April 30, 1997
COLONIAL STRATEGIC
INCOME FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund
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 Strategic Income Fund (Fund), a diversified portfolio of Colonial Trust
I (Trust), an open-end management investment company, seeks as high a level of
current income and total return as is consistent with prudent risk, by
diversifying investments primarily in U.S. and foreign government and lower
rated corporate debt securities.
The Fund is managed by the Adviser, an investment adviser since 1931.
The Fund may invest a significant portion of its assets in lower rated bonds
(commonly referred to as "junk bonds") which are regarded as speculative as to
payment of principal and interest and, therefore, may not be suitable for all
investors. These securities are subject to greater risks, including the risk of
default, than higher rated bonds. See "How the Fund Pursues its Objective and
Certain Risk Factors." Purchasers should carefully assess the risks associated
with an investment in the Fund.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for your future reference. More detailed
information about the Fund is in the April 30, 1997 Statement of Additional
Information, which has been filed with the Securities and Exchange Commission
and is obtainable free of charge by calling the Adviser at 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
SI-01/592D-0497
The Fund offers two classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and are subject to an annual distribution fee and a
declining contingent deferred sales charge on redemptions made within six years
after purchase. Class B shares automatically convert to Class A shares after
approximately eight years. See "How to Buy Shares."
Contents Page
Summary of Expenses 2
The Fund's Financial History 3
The Fund's Investment Objective 5
How the Fund Pursues its Objective
and Certain Risk Factors 5
How the Fund Measures its Performance 8
How the Fund is Managed 8
How the Fund Values its Shares 9
Distributions and Taxes 9
How to Buy Shares 10
How to Sell Shares 11
How to Exchange Shares 12
Telephone Transactions 12
12b-1 Plans 13
Organization and History 13
Appendix 14
<PAGE>
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plans" for more complete descriptions of the Fund's
various costs and expenses.
Shareholder Transaction Expenses (1)(2)
Class A Class B
Maximum Initial Sales Charge Imposed
on a Purchase (as a % of offering price) (3) 4.75% 0.00%(5)
Maximum Contingent Deferred Sales
Charge (as a % of offering price) (3) 1.00%(4) 5.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares." (2) Redemption proceeds exceeding $5,000 sent via
federal funds wire will be subject to a $7.50 charge per transaction. (3)
Does not apply to reinvested distributions. (4) Only with respect to any
portion of purchases of $1 million to $5 million redeemed within
approximately 18 months after purchase. See "How to Buy Shares." (5)
Because of the 0.75% distribution fee applicable to Class B shares,
long-term Class B shareholders may pay more in aggregate sales charges than
the maximum initial sales charge permitted by the National Association of
Securities Dealers, Inc. However, because the Fund's Class B shares
automatically convert to Class A shares after approximately 8 years, this
is less likely for Class B shares than for a class without a conversion
feature.
Annual Operating Expenses (as a % of average net assets)
Class A Class B
Management fee 0.63% 0.63%
12b-1 fees 0.23(6) 0.98(6)
Other expenses 0.32 0.32
---- ----
Total operating expenses 1.18% 1.93%
==== ====
(6) The service fee rate will fluctuate but will not exceed 0.25%. See "12b-1
Plans."
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example should
not be considered indicative of actual or expected Fund performance or expenses,
both of which will vary:
Class A Class B
Period: (7) (8)
1 year $ 59 $ 70 $ 20
3 years 83 91 61
5 years 109 124 104
10 years 184 206(9) 206(9)
(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class B shares automatically convert to Class A shares after approximately
8 years; therefore years 9 and 10 reflect Class A share expenses.
