COLONIAL TRUST I, 485BPOS, 1998-04-27

COLONIAL TRUST I
485BPOS, 1998-04-27

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Registration Nos: 2-41251
811-2214

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /

Pre-Effective Amendment No. / /

Post-Effective Amendment No. 46 / X /

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /

Amendment No. 28

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

Nancy L. Conlin, Esq. John M. Loder, Esq.
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, MA 02111 Boston, MA 02110-2624

It is proposed that this filing will become effective (check appropriate box):

/ / immediately upon filing pursuant to paragraph (b).

/ X / on April 30, 1998 pursuant to paragraph (b).

/ / 60 days after filing pursuant to paragraph (a)(1).

/ / on (date) pursuant to paragraph (a)(1) of Rule 485.

/ / 75 days after filing pursuant to paragraph (a)(2).

/ / on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

/ / this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

<PAGE>

COLONIAL TRUST I

Cross Reference Sheet
(Colonial High Yield Securities Fund)

Item Number of Form N-1A Prospectus Location or Caption

Part A

1. Cover Page

2. Summary of Expenses

3. The Fund's Financial History

4. The Fund's Investment Objective;
Organization and History;
How the Fund Pursues Its Objective
and Certain Risk Factors

5. Cover Page;
How the Fund is Managed;
Organization and History;
Back Cover

6. Organization and History;
Distributions and Taxes;
How to Buy Shares

7. How to Buy Shares;
How the Fund Values Its Shares;
12b-1 Plan; Back Cover

8. How to Sell Shares;
How to Exchange Shares;
Telephone Transactions

9. Not Applicable

April 30, 1998

COLONIAL HIGH YIELD SECURITIES FUND

PROSPECTUS

BEFORE YOU INVEST

Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund
investing.

While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.

Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.

Colonial High Yield Securities Fund (Fund), a diversified portfolio of Colonial
Trust I (Trust), an open-end management investment company, seeks high current
income and total return by investing primarily in lower rated corporate debt
securities

The Fund is managed by the Adviser, an investment adviser since 1931.

The Fund may invest up to 100% of its assets in lower rated debt securities
(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 future reference. More detailed
information about the Fund is in the April 30, 1998 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.

HY-01/961E-0398

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 are subject to an annual distribution fee and a
declining contingent deferred sales charge on redemptions made within six years
after purchase; and Class C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year 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 7
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 12
How to Exchange Shares 12
Telephone Transactions 13
12b-1 Plan 13
Organization and History 14
Appendix 15

- --------------------------------------- ---------------------------------------

MAY LOSE VALUE
NOT FDIC-INSURED 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, adjusted to reflect current fees, for an investment in each Class of
the Fund's shares. See "How the Fund is Managed" and "12b-1 Plan" for more
complete descriptions of the Fund's various costs and expenses.

Shareholder Transaction Expenses(1)(2)

Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price)(3) 4.75% 0.00%(4) 0.00%(4)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(5) 5.00% 1.00%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."
(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the distribution fee applicable to Class B and Class C shares,
long-term Class B and Class C 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 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.
(5) 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."

Annual Operating Expenses (as a % of average net assets)

Class A Class B Class C
<S> <C> <C> <C>
Management fee 0.60% 0.60% 0.60%
12b-1 fees(after applicable fee waiver) 0.25 1.00 0.85(6)
Other expenses 0.35 0.35 0.35
---- ---- ----
Total operating expenses(after applicable fee waiver) 1.20% 1.95% 1.80%
==== ==== ====
</TABLE>

(6) The Distributor has voluntarily agreed to waive 0.15% of the Class C share
Rule 12b-1 distribution fee so that it will not exceed 0.60% annually.
Absent such fee waiver, the "12b-1 fees" would have been 1.00% and "Total
operating expenses" would have been 1.95%. The Distributor may terminate
this fee waiver at any time without shareholder approval. See "12b-1 Plan."

Example
The following Example shows the cumulative transaction and operating 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. This example uses the fees and
expenses in the table above and gives effect to the fee waivers and expense
reimbursements described above. The 5% return and expenses used in this Example
should not be considered indicative of actual or expected Fund performance or
expenses, both of which will vary:

Class A Class B Class C

<S> <C> <C> <C> <C> <C>
Period: (7) (8) (7) (8)
1 year $ 59 $ 70 $ 20 $ 28 $ 18
3 years 84 91 61 57(9) 57
5 years 110 125 105 97 97
10 years 186 208(10) 208(10) 212 212
</TABLE>

(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
(10) Class B shares automatically convert to Class A shares after approximately
8 years; therefore, years 9 and 10 reflect Class A share expenses.

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 1997 Annual Report and is
incorporated by reference into the Statement of Additional Information.

Total from Distributions
Declared to Shareholders (0.612) (0.615) (0.617) (0.627) (0.660)
------ ------ ------ ------ ------
Net asset value - End of period $7.230 $6.920 $6.750 $6.300 $6.950
------ ------ ------ ------ ------
Total return(a) 13.87% 12.21% 17.65% (0.34)% 19.69%
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.20%(b) 1.20%(b) 1.21%(b) 1.23% 1.23%
Net investment income 8.53%(b) 9.02%(b) 9.14%(b) 9.03% 9.55%
Portfolio turnover 115% 145% 95% 123% 122%
Net assets at end of period (000) $600,107 $523,065 $466,905 $389,791 $440,942
</TABLE>

<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------
Year ended December 31
------------------------------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $5.860 $4.640 $6.340 $7.210 $7.180
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.669 0.726 0.799 0.888 0.873
Net realized and unrealized
gain (loss) 0.531 1.207 (1.669) (0.867) 0.030
----- ----- ------ ------ -----
Total from Investment
Operations 1.200 1.933 (0.870) 0.021 0.903
----- ----- ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.660) (0.713) (0.830) (0.891) (0.873)
------ ------ ------ ------- ------
In excess of net investment income -- -- -- -- --
------ ------ ------ ------ ------
Total from Distributions
Declared to Shareholders (0.660) (0.713) (0.830) (0.891) (0.873)
------ ------ ------ ------ ------
Net asset value - End of period $6.400 $5.860 $4.640 $6.340 $7.210
------ ------ ------ ------ ------
Total return(a) 21.15% 43.88% (14.86)% 0.06% 13.00%
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.26% 1.36% 1.33% 1.21% 1.17%
Net investment income 10.64% 13.41% 14.32% 12.71% 11.91%
Portfolio turnover 66% 37% 9% 22% 40%
Net assets at end of period (000) $346,225 $299,587 $233,813 $366,953 $463,498
</TABLE>
- ------------

(a) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(b) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% in 1997. Prior years' ratios are net
of benefits received, if any.

THE FUND'S FINANCIAL HISTORY (CONT'D)

<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------------
Year ended December 31
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $6.920 $6.750 $6.300 $6.950 $6.400 $6.360
------ ------- ------- ------ ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.557 0.574 0.566 0.549 0.585 0.332
Net realized and unrealized
gain (loss) 0.312 0.160 0.452 (0.622) 0.576 0.057
----- ------ ------ ------- ------ ------
Total from Investment
Operations 0.869 0.734 1.018 (0.073) 1.161 0.389
----- ------ ------ ------- ------ ------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.559) (0.564) (0.555) (0.577) (0.611) (0.349)
In excess of net investment income ---- ---- (0.013) ---- ---- ----
----- ------ ------ ------ ------ ------
Total from Distributions
Declared to Shareholders (0.559) (0.564) (0.568) (0.577) (0.611) (0.349)
------ ------ ------- ------- ------- ------
Net asset value - End of period $7.230 $6.920 $6.750 $6.300 $6.950 $6.400
------ ------ ------- ------- ------- ------
Total return(d) 13.03% 11.38% 16.78% (1.09)% 18.83% 5.53%(e)
------ ------ ------- ------- ------- ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.95%(f) 1.95%(f) 1.96%(f) 1.98% 1.98% 2.01%(g)
Net investment income 7.78%(f) 8.27%(f) 8.39%(f) 8.28% 8.80% 9.89%(g)
Portfolio turnover 115% 145% 95% 123% 122% 66%
Net assets at end of period (000) $513,977 $411,124 $351,068 $253,438 $222,536 $94,653
</TABLE>

<TABLE>
<CAPTION>
Class C
-------------------------------------------
Year ended December 31
-------------------------------------------
1997(b) 1996(c)
------- -------
<S> <C> <C>
Net asset value - Beginning of
period $6.920 $6.780
------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.562 0.554
Net realized and unrealized
gain (loss) 0.312 0.130
----- -----
Total from Investment
Operations 0.874 0.684
----- -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.564) (0.544)
In excess of net investment income ---- ----
------ ------
Total from Distributions
Declared to Shareholders (0.564) (0.544)
------ -------
Net asset value - End of period $7.230 $6.920
------ -------
Total return(d) 13.11% 10.56%(e)
------ -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85% 1.95%(f)(g)
Net investment income 7.88% 8.27%(f)(g)
Portfolio turnover 115% 145%
Net assets at end of period (000) $17,977 $6,054
</TABLE>
- ------------

(a) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(b) Class D shares were redesignated class c shares on July 1, 1997.
(c) Class C shares were initially offered on January 15, 1996. Per share
amounts reflect activity from that date.
(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 an impact of 0.01% in 1997. 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.

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks high current income and total return by investing primarily in
lower rated corporate debt securities.

HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS

The Fund will normally invest at least 80% of its total assets in lower rated
debt securities. However, if economic conditions narrow yield spreads between
lower and higher rated securities, the Fund may invest up to 100% of its assets
in higher rated securities. The Fund may invest in debt securities of any
maturity. The Fund will not invest more than 25% of its total assets in a single
industry or in securities issued or guaranteed by foreign governments or foreign
companies.

Debt Securities. The Fund may invest in debt 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. However, reductions in interest rates also may translate into lower
distributions paid by the Fund.

The Fund may also 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.

Equity Securities. The Fund may invest up to 20% of its total assets in common
and preferred stocks, warrants (rights) to purchase such stock and debt
securities convertible into such stock. The Fund may, under certain
circumstances, invest in such securities to seek capital appreciation.

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 debt securities are generally considered significantly more speculative
and likely to default than higher quality debt securities. Because of the
increased risk of default, lower rated debt securities generally have higher
interest rates than higher quality securities.

The Fund may purchase bonds in the lowest rating categories (C for Moody's and D
for S&P) and comparable unrated securities. However, the Fund will only purchase
securities rated Ca or lower by Moody's or CC or lower by S&P if the Adviser
believes investing in such securities would permit additional yield benefits.

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 debt
securities 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.

Composition of the Fund's portfolio during the year ended December 31, 1997,
was:

Investment grade 0.10%
BB 7.80
B 71.6
CCC 7.70
CC 0.00
C 0.00
D 0.00
Nonrated 0.50
-----
Subtotal 87.70
-----
U.S. governments,
equities and others 12.30
-----
Total 100.00%
------

The portfolio composition during 1997 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 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.

Futures Contracts and 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.

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 also may be invested in such investments during periods
of unusual market conditions.

Under a repurchase agreement, the Fund buys a security from a bank or dealer,
which is obligated to buy it back at a fixed price and time. The security is
held in a separate account at the Fund's custodian and constitutes the Fund's
collateral for the bank's or dealer's repurchase obligation. Additional
collateral will be added so that the obligation will at all times be fully
collateralized. However, if the bank or dealer defaults or enters bankruptcy,
the Fund may experience costs and delays in liquidating the collateral, and may
experience a loss if it is unable to demonstrate its rights to the collateral in
a bankruptcy proceeding. Not more than 10% of the Fund's net assets will be
invested in repurchase agreements maturing in more than seven days and other
illiquid assets.

Interest Rate Futures and Options. For hedging purposes, the Fund may (1) buy or
sell interest rate futures and (2) buy put and call options on such futures. The
total market value of securities to be delivered or acquired pursuant to such
contracts will not exceed 5% of the Fund's net assets. A futures contract
creates an obligation by the seller to deliver and the buyer to take delivery of
the type of instrument at the time and in the amount specified in the contract.
Although futures contracts call for the delivery (or acceptance) of the
specified instrument, the contracts are usually closed out before the settlement
date through the purchase (or sale) of an offsetting contract. If the price of
the initial sale of the futures contract exceeds (or is less than) the price of
the offsetting purchase, the Fund realizes a gain (or loss).

"When-Issued" 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 an 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.

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. 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's fundamental investment policies listed in the Statement of Additional
Information cannot 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 4.75% on Class A shares and
the contingent deferred sales charge applicable to the time period quoted on
Class B and Class C shares. Other total returns differ from average annual total
return only in that they may relate to different time periods, may represent
aggregate as opposed to average annual total returns and may not reflect the
initial or contingent deferred sales charges.

Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent month's distribution, annualized, by the maximum
offering price of that Class at the end of the month. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All performance
information is historical and does not predict future results.

HOW THE FUND IS MANAGED

The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.

Liberty Financial Investments, 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 majority-owned subsidiary
of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is
considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S.

The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.60% of the Fund's average daily net assets for fiscal year 1997.

Andrea S. Feingold, Vice President and head of the Corporate Group of the
Adviser, has managed the Fund since 1993.

The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million. The Transfer Agent provides transfer agency and shareholder
services to the Fund for a fee of 0.25% annually of
average net assets plus certain out-of pocket expenses.

Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser may agree.

The Adviser places all orders for the purchase and sale of portfolio securities.
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 mutual funds advised by the Adviser and its affiliates,
Stein Roe & Farnham Incorporated and Newport Fund Management, Inc.) in selecting
broker-dealers for portfolio security transactions.

The Adviser may use the services of AlphaTrade Inc., its registered
broker-dealer subsidiary, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Trustees under Rule
17e-1 of the Investment Company Act of 1940.

Year 2000. The Fund's Adviser, Distributor and Transfer Agent (Colonial
Companies) are actively coordinating, managing and monitoring Year 2000
readiness for the Fund. A central program office at the Colonial Companies is
working within the Colonial Companies and with vendors who provide services,
software and systems to the Fund to ensure that date-related information and
data can be properly processed and calculated on and after January 1, 2000. Many
Fund service providers and vendors, including the Colonial Companies, are in the
process of making Year 2000 modifications to their services, software and
systems and believe that such modifications will be completed on a timely basis
prior to January 1, 2000. The cost of these modifications will not affect the
Fund. However, no assurances can be given that all modifications required to
ensure proper data processing and calculation on and after January 1, 2000 will
be timely made or that services to the Fund will not be adversely affected.

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
generally valued as of the close of regular trading (normally 4:00 p.m. Eastern
time) on 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 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. The Board of Trustees has adopted procedures to value at their fair value
(i) all other securities and (ii) foreign securities if the value of such
securities has been materially affected by events occuring after the closing of
a foreign market.

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income monthly 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. If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service selected by the
Transfer Agent is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically be converted
to having all dividend and other distributions reinvested in additional shares.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks. To change your election, call the Transfer Agent for
information.

Whether you receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution. Each
January, information on the amount and nature of your distributions for the
prior year is sent to shareholders.

The Fund has a significant capital loss carry forward and, until it is
exhausted, it is unlikely that capital gain distributions will be made. Any
capital gains will, however, be reflected in the net asset value.

HOW TO BUY SHARES

Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50, and the minimum initial investment for retirement accounts sponsored by the
Distributor is $25. Certificates will not be issued for Class B or Class C
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:

<TABLE>
<CAPTION>
Initial Sales Charge
--------------------
Retained
by
Financial
Service
as % of Firm
------- as % of
Amount Offering Offering
Amount Purchased Invested Price Price

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

<TABLE>
<CAPTION>
Amount Purchased Commission

<S> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
</TABLE>

(1) Paid over 12 months but only to the extent the shares (1) 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 by an investor. If a purchase results in an account having a
value from $1 million to $5 million, then the portion of the shares purchased
that caused the account's value to exceed $1 million will be subject to a 1.00%
contingent deferred sales charge payable to the Distributor, if redeemed within
18 months after the end of the month in which the purchase was accepted. 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) 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:

<TABLE>
<CAPTION>
Years Contingent Deferred
After Purchase Sales Charge

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 C Shares. Class C shares are offered at net asset value and are subject to
a 0.75% annual distribution fee and a 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which the
purchase was accepted. The Distributor has voluntarily agreed to waive a portion
of the distribution fee so that it will not exceed 0.60% annually. This waiver
may be terminated by the Distributor at any time without shareholder approval.

The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.55% annually commencing
after the shares purchased have been outstanding for one year. Payment of the
ongoing commission is conditioned on receipt by the Distributor of the 0.60%
annual distribution fee referred to above. The commission may be reduced or
eliminated by the Distributor at any time.

General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is made, generally,
older shares will be redeemed first. 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 C
shares. Purchases of $250,000 or more must be for Class A or Class C shares.
Purchases of $1,000,000 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 sponsored by the Distributor. 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 is
received in good form). However, for shares recently purchased by check, the
Fund will delay sending proceeds for up to 15 days in order to protect the Fund
against financial losses and dilution in net asset value caused by dishonored
purchase payment checks. To avoid delay in payment, investors are advised to
purchase shares unconditionally, such as by certified check or other immediately
available funds.

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. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.

HOW TO EXCHANGE SHARES

Except as described below with respect to money market funds, Fund shares may be
exchanged at net asset value for shares of other mutual funds distributed by the
Distributor, including funds advised by the Adviser and its affiliates, Stein
Roe & Farnham Incorporated and Newport Fund Management, Inc. Generally, such
exchanges must be between the same classes of shares. Consult your financial
service firm or the Transfer Agent for information regarding what funds are
available.

Shares will continue to age without regard to the exchange for purposes of
conversion and in determining the contingent deferred sales charge, if any, upon
redemption. Carefully read the prospectus of the fund into which the exchange
will go before submitting the request. Call 1-800-426-3750 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 the
Adviser determines, 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 objective 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.

Class C Shares. Exchanges of Class C shares are not 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.
Only one "round-trip" exchange of the Fund's Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund X to Fund Y and back to Fund X would be permitted only
once during each three-month period.

TELEPHONE TRANSACTIONS

All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values it shares. Telephone
redemption privileges may be elected on the account application. The Transfer
Agent will employ reasonable procedures 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 of telephone lines and
requirements that the redeeming shareholder and/or his or her 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 PLAN

Under its 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the Fund's net assets 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
and Class C shares. The Distributor has voluntarily agreed to waive a portion of
the Class C share distribution fee so that it does not exceed 0.60% annually.
The Distributor may terminate the waiver at any time without shareholder
approval. Because Class B and Class C shares bear the additional distribution
fee, their dividends will be lower than the dividends of Class A shares. Class B
shares automatically convert to Class A shares, approximately eight years after
the Class B shares were purchased. Class C 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 Plan also authorizes 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 Fund and of any other series of the Trust that
may be in existence from time to time generally 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.

