Chief
Executive Officer of the Adviser since May, 1994 (formerly President of the
Investment Counsel division of the Adviser from July, 1993 to June, 1994, and
President and Chief Executive Officer, Pitcairn Financial Management Group, from
1989 to 1993)
Margaret O. Zwick, (Age 29), Treasurer, is Compliance Manager of the Adviser's
Mutual Fund division since August, 1995 (former offices held with Adviser:
Compliance Accountant, January, 1995 to July, 1995; Section Manager,
January, 1994 to January, 1995; Supervisor, February, 1990 to December, 1993 and
Fund Accountant, July, 1988 to February, 1990)
(j) The address of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093;
that of Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that
of Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts 02210; that of
Mr. Hacker is P.O. Box 66100, Chicago, Illinois 60666; that of Mr. Morley
is 20 North Wacker Drive, Suite 2275, Chicago, Illinois 60606; that of
Mr. Nelson is Department of Economics, University of Washington, Seattle,
Washington 98195; that of Mr. Theobalc is Suite 3300, 222 West Adams
Street, Chicago, Illinois 60606; that of Mr. Worley is 1407 Clinton
Place, River Forest, Illinois 60305; and that of the officers is One
South Wacker Drive, Chicago, Illinois 60606.
(k) Trustee who is an "interested person" of the Portfolio and of the
Adviser, as defined in the Act.
OTHER INFORMATION CONCERNING THE PORTFOLIO
Portfolio's Investment Adviser
Under its Management Agreement with the Portfolio, the Adviser provides the
Portfolio with discretionary investment services. Specifically, the Adviser is
responsible for supervising and directing the investments of the Portfolio in
accordance with the Portfolio's investment objective, program, and restrictions
as provided in the Fund's prospectus and this Statement of Additional
Information. The Adviser is also responsible for effecting all security
transactions on behalf of the Portfolio, including the allocation of principal
business and portfolio brokerage and the negotiation of commissions (See
"Portfolio Transactions" below). The Management Agreement provides for the
payment to the Adviser of the fee described above under "Fund Charges and
Expenses."
The Adviser is an indirect wholly-owned subsidiary of Liberty Financial which in
turn is an indirect majority-owned subsidiary of Liberty Mutual Insurance
Company.
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 December 31, 1995, the Adviser managed over $23
billion in net assets: over $5.3 billion in equities and over $17.7 billion in
fixed-income securities (including $4.9 billion in municipal securities). The
$23 billion in managed assets included over $5.8 billion held by open-end mutual
funds managed by the Adviser (approximately 20% of the mutual fund assets were
held by clients of the Adviser). These mutual funds were owned by over 151,000
shareholders. The $5.8 billion in mutual fund assets included over $578 million
in over 33,000 IRA accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and regularly
updates information for approximately 6,500 companies. The Adviser also monitors
over 1,400 issues via a proprietary credit analysis system. At December 31,
1995, the Adviser employed approximately 17 research analysts and 36 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 Portfolio 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 Portfolio'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 Portfolio 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 Portfolio.
With respect to issues of securities involving brokerage commissions, when more
than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Portfolio, the Adviser often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, the Adviser uses an internal allocation procedure
to identify those brokers or dealers who provide it with research products or
services and the amount of research products or services they provide, and
endeavors to direct sufficient commissions generated by its clients' accounts in
the aggregate, including the Portfolio, to such brokers or dealers to ensure the
continued receipt of research products or services 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 brokerage commissions generated by transactions by clients
(including the Portfolio), while the portions of the costs attributable to
non-research usage of such products or services is paid by the Adviser in cash.
No person acting on behalf of the Portfolio is authorized, in recognition of the
value of research products or services, to pay a 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
Portfolio.
With respect to the Portfolio's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, the Adviser may also consider
the part, if any, played by the broker or dealer in bringing the security
involved to the Adviser's attention, including investment research related to
the security and provided to the Fund. The Portfolio 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
Portfolio's portfolio securities held by the Portfolio. 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.
<PAGE>
Custodian of the Portfolio
State Street Bank and Trust Company (State Street) is the custodian for the
securities and cash of the Portfolio, but it does not participate in the
investment decisions of the Portfolio. The Portfolio has authorized State Street
to deposit certain portfolio securities in central depository systems as allowed
by federal law. State Street's main office is at 225 Franklin Street, Boston,
Massachusetts, 02107.
Portfolio securities purchased by the Portfolio in the U.S. are maintained in
the custody of State Street or of other domestic banks or depositories.
Portfolio securities purchased outside of the U.S. are maintained in the custody
of foreign banks and trust companies that are members of State Street's Global
Custody Network and foreign depositories used by such foreign banks and trust
companies. Each of the domestic and foreign custodial institutions holding
portfolio securities has been approved by the Board of Trustees of the Base
Trust in accordance with regulations under the Act.
The Portfolio may invest in obligations (including repurchase agreements) of
State Street and may purchase or sell securities from or to State Street.
Independent Auditors of the Portfolio
The independent public accountants for the Portfolio are Arthur Anderson LLP,
who audit and report on the annual financial statements of the Portfolio, review
certain regulatory reports and the Portfolio's Federal income tax returns, and
perform such other professional accounting, auditing, tax and advisory services
as the Portfolio may engage them to do so.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated securities. Relative to comparable securities of higher
quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default;
b. the secondary market may at times become less liquid or respond to
adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
c. existing legislation limits and future legislation may further
limit (i) investment by certain institutions or (ii) tax
deductibility of the interest by the issuer, which may adversely
affect value; and
d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate
cash for distributions.
2. the fund's achievement of its investment objective is more
dependent on the Adviser's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes, but
are more sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (but not depreciation) on its holdings of PFICs as of the end of
its fiscal year.
Zero Coupon Securities (Zeros)
The fund may invest in debt securities which do not pay interest, but instead
are issued at a deep discount from par. The value of the security increases over
time to reflect the interest accrued. The value of these securities may
fluctuate more than similar securities which are issued at par and pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the fund and
distributed to its shareholders. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which do not pay interest for a stated
period of time and then pay interest at a series of different rates for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities are subject to the volatility risk of zero coupon
bonds for the period when no interest is paid.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper 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 Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is 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.
Use by tax-exempt funds of U.S. Treasury security futures contracts and options.
The funds investing in tax-exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on U.S. Treasury
securities when, in the opinion of the Adviser, price movements in Treasury
security futures and related options will correlate closely with price movements
in the tax-exempt securities which are the subject of the hedge. U.S. Treasury
securities futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury futures contract at the specified option exercise
price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in U.S. Treasury security futures contracts and
related options will not correlate closely with price movements in markets for
tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of 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.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
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. The fund does not expect to invest as much as 5% of its total
assets in Rule 144A securities that have not been deemed liquid by the Adviser.
TAXES
All discussions of taxation at the shareholder level relate to federal taxes
only. Consult your tax adviser for state and local tax considerations and for
information about special tax considerations that may apply to shareholders that
are not natural persons.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate 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.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. In general, any gain or loss realized upon a taxable
disposition of shares by a shareholder will be treated as long-term capital gain
or loss if the shares have been held for more than twelve months, and otherwise
as short-term capital gain or loss assuming such shares are held as a capital
asset. However, any loss realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares will be disallowed if other shares are
purchased within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the 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.
MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
"Investment decisions," and "Brokerage and research services," the "Adviser"
refers to Colonial Management Associates, Inc.) The Adviser is the investment
adviser to each of the Colonial funds (except for Colonial Municipal Money
Market Fund, Colonial Growth Fund, Colonial Global Utilities Fund, Colonial
Newport Tiger Fund, Colonial Newport Tiger Cub Fund and Colonial Newport Japan
Fund - see Part I of each Fund's respective SAI for a description of the
investment adviser). The Adviser is a subsidiary of The Colonial Group, Inc.
(TCG), One Financial Center, Boston, MA 02111. TCG is a direct subsidiary of
Liberty Financial Companies, Inc. (Liberty Financial), which in turn is a direct
subsidiary of LFC Holdings, Inc., which in turn is a direct subsidiary of
Liberty Mutual Equity Corporation, which in turn is a wholly-owned subsidiary of
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S. Liberty Financial's address is 600 Atlantic Avenue, Boston,
MA 02210. Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117.
<TABLE>
Trustees and Officers (this section applies to all of the Colonial funds)
<CAPTION>
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) 59 Trustee Private Investor since August, 1987
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 55 Trustee Dean, College of Business and Management, University of
College Park, MD 20742 Maryland since October, 1992 (formerly Dean, Simon
Graduate School of Business, University of Rochester from
October, 1991 to July, 1992) (3)
James L. Moody, Jr. 64 Trustee Chairman of the Board, Hannaford Bros., Co. since May,
1984 (formerly Chief Executive Officer, Hannaford Bros.
Co. from May, 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
7121 Natelli Woods Lane (3)
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 Controller Controller of Colonial funds since June, 1993 (formerly
(formerly Assistant Controller from March, 1985 to June, 1993);
Assistant is Vice President of the Adviser since June, 1993
Controller) (formerly Assistant Vice President of the Adviser from
August, 1988 to June, 1993) (3)
Davey S. Scoon 49 Vice President Vice President of Colonial funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995) (3)
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 Portfolio) on March 27, 1995 in connection with the merger of TCG
with a subsidiary of Liberty Financial.
* Trustees who are "interested persons" (as defined in the Investment
Company Act of 1940) of the fund or the Adviser.