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<PAGE>
THE FUND'S FINANCIAL HISTORY
The following financial highlights for a share outstanding throughout each
period have been audited by Price Waterhouse LLP, independent accountants. Their
unqualified report is included in the Fund's 1996 Annual Report and is
incorporated by reference into the Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
Year Ended December 31
-----------------------------------------------------------------
1996 1995 1994(d) 1993(d) 1992(d)
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $7.220 $6.530 $7.390 $7.010 $7.020
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.623 0.621 0.580 0.565 0.669
Net realized and unrealized gain (loss) 0.081 0.650 (0.848) 0.448 (0.004)
------ ------ ------ ------ ------
Total from Investment Operations 0.704 1.271 (0.268) 1.013 0.665
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.614)(a) (0.581) (0.580) (0.585) (0.673)
In excess of net investment income --- --- --- --- (0.002)
From net realized gains --- --- --- --- ---
From capital paid in --- --- (0.012) (0.048) ---
------ ------ ------ ------ ------
Total Distributions Declared to
Shareholders (0.614) (0.581) (0.592) (0.633) (0.675)
------ ------ ------ ------ ------
Net asset value - End of period $7.310 $7.220 $6.530 $7.390 $7.010
====== ====== ====== ====== ======
Total return (b) 10.24% 20.17% (3.67)% 14.95% 9.77%
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18%(c) 1.18%(c) 1.21% 1.19% 1.18%
Net investment income 8.01%(c) 8.42%(c) 8.38% 8.42% 9.39%
Portfolio turnover 110% 83% 78% 138% 96%
Net assets at end of period (000) $755,352 $714,961 $636,824 $660,654 $437,380
</TABLE>
- ---------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
Year Ended December 31
---------------------------------------------------
1991(d) 1990(d) 1989(d) 1988(d) 1987(d)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $6.050 $7.250 $7.270 $6.890 $7.580
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.684 0.697 0.661 0.387 0.272
Net realized and unrealized gain (loss) 0.966 (1.177) 0.039 0.733 0.098
------ ------- ------ ------ -----
Total from Investment Operations 1.650 (0.480) 0.700 1.120 0.370
------ ------- ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.680) (0.697) (0.661) (0.476) (0.250)
In excess of net investment income --- --- --- --- ---
From net realized gains --- --- --- (0.044) (0.810)
From capital paid in --- (0.023) (0.059) (0.220) ---
------ ------- ------ ------ -----
Total Distributions Declared to Shareholders (0.680) (0.720) (0.720) (0.740) (1.060)
------- ------- ------- ------- -------
Net asset value - End of period $7.020 $6.050 $7.250 $7.270 $6.890
======= ======= ======= ======= ======
Total return (b) 28.41% (7.04)% 9.93% 16.66% 3.74%
====== ======= ===== ====== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12% 1.12% 1.10% 1.07% 1.00%
Net investment income 10.27% 10.27% 8.94% 5.33% 3.31%
Portfolio turnover 48% 2% 32% 28% 82%
Net assets at end of period (000) $424,824 $410,270 $498,294 $631,982 $783,125
</TABLE>
- ---------------------------------
(a) Distributions from income included currency gains and gains on securities
treated as ordinary income for tax purposes.
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) The data presented for periods prior to November 30, 1994, represent
operations under an earlier objective.
4
<PAGE>
THE FUND'S FINANCIAL HISTORY (CONT'D)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------
Year ended December 31
--------------------------------------------------------------------------
1996 1995 1994(a) 1993(a) 1992(a)(b)
---- ---- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.220 $6.530 $7.390 $7.010 $7.080
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.569 0.569 0.529 0.511 0.385
Net realized and unrealized gain (loss) 0.081 0.650 (0.849) 0.448 (0.067)
------ ------ ------ ------ ------
Total from Investment Operations 0.650 1.219 (0.320) 0.959 0.318
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.560)(c) (0.529) (0.529) (0.535) (0.388)
From capital paid in --- --- (0.011) (0.044) ---
------ ------ ------ ------ ------
Total Distributions Declared to Shareholders (0.560) (0.529) (0.540) (0.579) (0.388)
------ ------ ------ ------ ------
Net asset value - End of period $7.310 $7.220 $6.530 $7.390 $7.010
====== ====== ====== ====== ======
Total return (d) 9.43% 19.29% (4.40)% 14.11% 2.48%(e)
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.93%(f) 1.97%(f) 1.96% 1.94% 1.93%(g)
Net investment income 7.26%(f) 7.63%(f) 7.63% 7.67% 8.64%(g)
Portfolio turnover 110% 83% 78% 138% 96%
Net assets at end of period (000) $783,620 $714,049 $608,348 $475,141 $37,935
</TABLE>
(a) The data presented for periods prior to November 30, 1994, represent
operations under an earlier objective.
(b) Class B shares were initially offered on May 15, 1992. Per share
amounts reflect activity from that date.
(c) Distributions from income included currency gains and gains on securities
treated as ordinary income for tax purposes.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.
5
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks as high a level of current income and total return as is
consistent with prudent risk, by diversifying investments primarily in U.S. and
foreign government and lower rated corporate debt securities.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund will seek to achieve its objective by investing its assets in each of
the following sectors of the debt securities markets: (i) securities issued or
guaranteed as to principal and interest by the U.S. government, its agencies,
authorities or instrumentalities (government securities); (ii) debt securities
issued by foreign governments and their political subdivisions; and (iii) lower
rated debt securities, some of which may involve equity features. The allocation
of investments among these types of securities at any given time is based on the
Adviser's estimate of expected performance and risk of each type of investment.