APPENDIX

DESCRIPTION OF BOND RATINGS

S&P

AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.

AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.

A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.

BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.

BB, B, CCC and CC bonds are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.

B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.

CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.

CC bonds are currently highly vulnerable to nonpayment.

C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this obligation are
being continued.

D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.

Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk --such as interest-only or
principal-only mortgage
securities; and obligations with unusually risky interest terms, such as inverse
floaters.

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 protection may not be as large 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 that 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 that 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.

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 Aa1,
A1, Baa1, Ba1, and B1.

<PAGE>

Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621

Distributor
Liberty Financial Investments, Inc.
One Financial Center
Boston, MA 02111-2621

Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624

Custodian (Effective Mid-May 1998)
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245

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, 1998

COLONIAL HIGH YIELD SECURITIES FUND

PROSPECTUS

Colonial High Yield Securities Fund seeks high current income and total return
by investing primarily in lower rated corporate debt securities.

For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the April 30, 1998 Statement of Additional Information.

- ----------------------------- ------------------------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- ------------------------------------------

Liberty Financial Investments, Inc.
Please send your completed application to:

Colonial Investors Service Center, Inc. (CISC)
P.O. Box 1722
Boston, Massachusetts 02105-1722

New A, B & C Shares 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 w/rights of survivorship: 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 (JTWROS)

______________________________________
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

______________________________________
Account Owner's date of birth

______________________________________
Account number (if existing account)

2 -----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 C 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

________________ ___________________ _____________________
Name of Fund Name of Fund Name of Fund

$_______________ $__________________ $____________________
Amount Amount Amount

Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (less than
$1,000,000)

Method of Payment Choose one

___Check payable to the Fund ___Bank wired on ____/____/____ (Date)
Wire/Trade confirmation #_____________

Ways to receive your distributions

Choose one (If none chosen, dividends and capital gains will be reinvested)
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.

___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 Electronic Funds Transfer Complete Bank information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House System.

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, The Colonial Group, Inc. and its affiliates 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 sections that apply to the features you would like.

A. Systematic Withdrawal Plan (SWP)
Dividends and capital gains must be reinvested.
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
unless the 10th falls on a non-business day or the first day of the week. If
this occurs, the process date will be the previous 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 C 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 _____/_____ (month, day, if indicating EFT).

___________________
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 _____/_____ (month, day, if indicating EFT).

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 $500 will be sent via federal fund wire,
usually on the next business day ($7.50 will be deducted). Redemptions of
$500 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 Investor Service Center, Inc. (CISC) and the fund's liability is
limited when following telephone instructions; a shareholder may suffer a loss
from an unauthorized transaction reasonably believed by CISC 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, Newport or Stein Roe Advisor fund. These investments will
be made in the same share class and without sales charges. Accounts must be
identically registered. I have received and 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, Newport
or Stein Roe Advisor 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, Newport or Stein Roe Advisor 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

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

____________________________________
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, Newport or Stein Roe Advisor fund
account on a regular basis. The On-Demand EFT Purchase program moves money
from your bank checking account to your Colonial, Newport or Stein Roe
Advisor fund account by electronic funds transfer based on your
telephone request. 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." (Deposit slips are not a substitution). Also, complete the
section below. Please allow 3 weeks for CISC to establish these services
with your bank.

____________________________________
Fund name

_________________________________
Account number

$_____________________ _________________
Amount to transfer Month to start

___________________________________
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. (CISC) Do Not Detach. Make sure all depositors on the bank account sign
to the far right. Please attach a blank check marked "VOID" here. (Deposit
slips are not a substitution). See reverse for bank instructions.

I authorize CISC to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial, Newport or Stein Roe Advisor fund.
CISC 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
CISC may reverse the purchase and charge my account $15.

______________________________________
Bank name

______________________________________
Bank street address

______________________________________
City State Zip

______________________________________
Bank account number

______________________________________
Bank routing #

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, Newport or Stein Roe Advisor 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, Newport or Stein Roe Advisor 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, Newport or Stein Roe
Advisor 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. If making
changes to the services on an account that has been in existence for more than
30 days, please have your clients signature guaranteed.

This application is submitted in accordance with our selling agreement with
Liberty Financial Investments, Inc. (LFII), the Fund's prospectus, and this
application. We will notify LFII 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

_____________________________________
City

_____________________________________
State Zip

X____________________________________
Authorized signature

8----------Request for a combined quarterly statement mailing-----------
CISC 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 account numbers or tax I.D. numbers of 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 CISC without prior
notice if any check is not paid upon presentation. CISC has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by CISC 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. (CISC) 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 CISC, LFII, 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.

Liberty Financial Investments, Inc., Distributor SH-809E-0298

<PAGE>

COLONIAL TRUST I

Cross Reference Sheet
(Colonial Income Fund)

Item Number of Form N-1A Prospectus Location or Caption

Part A

1. Cover Page

2. Summary of Expenses

3. The Fund's Financial History

4. The Fund's Investment Objective;
Organization and History;
How the Fund Pursues Its Objective
and Certain Risk Factors

5. Cover Page;
How the Fund is Managed;
Organization and History;
Back Cover

6. Organization and History;
Distributions and Taxes;
How to Buy Shares

7. How to Buy Shares;
How the Fund Values Its Shares;
12b-1 Plan; Back Cover

8. How to Sell Shares;
How to Exchange Shares;
Telephone Transactions

9. Not Applicable

April 30, 1998 IF-01/910E-0498

COLONIAL INCOME FUND
PROSPECTUS

BEFORE YOU INVEST

Colonial Management Associates, Inc. (Adviser) and your full-service financial
adviser want you to understand both the risks and benefits of mutual fund
investing.

Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.

Colonial Income Fund (Fund), a diversified portfolio of Colonial Trust I
(Trust), an open-end management investment company, seeks as high a level of
current income and total return, as is consistent with prudent risk, by
investing primarily in corporate debt securities.

The Fund is managed by the Adviser, an investment adviser since 1931.

This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the April 30, 1998 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.

Contents Page
Summary of Expenses
The Fund's Financial History
The Fund's Investment Objective
How the Fund Pursues its Objective
and Certain Risk Factors
How the Fund Measures its Performance
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plan
Organization and History
Appendix

------------------ ----------------------
MAY LOSE VALUE
NOT FDIC-INSURED NO BANK GUARANTEE
------------------ ----------------------

<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 Plan" for more complete descriptions of the Fund's
various costs and expenses.

Shareholder Transaction Expenses(1)(2)

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a
Purchase (as a % of offering price)(3) 4.75% 0.00%(4) 0.00%(4)
Maximum Contingent Deferred Sales Charge
(as a % of offering price)(3) 1.00%(5) 5.00% 1.00%

</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."

(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.

(3) Does not apply to reinvested distributions.

(4) Because of the distribution fee applicable to Class B and Class C shares,
long-term Class B and Class C 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 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.

(5) 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."

Annual Operating Expenses (as a % of average net assets)

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fee 0.50% 0.50% 0.50%
12b-1 fees 0.25 1.00 0.85(6)
Other expenses 0.36 0.36 0.36(7)
---- ---- ----
Total operating
expenses 1.11% 1.86% 1.71%
==== ==== ====
</TABLE>

(6) The Distributor has voluntarily agreed to waive 0.15% of the Class C share
Rule 12b-1 fee so that it will not exceed 0.85% annually. The Distributor
may terminate the fee waiver at any time without shareholder approval. See
"12b-1 Plan." Absent such fee waiver, the "12b-1 fees" would have been
1.00% and the "Total operating expenses" would have been 1.86%.

(7)"Other expenses" are estimated based on the annual operating expenses of
Class A and Class B shares.

Example

The following Example shows the cumulative transaction and operating 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 Class C share expense numbers in
the Example assume the expense limit described above remains in effect for all
periods referenced. 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 C
<S> <C> <C> <C> <C> <C>
Period: (8) (9) (8) (9)
1 year $ 58 $ 69 $ 19 $ 27 $ 17

3 years 81 88 58 54(10) 54
5 years 106 121 101 93 93
10 years 176 198(11) 198(11) 202 202
</TABLE>

(8) Assumes redemption at period end.

(9) Assumes no redemption.

(10) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.

(11) Class B shares automatically convert to Class A shares after approximately
8 years; therefore, years 9 and 10 reflect Class A share expenses.