The address of the officers of each Colonial Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint meeting. Committee
chairs receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the Colonial funds based on each fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 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). Trustees and officers of the
Trust, who are also officers of the Adviser or its affiliates, will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $16.3. billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Growth Fund, Colonial Global Utilities Fund,
Colonial Newport Tiger Fund, Colonial Newport Japan Fund or Colonial Newport
Tiger Cub Fund)
Under a Management Agreement (Agreement), the Adviser has contracted
to furnish each fund with investment research and recommendations or fund
management, respectively, and accounting and administrative personnel and
services, and with office space, equipment and other facilities. For these
services and facilities, each Colonial fund pays a monthly fee based on the
average of the daily closing value of the total net assets of each fund for such
month.
The Adviser's compensation under the Agreement is subject to reduction in any
fiscal year to the extent that the total expenses of each fund for such year
(subject to applicable exclusions) exceed the most restrictive applicable
expense limitation prescribed by any state statute or regulatory authority in
which the Trust's shares are qualified for sale. The most restrictive expense
limitation applicable to a Colonial fund is 2.5% of the first $30 million of the
Trust's average net assets for such year, 2% of the next $70 million and 1.5% of
any excess over $100 million.
Under the Agreement, any liability of the Adviser to the fund and its
shareholders is limited to situations involving the Adviser's own willful
misfeasance, bad faith, gross negligence or reckless disregard of duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of typesetting for its Prospectuses and the cost of printing
and mailing any Prospectuses sent to shareholders. CISI pays the cost of
printing and distributing all other Prospectuses.
The Agreement provides that the Adviser shall not be subject to any liability to
the Trust or to any shareholder of the Trust for any act or omission in the
course of or connected with rendering services to the Trust in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Growth Fund, Colonial Global Utilities Fund,
Colonial Newport Tiger Fund, Colonial Newport Japan Fund and Colonial Newport
Tiger Cub Fund and their respective Trusts) Under an Administration Agreement
with each Fund, the Adviser, in its capacity as the Administrator to each Fund,
has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
Directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents
required for compliance by each Fund with applicable laws
and regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees,committees of Trustees and
shareholders;
(e) coordinating and overseeing the activities of each Fund's
other third-party service providers;and
(f) maintaining certain books and records of each Fund.
With respect to the Colonial Municipal Money Market Fund, the Administration
Agreement for this Fund provides for the following services in addition to the
services referenced above:
(g) monitoring compliance by the Fund with Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act") and
reporting to the Trustees from time to time with respect
thereto; and
(h) monitoring the investments and operations of the SR&F
Municipal Money Market Portfolio (Municipal Money Market
Portfolio) in which Colonial Municipal Money Market Fund
is invested and the LFC Portfolio and reporting to the
Trustees from time to time with respect thereto.
The Administration Agreement has a one year term. The Adviser is paid a monthly
fee at the annual rate of average daily net assets set forth in Part 1 of this
Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping
Agreement has a one-year term. The Adviser, in its capacity as the Administrator
to each of Colonial Municipal Money Market Fund, Colonial Growth Fund and
Colonial Global Utilities Fund, is paid an annual fee of $18,000, plus 0.0233%
of average daily net assets in excess of $50 million. For each of the other
Colonial funds (except for Colonial Newport Tiger Fund, Colonial Newport Japan
Fund and Colonial Newport Tiger Cub Fund), the Adviser is paid monthly a fee of
$2,250 by each fund, plus a monthly percentage fee based on net assets of the
fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund for an
annual fee of $27,000, plus 0.035% of Colonial Newport Tiger Fund's average
daily net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio, SR&F Growth Investor Portfolio and LFC
Portfolio, provides pricing and bookkeeping services to each Portfolio for a fee
of $25,000 plus 0.0025% annually of average daily net assets of each Portfolio
over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund,
Colonial Growth Fund, Colonial U.S. Fund for Growth and Colonial Global
Utilities Fund. For each of these funds, see Part 1 of its respective SAI. The
Adviser of Colonial Newport Tiger Fund, Colonial Newport Japan Fund and Colonial
Newport Tiger Cub Fund follows the same procedures as those set forth under
"Brokerage and research services."
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Growth Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund, each of which
is administered by the Adviser, and Colonial U.S. Fund for Growth for which
investment decisions have been delegated by the Adviser to State Street Bank and
Trust Company, the fund's sub-adviser). The Adviser's affiliate, CASI, advises
other institutional, corporate, fiduciary and individual clients for which CASI
performs various services. Various officers and Trustees of the Trust also serve
as officers or Trustees of other Colonial funds and the other corporate or
fiduciary clients of the Adviser. The Colonial funds and clients advised by the
Adviser or the funds administered by the Adviser sometimes invest in securities
in which the Fund also invests and sometimes engage in covered option writing
programs and enter into transactions utilizing stock index options and stock
index and financial futures and related options ("other instruments"). If the
Fund, such other Colonial funds and such other clients desire to buy or sell the
same portfolio securities, options or other instruments at about the same time,
the purchases and sales are normally made as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold by each.
Although in some cases these practices could have a detrimental effect on the
price or volume of the securities, options or other instruments as far as the
Fund is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the Trustees that the
desirability of retaining the Adviser as investment adviser to the Colonial
funds outweighs the disadvantages, if any, which might result from these
practices.
The portfolio managers of Colonial International Fund for Growth, a series of
Colonial Trust III, will use the trading facilities of Stein Roe & Farnham
Incorporated, an affiliate of the Adviser, to place all orders for the purchase
and sale of this fund's portfolio securities, futures contracts and foreign
currencies.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Colonial funds as a
factor in the selection of broker-dealers to execute securities transactions for
a Colonial fund.
The Adviser places the transactions of the Colonial funds with broker-dealers
selected by the Adviser and, if applicable, negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including the purchase and writing of options, the effecting of closing purchase
and sale transactions, and the purchase and sale of underlying securities upon
the exercise of options and the purchase or sale of other instruments. The
Colonial funds from time to time also execute portfolio transactions with such
broker-dealers acting as principals. The Colonial funds do not intend to deal
exclusively with any particular broker-dealer or group of broker-dealers.
Except as described below in connection with commissions paid to a clearing
agent on sales of securities, it is the Adviser's policy always to seek best
execution, which is to place the Colonial funds' transactions where the Colonial
funds can obtain the most favorable combination of price and execution services
in particular transactions or provided on a continuing basis by a broker-dealer,
and to deal directly with a principal market maker in connection with
over-the-counter transactions, except when it is believed that best execution is
obtainable elsewhere. In evaluating the execution services of, including the
overall reasonableness of brokerage commissions paid to, a broker-dealer,
consideration is given to, among other things, the firm's general execution and
operational capabilities, and to its reliability, integrity and financial
condition.
Subject to such practice of always seeking best execution, securities
transactions of the Colonial funds may be executed by broker-dealers who also
provide research services (as defined below) to the Adviser and the Colonial
funds. The Adviser may use all, some or none of such research services in
providing investment advisory services to each of its investment company and
other clients, including the fund. To the extent that such services are used by
the Adviser, they tend to reduce the Adviser's expenses. In the Adviser's
opinion, it is impossible to assign an exact dollar value for such services.
Subject to such policies as the Trustees may determine, the Adviser may cause
the Colonial funds to pay a broker-dealer which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction, including the sale of an option or a closing purchase transaction,
for the Colonial funds in excess of the amount of commission which another
broker-dealer would have charged for effecting that transaction. As provided in
Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research
services" include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends
and portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The Adviser must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or the Adviser's overall responsibilities to the Colonial
funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by Colonial funds that write
options and to pay such clearing agent commissions of a fixed amount per share
(currently 1.25 cents) on the sale of the underlying security upon the exercise
of an option written by a fund. The Trustees may further authorize the Adviser
to depart from the present policy of always seeking best execution and to pay
higher brokerage commissions from time to time for other brokerage and research
services as described above in the future if developments in the securities
markets indicate that such would be in the interests of the shareholders of the
Colonial funds.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds' shares only
upon receipt of orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund or Colonial funds to CISC or generally by 6 months' notice by
CISC to the Fund or Colonial funds. The agreement limits the liability of CISC
to the Fund or Colonial funds for loss or damage incurred by the Fund or
Colonial funds to situations involving a failure of CISC to use reasonable care
or to act in good faith in performing its duties under the agreement. It also
provides that the Fund or Colonial funds will indemnify CISC against, among
other things, loss or damage incurred by CISC on account of any claim, demand,
action or suit made on or against CISC not resulting from CISC's bad faith or
negligence and arising out of, or in connection with, its duties under the
agreement.
DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m.
Eastern time, 3:00 p.m. Chicago time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. Funds with portfolio securities which are primarily
listed on foreign exchanges may experience trading and changes in NAV on days on
which such Fund does not determine NAV due to differences in closing policies
among exchanges. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. The net asset
value of the Municipal Money Market Portfolio will not be determined on days
when the Exchange is closed unless, in the judgment of the Municipal Money
Market Portfolio's Board of Trustees, the net asset value of the Municipal Money
Market Portfolio should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time. Debt securities generally
are valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or where the
Adviser deems it appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on NASDAQ are valued at
the last sale price. Listed securities for which there were no sales during the
day and unlisted securities are valued at the last quoted bid price. Options are
valued at the last sale price or in the absence of a sale, the mean between the
last quoted bid and offering prices. Short-term obligations with a maturity of
60 days or less are valued at amortized cost pursuant to procedures adopted by
the Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Portfolio
positions for which there are no such valuations and other assets are valued at
fair value as determined in good faith under the direction of the Trust's
Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each Colonial fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
(The following two paragraphs are applicable only to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund -
"Adviser" in these two paragraphs refers to each fund's Adviser which is Newport
Fund Management, Inc.)