Debt Securities. The Fund may invest in debt securities of any maturity that pay
fixed, floating or adjustable interest rates. The values of these securities
generally fluctuate inversely with changes in interest rates. This is less
likely to be true for adjustable or floating rate securities, since interest
rate changes are more likely to be reflected in changes in the rates paid on the
securities. However, reductions in interest rates also may translate into lower
distributions paid by the Fund.
The Fund also may invest in debt securities (i) that do not pay interest but,
instead are issued at a significant discount to their maturity values (referred
to as zero coupon securities), (ii) that pay interest, at the issuer's option,
in additional securities instead of cash) referred to as pay-in-kind securities)
or (iii) pay interest at predetermined rates that increase over time (referred
to as step coupon bonds). Because zero coupon securities, pay-in-kind securities
and step coupon bonds may not pay interest, but the Fund nevertheless must
accrue and distribute to investors the income deemed to be earned on a current
basis, the Fund may have to sell other investments to raise the cash needed to
make income distributions.
U.S. Government Securities. U.S. government securities include (1) U.S. treasury
obligations, (2) obligations issued or guaranteed by U.S. government agencies
and instrumentalities (Agency Securities) which are supported by: (a) the full
faith and credit of the U.S. government, (b) the right of the issuing agency to
borrow under a line of credit with the U.S. treasury, (c) the discretionary
power of the U.S. government to purchase obligations of the agency or (d) the
credit of the agency, and (3) "when-issued" government securities.
The Fund may also invest in U.S. government securities of any maturity,
including certificates representing undivided interests in the interest or
principal of mortgage backed securities (interest only/principal only), which
tend to be more volatile than other types of securities. The interest only class
involves the risk of loss of the entire value of the investment if the
underlying mortgages are prepaid.
REMICS and CMOS. The Fund may invest in real estate mortgage investment conduits
(REMICs), collateralized mortgage obligations (CMOs) and other mortgage-backed
securities of investment grade or which are considered by the Adviser to be of
comparable quality. Certain
6
<PAGE>
of these securities may be issued by non-U.S. government agencies although the
underlying mortgages will in all cases be guaranteed by a U.S. government
agency. The Fund may experience costs and delays in liquidating the collateral
if the issuer defaults or enters bankruptcy and may incur a loss. CMOs are
obligations issued by special-purpose trusts, secured by mortgages. REMICs own
mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and
REMICs issue one or more classes of securities of which one (the Residual) is in
the nature of equity. The Fund will not invest in the Residual class. Principal
on a REMIC, CMO or other mortgage-backed security may be prepaid if the
underlying mortgages are prepaid. Because of the prepayment feature, these
investments may not increase in value when interest rates fall. The Fund may be
able to invest prepaid principal only at lower yields. The Fund may invest in
"stripped" mortgage-backed securities representing interests in, for example,
only the principal or only the interest on underlying mortgages. Interest-only
strips involve the additional risk of loss of the entire value of the investment
if the underlying mortgages are prepaid. The prepayment of REMICs, CMOs or other
mortgage-backed securities purchased at a premium may result in losses equal to
the premium.
Lower Rated Debt Securities. Lower rated debt securities (commonly referred to
as junk bonds) are debt securities which are not considered to be investment
grade (that is, they are rated below BBB by Standard & Poor's Corporation (S&P)
or below Baa by Moody's Investors Service (Moody's), or are unrated but
considered by the Adviser to be of comparable credit quality). For a description
of S&P's and Moody's rating systems, see the Appendix to this Prospectus. Lower
rated bonds also are generally considered significantly more speculative and
likely to default than higher quality bonds. Because of the increased risk of
default, lower rated debt securities generally have higher interest rates than
higher quality securities.
The market values of U.S. government securities and corporate debt securities
will fluctuate with changing interest rates, as will the Fund's net asset value
per share. The Fund will limit its investments in corporate debt securities so
that not more than 25% of its assets are invested in any one "industry."
The Fund may purchase bonds in the lowest rating categories (C for Moody's and D
for S&P) and comparable unrated securities. However, the Fund will only purchase
securities rated Ca or lower by Moody's or CC or lower by S&P if the Adviser
believes the quality of such securities is higher than indicated by the rating,
if as a result holdings of that issuer will not exceed 0.50% of the Fund's net
assets.