2
<PAGE>

THE FUND'S FINANCIAL HISTORY

<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
Year ended December 31
--------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.410 $6.640 $5.950 $6.720 $6.460 $6.460
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.439 0.460 0.472 0.487 0.501 0.546
Net realized and unrealized
gain (loss) on investments 0.095 (0.240) 0.698 (0.761) 0.261 0.001
------- ------- ------- ------- ------- -------
Total from investment operations 0.534 0.220 1.170 (0.274) 0.762 0.547
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.444) (0.450) (0.480) (0.496) (0.502) (0.547)
From capital paid in -- -- --- --- --- ---
------- ------- ------- ------- ------- -------
Total distributions declared
to shareholders (0.444) (0.450) (0.480) (0.496) (0.502) (0.547)
------- ------- ------- ------- ------- -------
Net asset value - End of period $6.500 $6.410 $6.640 $5.950 $6.720 $6.460
------- ------- ------- ------- ------- -------
Total return (a) 8.67% 3.59% 20.30% (4.09)% 12.05% 8.83%
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.11%(b) 1.10%(b) 1.09%(b) 1.11% 1.10% 1.24%
Net investment income 6.98%(b) 7.12%(b) 7.45%(b) 7.80% 7.45% 8.49%
Portfolio turnover 281% 253% 85% 16% 46% 68%
Net assets at end of period (000) $120,336 $129,681 $143,834 $129,560 $155,543 $149,309
- ---------------------------------

<CAPTION>
CLASS A
--------------------------------------------------------------------------
Year ended December 31
--------------------------------------------------------------------------
1991 1990 1989 1988
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $5.970 $6.430 $6.610 $6.520
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.587 0.632 0.647 0.687
Net realized and unrealized
gain (loss) on investments 0.487 (0.477) (0.159) 0.081
------- ------- ------- -------
Total from investment operations 1.074 0.155 0.488 0.768
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.584) (0.615) (0.662) (0.678)
From capital paid in --- --- (0.006) ---
------- ------- ------- -------
Total distributions declared
to shareholders (0.584) (0.615) (0.668) (0.678)
------- ------- ------- -------
Net asset value - End of period $6.460 $5.970 $6.430 $6.610
------- ------- ------- -------
Total return (a) 18.80% 2.65% 7.62% 12.45%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.25% 1.23% 1.15% 1.13%
Net investment income 9.46% 10.30% 9.82% 10.37%
Portfolio turnover 44% 29% 41% 19%
Net assets at end of period (000) $146,905 $141,467 $162,163 $159,991
- ---------------------------------
</TABLE>

(a) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.

(b) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.

3
<PAGE>

THE FUND'S FINANCIAL HISTORY (CONT'D)

<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------
Year ended December 31
----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.410 $6.640 $5.950 $6.720 $6.460 $6.390
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.391 0.412 0.425 0.440 0.451 0.290
Net realized and unrealized
gain (loss) on investments 0.095 (0.240) 0.698 (0.761) 0.261 0.088
-------- -------- -------- -------- -------- -------
Total from investment operations 0.486 0.172 1.123 (0.321) 0.712 0.378
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.396) (0.402) (0.433) (0.449) (0.452) (0.308)
-------- -------- -------- -------- -------- -------
Net asset value - End of period $6.500 $6.410 $6.640 $5.950 $6.720 $6.460
-------- -------- -------- -------- -------- -------
Total return (d) 7.87% 2.82% 19.42% (4.82)% 11.23% 6.00%(e)
-------- -------- -------- -------- -------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.86%(f) 1.85%(f) 1.84%(f) 1.86% 1.85% 1.99%(g)
Net investment income 6.23%(f) 6.37%(f) 6.70%(f) 7.05% 6.70% 7.74%(g)
Portfolio turnover 281% 253% 85% 16% 46% 68%
Net assets at end of period (000) $36,128 $35,770 $38,203 $22,805 $19,787 $6,092
- ---------------------------------

<CAPTION>
CLASS C
--------------
Period ended
--------------
December 31
--------------
1997(b)
-------
<S> <C>
Net asset value - Beginning of period $6.530
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.171
Net realized and unrealized
gain (loss) on investments (0.032)(c)
-------
Total from investment operations 0.139
-------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.169)
-------
Net asset value - End of period $6.500
-------
Total return (d) 2.17%(e)
-------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.71%(f)(g)
Net investment income 6.35%(f)(g)
Portfolio turnover 281%
Net assets at end of period (000) $240
- ---------------------------------
</TABLE>

(a) Class B shares were initially offered on May 15, 1992. Per share amounts
reflect activity from that date.

(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.

(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.

(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.

4
<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks as high a level of current income and total return, as is
consistent with prudent risk, by investing primarily in corporate debt
securities.

HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS

The Fund invests primarily in corporate and government debt securities and
preferred stocks, but intends to limit investments in preferred stocks to 10% of
its net assets. Some preferred stocks may be accompanied by warrants (rights) to
acquire the issuer's common stock, but the Fund intends to dispose of any common
stock acquired through these warrants. The type and the maturity of debt
securities held by the Fund will vary over time based on management's judgment
of market and economic conditions, fiscal and monetary policy and interest rate
trends. The Fund may invest up to 25% of its assets in securities issued or
guaranteed by foreign governments or foreign companies. The Fund will not invest
more than 25% of its total assets in a single industry.

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.

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 of these securities may be issued by non-U.S.
government agencies, although the underlying mortgages will in all cases be
guaranteed by a U.S. government agency. The Fund may experience costs and delays
in liquidating the collateral if the non-U.S. government issuer defaults or
enters bankruptcy and may incur a loss. CMOs are obligations issued by
special-purpose trusts, secured by mortgages. REMICs are entities that 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. The
principal of a REMIC, CMO or other mortgage-backed security may be prepaid if
the underlying mortgages are prepaid. Prepayment rates for mortgage-backed
securities tend to increase as rates decline (effectively shortening the
security's maturity) and decrease as interest rates rise (effectively
lengthening the security's maturity). Because of the prepayment feature, these
investments may not increase in value when interest rates fall. The Fund may be
able to invest prepaid principal only at lower yields. The prepayment of REMICs,
CMOs or other mortgage-backed securities purchased at a premium may result in
losses equal to the premium. The Fund may invest in "stripped" mortgage-backed
securities representing

5
<PAGE>

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.

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. As a matter of policy, the Adviser will not invest
more than 25% of the Fund's total assets in lower rated debt securities.

The values of lower rated debt 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.

During the year ended December 31, 1997, 18.1% of the Fund's weighted average
total assets were invested in lower rated bonds. The portfolio composition
during 1997 does not necessarily reflect the current or future investments of
the Fund.

6
<PAGE>

invested abroad and delays and disruptions in securities settlement procedures.

Futures Contracts and 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 may be entered into (a) to lock in a particular foreign exchange
rate pending settlement of a purchase or sale of a foreign security or pending
the receipt of interest, principal or dividend payments on a foreign security
held by the Fund, or (b) to hedge against a decline in the value, in U.S.
dollars or in another currency, of a foreign currency in which securities held
by the Fund are denominated. The Fund will not attempt, nor would it be able, to
eliminate all foreign currency risk. Further, although hedging may lessen the
risk of loss 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.

Temporary/Defensive Instruments. 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 also may be invested in such investments during periods
of unusual market conditions.

Under a repurchase agreement, the Fund buys a security from a bank or dealer,
which is obligated to buy it back at a fixed price and time. The security is
held in a separate account at the Fund's custodian and constitutes the Fund's
collateral for the bank's or dealer's repurchase obligation. Additional
collateral will be added so that the obligation will at all times be fully
collateralized. However, if the bank or dealer defaults or enters bankruptcy,
the Fund may experience costs and delays in liquidating the collateral, and may
experience a loss if it is unable to demonstrate its right to the collateral in
a bankruptcy proceeding. Not more than 10% of the Fund's net assets will be
invested in repurchase agreements maturing in more than seven days or other
illiquid assets.

Interest Rate Futures and Options. For hedging purposes, the Fund may (1) buy or
sell interest rate futures (futures) and (2) buy and sell options on futures. A
future creates an obligation by the seller to deliver and the buyer to take
delivery of the type of instrument at the time and in the amount specified in
the contract. Although futures call for the delivery (or acceptance) of the
specified instrument, futures are usually closed out before the settlement date
through the purchase (or sale) of an offsetting contract. If the price of the
initial sale of the future exceeds (or is less than) the price of the offsetting
purchase, the Fund realizes a gain (or loss). The total market value of
securities to be delivered or acquired pursuant to such contracts will not
exceed 5% of the Fund's net assets.

Other. The Fund may not always achieve its investment objective. The Fund may
trade portfolio securities for short-term profits to

7
<PAGE>

take advantage of price differentials. 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'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 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 and Class C shares. Other total returns differ from average annual total
return only in that they may relate to different time periods, may represent
aggregate as opposed to average annual total returns, and may not reflect the
initial sales charge or contingent deferred sales charges.

HOW THE FUND IS MANAGED

The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.

Liberty Financial Investments, 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,
Distributor and Transfer Agent is an indirect subsidiary of Liberty Financial
Companies, Inc. which in turn is an indirect majority-owned subsidiary of
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is considered
to be the controlling entity of the Adviser and its affiliates. Liberty Mutual
is an underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.

The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.50% of the Fund's average daily net assets for fiscal year 1997.

Richard A. Stevens, Vice President of the Adviser, is the manager of the Fund
and has managed or co-managed the Fund since September, 1995. Prior to
co-managing the Fund, Mr. Stevens was a Senior Research Analyst for the Adviser.
Prior to joining the Adviser in 1994, Mr. Stevens was an Investment Analyst for
Back Bay Advisors.

8
<PAGE>

of 0.17% 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 and
may, in recognition of the research and brokerage services provided, 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 mutual funds advised by the Adviser and its affiliates, Stein Roe &
Farnham Incorporated and Newport Fund Management, Inc.) in selecting
broker-dealers for portfolio security transactions.