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II - see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action to: realize gains or losses; shorten the
portfolio's maturity; withhold distributions; redeem shares in kind; or convert
to the market value method (in which case the NAV per share may differ from
$1.00). All investments will be determined pursuant to procedures approved by
the Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Government Money Market Fund for a specimen price sheet showing the
computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CISI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CISI retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). CISI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse CISI for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with CISI.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, D, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your 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.
Automated Dollar Cost Averaging (Classes A, B and D). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same Class of shares of funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.
Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
CISI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including Individual Retirement Accounts (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 or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Colonial Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing open account with the particular fund. Call CISC for more
information at 1-800- 422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, D, T and Z shares of the Colonial funds. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all Colonial funds' Class A shares held by the
shareholder (except shares of any Colonial money market fund, unless
such shares were acquired by exchange from Class A shares of another
Colonial fund other than a money market fund and Class B, C, D, T
and Z shares).
CISI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C D, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CISI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CISI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800-345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a statement of intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
Statement of Intent
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. CISI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, D or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to the Colonial Funds). Class A shares of certain
funds may be sold at NAV to the following individuals whether currently employed
or retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, CISI and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with CISI; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements.
Net Asset Value Exchange Privilege (in this section, the "Adviser" refers to
Colonial Management Associates, Inc. in its capacity as the Adviser or
Administrator to the Colonial Funds). Class A shares of certain funds may also
be purchased at reduced or no sales charge by investors moving from another
mutual fund complex or a discretionary account and by participants in certain
retirement plans. In lieu of the commissions described in the Prospectus, the
Adviser will pay the FSF a quarterly service fee which is the service fee
established for each applicable Colonial fund.
Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to the Colonial Funds) (Classes A, B, and D) CDSCs may
be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year
following the death of (i) the sole shareholder on an individual
account, (ii) a joint tenant where the surviving joint tenant is
the deceased's spouse, or(iii) the beneficiary of a Uniform Gifts
to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or
other custodial account. If, upon the occurrence of one of the
foregoing, the account is transferred to an account registered in
the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after
the death. If the Class B shares are not redeemed within one
year of the death, they will remain subject to the applicable CDSC,
when redeemed from the transferee's account. If the account is
transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly, quarterly or
semi-annual SWP established with the Adviser, to the extent the
redemptions do not exceed, on an annual basis, 12% of the account's
value, so long as at the time of the first SWP redemption the
account had had distributions reinvested for a period at least
equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three
month period prior to the first SWP redemption); otherwise CDSCs
will be charged on SWP redemptions until this requirement is met;
this requirement does not apply if the SWP is set up at the time
the account is established, and distributions are being reinvested.
See below under "Investors Services" - Systematic Withdrawal Plan.
3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as
defined in Section 72(m)(7) of the Internal Revenue Code). To be
eligible for such waiver, (i) the disability must arise after the
purchase of shares and (ii) the disabled shareholder must have been
under age 65 at the time of the initial determination of
disability. If the account is transferred to a new registration and
then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring
upon dissolution of a revocable living or grantor trust following
the death of the sole trustee where (i) the grantor of the trust is
the sole trustee and the sole life beneficiary, (ii) death occurs
following the purchase and (iii) the trust document provides for
dissolution of the trust upon the trustee's death. If the account
is transferred to a new registration (including that of a successor
trustee), the applicable CDSC will be charged upon any subsequent
redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return
the applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions
required to make distributions from qualified retirement plans
following (i) normal retirement (as stated in the Plan document) or
(ii) separation from service. CDSCs also will be waived on SWP
redemptions made to make required minimum distributions from
qualified retirement plans that have invested in Colonial funds for
at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's 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 only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's Account Balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any Colonial fund designated by
the shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election of the shareholder's investment. Withdrawals from Class B and
Class D shares of the fund under a SWP will be treated as redemptions of shares
purchased through the reinvestment of fund distributions, or, to the extent such
shares in the shareholder's account are insufficient to cover Plan payments, as
redemptions from the earliest purchased shares of such fund in the shareholder's
account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even
if, after giving effect to the redemption, the shareholder's Account Balance is
less than the shareholder's base amount. Qualified plan participants who are
required by Internal Revenue Code regulation to withdraw more than 12%, on an
annual basis, of the value of their Class B and Class D share account may do so
but will be subject to a CDSC ranging from 1% to 5% of the amount withdrawn. If
a shareholder wishes to participate in a SWP, the shareholder must elect to have
all of the shareholder's income dividends and other fund distributions payable
in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's Account Balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All Colonial Funds shareholders and/or their financial
advisers (except for Colonial Newport Tiger Cub Fund and Colonial Newport Japan
Fund) are automatically eligible to redeem up to $50,000 of the fund's shares by
calling 1-800-422-3737 toll free any business day between 9:00 a.m. and the
close of trading of the Exchange (normally 4:00 p.m. Eastern time). Transactions
received after 4:00 p.m. Eastern Time will receive the next business day's
closing price. Telephone redemption privileges for larger amounts and for the
Colonial Newport Tiger Cub Fund and the Colonial Newport Japan Fund may be
elected on the Application. CISC will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Telephone redemptions
are not available on accounts with an address change in the preceding 30 days
and proceeds and confirmations will only be mailed or sent to the address of
record unless the redemption proceeds are being sent to a pre-designated bank
account. Shareholders and/or their financial advisers will be required to
provide their name, address and account number. Financial advisers will also be
required to provide their broker number. All telephone transactions are
recorded. A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to
execute the telephone authorization form or to use the telephone to execute
transactions.
Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of the Colonial
Funds) (Available only on the Class A and Class C shares of certain Colonial
funds) Shares may be redeemed by check if a shareholder completed an Application
and Signature Card. The Adviser will provide checks to be drawn on The First
National Bank of Boston (the "Bank"). These checks may be made payable to the
order of any person in the amount of not less than $500 nor more than $100,000.
The shareholder will continue to earn dividends on shares until a check is
presented to the Bank for payment. At such time a sufficient number of full and
fractional shares will be redeemed at the next determined net asset value to
cover the amount of the check. Certificate shares may not be redeemed in this
manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
invested in your account.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Municipal Money Market Fund will be
earned starting with the day after that fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. Class T and Z shares may be
exchanged for Class A shares of the other Colonial funds. The prospectus of each
Colonial fund describes its investment objective and policies, and shareholders
should obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange. Shares of certain Colonial funds are not
available to residents of all states. Consult CISC before requesting an
exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes and shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available from the Colonial
Literature Department by calling 1-800-248-2828.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or CISC. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other Colonial open-end funds generally may exchange their
shares at NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Colonial fund may not suspend shareholders' right of redemption or postpone
payment for more than seven days unless the Exchange is closed for other than
customary weekends or holidays, or if permitted by the rules of the SEC during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for protection of investors.
SHAREHOLDER 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 of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for
the purpose of obtaining the signatures necessary to demand a 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
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non money market. The yield for each class of shares is determined by (i)
calculating the income (as defined by the SEC for purposes of advertising yield)
during the base period and subtracting actual expenses for the period (net of
any reimbursements), and (ii) dividing the result by the product of the average
daily number of shares of the Colonial fund entitled to dividends for the period
and the maximum offering price of the fund on the last day of the period, (iii)
then annualizing the result assuming semi-annual compounding. Tax-equivalent
yield is calculated by taking that portion of the yield which is exempt from
income tax and determining the equivalent taxable yield which would produce the
same after tax yield for any given federal and state tax rate, and adding to
that the portion of the yield which is fully taxable. Adjusted yield is
calculated in the same manner as yield except that expenses voluntarily borne or
waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares is calculated
by annualizing the most current period's distributions and dividing by the
maximum offering price on the last day of the period. Generally, the fund's
distribution rate reflects total amounts actually paid to shareholders, while
yield reflects the current earning power of the fund's portfolio securities (net
of the fund's expenses). The fund's yield for any period may be more or less
than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Adviser to be reputable, and publications in
the press pertaining to a fund's performance or to the Adviser or its
affiliates, including comparisons with competitors and matters of national and
global economic and financial interest. Examples include Forbes, Business Week,
Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe,
Barron's National Business & Financial Weekly, Financial Planning, Changing
Times, Reuters Information Services, Wiesenberger Mutual Funds Investment
Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia
Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index and Disclosure Incorporated.
All data are based on past performance and do not predict future results.
<PAGE>
APPENDIX I
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from AAA
only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to repay principal and interest than for bonds in the A category.