The values of lower rated securities are more likely to fluctuate directly,
rather than inversely, with changes in interest rates. This is because increases
in interest rates often are associated with an improving economy, which may
translate into an improved ability of the issuers to pay off their bonds
(lowering the risk of default). Relative to other debt securities, the values of
lower rated bonds tend to be more volatile because: (i) an economic downturn may
more significantly impact their potential for default, or (ii) the secondary
market for such securities may at times be less liquid or respond more adversely
to negative publicity or investor perceptions, making it more difficult to value
or dispose of the securities. The likelihood that these securities will help the
Fund achieve its investment objective is more dependent on the Adviser's own
credit analysis.
Weighted average composition of the Fund's portfolio during the year ended
December 31, 1996, was:
Investment grade 27.4%
BB 8.2%
B 33.8%
CCC 4.0%
CC 0.0%
C 0.0%
D 0.0%
Nonrated 0.1%
---
Subtotal 73.4%
---
U.S. Governments,
Equities, Cash/Others 3.9%
----
Total 100.0%
=====
The portfolio composition during 1996 does not necessarily reflect the current
or future investments of the Fund.
Foreign Investments. Investments in foreign securities have special risks
related to political, economic and legal conditions outside of the U.S. As a
result, the prices of foreign
7
<PAGE>
securities may fluctuate substantially more than the prices of securities of
issuers based in the U.S. Special risks associated with foreign securities
include the possibility of unfavorable movements in currency exchange rates, the
existence of less liquid markets, the unavailability of reliable information
about issuers, the existence (or potential imposition) of exchange control
regulations (including currency blockage), and political and economic
instability, among others. In addition, transactions in foreign securities may
be more costly because of currency conversion costs and higher brokerage and
custodial costs. See "Foreign Securities" and "Foreign Currency Transactions" in
the Statement of Additional Information for more information about foreign
investments.
Emerging Markets. The Fund may invest in foreign securities issued or guaranteed
by companies or governments located in countries whose economies or securities
markets are not yet highly developed. Special risks associated with these
investments (in addition to those of foreign investments generally) may include,
among others, greater political uncertainties, an economy's dependence on
revenues from particular commodities or on international aid or development
assistance, extreme or volatile debt burdens or inflation rates, highly limited
numbers of potential buyers for such securities, heightened volatility of
security prices, restrictions on repatriation of capital invested abroad and
delays and disruptions in securities settlement procedures.
Foreign Currency Transactions. In connection with its investments in foreign
securities, the Fund may purchase and sell (i) foreign currencies on a spot or
forward basis, (ii) foreign currency futures contracts, and (iii) options on
foreign currencies and foreign currency futures. Such transactions will be
entered into (a) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the Fund,
or (b) to hedge against a decline in the value, in U.S. dollars or in another
currency, of a foreign currency in which securities held by the Fund are
denominated. The Fund will not attempt, nor would it be able, to eliminate all
foreign currency risk. Further, although hedging may lessen the risk of loss if
the hedged currency's value declines, it limits the potential gain from currency
value increases. See the Statement of Additional Information for information
relating to the Fund's obligations in entering into foreign currency
transactions.
8
<PAGE>
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
Treasury bills, repurchase agreements and U.S. government securities. Some or
all of the Fund's assets may be invested in such investments during periods of
unusual market conditions.
Under a repurchase agreement, the Fund buys a security from a bank or dealer,
which is obligated to buy it back at a fixed price and time. The security is
held in a separate account at the Fund's custodian and constitutes the Fund's
collateral for the bank's or dealer's repurchase obligation. Additional
collateral will be added so that the obligation will at all times be fully
collateralized. However, if the bank or dealer defaults or enters bankruptcy,
the Fund may experience costs and delays in liquidating the collateral and may
experience a loss if it is unable to demonstrate its right to the collateral in
a bankruptcy proceeding. Not more than 15% of the Fund's net assets will be
invested in repurchase agreements maturing in more than 7 days and other
illiquid assets.
"When-Issued" and "Delayed Delivery" Securities. The Fund may acquire-
securities on a "when-issued" or "delayed delivery" basis by contracting to
purchase securities for a fixed price on a date beyond the customary settlement
time with no interest accruing until settlement. If made through a dealer, the
contract is dependent on the dealer completing the sale. The dealer's failure
could deprive the Fund of advantageous yield or price. These contracts involve
the risk that the value of the underlying security may change prior to
settlement. The Fund may realize short-term gains or losses if the contracts are
sold. Transactions in "when-issued" securities may be limited by certain
Internal Revenue Code requirements.
Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets; however, the Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.
Other. The Fund may not always achieve its investment objective. The Fund may
trade portfolio securities for short-term profits to take advantage of price
differentials. These trades are limited by certain Internal Revenue Code
requirements. High portfolio turnover may result in higher transaction costs and
higher levels of realized capital gains. The Fund's investment objective and
non-fundamental investment policies may be changed without shareholder approval.
The Fund will notify investors in connection with any material change in the
Fund's investment objective or investment policies. If there is a change in the
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in investment objective or investment policies. The
Fund's fundamental investment policies listed in the Statement of Additional
Information cannot be changed without the approval of a majority of the Fund's
outstanding voting securities. Additional information
9
<PAGE>
concerning certain of the securities and investment techniques described above
is contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 4.75% on Class A shares, and
the contingent deferred sales charge applicable to the time period quoted on
Class B shares. Other total returns differ from the average annual total return
in that they may relate to different time periods, may represent aggregate as
opposed to average annual total returns and may not reflect the initial or
contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent quarter's distributions, annualized, by the maximum
offering price of that Class at the end of the quarter. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All performance
information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
serves as the distributor for the Fund's shares. Colonial Investors Service
Center, Inc. (Transfer Agent), an affiliate of the Adviser, serves as the
shareholder services and transfer agent for the Fund. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect subsidiary of Liberty
Financial Companies, Inc. which in turn is an indirect subsidiary of Liberty
Mutual Insurance Company (Liberty Mutual). Liberty Mutual is considered to be
the controlling entity of the Adviser and its affiliates. Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.
The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.63% of the Fund's average daily net assets in fiscal year 1996.
Carl C. Ericson, Senior Vice President (formerly Vice President), Director and
Manager of the Taxable Fixed Income Group of the Adviser, has managed the Fund
since 1991 and various other Colonial taxable income funds since 1985.
The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million.
The Transfer Agent provides transfer agency and shareholder services to the Fund
for a fee of 0.20% annually of average net assets plus certain out-of-pocket
expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services. Subject
to seeking best execution, the Adviser may consider sales of shares of the Fund
(and of certain other Colonial funds) in selecting broker-dealers for portfolio
security transactions.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close (normally 4:00 p.m. Eastern time) of the New York Stock
Exchange (Exchange) each day the Exchange is open. Portfolio securities for
which market quotations are readily available are valued at current market
10
<PAGE>
value. Short-term investments maturing in 60 days or less are valued at
amortized cost when the Adviser determines, pursuant to procedures adopted by
the Trustees, that such cost approximates current 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 monthly net income and
any net realized gain, at least annually. The Fund generally declares
distributions daily.
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash to
shareholders but will be invested in additional shares of the same Class of the
Fund at net asset value. To change your election, call the Transfer Agent for
information.
Whether you receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution. If you
buy shares shortly before a distribution is declared, the distribution will be
taxable although it is, in effect, a partial return of the amount invested. Each
January, information on the amount and nature of distributions for the prior
year is sent to shareholders.
The Fund has a significant capital loss carry forward, and until it is exhausted
it is unlikely that capital gain distributions will be made. Any capital gains
will, however, be reflected in the net asset value.
HOW TO BUY SHARES
Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class D shares and there are
some limitations on the issuance of Class A share certificates. The Fund may
refuse any purchase order for its shares. See the Statement of Additional
Information for more information.
Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:
Initial Sales Charge
-----------------------------
Retained
by
Financial
Service
as % of Firm
------------------- as % of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than $100,000 4.71% 4.50% 4.00%
$100,000 to less than $250,000 3.63% 3.50% 3.00%
$250,000 to less than $500,000 2.56% 2.50% 2.00%
$500,000 to less than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the shares remain outstanding.
In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held. If a purchase
results in an account having a value from $1 million to $5 million, then the
shares purchased will be subject to a 1.00% contingent deferred sales charge,
payable to the Distributor, if redeemed within 18 months from the first day of
the month following the purchase. If the purchase results in an account having a
value in excess of $5 million, the contingent deferred sales charge will not
apply to the portion of the purchased shares comprising such excess amount.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee)
11
<PAGE>
and a declining contingent deferred sales charge if redeemed within six years
after purchase. As shown below, the amount of the contingent deferred sales
charge depends on the number of years after purchase that the redemption occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account falling below its Base Amount (the total dollar value of purchase
payments (including initial sales charge, if any) in the account, reduced by
prior redemptions on which a contingent deferred sales charge was paid and any
exempt redemptions). See the Statement of Additional Information for more
information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Purchases of $250,000 or more must be
for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. See the
Statement of Additional Information for more information.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."