Year 2000. The Fund's Adviser, Distributor and Transfer Agent (the Colonial
Companies) are actively coordinating, managing and monitoring Year 2000
readiness for the Fund. A central program office at the Colonial Companies is
working within the Colonial Companies and with vendors who provide services,
software and systems to the Fund to ensure that date-related information and
data can be properly processed and calculated on and after January 1, 2000. Many
Fund service providers and vendors, including the Colonial Companies, are in the
process of making Year 2000 modifications to their services, software and
systems and believe that such modifications will be completed on a timely basis
prior to January 1, 2000. The cost of these modifications will not affect the
Fund. However, no assurances can be given that all modifications required to
ensure proper data processing and calculation on and after January 1, 2000 will
be timely made or that services to the Fund will not be adversely affected.

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
generally valued as of the close of regular trading (normally 4:00 p.m. Eastern
time) on 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 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. The Board of Trustees has adopted procedures to value at their fair value
(i) all other securities and (ii) foreign securities if the value of such
securities has been materially affected by events occurring after the closing of
a foreign market.

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income monthly 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. If a shareholder has elected to receive dividends

9
<PAGE>

and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. To change your election, call the
Transfer Agent for information. Whether you receive taxable distributions in
cash or in additional fund shares, you must report them as taxable income unless
you are a tax-exempt institution. Each January, information on the amount and
nature of distributions for the prior year is sent to shareholders.

The Fund has a significant capital loss carry forward and, until it is
exhausted, it is unlikely that capital gains distributions will be made. Any
capital gains will, however, be reflected in the net asset value.

HOW TO BUY SHARES

The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Fundamatic program is $50 and the
minimum initial investment for retirement accounts sponsored by the Distributor
is $25. Certificates will not be issued for Class B and Class C 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:

<TABLE>
<CAPTION>
Initial Sales Charge
-------------------------------------
Retained by
Financial
Service
as % of Firm
--------------------- as % of
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less
than $100,000 4.71% 4.50% 4.00%
$100,000 to less
than $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%
</TABLE>

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

<TABLE>
<CAPTION>
Amount Purchased Commission
<S> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
</TABLE>

(1) Paid over 12 months but only to the extent the shares remain outstanding.

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 by an investor. If a
purchase results in an account having a value from $1 million to $5 million,
then the portion of the shares purchased that caused the account's value to
exceed $1 million will be subject to a 1.00% contingent deferred sales charge,
payable to the Distributor, if redeemed within 18 months after the end of the
month in which the purchase was accepted. If the purchase results in an account
having a value in excess of $5 million, the contingent deferred sales

10
<PAGE>

charge will not apply to the portion of the purchased shares comprising such
excess amount.

<TABLE>
<CAPTION>
Contingent
Years Deferred
After Purchase Sales Charge
<S> <C>
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%
</TABLE>

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 C Shares. Class C shares are offered at net asset value and are subject to
a 0.75% annual distribution fee and a 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which the
purchase was accepted. The Distributor has voluntarily agreed to waive 0.15% of
the Fund's distribution fee. This waiver may be terminated by the Distributor at
any time without shareholder approval.

The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.55% annually commencing
after the shares purchased have been outstanding for one year. Payment of the
ongoing commission is conditioned on receipt by the Distributor of the
distribution fee referred to above. The commission may be reduced or eliminated
by the Distributor at any time.

General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemption). When a
redemption subject to a contingent deferred sales charge is made, generally
older shares will be redeemed first. 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 C shares. Purchases of $250,000 or
more must be for Class A or Class C shares. Purchases of $1 million or more must
be for Class A shares. Consult your financial service firm.

11
<PAGE>

Statement of Additional Information under "Programs for Reducing or Eliminating
Sales Charges."

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

Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from your financial service firm, the Transfer Agent
and many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:

Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

HOW TO EXCHANGE SHARES

12
<PAGE>

must be between the same classes of shares. Consult your financial service firm
or the Transfer Agent for information regarding what funds are available.

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 the
Adviser determines, 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 previously was
paid. Non-money market fund shares must be held for five months before
qualifying for exchange to a fund with a higher sales charge, after which,
exchanges are made at the net asset value next determined.

Class C Shares. Exchanges of Class C shares are not 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.
Only one "roundtrip" exchange of the Fund's Class C shares may be made per three
month period, measured from the date of the initial purchase. For example, an
exchange from Fund X to Fund Y and back to Fund X would be permitted only once
during each three month period.

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 may be elected
on the account application. The Transfer Agent will employ reasonable procedures
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
of telephone lines and requirements that the redeeming shareholder and/or his or
her 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.

13
<PAGE>

12B-1 PLAN

Under its 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The 12b-1 Plan also requires the Fund to pay the Distributor monthly a
distribution fee at the annual rate of 0.75% of the average daily net assets
attributed to its Class B and Class C shares. The Distributor has voluntarily
agreed to waive 0.15% of the Class C share distribution fee. The Distributor may
terminate this waiver at any time without shareholder approval. Because the
Class B and Class C shares bear the additional distribution fee, their dividends
will be lower than the dividends of Class A shares. Class B shares automatically
convert to Class A shares, approximately eight years after the Class B shares
were purchased. Class C 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 Plan also authorizes 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.

APPENDIX

DESCRIPTION OF BOND RATINGS

S&P

AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.

AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.

14
<PAGE>

CC bonds are currently highly vulnerable to nonpayment.

C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this obligation are
being continued.

Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

MOODY'S

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.

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 some time 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

15
<PAGE>

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.

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.

16
<PAGE>

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17
<PAGE>

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18
<PAGE>

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19
<PAGE>

Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621

Distributor
Liberty Financial Investments, Inc.
One Financial Center
Boston, MA 02111-2621

Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624

Custodian (Effective Mid-May, 1998)
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245

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, 1998

COLONIAL INCOME FUND

PROSPECTUS

Colonial Income Fund seeks as high a level of current income and total return,
as is consistent with prudent risk, by investing primarily in corporate debt
securities.

For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the April 30, 1998 Statement of Additional Information.

------------------ ----------------------
MAY LOSE VALUE
NOT FDIC-INSURED NO BANK GUARANTEE
------------------ ----------------------

<PAGE>

COLONIAL TRUST I

Cross Reference Sheet
(Colonial Strategic Income Fund)

Item Number of Form N-1A Prospectus Location or Caption

Part A

1. Cover Page

2. Summary of Expenses

3. The Fund's Financial History

4. The Fund's Investment Objective;
Organization and History;
How the Fund Pursues Its Objective
and Certain Risk Factors

5. Cover Page;
How the Fund is Managed;
Organization and History;
Back Cover

6. Organization and History;
Distributions and Taxes;
How to Buy Shares

7. How to Buy Shares;
How the Fund Values Its Shares;
12b-1 Plan; Back Cover

8. How to Sell Shares;
How to Exchange Shares;
Telephone Transactions

9. Not Applicable

April 30, 1998

SI-01/960E-0398

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.

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 debt
securities (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 future reference. More detailed
information about the Fund is in the April 30, 1998 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.

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 9
How the Fund Values its Shares 10
Distributions and Taxes 10
How to Buy Shares 10
How to Sell Shares 12
How to Exchange Shares 13
Telephone Transactions 14
12b-1 Plan 14
Organization and History 15
Appendix 16

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

SUMMARY OF EXPENSES

Shareholder Transaction Expenses (1)(2)

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price) (3) 4.75% 0.00%(4) 0.00%(4)

Maximum Contingent Deferred Sales Charge (as a % of offering price) (3) 1.00%(5) 5.00% 1.00%
</TABLE>

Annual Operating Expenses (as a % of average net assets)

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fee 0.63% 0.63% 0.63%
12b-1 fees(after applicable fee waiver) 0.23(6) 0.98(6) 0.83(7)
Other expenses 0.32 0.32 0.32(8)
Total operating expenses(after applicable fee waiver) 1.18% 1.93% 1.78%
</TABLE>

(6) The service fee rate will fluctuate but will not exceed 0.25%. See "12b-1
Plan."
(7) The Distributor has voluntarily agreed to waive 0.15% of the Class C share
Rule 12b-1 distribution fee so that it will not exceed 0.60% annually.
Absent such fee waiver, the "12b-1 fees" would have been 0.98% and the
"Total operating expenses" would have been 1.93%. The Distributor may
terminate the fee waiver at any time without shareholder approval. See
"12b-1 Plan."
(8) "Other expenses" are estimated based on the annual operating expenses of
the Class A and Class B shares.

Example

The following Example shows the cumulative transaction and operating 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. This example uses the fees and
expenses in the table above after the respective fee waivers and expense
reimbursements. 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 C
<S> <C> <C> <C> <C> <C>
Period: (9) (10) (9) (10)
1 year $ 59 $ 70 $ 20 $ 28 $ 18
3 years 83 91 61 56(11) 56
5 years 109 124 104 96 96
10 years 184 206(12) 206(12) 209 209
</TABLE>

(9) Assumes redemption at period end.
(10) Assumes no redemption.
(11) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
(12) Class B shares automatically convert to Class A shares after approximately
8 years; therefore years 9 and 10 reflect Class A share expenses.