BB, B, CCC, and CC bonds are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the major
rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
<PAGE>
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups that Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes these
bonds.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
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
Morgan Stanley Capital International EAFE Index 11.22
Morgan Stanley Capital International EAFE GDP Index 11.16
Libor Six-month Libor N/A
Lipper Adjustable Rate Mortgage 4.73
Lipper California Municipal Bond Funds 18.32
Lipper Connecticut Municipal Bond Funds 16.58
Lipper Closed End Bond Funds 20.83
Lipper Florida Municipal Bond Funds 17.84
Lipper General Bond Fund 20.83
Lipper General Municipal Bonds 16.84
Lipper General Short-Term Tax-Exempt Bonds 7.43
Lipper Global Funds 16.05
Lipper Growth Funds 30.79
Lipper Growth & Income Funds 30.82
Lipper High Current Yield Bond Funds 16.44
Lipper High Yield Municipal Bond Debt 15.98
Lipper Fixed Income Funds 15.19
Lipper Insured Municipal Bond Average 17.59
Lipper Intermediate Muni Bonds 12.89
Lipper Intermediate (5-10) U.S. Government Funds 15.75
Lipper Massachusetts Municipal Bond Funds 16.82
Lipper Michigan Municipal Bond Funds 16.89
Lipper Mid Cap Funds 32.04
Lipper Minnesota Municipal Bond Funds 15.39
Lipper U.S. Government Money Market Funds 5.26
Lipper Natural Resources 18.80
Lipper New York Municipal Bond Funds 16.73
Lipper North Carolina Municipal Bond Funds 17.51
Lipper Ohio Municipal Bond Funds 16.81
Lipper Small Company Growth Funds 31.55
Lipper U.S. Government Funds 17.34
Lipper Pacific Region Funds-Ex-Japan 1.95
Shearson Lehman Composite Government Index 18.33
Shearson Lehman Government/Corporate Index 19.25
Shearson Lehman Long-term Government Index 30.90
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
First Boston High Yield Index 17.38
Swiss Bank 10 Year U.S. Government (Corporate Bond) 22.24
Swiss Bank 10 Year United Kingdom (Corporate Bond) 16.19
Swiss Bank 10 Year France (Corporate Bond) 26.72
Swiss Bank 10 Year Germany (Corporate Bond) 25.74
Swiss Bank 10 Year Japan (Corporate Bond) 17.83
Swiss Bank 10 Year Canada (Corporate Bond) 25.04
Swiss Bank 10 Year Australia (Corporate Bond) 19.42
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 23.83
Morgan Stanley Capital International 10 Year Belgium (Equity) 20.67
SOURCE CATEGORY RETURN (%)
Morgan Stanley Capital International 10 Year Austria (Equity) 10.85
Morgan Stanley Capital International 10 Year France (Equity) 15.30
Morgan Stanley Capital International 10 Year Netherlands (Equity) 19.33
Morgan Stanley Capital International 10 Year Japan (Equity) 12.82
Morgan Stanley Capital International 10 Year Switzerland (Equity) 17.06
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 15.02
Morgan Stanley Capital International 10 Year Germany (Equity) 10.66
Morgan Stanley Capital International 10 Year Italy (Equity) 7.78
Morgan Stanley Capital International 10 Year Sweden (Equity) 19.43
Morgan Stanley Capital International 10 Year United States (Equity) 14.82
Morgan Stanley Capital International 10 Year Australia (Equity) 15.13
Morgan Stanley Capital International 10 Year Norway (Equity) 10.72
Morgan Stanley Capital International 10 Year Spain (Equity) 17.91
Morgan Stanley Capital International World GDP Index 18.14
-----
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
</TABLE>
*in U.S. currency
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.
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 Growth Fund)
The Fund's financial history (Not applicable to
Colonial 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 Growth Fund (CGF) (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)(a) Management Agreement between Colonial
Trust I, with respect to CHYSF and
Colonial Management Associates, Inc. (f)
(i)(b) Management Agreement between Colonial
Trust I, with respect to CIF and
Colonial Management Associates, Inc. (f)
(i)(c) Management Agreement between Colonial
Trust I, with respect to CSIF and
Colonial Management Associates, Inc. (f)
6. (i)(b) Form of Distributor's Contract with
Colonial Investment Services, Inc.
(ii) Form of Selling Agreement with Colonial
Investment Services (incorporated herein
by reference to Exhibit 6(b) to Post-
Effective Amendment No. 87 to the
Registration Statement of Colonial Trust
III, Registration Nos. 2-15184 and 811-
881, filed with the Commission on
February 9, 1994)
(iii) Investment Account Application
(incorporated by reference)
(iv) Form of Bank and Bank Affiliated Selling
Agreement (incorporated herein by
reference to Exhibit 6(c) to Post-
Effective Amendment No. 5 to the
Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 & 811-
6529, filed with the Commission on
October 11, 1994)
(v) Mutual Fund Agreement between NCNB
Securities, Inc. and Colonial Investment
Services, Inc. (incorporated herein by
reference to Exhibit 6(f) to Post-
Effective Amendment No. 3 to the
Registration Statement of Colonial
Massachusetts Tax-Exempt Trust,
Registration Statement Nos. 33-12109 &
811-5030, filed with the Commission on
May 11, 1989)
(vi) Form of Asset Retention Agreement -
(incorporated herein by reference to
Exhibit 6(e) to Post-Effective Amendment
No. 5 to the Registration Statement of
Colonial Trust VI Registration Nos. 33-
45117 & 811-6529, filed with the
Commission on October 11, 1994)
7. Not applicable
8. (i)(c) Form of proposed Custodian Contract with
State Street Bank and Trust Company
(CHYSF, CIF, CGF) (c)
(i)(d) Form of proposed Custodian Contract with
The First National Bank of Boston (CSIF)
(c)
(i)(e) Form of proposed Custody Agreement with
The Boston Company (incorporated herein
by reference to Exhibit 8 to Post-
Effective Amendment No. 19 to the
Registration Statement of Colonial Trust
II, File Nos. 2-66976 & 811-3009, filed
with the Commission on February 19,
1993)
(iii) Form of Customer, Safekeeping and
Procedural Agreements (d)
(iv) SubCustodian Agreement between State
Street Bank and Trust Company and The
First National Bank of Boston
(incorporated herein by reference to
Exhibit 8(c) to Post-Effective Amendment
No. 3 to the Registration Statement of
Colonial California Tax-Exempt Trust,
Registration Nos. 33-2640 & 811-4557,
filed with the Commission on February
26, 1988) (CHYSF, CIF)
9. (i)(d) Form of proposed Pricing and Bookkeeping
Agreement with Colonial Management
Associates, Inc. (CHYSF, CIF, CSIF)(c)
(ii) Form of Pricing and Bookkeeping
Agreement with Colonial Management
Associates, Inc. (CGF)
(iii) Form of Administration Agreement with
Colonial Management Associates, Inc.
(CGF)
(iv) Form of Indemnification Agreement among
Colonial Trust I and the SR&F Base Trust
(CGF)
(v) Form of Amended and Restated
Shareholders' Servicing and Transfer
Agent Agreement with Citadel Service
Company, Inc. and Colonial Management
Associates, Inc. (incorporated herein by
reference to Exhibit No. 9(a) to Post-
Effective Amendment No. 5 to the
Registration Statement of Colonial Trust
VI, Registration Statement Nos. 33-45117
& 811-6529, filed with the Commission on
October 11, 1994)
(vi) Form of proposed Agreement and Plan of
Reorganization (CHYSF) (a)
(vii) 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)
(viii) Form of Agreement and Plan of
Reorganization (CIF, CSIF) (c)
(ix) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
10. Opinion and Consent of Counsel (CHYSF)
(b)
(i)(a) Opinion and Consent of Counsel
(incorporated herein by reference to
Exhibit 9(c) to Post-Effective Amendment
No. 39 to the Registration Statement of
Colonial Income Trust, Registration Nos.
2-34923 & 811-1948, filed with the
Commission on February 27, 1987) (CIF)
(i)(b) Opinion and Consent of Counsel
(incorporated herein by reference to
Exhibit 10, to Post-Effective Amendment
No. 18 to the Registration Statement of
Colonial Strategic Income Trust,
Registration Nos. 2-58179 & 811-2728,
filed with the Commission on March 21,
1983 (CSIF)
11. Consent of Independent Accountants
(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
(CGF)
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 CGF 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 6/30/96
Shares of beneficial 22,512 Class A recordholders (CHYSF)
interest 15,340 Class B recordholders (CHYSF)
83 Class D recordholders (CHYSF)
Shares of beneficial 8,317 Class A recordholders (CIF)
interest 2,407 Class B recordholders (CIF)
Shares of beneficial 44,492 Class A recordholders (CSIF)
interest 34,537 Class B recordholders (CSIF)
Shares of beneficial 0 Class A recordholders (CGF)
interest 0 Class B recordholders (CGF)
0 Class D recordholders (CGF)
Item 27. Indemnification
See Article VII of Amendment No. 3 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.
See the form of Indemnification Agreement to be entered
into by Registrant on behalf of CGF, and the SR&F Base
Trust (Base Trust) on behalf of SR&F Growth Investor
Portfolio (Portfolio), relating to the Base Trust and the
Portfolio contained in Part B of this Registration
Statement and filed as Exhibit 9.(iv) hereto.
The Registrant's adviser or administrator, Colonial
Management Associates, Inc., has an ICI Mutual Insurance
Company Directors and Officers Errors and Omissions
Liability insurance policy. The policy provides
indemnification to the Registrant's trustees and officers.
Item 28. Business and other Connections of Investment
Adviser
The following sets forth business and other
connections of each director and officer of
Colonial Management Associates, Inc. (see next
page):
ITEM 28.
- --------
Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940
(1940 Act). Colonial Advisory Services, Inc. (CASI), an affiliate of Colonial
Management Associates, Inc., is also registered as an investment adviser under
the 1940 Act. As of the end of its fiscal year, December 31, 1995, CASI had
one institutional, corporate or other account under management or supervision,
the market value of which was approximately $31.4 million. As of the end of
its fiscal year, December 31, 1995, Colonial Management Associates, Inc. was
the investment adviser and/or administrator to 38 mutual funds in the Colonial
Group of Funds, the market value of which investment companies was
approximately $16,439.3 million. Colonial Investment Services, Inc., a
subsidiary of Colonial Management Associates, Inc., is the principal
underwriter and the national distributor of all of the funds in the Colonial
Group of Funds, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 7/1/96. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
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.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Harasimowicz, V.P. Colonial Investment Services,
Stephen Inc. V.P.
Harris, David V.P. Stein Roe Global Capital Mngmt. Principal
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. V.P.
Johnson, Gordon V.P.
Koonce, Michael H. V.P.; Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec.; Municipal Trust Asst. Sec.
Asst. Colonial InterMarket Income
Clerk & Trust I Asst. Sec.