Shareholder Services and Account Fees. 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.
In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000 unless the account value has dropped
below $1,000 solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before the fee is
deducted. The Fund may also 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 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
12
<PAGE>
is received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates, for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.
HOW TO EXCHANGE SHARES Except as described below with respect to money market
funds, Fund shares may be exchanged at net asset value among shares of the SAME
CLASS of MOST Colonial funds. Shares will continue to age without regard to the
exchange for purposes of conversion and determining the contingent deferred
sales charge, if any, upon redemption. Carefully read the prospectus of the fund
into which the exchange will go before submitting the request. Call
1-800-426-3750 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. The Fund will terminate the exchange privilege as to a
particular shareholder if it is determined by the Adviser, in its sole and
absolute discretion, that the shareholder's exchange activity is likely to
adversely impact the Adviser's ability to manage the Fund's investments in
accordance with its investment objectives or otherwise harm the Fund or its
remaining shareholders.
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.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. The Transfer Agent will
employ reasonable procedures
13
<PAGE>
to confirm that instructions communicated by telephone are genuine and may be
liable for losses related to unauthorized or fraudulent transactions in the
event reasonable procedures are not employed. Such procedures include
restrictions on where proceeds of telephone redemptions may be sent, limitations
on the ability to redeem by telephone shortly after an address change, recording
telephone lines and requirements that the redeeming shareholder and/or their
financial adviser provide certain identifying information. Shareholders and/or
their financial advisers wishing to redeem or exchange shares by telephone may
experience difficulty in reaching the Fund at its toll-free telephone number
during periods of drastic economic or market changes. In that event,
shareholders and/or their financial advisers should follow the procedures for
redemption or exchange by mail as described above under "How to Sell Shares."
The Adviser, the Transfer Agent and the Fund reserve the right to change, modify
or terminate the telephone redemption or exchange services at any time upon
prior written notice to shareholders. Shareholders and/or their financial
advisers are not obligated to transact by telephone.
12B-1 PLANS Under 12b-1 Plans, the Fund pays the Distributor monthly a service
fee at an annual rate of 0.15% of the Fund's net assets outstanding on January
1, 1993, and 0.25% of the Fund's net assets issued thereafter attributed to each
Class of shares. The Fund also pays the Distributor monthly a distribution fee
at the annual rate of 0.75% of the average daily net assets attributed to its
Class B shares. Because the Class B 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. The multiple class structure could be
terminated should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The Distributor uses
the fees to defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution, shareholder servicing
costs and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of Fund
shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1985. The Fund
represents the entire interest in a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
14
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
S&P
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal 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 repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of speculation and
CC the highest degree. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or large
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus (+) or minus (-) are modifiers relative to the standing within the major
rating categories.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities. Those bonds in the Aa through B
groups which Moody's believes possess the strongest investment attributes are
designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba bonds 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 bonds in
this class.
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. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
15
<PAGE>
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services And Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
April 30, 1997
COLONIAL STRATEGIC
INCOME FUND
PROSPECTUS
Colonial Strategic Income Fund seeks as high a level of current income and total
return as is consistent with prudent risk, by diversifying investments primarily
in U.S. and foreign government and lower rated corporate debt securities. The
Fund may invest a substantial portion of its assets in lower rated bonds and,
therefore, may not be suitable for all investors.
For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the April 30, 1997 Statement of Additional Information.