2
<PAGE>

THE FUND'S FINANCIAL HISTORY

<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
Year ended December 31
-----------------------------------------------------------------
1997 1996 1995 1994(a) 1993(a)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $7,310 $7,220 $6,530 $7,390 $7,010
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.578 0.623 0.621 0.580 0.565
Net realized and unrealized gain (loss) 0.025 0.081 0.650 (0.848) 0.448
------ ------ ------ ------ ------
Total from Investment Operations 0.603 0.704 1.271 (0.268) 1.013
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.593) (b) (0.614) (b) (0.581) (0.580) (0.585)
In excess of net investment income -- -- -- -- --
From net realized gains -- -- -- -- --
From capital paid in -- -- -- (0.012) (0.048)
Total Distributions Declared to Shareholders (0.593) (0.614) (0.581) (0.592) (0.633)
------ ------ ------ ------ ------
Net asset value - End of period $7.320 $7.310 $7.220 $6.530 $7.390
====== ====== ====== ====== ======
Total return (c) 8.61% 10.24% 20.17% (3.67)% 14.95%
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% (d) 1.18% (d) 1.18% (d) 1.21% 1.19%
Net investment income 7.78% (d) 8.01% (d) 8.42% (d) 8.38% 8.42%
Portfolio turnover 111% 110% 83% 78% 138%
Net assets at end of period (000) $808,228 $755,352 $714,961 $636,824 $660,654

<CAPTION>
Class A
-----------------------------------------------------------------
Year ended December 31
-----------------------------------------------------------------
1992(a) 1991(a) 1990(a) 1989(a) 1988(a)
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $7.020 $6.050 $7.250 $7.270 $6.890
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.669 0.684 0.697 0.661 0.387
Net realized and unrealized gain (loss) (0.004) 0.966 (1.177) 0.039 0.733
------ ------ ------ ------ ------
Total from Investment Operations 0.665 1.650 (0.480) 0.700 1.120
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.673) (0.680) (0.697) (0.661) (0.476)
In excess of net investment income (0.002) -- -- -- --
From net realized gains -- -- -- -- (0.044)
From capital paid in -- -- (0.023) (0.059) (0.220)
Total Distributions Declared to Shareholders (0.675) (0.680) (0.720) (0.720) (0.740)
------ ------ ------ ------ ------
Net asset value - End of period $7.010 $7.020 $6.050 $7.250 $7.270
====== ====== ====== ====== ======
Total return (c) 9.77% 28.41% (7.04)% 9.93% 16.66%
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.18% 1.12% 1.12% 1.10% 1.07%
Net investment income 9.39% 10.27% 10.27% 8.94% 5.33%
Portfolio turnover 96% 48% 2% 32% 28%
Net assets at end of period (000) $437,380 $424,824 $410,270 $498,294 $631,982
</TABLE>

- ------------------

(a) The data presented for periods prior to November 30, 1994, represent
operations under an earlier objective.
(b) Distributions from income included currency gains and gains on securities
treated as ordinary income for tax purposes.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.

3
<PAGE>

THE FUND'S FINANCIAL HISTORY (CONT'D)

<TABLE>
<CAPTION>
Class B
---------------------------------------------
Year ended December 31
---------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net asset value - Beginning of period $7,310 $7,220 $6,530
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.524 0.569 0.569
Net realized and unrealized gain (loss) 0.025 0.081 0.650
------ ------ ------
Total from Investment Operations 0.549 0.650 1.219
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.539) (d) (0.560) (d) (0.529)
From capital paid in -- -- --
------ ------ ------
Total Distributions Declared to Shareholders (0.539) (0.560) (0.529)
------ ------ ------
Net asset value - End of period $7.320 $7.310 $7.220
------ ------ ------
Total return (e) 7.81% 9.43% 19.29%
------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.93% (g) 1.93% (g) 1.97% (g)
Net investment income 7.03% (g) 7.26% (g) 7.63% (g)
Portfolio turnover 111% 110% 83%
Net assets at end of period (000) $833,865 $783,620 $714,049

<CAPTION>
Class A Class C
--------------------------------------------- ------------------------
Year ended December 31 Period ended December 31
--------------------------------------------- ------------------------
1994(a) 1993(a) 1992(a)(b) 1997(c)
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $7.390 $7.010 $7.080 $7.240
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.529 0.511 0.385 0.271
Net realized and unrealized gain (loss) (0.849) 0.448 (0.067) 0.092
------ ------ ------ ------
Total from Investment Operations (0.320) 0.959 0.318 0.363
------ ------ ------ ------
ILESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.529) (0.535) (0.388) (0.283) (d)
From capital paid in (0.011) (0.044) -- --
------ ------ ------ ------
Total Distributions Declared to Shareholders (0.540) (0.579) (0.388) (0.283)
------ ------ ------ ------
Net asset value - End of period $6.530 $7.390 $7.010 $7.320
------ ------ ------ ------
Total return (e) (4.40)% 14.11% 2.48% (f) 5.06% (f)
------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.96% 1.94% 1.93% (h) 1.78% (g)(h)
Net investment income 7.63% 7.67% 8.64% (h) 7.13% (g)(h)
Portfolio turnover 78% 138% 96% 111%
Net assets at end of period (000) $608,348 $475,141 $37,935 $6,212
</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) Class C shares were initially offered on July 1, 1997. Per share amounts
reflect activity from that date.
(d) Distributions from income included currency gains and gains on securities
treated as ordinary income for tax purposes.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(h) 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.

4
<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 corporate debt securities, including 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 companies, governments and government-related entities; and
(iii) lower rated debt securities of both foreign and U.S. issuers, 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.

<PAGE>

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 of U.S. or foreign issuers 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 debt securities 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.
Foreign lower rated debt securities are subject to additional risks described
below in "Foreign Investments" and "Emerging Markets."

The market values of 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, comparably rated by another national rating service) 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 investing in such
securities would permit additional yield benefits, 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 debt securities 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.

Composition of the Fund's portfolio during the year ended December 31, 1997,
was:

<TABLE>
<CAPTION>
<S> <C>
Investment grade 20.4%
BB 11.4%
B 33.9%
CCC 2.4%
CC 0.0%
C 0.0%
D 0.0%
Nonrated 0.6%
------
Subtotal 68.7%
-----
U.S. Government, Equity 26.1%
-----
Cash/Other 5.2%
=====
Total 100.0%
=====
</TABLE>

The portfolio composition during 1997 does not necessarily reflect the current
or future investments of the Fund.

<PAGE>

Futures Contracts and 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.

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 also may be invested in such investments during periods
of unusual market conditions.

Under a repurchase agreement, the Fund buys a security from a bank or dealer,
which is obligated to buy it back at a fixed price and time. The security is
held in a separate account at the Fund's custodian and constitutes the Fund's
collateral for the bank's or dealer's repurchase obligation. Additional
collateral will be added so that the obligation will at all times be fully
collateralized. However, if the bank or dealer defaults or enters bankruptcy,
the Fund may experience costs and delays in liquidating the collateral and may
experience a loss if it is unable to demonstrate its 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 seven days and other
illiquid assets.

<PAGE>

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.

Mortgage Dollar Rolls. The Fund may also engage in so-called "mortgage dollar
roll" transactions. 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. 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 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. Finally, the
transaction costs may exceed the return earned by the Fund from the transaction.

The Fund's investment objective and non-fundamental investment policies may be
changed without shareholder approval. 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 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 and Class C 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.

<PAGE>

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.

Liberty Financial Investments, 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 for fiscal year 1997.

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. Other
members of the Adviser's Taxable Fixed Income Investment and Trading Groups also
participate in the management of the Fund.

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.

Year 2000. The Fund's Adviser, Distributor and Transfer Agent
(the Colonial Companies) are actively coordinating, managing and monitoring
Year 2000 readiness for the Fund. A central program office at the Colonial
Companies is working within the Colonial Companies and with vendors who provide
services, software and systems to the Fund to ensure that date-related
information and data can be properly processed and calculated on and after
January 1, 2000. Many Fund service providers and vendors, including the
Colonial Companies, are in the process of making Year 2000 modifications to
their services, software and systems and believe that such modifications will be
completed on a timely basis prior to January 1, 2000. The cost of these
modifications will not affect the Fund. However, no assurances can be given
that all modifications required to ensure proper data processing and calculation
on and after January 1, 2000 will be timely made or that services to the Fund
will not be adversely affected.

HOW THE FUND VALUES ITS SHARES

Portfolio securities for which market quotations are readily available are
valued at current market 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. The Board of Trustees has adopted procedures to value at their fair value
(i) all other securities and (ii) foreign securities if the value of such
securities has been materially affected by events occurring after the closing of
a foreign market.

<PAGE>

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income monthly 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. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. 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 your distributions for the
prior year is sent to shareholders.

The Fund has a significant capital loss carry forward, and until it is
exhausted, it is unlikely that capital gain distributions will be made. Any
capital gains will, however, be reflected in the net asset value.

HOW TO BUY SHARES

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 retirement accounts sponsored by the
Distributor is $25. Certificates will not be issued for Class B or Class C
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:

<TABLE>
<CAPTION>
Initial Sales Charge
-------------------------------
Retained
by
Financial
Service
as % of Firm
------------------- as % of
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than 4.71% 4.50% 4.00%
$100,000
$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%
</TABLE>

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

10
<PAGE>

<TABLE>
<CAPTION>
Amount Purchased Commission
<S> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
</TABLE>

(1) Paid over 12 months but only to the extent the shares remain outstanding.

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 by an investor. If a
purchase results in an account having a value from $1 million to $5 million,
then the portion of the shares purchased that caused the account's value to
exceed $1 million will be subject to a 1.00% contingent deferred sales charge
payable to the Distributor, if redeemed within 18 months after the end of the
month in which the purchase was accepted. 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.