Counsel Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Colonial Investors Service
Center, Inc. Asst. Clerk
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services,
Inc. Asst. Clerk
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lilienfeld, V.P.
Jonathan
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VII Controller
Asst. Colonial High Income
Treasurer Municipal Trust Controller
Colonial InterMarket Income
Trust I Controller
Colonial Intermediate High
Income Fund Controller
Colonial Investment Grade
Municipal Trust Controller
Colonial Municipal Income
Trust Controller
MacKinnon, Dir.;
Donald S. Sr.V.P.
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 Growth Fund), which will invest
all of its assets in the SR&F Growth Investor Portfolio
(Portfolio), which is managed by Stein Roe & Farnham
Incorporated.
Stein Roe & Farnham Incorporated (Manager), the investment
manager of the Portfolio, 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., N. Bruce Callow, 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.
Callow was Senior Vice President of Trust and Financial Services
for The Northern Trust prior to June 1994; 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
Philip D. Hausken Vice President
Kenneth J. Kozanda Vice President;
Treasurer
Stephen P. Lautz Vice President
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice
President
Hans P. Ziegler Director; President; Vice Chairman
Chairman
SR&F Base Trust
- ---------------
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour Pres.; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Ann H. Benjamin Vice President
N. Bruce Callow Executive Vice
President
Philip D. Hausken Vice President
Michael T. Kennedy Vice President
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
Jane M. Naeseth Vice President
Thomas R. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee
SteinRoe 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
N. Bruce Callow Executive Vice
President
Philip D. Hausken Vice President
Michael T. Kennedy Vice President
Stephen P. Lautz Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee
SteinRoe 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
N. Bruce Callow Executive Vice
President
Daniel K. Cantor Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
David P. Harris Vice President
Philip D. Hausken Vice President
Harvey B. Hirschhorn Vice President
Alfred F. Kugel Trustee
Stephen P. Lautz Vice President
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
SteinRoe 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
N. Bruce Callow Executive Vice
President
Joanne T. Costopoulos Vice President
Philip D. Hausken Vice President
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
M. Jane McCart Vice President
Anne E. Marcel Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee
SteinRoe Variable Investment Trust
- ----------------------------------
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC Utilities Trust
Gary A. Anetsberger Vice President
Michael T. Kennedy Vice President
M. Jane McCart 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 II, Colonial Trust III, Colonial Trust IV, Colonial
Trust V, Colonial Trust VI and Colonial Trust VII; and
sponsor for Colony Growth Plans (public offering of which were
discontinued June 14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
Business Address* with Principal Offices with
Underwriter Registrant
- ------------------ ------------------- --------------
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Barsokas, David Regional V.P. None
Cairns, David Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Sr. V.P. None
Donovan, John Regional V.P. None
Eckelman, Bryan Sr. V.P. None
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
Ross, Gary J. 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.
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,
CGF)
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 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.
******************
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of
Colonial Trust I is on file with the Secretary of The
Commonwealth of Massachusetts and notice is hereby given
that the instrument has been executed on behalf of the
Trust by an officer of the Trust as an officer and by its
Trustees as trustees and not individually and the
obligations of or arising out of this instrument are not
binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and
property of the Trust.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, Colonial
Trust I, has duly caused this Post-Effective Amendment No. 41 to
its Registration Statement under the Securities Act of 1933 and
the 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 17th day of July, 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 July 17, 1996
Harold W. Cogger (Principal
executive
officer)
/s/PETER L. LYDECKER Controller July 17, 1996
Peter L. Lydecker (Principal
financial and
accounting
officer)
/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
July 17, 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the SR&F Base Trust has duly
caused this Post-Effective Amendment No. 41 to the Registration
Statement on Form N-1A of Colonial Trust I, insofar as it relates
to Colonial Growth Fund of said Trust under the Securities Act of
1933 and Amendment No. 23 to its Registration Statement under the
Investment Company Act of 1940, to be signed in the City of
Chicago and the State of Illinois on this 17th day of July, 1996.
SR&F BASE TRUST
By: /s/ TIMOTHY K. ARMOUR
Timothy K. Armour,
President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement on
Form N-1A of Colonial Trust I has been signed below by the
following trustees and officers of SR&F Base Trust in their
capacities and on the date indicated.
SIGNATURES TITLE DATE
/s/ TIMOTHY K.ARMOUR President July 17, 1996
---------------- (Principal
Timothy K. Armour Executive Officer)
and
Trustee
/s/ GARY A. ANETSBERGER Senior Vice July 17, 1996
------------------- President
Gary A. Anetsberger and Chief
Financial
Officer (Principal
Financial Officer)
/s/ SHARON R. ROBERTSON Controller July 17, 1996
------------------- (Principal
Sharon R. Robertson Accounting
Officer)
/s/ KENNETH L. BLOCK Trustee July 17, 1996
----------------
Kenneth L. Block
/s/ WILLIAM W. BOYD Trustee July 17, 1996
----------------
William W. Boyd
/s/ LINDSAY COOK Trustee July 17, 1996
----------------
Lindsay Cook
/s/ DOUGLAS A. HACKER Trustee July 17, 1996
-----------------
Douglas A. Hacker
/s/ FRANCIS W. MORLEY Trustee July 17, 1996
-----------------
Francis W. Morley
/s/ CHARLES R. NELSON Trustee July 17, 1996
-----------------
Charles R. Nelson
Trustee
-----------------
Thomas C. Theobald
/s/ GORDON R. WORLEY Trustee July 17, 1996
-----------------
Gordon R. Worley
Exhibit Index
Exhibit
6.(i)(b) Form of Distributor's Contract with Colonial
Investment Services, Inc.
9.(ii) Form of Pricing and Bookkeeping Agreement
with Colonial Management Associates, Inc.
9.(iii) Form of Administration Agreement with
Colonial Management Associates, Inc.
9.(iv) Form of Indemnification Agreement among
Colonial Trust I and SR&F Base Trust
9.(ix) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
11. Consent of Independent Accountants
16.(g) Calculation of Performance Information (CGF)
DISTRIBUTOR'S CONTRACT
Each Massachusetts Business Trust (Trust) designated in
Appendix 2 from time to time, acting severally, and Colonial
Investment Services, Inc. (CISI), a Massachusetts corporation,
agree effective January 15, 1996:
1. APPOINTMENT OF CISI. The Trust may offer an unlimited
number of separate investment series (Funds), each of which may
have multiple classes of shares (Shares). The Trust appoints
CISI as the principal underwriter and exclusive distributor of
Shares of Funds designated in Appendix 2. The Contract will
apply to each Fund as set forth on Appendix 2 as it may be
amended from time to time with the latest effective date and
signed.
2. SALE OF SHARES. CISI, acting as principal for its own
account and not as agent for the Trust, shall have the exclusive
right to purchase Shares and shall sell Shares in accordance with
a Fund's prospectus on a "best efforts" basis. CISI shall
purchase Shares at a price equal to the net asset value only as
needed to fill orders. CISI will receive all sales charges.
CISI will notify the Trust at the end of each business day of the
Shares of each Fund to be purchased. The Trust may at any time
refuse to sell Shares hereunder and may issue Shares directly to
shareholders as a stock split or dividend.
3. REDEMPTION OF SHARES. The Trust will redeem in accordance
with a Fund's prospectus all Shares tendered by CISI pursuant to
shareholder redemption requests. CISI will notify the Trust at
the end of each business day of the Shares of each Fund tendered.
4. COMPLIANCE. CISI will comply with applicable provisions
of the prospectus of a Fund and with applicable laws and rules
relating to the sale of Shares and indemnifies the Trust for any
damage or expense from unlawful acts by CISI and persons acting
under its direction or authority.
5. EXPENSES. The Trust will pay all expenses associated
with:
a. the registration and qualification of Shares for sale;
b. shareholder meetings and proxy solicitation;
c. Share certificates;
d. communications to shareholders; and
e. taxes payable upon the issuance of Shares to CISI.
CISI will pay all expenses associated with advertising and sales
literature including those of printing and distributing
prospectuses and shareholder reports, proxy materials and other
shareholder communications used as sales literature.
6. 12b-1 PLAN. Except as indicated in Appendix 1 which may
be revised from time to time, dated and signed, this Section 6
constitutes each Fund's distribution plan (Plan) adopted pursuant
to Rule 12b-1 (Rule) under the Investment Company Act of 1940
(Act).
A. The Fund* shall pay CISI monthly a service fee at the
annual rate of 0.25% of the net assets of its Class A and B
Shares on the 20th of each month and a distribution fee at an
annual rate of 0.75% of the average daily net assets of its
Class B Shares. Each of the Funds identified on Appendix 1 as
having a Class D share 12b-1 Plan shall pay CISI monthly a
service fee at the annual rate of 0.25% of the net assets of its
Class D shares on the 20th of each month and a distribution fee
at an annual rate of 0.75% of the average daily net assets of
its Class D shares. Each of the Funds identified on Appendix 1
as having a Class C share 12b-1 Plan shall pay CISI monthly a
service fee at the annual rate of 0.25% of the net assets of its
Class C shares on the 20th of each month and a distribution fee
at an annual rate of 0.15% of the average daily net assets of
its Class C shares. CISI may use the service and distribution
fees received from the Fund as reimbursement for commissions and
service fees paid to financial service firms which sold Fund
shares and to defray other CISI distribution and shareholder
servicing expenses, including its expenses set forth in
Paragraph 5. CISI shall provide to the Trust's Trustees, and
the Trustees shall review, at least quarterly, reports setting
forth all Plan expenditures, and the purposes for those
expenditures. Amounts payable under this paragraph are subject
to any limitations on such amounts prescribed by applicable laws
or rules.