- ----------------- -----------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------- -----------------
16
<PAGE>
COLONIAL STRATEGIC INCOME FUND
Statement of Additional Information
April 30, 1997
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Strategic Income Fund (Fund). This SAI is not a prospectus and is authorized for
distribution only when accompanied or preceded by the Prospectus of the Fund
dated April 30, 1997. 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 b
Investment Objective and Policies b
Fundamental Investment Policies b
Other Investment Policies c
Portfolio Turnover c
Fund Charges and Expenses c
Investment Performance f
Custodian f
Independent Accountants f
Part 2
Miscellaneous Investment Practices 1
Taxes 10
Management of the Colonial Funds 12
Determination of Net Asset Value 17
How to Buy Shares 18
Special Purchase Programs/Investor Services 19
Programs for Reducing or Eliminating Sales Charges 20
How to Sell Shares 23
Distributions 24
How to Exchange Shares 24
Suspension of Redemptions 25
Shareholder Liability 25
Shareholder Meetings 25
Performance Measures 25
Appendix I 27
Appendix II 31
SI-593D-0497
<PAGE>
Part 1
COLONIAL STRATEGIC INCOME FUND
Statement of Additional Information
April 30, 1997
DEFINITIONS:
"Trust" Colonial Trust I
"Fund" Colonial Strategic Income Fund
"Adviser" Colonial Management Associates, Inc., the Fund's investment
adviser
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's shareholder
services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and policies. Part I of
this SAI includes additional information concerning, among other things, the
investment restrictions of the Fund. Part 2 contains additional information
about the following securities and investment techniques that are described or
referred to in the Prospectus:
Short-Term Trading
Lower Rated Debt Securities
Foreign Securities
Zero Coupon Securities
Step Coupon Bonds
Pay-In-Kind Securities
Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
Repurchase Agreements
Options on Securities
Foreign Currency Transactions
Except as indicated below under "Fundamental Investment Policies," the Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act
diversification requirement, an issuer is the entity whose revenues support the
security.
The Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however,
the Fund will not purchase additional portfolio securities while
borrowings exceed 5% of net assets;
2. Only own real estate acquired as a result of owning securities and not
more than 5% of total assets;
3. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on contracts do not exceed 5% of its
total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and
through repurchase agreements; and
b
<PAGE>
6. Not concentrate more than 25% of its total assets in any one industry
or, with respect to 75% of total assets, purchase any security (other
than obligations of the U.S. government and cash items including
receivables) if as a result more than 5% of its total assets would then
be invested in securities of a single issuer or purchase the voting
securities of an issuer if, as a result of such purchases, the Fund
would own more than 10% of the outstanding voting shares of such issuer.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term
credit to clear securities transactions and may make initial or
maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and
3. Invest more than 15% of its net assets in illiquid assets.
PORTFOLIO TURNOVER
Portfolio turnover for the last two fiscal years is included in the Prospectus
under "The Fund's Financial History." High portfolio turnover may cause the Fund
to realize capital gains which, if realized and distributed by the Fund, may be
taxable to shareholders as ordinary income. High portfolio turnover may result
in correspondingly greater brokerage commissions and other transaction costs,
which will be borne directly by the Fund.
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund, determined at the close of
each business day during the month, at the following annual rates: 0.65% on the
first $1 billion and 0.60% of any excess over $1 billion.
Recent Fees paid to the Adviser, CISI AND CISC (dollars in thousands)
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
Management fee $9,243 $8,488 $8,132
Bookkeeping fee 474 442 428
Shareholder service and transfer agent fee 3,464 3,254 3,065
12b-1 fees:
Service fee 3,370 3,041 2,862
Distribution fee (Class B) 5,514 4,931 4,501
c
<PAGE>
Brokerage Commissions (dollars in thousands)
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
Total commissions $1 $ 24 $0
Directed transactions (a) 0 584 0
Commissions on directed transactions 1 6 0
(a) See "Management of the Colonial Funds-Portfolio Transaction-Brokerage and
Research Services" in Part 2 of this SAI.
Trustees Fees
For the fiscal year ended December 31, 1996 and the calendar year ended December
31, 1996, the Trustees received the following compensation for serving as
Trustees(b):
<TABLE>
<CAPTION>
Total Compensation From Trust And
Fund Complex Paid To The Trustees
Aggregate Compensation From Fund For The For The Calendar Year Ended
Trustee Fiscal Year Ended December 31, 1996 December 31, 1996(c)
- ------- ----------------------------------- --------------------
<S> <C> <C>
Robert J. Birnbaum $6,187 $ 92,000
Tom Bleasdale 7,112(d) $104,500(e)
Lora S. Collins 6,185 $ 92,000
James E. Grinnell 6,253 $ 93,000
William D. Ireland, Jr. 7,325 $109,000
Richard W. Lowry 6,385 $ 95,000
William E. Mayer 6,122 $ 91,000
James L. Moody, Jr. 7,177(f) $106,500(g)
John J. Neuhauser 6,367 $ 94,500
George L. Shinn 7,085 $105,500
Robert L. Sullivan 6,859 $102,000
Sinclair Weeks, Jr. 7,389 $110,000
</TABLE>
(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(c) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.
(d) Includes $3,551 payable in later years as deferred compensation.