<TABLE>
<CAPTION>
Years Contingent Deferred
After Purchase Sales Charge
<S> <C> <C>
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%
</TABLE>

Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.

General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account, reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is made, generally,
older shares will be redeemed first. 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

<PAGE>

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 C shares. Purchases of $250,000 or
more must be for Class A or Class C shares. Purchases of $1,000,000 or more must
be for Class A shares. Consult your financial service firm.

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.

HOW TO SELL SHARES

Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

<PAGE>

documentation to the Transfer Agent and may charge for this service.

HOW TO EXCHANGE SHARES

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 C Shares. Exchanges of Class C shares are not 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.
Only one "roundtrip" exchange of the Fund's Class C shares may be made per three
month period, measured from the date of the initial purchase. For example, an
exchange from Fund A to Fund B and back to Fund A would be permitted only once
during each three month period.

TELEPHONE TRANSACTIONS

<PAGE>

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 of telephone lines and requirements that the redeeming
shareholder and/or his or her 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 PLAN

Under its 12b-1 Plan, 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
Fund shares. The 12b-1 Plan also requires the Fund to pay the Distributor
monthly a distribution fee at the annual rate of 0.75% of the average daily net
assets attributed to its Class B and Class C shares. The Distributor has
voluntarily agreed to waive a portion of the Class C share distribution fee so
that it does not exceed 0.60% annually. The Distributor may terminate this
waiver at any time without shareholder approval. Because the Class B and Class C
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
C 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 Plan also
authorizes 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.

<PAGE>

APPENDIX
DESCRIPTION OF BOND
RATINGS

S&P

AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.

AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.

BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

CC bonds are currently highly vulnerable to nonpayment.

C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.

Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

MOODY'S

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.

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.

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.

<PAGE>

Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621

Distributor

Liberty Financial Investments, Inc.

One Financial Center
Boston, MA 02111-2621

Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624

Custodian (Effective Mid-May 1998)
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245

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, 1998

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 debt
securities 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, 1998 Statement of Additional Information.

- ----------------------------- --------------------------

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------

17
<PAGE>

<PAGE>

COLONIAL TRUST I

Cross Reference Sheet
(Colonial High Yield Securities Fund)

Item Number of Form N-1A Statement of Additional
Information Location or Caption

Part B

10. Cover Page

11. Table of Contents

12. Not Applicable

13. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Portfolio Turnover;
Miscellaneous Investment Practices

14. 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; Shareholder
Liability

19. How to Buy Shares;
Determination of Net Asset Value;
Suspension of Redemptions;
Special Purchase Programs/Investor
Services; Programs for Reducing or
Eliminating Sales Charges;
How to Sell Shares;
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 HIGH YIELD SECURITIES FUND
Statement of Additional Information

April 30, 1998

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial High
Yield Securities Fund (Fund). This SAI is not a prospectus and is only
authorized for distribution when accompanied or preceded by the Prospectus of
the Fund dated April 30, 1998. This SAI should be read together with the
Prospectus and the Fund's most recent Annual Report dated December 31, 1997.
Investors may obtain a free copy of the Prospectus and the Annual Report from
Liberty Financial Investments, 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 g
Independent Accountants g

Part 2

Miscellaneous Investment Practices 1
Taxes 10
Management of the Colonial Funds 13
Determination of Net Asset Value 18
How to Buy Shares 19
Special Purchase Programs/Investor Services 20
Programs for Reducing or Eliminating Sales Charges 21
How to Sell Shares 23
Distributions 25
How to Exchange Shares 25
Suspension of Redemptions 26
Shareholder Liability 26
Shareholder Meetings 26
Performance Measures 26
Appendix I 28
Appendix II 33

HY-16/182F-0498

a
<PAGE>

PART 1
COLONIAL HIGH YIELD SECURITIES FUND
Statement of Additional Information

April 30, 1998

<TABLE>
<CAPTION>
DEFINITIONS
<S> <C>
"Trust" Colonial Trust I
"Fund" Colonial High Yield Securities Fund
"Adviser" Colonial Management Associates, Inc., the Fund's investment adviser
"LFII" Liberty Financial Investments, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's shareholder
services and transfer agent
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the investment restrictions of the Fund. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectus:

Short-Term Trading
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 Futures Contracts and
Related Options (interest rate futures and related options)
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
he 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 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.

The Fund may:

1. Issue senior securities only through borrowing money from banks for temporary
for emergency purposes up to 10% of its net assets; however, the Fund will
not purchase additional portfolio securities while borrowings exceed 5% of
net assets;

2. Only own real estate acquired as the result of owning securities and not more
than 5% of total assets;

3. Invest up to 10% of its net assets in illiquid assets,

4. Purchase and sell futures contracts and related options so long as the total
initial margin and premiums on the contracts do not exceed 5% of its total
assets;

5. Underwrite securities issued by others only when disposing of portfolio
securities;

6. Make loans through lending of securities not exceeding 30% of total assets,
through the purchase of debt instruments or similar evidences of indebtedness
typically sold privately to financial institutions and through repurchase
agreements; and

b
<PAGE>

7. Not concentrate more than 25% of its total assets in any one industry or with
respect to 75% of total assets purchase any security (other than obligations
of the U.S. Government and cash items including receivables) if as a result
more than 5% of its total assets would then be invested in securities of a
single issuer, or purchase voting securities of an issuer if, as a result
of such purchase, the Fund would own more than 10% of the outstanding voting
shares of such issuer.

OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:

2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities.

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 annual rate of 0.60%.

Recent Fees paid to the Adviser, LFII and CISC (dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Management fee $6,182 $5,087 $4,423
Bookkeeping fee 366 306 267
Shareholder service and transfer agent fee 2,915 2,425 2,107
12b-1 fees:
Service fee (Classes A, B and C)(a)(b) 2,593 2,120 1,846
Distribution fee (Class B) 3,424 2,735 2,254
Distribution fee (Class C) 80 18 --

(a) Class C shares were initially offered on January 15, 1996.
(b) Class D shares were redesignated as Class C shares on July 1, 1997.
</TABLE>

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Total commissions $ 1,256 $ 95 $ 12
Directed transactions 142,495 7,683 100
Commissions on directed transactions 1,250 83 1
</TABLE>

<PAGE>

Trustees and Trustees' Fees
For the fiscal and calendar year ended December 31, 1997, the Trustees received
the following compensation for serving as Trustees(c):

<TABLE>
<CAPTION>
Total Compensation
Aggregate From Trust and Fund Complex
Compensation Paid To The Trustees For The
From Fund For The Fiscal Year Calendar Year Ended
Trustee Ended December 31, 1997 December 31, 1997(d)
- ------- ----------------------- --------------------

<S> <C> <C>
Robert J. Birnbaum $4,376 $ 93,949
Tom Bleasdale 4,582(e) 106,432(f)
Lora S. Collins 4,374 93,949
James E. Grinnell 4,411(g) 94,698(h)
William D. Ireland, Jr.(k) 4,719 101,445
Richard W. Lowry 4,415 94,698
William E. Mayer 4,185 89,949
James L. Moody, Jr. 4,580(i) 98,447(j)
John J. Neuhauser 4,421 94,948
George L. Shinn(k) 4,817 103,443
Robert L. Sullivan 4,654 99,945
Sinclair Weeks, Jr.(k) 4,720 101,445
</TABLE>

(c) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(d) At December 31, 1997, the Colonial Funds complex consisted of 39 open-end
and 5 closed-end management investment company portfolios.
(e) Includes $2,291 payable in later years as deferred compensation.
(f) Includes $57,454 payable in later years as deferred compensation.
(g) Includes $440 payable in later years as deferred compensation.
(h) Includes $4,797 payable in later years as deferred compensation.
(i) Total compensation of $4,580 for the fiscal year ended December 31, 1997,
will be payable in later years as deferred compensation.
(j) Total compensation of $98,447 for the calendar year ended December
31, 19976, will be payable in later years as deferred compensation.
(k) Retired as Trustee of the Trust effective April 24, 1998.

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.(together, Liberty Funds) for service during the calendar year ended
December 31, 1997:

<TABLE>
<CAPTION>
Total Compensation
From Liberty Funds For The
Calendar Year Ended
Trustee December 31, 1997(l)
- ------- --------------------

<S> <C>
Robert J. Birnbaum $26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800
</TABLE>

(l) The Liberty Funds are 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).

d
<PAGE>

Ownership of the Fund

At March 31, 1998, 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, 1998, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Mutual Funds Operations, 4800 Deer Lake Drive, East 3rd, Jacksonville, FL 32216
owned (973,954 shares, 30.53%) and (11,366,963 shares, 15.35%) of the Fund's
outstanding Class B and Class C shares, respectively.

At March 31, 1998, there were 25,359 Class A, 21,688 Class B and 948 Class C
shareholders.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
--------------
Years ended December 31
-----------------------
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $1,533 $1,397 $1,271
Initial sales charges retained by LFII 171 140 149

<CAPTION>
Class B Shares
--------------
Years ended December 31
-----------------------
1997 1996 1995
---- ---- ----

Aggregate contingent deferred sales charge (CDSC)
on Fund redemptions retained by LFII $1,089 $1,045 $635

<CAPTION>
Class C Shares
--------------
Years ended December 31
-----------------------
1997 1996
---- ----

Aggregate CDSC on Fund redemptions
retained by LFII $13 $18
</TABLE>

12b-1 Plan, CDSCs and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays LFII monthly a service fee at an annual rate of 0.25% of net assets
attributed to each Class of shares. The Fund also pays LFII monthly distribution
fee at an annual rate of 0.75% of average daily net assets attributed to Class B
and Class C shares. The Distributor has voluntarily agreed to waive a portion of
the Class C share distribution fee so that it does not exceed 0.60% annually.
The Distributor may terminate the waiver at any time without shareholder
approval. LFII may use the entire amount of such fees to defray the costs of
commissions and service fees paid to financial service firms (FSFs) and for
certain other purposes. Since the distribution and service fees are payable
regardless of the amount of LFII's expenses, LFII may realize a profit from the
fees.