_____________________________
* Except as indicated in Appendix 1.
B. Payments by the Trust to CISI and its affiliates
(including Colonial Management Associates, Inc.) other than
any prescribed by Section 6A which may be indirect financing
of distribution costs are authorized by this Plan.
C. The Plan shall continue in effect with respect to a
Class of shares only so long as specifically approved for
that Class at least annually as provided in the Rule. The
Plan may not be amended to increase materially the service
fee or distribution fee with respect to a Class of shares
without such shareholder approval as is required by the Rule
and any applicable orders of the Securities and Exchange
Commission, and all material amendments of the Plan must be
approved in the manner described in the Rule. The Plan may
be terminated with respect to a Class of shares at any time
as provided in the Rule without payment of any penalty. The
continuance of the Plan shall be effective only if the
selection and nomination of the Trust's Trustees who are not
interested persons (as defined under the Act) of the Trust
is effected by such non-interested Trustees as required by
the Rule.
7. CONTINUATION, AMENDMENT OR TERMINATION. This Contract (a)
supersedes and replaces any contract or agreement relating to the
subject matter hereof in effect prior to the date hereof, (b)
shall continue in effect only so long as specifically approved at
least annually by the Trustees or shareholders of the Trust and
(c) may be amended at any time by written agreement of the
parties, each in accordance with the Act. This Contract (a)
shall terminate immediately upon the effective date of any later
dated agreement relating to the subject matter hereof, and (b)
may be terminated upon 60 days notice without penalty by a vote
of the Trustees or by CMAI or otherwise in accordance with the
Act and will terminate immediately in the event of assignment (as
defined under the Act). Upon termination the obligations of the
parties under this Contract shall cease except for unfulfilled
obligations and liabilities arising prior to termination. All
notices shall be in writing and delivered to the office of the
other party.
8. AGREEMENT AND DECLARATION OF TRUST. A copy of the
document establishing the Trust is filed with the Secretary of
The Commonwealth of Massachusetts. This Contract 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.
Agreed:
EACH TRUST DESIGNATED IN APPENDIX 2 COLONIAL INVESTMENT SERVICES, INC.
By: By:
Arthur O. Stern, Secretary For Each Trust Marilyn Karagiannis,
Senior Vice President
APPENDIX 1
THE FOLLOWING IS APPLICABLE TO THE DESIGNATED FUND'S 12b-1 PLAN:
1. For Colonial Goverment Money Market Fund and Colonial Tax-
Exempt Money Market Fund, the first sentence of Section 6A is
replaced with: "The Fund shall pay CISI monthly a service fee
at an annual rate of 0.25% of the net assets of its Class B
Shares on the 20th of each month and a distribution fee at an
annual rate of 0.75% of the average daily net assets of its
Class B shares."
2. For Colonial California Tax-Exempt Fund, Colonial Connecticut
Tax-Exempt Fund, Colonial Florida Tax-Exempt Fund, Colonial
Massachusetts Tax-Exempt Fund, Colonial Michigan Tax-Exempt
Fund, Colonial Minnesota Tax-Exempt Fund, Colonial New York
Tax-Exempt Fund, Colonial North Carolina Tax-Exempt Fund and
Colonial Ohio Tax-Exempt Fund the first sentence of Section 6A
is replaced with: "The Fund shall pay CISI monthly (i) a
service fee at the annual rate of (A) 0.10% of the net assets
attributable to its Class A and Class B shares outstanding as
of the 20th day of each month which were issued prior to
December 1, 1994, and (B) 0.25% of the net assets attributable
to its Class A and Class B shares outstanding as of the 20th
day of each month which were issued on or after December 1,
1994, and (ii) a distribution fee at an annual rate of 0.75%
of the average daily net assets of its Class B shares."
3. For The Colonial Fund and Colonial Growth Shares Fund, the
first sentence of Section 6A is replaced with: "The Fund
shall pay CISI monthly a service fee at an annual rate of
0.15% of the net assets on the 20th of each month of its Class
A and B Shares outstanding which were issued prior to April 1,
1989, and 0.25% of the net assets on the 20th of each month of
its Class A and B Shares issued thereafter, and a distribution
fee at an annual rate of 0.75% of the average daily net assets
of its Class B Shares.
4. For Colonial Strategic Income Fund, the first sentence of
Section 6A is replaced with: "The Fund shall pay CISI monthly
a service fee at an annual rate of 0.15% of the net assets on
the 20th of each month of its Class A and B Shares outstanding
which were issued prior to January 1, 1993, and 0.25% of the
net assets on the 20th of each month of its Class A and B
Shares issued thereafter, and a distribution fee at an annual
rate of 0.75% of the average daily net assets of its Class B
Shares."
5. For Colonial Adjustable Rate U.S. Government Fund and Colonial
Intermediate Tax-Exempt Fund, the first sentence of Section 6A
is replaced with: "The Fund shall pay CISI monthly a service
fee at an annual rate of 0.20% of the net assets on the 20th
of each month of its Class A and B Shares and a distribution
fee at an annual rate of 0.65% of the average daily net assets
of its Class B Shares."
6. For Colonial Short-Term Tax-Exempt Fund, the first sentence of
Section 6A is replaced with: "The Fund shall pay CISI monthly
a service fee at an annual rate of 0.10% of the net assets on
the 20th of each month of its Class A Shares."; and the third
sentence is replaced with: "CISI may use the service fee
received from the Fund as reimbursement for service fees paid
to financial firms which sold Fund shares and to defray other
CISI shareholder servicing expenses, including its expenses
set forth in Paragragh 5."
7. For Colonial Strategic Balanced Fund, the following sentence
is added as the second sentence of Section 6A: " The Fund
shall also pay CISI an annual distribution fee not exceeding
0.30% of the average net assets attributed to its Class A
shares."
8.The Funds with Class D share 12b-1 Plans are as follows:
Colonial Strategic Balanced Fund, Colonial International Fund
for Growth, Colonial Government Money Market Fund, Colonial
U.S. Fund for Growth, Colonial Global Utilities Fund, Colonial
Newport Tiger Fund, Colonial Small Stock Fund, Colonial High
Yield Securities Fund, Colonial Aggressive Growth Fund,
Colonial Equity Income Fund, Colonial International Equity
Fund, Colonial Growth Fund, Colonial Newport Tiger Cub
Fund and Colonial Newport Japan Fund.
9.The Funds with Class C share 12b-1 Plans are as follows:
Colonial Adjustable Rate U.S. Government Fund.
10.Colonial Newport Tiger Fund does not offer a 12b-1 plan for
Class T and Class Z shares.
11.Colonial Small Stock Fund, The Colonial Fund, Colonial Newport
Tiger Cub Fund and Colonial Newport Japan Fund do not offer a
12b-1 plan for Class Z shares.
By:
Arthur O. Stern, Secretary For Each Trust
By:
Marilyn Karagiannis, Senior Vice President
Colonial Investment Services, Inc.
Dated: , 1996
APPENDIX 2
Trust Series
Colonial Trust I
Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Colonial Growth Fund
Colonial Trust II
Colonial Government Money Market Fund
Colonial U.S. Government Fund
Colonial Adjustable Rate U.S. Government Fund
Colonial Newport Tiger Cub Fund
Colonial Newport Japan Fund
Colonial Trust III
Colonial Growth Shares Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial Global Natural Resources Fund
Colonial International Fund for Growth
Colonial Strategic Balanced Fund
Colonial Global Utilities Fund
Colonial Trust IV
Colonial High Yield Municipal Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Short-Term Tax-Exempt Fund
Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial Tax-Exempt Money Market Fund
Colonial Utilities Fund
Colonial Trust V
Colonial Massachusetts Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial California Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial Trust VI
Colonial U.S. Fund for Growth
Colonial Small Stock Fund
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Trust VII
Colonial Newport Tiger Fund
By:
Arthur O. Stern, Secretary For Each Trust
By:
Marilyn Karagiannis, Senior Vice President
Colonial Investment Services, Inc.
Dated: , 1996
PRICING AND BOOKKEEPING AGREEMENT
AGREEMENT dated as of September 28, 1995, between each
Massachusetts Business Trust (Trust) designated in
Appendix I from time to time, and Colonial Management
Associates, Inc. (Colonial), a Massachusetts corporation.
This Agreement replaces all Service Contracts relating to
the performance of similar services between Colonial and
each Trust's predecessor in interest. The Trust and
Colonial agree as follows:
1. Appointment. The Trust may offer an unlimited number
of series (Funds), each of which may have multiple classes
of shares (Shares). This Agreement will apply to each Fund
on the Effective Date set forth in Appendix I as amended
from time to time.
2. Services. Colonial shall (i) determine and timely
communicate to persons designated by the Trust the Fund's
net asset values and offering prices per Share; and (ii)
maintain and preserve in a secure manner the accounting
records of the Fund. All records shall be the property of
the Fund. Colonial will provide disaster planning to
minimize possible service interruption.
3. Audit, Use and Inspection. Colonial shall make
available on its premises during regular business hours all
records of a Fund for reasonable audit, use and inspection
by the Trust, its agents and any regulatory agency having
authority over the Fund.
4. Compensation. The Trust will pay Colonial for each
Fund a monthly fee of $1,500, plus a percentage fee on
assets equal to the following: 0% for the first $50 million
of Fund assets; a monthly fee of 1/12 of 0.0233% on the next
$950 million; 1/12 of 0.0167% on the next $1 billion; 1/12
of 0.0100% of the next $1 billion; and 1/12 of 0.0007% on
the excess over $3 billion of the average weekly net assets
of the Fund for such month.