(e) Includes $51,500 payable in later years as deferred compensation.
(f) Total compensation of $7,177 for the fiscal year ended December 31,
1996, will be payable in later years as deferred compensation.
(g) Total compensation of $106,500 for the calendar year ended December 31,
1996, 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 of the Liberty All-Star Growth Fund, Inc.
(formerly known as The Charles Allmon Trust, Inc.) (together, Liberty Funds) for
service during the calendar year ended December 31, 1996:
Total Compensation From Liberty Funds
For The Calendar Year Ended
Trustee December 31, 1996 (h)
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
d
<PAGE>
(h) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary
of Liberty Financial Companies, Inc. (an intermediate parent of the
Adviser).
Ownership of the Fund
At March 31, 1997,the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund.
As of record on April 4, 1997, Merrill Lynch, Pierce Fenner & Smith, Inc., Attn.
Book Entry, 4800 Deer Lake Drive E., 3rd Floor, Jacksonville, FL 33216, owned
8.52% of outstanding Class B shares of the Fund.
At March 31, 1997, there were 37,023 Class A and 30,129 Class B shareholders.
Sales Charges (dollars in thousands)
Class A Shares
Year ended December 31
1996 1995 1994
---- ---- ----
Aggregate initial sales charges on Fund
share sales $2,340 $1,521 $3,118
Initial sales charges retained by CISI 268 177 $348
Class B Shares
Year ended December 31
1996 1995 1994
---- ---- ----
Aggregate contingent deferred sales
charges (CDSC) on Fund redemptions
retained by CISI $2,180 $2,035 $2,267
12b-1 Plans, CDSCs and Conversion of Shares The Fund offers two classes of
shares - Class A and Class B. The Fund may in the future offer other classes of
shares. The Trustees have approved 12b-1 Plans (Plans) pursuant to Rule 12b-1
under the Act. Under the Plans, the Fund pays CISI monthly a service fee at an
annual rate of 0.15% of the net assets attributed to each Class of shares issued
on or before January 1, 1993, a service fee of 0.25% of the net assets
attributed to each Class of shares issued and outstanding thereafter. The Fund
also pays CISI a distribution fee monthly at an annual rate of 0.75% of average
daily net assets attributed to Class B shares. CISI may use the entire amount of
such fees to defray the costs of commissions and service fees paid to financial
service firms (FSFs) and for certain other purposes. Since the distribution and
service fees are payable regardless of CISI's expenses, CISI may realize a
profit from the fees. The Plans authorize any other payments by the Fund to CISI
and its affiliates (including the Adviser) to the extent that such payments
might be construed to be indirect financing of the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. The Plans may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plans will only be effective if the selection and nomination of the
Trustees who are not interested persons of the Trust is effected by such
disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase. The CDSCs are
described in the Prospectus.
e
<PAGE>
No CDSC will be imposed on shares derived from reinvestment of distributions 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.
Sales-Related Expenses (dollars in thousands) of CISI relating to the Fund
were:
Year ended December 31, 1996
Class A Shares Class B Shares
Fees to FSFs $1,550 $6,420
Cost of sales material relating to the Fund 194 318
(including printing and mailing expenses)
Allocated travel, entertainment and other
promotional expenses (including advertising) 272 444
INVESTMENT PERFORMANCE
The Fund's Class A and Class B yields for the month ended December 31, 1996 were
6.55% and 6.10%, respectively.
The Fund's average annual total returns at December 31, 1996 were:
Class A Shares
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 5.01% 8.93% 9.31%
Without sales charge 10.24% 10.00% 9.84%
Class B Shares
May 15, 1992
(commencement of
investment operations)
1 year through December 31, 1996
------ -------------------------
With applicable CDSC 4.43% (5.00% CDSC) 8.64% (2.00% CDSC)
Without CDSC 9.43% 8.96%
The Fund's Class A and Class B distribution rates at December 31, 1996, based on
the most recent quarter's distribution, annualized, and the maximum offering
price at the end of the quarter, were 7.51% and 7.12%, respectively.
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian. The custodian is
responsible for safeguarding the Fund's cash and securities, receiving and
delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings. The
financial statements incorporated by reference in this SAI have been so
incorporated, and the financial highlights included in the Prospectus have been
so included in reliance upon the report of Price Waterhouse LLP given on the
authority of said firm as experts in accounting and auditing.
The financial statements and Report of Independent Accountants appearing on
pages 7 through 35 of the December 31, 1996 Annual Report are incorporated in
this SAI by reference.
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