5. Compliance. Colonial shall comply with applicable
provisions relating to pricing and bookkeeping of the
prospectus and statement of additional information of a Fund
and applicable laws and rules in the provision of services
under this Agreement.
6. Limitation of Liability. In the absence of willful
misfeasance, bad faith or gross negligence on the part of
Colonial, or reckless disregard of its obligations and
duties hereunder, Colonial 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.
7. Amendments. The Trust shall submit to Colonial a
reasonable time in advance of filing with the Securities and
Exchange Commission copies of any changes in its
Registration Statements. If a change in documents or
procedures materially increases the cost to Colonial of
performing its obligations, Colonial shall be entitled to
receive reasonable additional compensation.
8. Duration and Termination, etc. This Agreement may be
changed only by writing executed by each party. This
Agreement: (a) shall continue in effect from year to year
so long as approved annually by vote of a majority of the
Trustees who are not affiliated with Colonial; (b) may be
terminated at any time without penalty by sixty days'
written notice to either party; and (c) may be terminated at
any time for cause by either party if such cause remains
unremedied for a reasonable period not to exceed ninety days
after receipt of written specification of such cause.
Paragraph 6 of this Agreement shall survive termination. If
the Trust designates a successor to any of Colonial's
obligations, Colonial shall, at the expense and direction of
the Trust, transfer to the successor all Trust records
maintained by Colonial.
9. Miscellaneous. This Agreement shall be governed by
the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above.
EACH TRUST DESIGNATED IN APPENDIX I
By:
Peter L. Lydecker, Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By:
Arthur O. Stern, 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.
APPENDIX I
Trust Series Effective Date
Colonial Trust IV Colonial Municipal Money Market Fund September 28, 1995
Colonial Trust I Colonial Growth Fund , 1996
By:
Peter L. Lydecker, Controller
By:
Arthur O. Stern, Executive Vice President
Colonial Management Associates, Inc.
Dated: , 1996
S:\FUNDS\GENERAL\CONTRACT\PRICMMMF.DOC
ADMINISTRATION AGREEMENT
AGREEMENT dated as of , between COLONIAL
TRUST I, a Massachusetts business trust (Trust), with
respect to Colonial 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 0.25% 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 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.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT dated as of ,
1996 by and between Colonial Trust I (the "Colonial Trust"), a
Massachusetts business trust established under a Declaration of
Trust dated , as amended, on behalf of Colonial
Growth Fund (the "Colonial Fund"), a series of the
Colonial Trust, and SR&F Base Trust ("Base Trust"), a
Massachusetts trust established under a Declaration of Trust
dated , as amended, on behalf of SR&F Growth Investor
Portfolio (the "Portfolio"), a series of the Base Trust.
WITNESSETH:
WHEREAS, the parties hereto wish to enter into a
master/feeder fund arrangement whereby the Colonial Fund will, at
its sole discretion, invest all or substantially all of its
assets in shares of beneficial interest in the Portfolio;
WHEREAS, the Registration Statement of the Colonial Trust
("Registration Statement") as filed with the Securities and
Exchange Commission pursuant to the Investment Company Act of
1940, as amended (the "1940 Act"), and the Securities Act of
1933, as amended (the "1933 Act," and together with the 1940 Act,
the "Acts"), will disclose information concerning the Portfolio
and the Base Trust; and
WHEREAS, both the Base Trust and the Colonial Trust and
their respective trustees and certain of their respective
officers will execute the Registration Statement;
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. The Colonial Trust, on behalf of the Colonial
Fund, agrees to indemnify and hold harmless each Base Trust
Indemnitee (which term as used in this Agreement shall mean each
of the Base Trust, each of its trustees, each of its officers who
signed the Registration Statement, the Portfolio and each person
who controls the Base Trust within the meaning of Section 15 of
the 1933 Act, as applicable) against any losses, claims,
expenses, damages or liabilities, joint or several, to which such
Base Trust Indemnitee may become subject, under the Acts or
otherwise, insofar as such losses, claims, expenses, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, any
final prospectus or statement of additional information relating
to the shares offered thereby ("Final Prospectus") or any
amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they
were made, not misleading, but only to the extent that such
statement or omission does not relate to information relating to
the Base Trust or the Portfolio furnished in writing to the
Colonial Trust by the Base Trust; and agrees to reimburse each
Base Trust Indemnitee for any legal or other expenses reasonably
incurred by it in connection with investigating or defending and
such loss, claim, damage, liability or action.
SECTION 2. The Base Trust, on behalf of the Portfolio,
agrees to indemnify and hold harmless each Colonial Indemnitee
(which term as used in this Agreement shall mean each of the
Colonial Trust, each of its trustees, each of its officers who
signed the Registration Statement, the Colonial Fund and each
person who controls the Colonial Trust within the meaning of
Section 15 of the 1933 Act, as applicable) against any losses,
claims, expenses, damages or liabilities, joint or several, to
which such Colonial Indemnitee may become subject, under the Acts
or otherwise insofar as such losses, claims, expenses, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, any
Final Prospectus or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necesarry to make the statements therein, in light of the
circumstances in which they were made, not misleading, but only
to the extent that such statement or omission relates to
information relating to the Base Trust or the Portfolio furnished
in writing to the Colonial Trust by the Base Trust; and agrees to
reimburse each Colonial Indemnitee for any legal or other
expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage,
liability or action.
SECTION 3. Promptly after receipt by an indemnified party
under this Agreement of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to
be made against the indemnifying party under this Agreement,
notify the indemnifying party in writing of the commencement
thereof but the omission to so notify the indemnifying party will
not relieve it from any liability which it may have against any
indemnified party otherwise than under this Agreement. In case
such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and,
to the extent that it may elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any such
action include both the indemnified parties and the indemnifying
party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to
assume such legal defenses and otherwise to participate in the
defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to
such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified
party of counsel (which approval shall not be unreasonably
withheld), the indemnifying party will not be liable to such
indemnified party under this Agreement for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified
party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being
understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel
approved by the indemnifying party, representing all the
indemnified parties under this Agreement who are parties to such
action), (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
notice of commencement of the action, or (iii) the indemnifying
party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In
no event shall any indemnifying party be liable in respect of any
amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided,
however, that such consent shall not be unreasonably withheld.
SECTION 4. In order to provide for just and equitable
contribution in any action in which a claim for indemnification
is made pursuant to this Agreement but it is judicially
determined (by entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that
this Agreement provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Colonial
Trust is responsible pro rata in proportion to the proportion of
aggregate losses, claims, expenses, damages or liabilities
relating to disclosure not relating to information relating to
the Portfolio or the Base Trust furnished in writing to the
Colonial Trust by the Base Trust and the Base Trust is
responsible pro rata in proportion to the proportion of aggregate
losses, claims, expenses, damages or liabilities relating to
information relating to the Base Trust or the Portfolio furnished
in writing to the Colonial Trust by the Base Trust, provided,
however, that no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to a contribution from any person who is not guilty of
such fraudulent misrepresentation.
SECTION 5. The parties to this Agreement hereby acknowledge
that they are sophisticated business persons who were represented
by counsel during the negotiations regarding the provisions
hereof and are fully informed regarding said provisions. They
further acknowledge that the provisions of this Agreement fairly
allocate the risks in light of the ability of the parties to
assure that adequate disclosure is made in the Registration
Statement as required by the Acts. The parties are advised that
federal or state public policy, as interpreted by the courts in
certain jurisdictions, may be contrary to certain of the
provisions of this Agreement, and the parties hereto hereby
expressly waive and relinquish any right or ability to assert
such public policy as a defense to a claim under this Agreement
and further agree not to attempt to assert any such defense.
SECTION 6. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS.
SECTION 7. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 8. No provision of this Agreement shall protect or
purport to protect any trustee or officer of a company (as
defined in the 1940 Act) against any liability to the company or
to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
or her office.
SECTION 9. A copy of the Declaration of Trust of the
Colonial Trust is on file with the Secretary of the Commonwealth
of Massachusetts, and notice is hereby given that no trustee,
officer, agent, employee or shareholder of the Colonial Trust
shall have any personal liability under this Agreement and that
this Agreement is binding only upon the assets and properties of
the Colonial Fund and not other series of the Colonial Trust.
This Agreement is executed by the officer of the Base Trust on
behalf of the Base Trust and not individually and is binding only
upon the assets and property of the Portfolio and not the other
series of the Base Trust, nor on any trustee, officer, agent,
employee or shareholder of the Base Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed as a sealed instrument by its
President or Vice President and its corporate seal to be affixed
hereto and attested by its Secretary or Assistant Secretary.
COLONIAL GROWTH FUND
BY: COLONIAL TRUST I
ATTEST: BY:
SR&F GROWTH INVESTOR PORTFOLIO
BY: SR&F BASE TRUST
ATTEST: BY:
l\common\funds\trustiv\cmmmf\indemagr.doc
COLONIAL TRUST I-VII
Plan pursuant to Rule 18f-3(d) under the Investment Company Act of
1940
Effective April 22, 1996 (1)
Each series ("Fund") of Colonial Trusts I-VII (the "Trusts") may from
time to time issue one or more of the following classes of shares:
Class A shares, Class B shares, Class C shares, Class D shares, Class
T shares and Class Z shares. Each class is subject to such investment
minimums and other conditions of eligibility as set forth in the
Funds' prospectuses as from time to time in effect. The differences
in expenses among these classes of shares, and the conversion and
exchange features of each class of shares, are set forth below in this
Plan, which is subject to change, to the extent permitted by law and
by the Declaration of Trust and By-laws of each Trust, by action of
the Board of Trustees of each Trust.
Class A shares
- ---------------
Class A shares are offered at net asset value ("NAV") plus the initial
sales charges described in the Funds' prospectuses as from time to
time in effect. Initial sales charges may not exceed 6.50%, and may
be reduced or waived as permitted by Rule 22d-1 under the Investment
Company Act of 1940 (the "1940 Act") and as described in the Funds'
prospectuses from time to time in effect.
Purchases of $1 million or more of Class A shares that are redeemed
within 18 months from purchase are subject to a contingent deferred
sales charge ("CDSC") of 1% of either the purchase price or the NAV of
the shares redeemed, whichever is less. Class A shares are not
otherwise subject to a CDSC. The CDSC may be reduced or waived as
permitted by Rule 6c-10 under the 1940 Act and as described in the
Funds' prospectuses as from time to time in effect.
Class A shares pay service fees pursuant to plans adopted pursuant to
Rule 12b-1 under the 1940 Act ("12b-1 Plans") as described in the
Funds' prospectuses in effect from time to time. Such fees may not
exceed 0.25% per annum of the average daily net assets attributable to
such class. Class A shares generally do not pay distribution fees,
except that Colonial Strategic Balanced Fund pays a distribution fee
of 0.30% per annum of average daily net assets attributable to its
Class A shares.
Class A shares of any Fund may be exchanged, at the holder's option,
for Class A shares of another Fund without the payment of a sales
charge, except that (i) if Class A shares of a money market fund or of
Colonial Short-Term Tax Exempt Fund are exchanged for shares of a non-
money market fund, the exchange is at the applicable offering price
next determined (including sales charge), except for amounts on which
an initial sales charge was paid; and (ii) if shares of any other non-
money market fund are exchanged within five months after purchase for
shares of a Fund with a higher sales charge, then the difference in
sales charges must be paid on the exchange.
- ---------------------------------
(1) Colonial Trusts I-VII (the "Trusts") have been offering multiple
classes of shares, prior to the effectiveness of this Plan, pursuant
to an exemptive order of the Securities and Exchange Commission. This
Plan is intended to permit the Trusts to offer multiple classes of
shares pursuant to Rule 18f-3 under the Investment Company Act of
1940, without any change in the arrangements and expense allocations
that have been approved by the Board of Trustees of each Trust under
such order of exemption.
Class B shares
- --------------
Class B shares are offered at NAV, without an initial sales charge.
Class B shares that are redeemed within the period of time after
purchase (not more than 6 years) specified in each Fund's prospectus
as from time to time in effect are subject to a CDSC of up to 5% of
either the purchase price or the NAV of the shares redeemed, whichever
is less; such percentage may be lower for certain Funds and declines
the longer the shares are held, all as described in the Funds'
prospectuses as from time to time in effect. Class B shares purchased
with reinvested distributions are not subject to a CDSC. The CDSC is
subject to reduction or waiver in certain circumstances, as permitted
by Rule 6c-10 under the 1940 Act and as described in the Funds'
prospectuses as from time to time in effect.
Class B shares pay distribution and service fees pursuant to 12b-1
Plans as described in the Funds' prospectuses in effect from time to
time. Such fees may be in amounts up to but may not exceed,
respectively, 0.75% and 0.25% per annum of the average daily net
assets attributable to such class.
Class B shares automatically convert to Class A shares of the same
Fund eight years after purchase, except that Class B shares purchased
through the reinvestment of dividends and other distributions on Class
B shares convert proportionally to the amount of Class A shares being
converted.
Class B shares of any Fund may be exchanged, at the holder's option,
for Class B shares of another Fund, without the payment of a CDSC.
The holding period for determining the CDSC and the conversion to
Class A shares will include the holding period of the shares
exchanged. If the Class B shares received in the exchange are
subsequently redeemed, the amount of the CDSC, if any, will be
determined by the schedule of the Fund in which the original
investment was made.
Class C shares
- --------------
Class C shares are offered at NAV, without an initial sales charge or
CDSC. Class C shares pay distribution and service fees pursuant to
plans adopted pursuant to Rule 12b-1 under the 1940 Act ("12b-1
Plans"), as described in the Funds' prospectuses in effect from time
to time. Such fees may not exceed, respectively, 0.75% and 0.25% per
annum of the average daily net assets attributable to such class.
Class C shares of any Fund may be exchanged for Class C shares of any
other Fund that offers Class C shares. Only one Fund currently offers
Class C shares.
Class D shares
- --------------
Class D shares are offered at NAV plus an initial sales charge of 1%.
Class D shares that are redeemed within one year from purchase are
subject to a CDSC of 1% of either the purchase price or the NAV of the
shares redeemed, whichever is less. Class D shares purchased with
reinvested dividends or capital gain distributions are not subject to
a CDSC. The CDSC may be reduced or waived in certain circumstances as
permitted by Rule 6c-10 under the 1940 Act and as described in the
Funds' prospectuses as from time to time in effect.
Class D shares pay distribution and service fees pursuant to 12b-1
Plans, as described in the Funds' prospectuses in effect from time to
time. Such fees may be in amounts up to but may not exceed,
respectively, 0.75% and 0.25% per annum of the average daily net
assets attributable to such class.
Class D shares of any Fund may be exchanged for Class D shares of any
other Fund that offers Class D shares. The holding period for
determining whether a CDSC will be charged will include the holding
period of the shares exchanged.
Class T shares
- --------------
Class T shares are offered at NAV plus the initial sales charges
described in the Funds' prospectuses as from time to time in effect.
The sales charge may not exceed 6.50%, and may be reduced or waived as
permitted by Rule 22d-1 under the 1940 Act and as described in the
Funds' prospectuses from time to time in effect.
Purchases of $1 million or more of Class T shares that are redeemed
within 18 months from purchase are subject to a contingent deferred
sales charge ("CDSC") of 1% of either the purchase price or the NAV of
the shares redeemed, whichever is less. Class T shares are not
otherwise subject to a CDSC. The CDSC may be reduced or waived as
permitted by Rule 6c-10 under the 1940 Act and as described in the
Funds' prospectuses as from time to time in effect.
Class T shares do not pay fees pursuant to a 12b-1 Plan. Class T
shares of a Fund may only be exchanged for Class A shares of another
Fund.
Class Z shares
- --------------
Class Z shares are offered at NAV, without an initial sales charge or
CDSC. Class Z shares do not pay fees under a 12b-1 Plan. Class Z
shares of a Fund may only be exchanged for Class A shares of another
Fund.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts 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 references to us under
the heading "Independent Accountants of the Fund" in the Statement of
Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
July 17, 1996
<TABLE>
<CAPTION>
PERFORMANCE CALCULATION
COLONIAL GROWTH FUND - CLASS A
Period End: 3/31/96
Inception Date: 4/29/94*
SINCE INCEPTION
SIX MONTHS ENDED 3/31/96 1 YEAR ENDED 3/31/96 4/29/94 TO 3/31/96
Standard Non-Standard Standard Non-Standard Standard Non-Standard
------------ ------------- ------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 5.75% 5.75% 5.75%
Amt. Invested $942.50 $1,000.00 $942.50 $1,000.00 $942.50 $1,000.00
Initial NAV $14.29 $14.29 $11.33 $11.33 $10.00 $10.00
Initial Shares 65.955 69.979 83.186 88.261 94.250 100.000
Shares From Dist 2.582 2.739 3.257 3.455 4.413 4.682
End of Period NA $15.73 $15.73 $15.73 $15.73 $15.73 $15.73
Total Return 7.81% 14.39% 35.98% 44.27% 55.20% 64.66%
Average Annual
Total Return N/A N/A 35.98% 44.27% 25.63% 29.56%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE CALCULATION
COLONIAL GROWTH FUND - CLASS B
Period End: 3/31/96
Inception Date: 4/29/94*
SINCE INCEPTION
SIX MONTHS ENDED 3/31/96 1 YEAR ENDED 3/31/96 4/29/94 TO 3/31/96
Standard Non-Standard Standard Non-Standard Standard Non-Standard
--------- ------------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Initial NAV $14.29 $14.29 $11.33 $11.33 $10.00 $10.00
Initial Shares 69.979 69.979 88.261 88.261 100.000 100.000
Shares From Dist. 2.739 2.739 3.455 3.455 4.682 4.682
End of Period NAV $15.73 $15.73 $15.73 $15.73 $15.73 $15.73
CDSC 5.00% 5.00% 4.00%
Total Return 9.39% 14.39% 39.27% 44.27% 60.66% 64.66%
Average Annual
Total Return N/A N/A 39.27% 44.27% 27.91% 29.56%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE CALCULATION
COLONIAL GROWTH FUND - CLASS D
Period End: 3/31/96
Inception Date: 4/29/94*
SINCE INCEPTION
SIX MONTHS ENDED 3/31/96 1 YEAR ENDED 3/31/96 4/29/94 TO 3/31/96
Standard Non-Standard Standard Non-Standard Standard Non-Standard
------------ --------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 1.00% 1.00% 1.00%
Amt. Invested $990.00 $1,000.00 $990.00 $1,000.00 $990.00 $1,000.00
Initial NAV $14.29 $14.29 $11.33 $11.33 $10.00 $10.00
Initial Shares 69.279 69.979 87.379 88.261 99.000 100.000
Shares From Dist. 2.712 2.739 3.421 3.455 4.635 4.682
End of Period NAV $15.73 $15.73 $15.73 $15.73 $15.73 $15.73
CDSC 1.00% 1.00% 0.00%
Total Return 12.24% 14.39% 41.83% 44.27% 63.02% 64.66%
Average Annual
Total Return N/A N/A 41.83% 44.27% 28.88% 29.56%
</TABLE>
* Inception date of the Fund's predecessor, Stein Roe Young Investor Fund.