The Plan authorizes any other payments by the Fund to LFII 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.

e
<PAGE>

provided in the foregoing sentence. The Plan 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 Plan 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. Class C shares
are offered at net asset value and are subject to a 1.00% CDSC if redeemed
within one year after purchase. The CDSCs are described in the Prospectus.

No CDSC will be imposed on shares derived from reinvestment of distributions or
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, which are not
subject to the distribution fee, having an equal value.

Sales-related expenses (dollars in thousands) of LFII relating to the Fund were:

<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------
Class A Shares Class B Shares Class C Shares
--------------- -------------- --------------

<S> <C> <C> <C>
Fees to FSFs $1,481 $5,163 $129
Cost of sales material relating to the Fund
(including printing and mailing expenses) 465 552 71
Allocated travel, entertainment
and other promotional expenses (including advertising) 374 446 56
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A, Class B and Class C share yields for the month ended
December 31, 1997 were 7.72%, 7.34% and 7.49%, respectively.

The Fund's average annual total returns at December 31, 1997 were:

<TABLE>
<CAPTION>
Class A Shares
--------------

1 year 5 years 10 years
------ ------- --------

<S> <C> <C> <C>
With sales charge of 4.75% 8.46% 11.30% 11.10%
Without sales charge 13.87% 12.39% 11.65%

</TABLE>
<TABLE>
<CAPTION>

Class B Shares
--------------

June 8, 1992
(commencement of investment operations)
1 year 5 years through December 31, 1997
------ ------- -------------------------
<S> <C> <C> <C>
With applicable CDSC 8.03%(5.00% CDSC) 11.30%(2.00% CDSC) 11.41%(1.00% CDSC)
Without CDSC 13.03% 11.56% 11.52%
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Class C Shares
--------------

January 15, 1996
(commencement of investment operations)
1 year through December 31, 1997
------ -------------------------

<S> <C> <C>
With applicable CDSC(l) 12.11%(1.00% CDSC) 12.05%(0.00% CDSC)
Without CDSC(l) 13.11% 12.05%
</TABLE>

(l) Performance results reflect any voluntary waiver or reimbursement by the
Adviser or its affiliates of Class expenses. Absent this waiver or
reimbursement arrangement, performance results would have been lower. See
the Prospectus for details.

The Fund's Class A, Class B and Class C share distribution rates at December 31,
1997, based on the most recent month's distribution, annualized, and the maximum
offering price at the end of the month, were 7.91%, 7.55% and 7.70%,
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. Effective
mid-May, 1998, The Chase Manhattan Bank will be 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 in the
December 31, 1997 Annual Report are incorporated in this SAI by reference.

STATEMENT OF ADDITIONAL INFORMATION

PART 2

The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.

MISCELLANEOUS INVESTMENT PRACTICES

Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. 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 Debt Securities
Lower rated debt securities are those rated lower than Baa by Moody's, BBB by
S&P, or comparable unrated debt securities. Relative to debt securities of
higher quality,

1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for lower
rated debt securities;

2. the secondary market for lower rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;

3. the Adviser's credit analysis of lower rated debt securities may have a
greater impact on the fund's achievement of its investment objective and

4. lower rated debt securities may be less sensitive to interest rate changes,
but are more sensitive to adverse economic developments.

In addition, certain lower rated debt securities may not pay interest in cash on
a current basis.

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.

1
<PAGE>

Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.

The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.

The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxation" below.

Zero Coupon Securities (Zeros)

The fund may invest in zero coupon securities which are securities issued at a
significant discount from face value and pay interest only at maturity rather
than at intervals during the life of the security and in certificates
representing undivided interests in the interest or principal of mortgage-backed
securities (interest only/principal only), which tend to be more volatile than
other types of securities. The Fund will accrue and distribute income from
stripped securities and certificates on a current basis and may have to sell
securities to generate cash for distributions.

Step Coupon Bonds (Steps)

The fund may invest in debt securities which pay interest at a series of
different rates (including 0%) in accordance with a stated schedule for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities may be subject to additional volatility risk than
fixed rate debt securities.

Tender Option Bonds
A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Adviser will consider on an ongoing basis the creditworthiness of the issuer of
the underlying municipal securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal securities and for other
reasons.

Pay-In-Kind (PIK) Securities

The fund may invest in securities which pay interest either in cash or
additional securities. 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.

2
<PAGE>

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 note 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 ("When-Issued" and "Delayed Delivery" Securities)
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 liquid securities 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 toenter 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 Securities and
Exchange Commission's requirements, cash or liquid 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.

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

5
<PAGE>

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 Securities and Exchange
Commission's requirements, cash or liquid securities 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 interest rate and 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 interest rate and U.S. Treasury securities when, in the opinion of the
Adviser, price movements in these security futures and related options will
correlate closely with price movements in the tax-exempt securities which are
the subject of the hedge. Interest rate and U.S. Treasury securities futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of security called for in the contract at a specified date and price.
Options on interest rate and U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
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 interest rate and 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 or liquid 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.

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.

Municipal Lease Obligations
Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear.

Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.

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 Securities Act of 1933
(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 will be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.

TAXES

In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax adviser for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.

Alternative Minimum Tax. Distributions derived from interest which is exempt
from regular federal income tax may subject corporate shareholders to or
increase their liability under the corporate alternative minimum tax (AMT). A
portion of such distributions may constitute a tax preference item for
individual shareholders and may subject them to or increase their liability
under the AMT.

Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT. The dividends received
deduction for eligible dividends is subject to a holding period requirement
modified pursuant to the Taxpayer Relief Act of 1997 (the "1997 Act").

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.

Fund Distributions. Distributions from the fund (other than exempt-interest
dividends, as discussed below) will be taxable to shareholders as ordinary
income to the extent derived from the fund's investment income and net
short-term gains. Pursuant to the 1997 Act, two different tax rates apply to net
capital gains (that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year). One rate (generally 28%) generally applies to net gains on capital
assets held for more than one year but not more than 18 months (28% rate gains)
and a second, preferred rate (generally 20%) applies to the balance of such net
capital gains (adjusted net capital gains). Distributions of net capital gains
will be treated in the hands of shareholders as 28% rate gains to the extent
designated by the fund as deriving from net gains from assets held for more than
one year but not more than 18 months, and the balance will be designated as
adjusted net capital gains. Distributions of 28% rate gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held the shares in the fund. Distributions will be taxed as
described above whether received in cash or in fund shares.

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 capital gains will in
general be taxable to shareholders as long-term capital gains regardless of the
length of time fund shares are held. Pursuant to the Taxpayer Relief Act of
1997, long-term capital gains are subject to a maximum tax rate of either 28% or
20% depending on the fund's holding period in the portfolio assets generating
the gains.

A tax-exempt fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the fund's ordinary income which
will be taxable when distributed. Any market discount recognized on a tax-exempt
bond purchased after April 30, 1993 with a term at time of issue of one year or
more is taxable as ordinary income. A market discount bond is a bond acquired in
the secondary market at a price below its "stated redemption price" (in the case
of a bond with original issue discount, its"revised issue price").

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. The sale, exchange or redemption of fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares will be treated as 28% rate gain if the shares have been held for more
than 12 months but not more than 18 months, and as adjusted net capital gains if
the shares have been held for more than 18 months. Otherwise the gain on the
sale, exchange or redemption of fund shares will be treated as short-term
capital gain. In general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held more than 12
months, and otherwise as short-term loss.. 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 stock, 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 stock, 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 for tax years
beginning on or before August 5, 1997; (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
total assets is invested in the securities of any issuer (other than U.S.
Government securities).

Hedging Transactions. If the fund engages in hedging transactions, including
hedging transactions in options, futures contracts, and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's securities, or
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders. The fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
fund.

Securities Issued at a Discount. The fund's investment in securities issued at a
discount and certain other obligations will (and investments in securities
purchased at a discount may) require the fund to accrue and distribute income
not yet received. In such cases, the fund may be required to sell assets
(including when it is not advantageous to do so) to generate the cash necessary
to distribute as dividends to its shareholders all of its income and gains and
therefore to eliminate any tax liability at the fund level.

Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) 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 stock or 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 qualified 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 (including a holding period requirement
imposed pursuant to the 1997 Act), 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.

Investment by the fund in certain "passive foreign investment companies" could
subject the fund to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to fund shareholders. However, the fund may elect to treat a
passive foreign investment company as a "qualified electing fund," in which case
the fund will be required to include its share of the company's income and net
capital gain annually, regardless of whether it receives any distribution from
the company. The fund also may make an election to mark the gains (and to a
limited extent losses) in such holdings "to the market" as though it had sold
and repurchased its holdings in those passive foreign investment companies on
the last day of the fund's taxable year. Such gains and losses are treated as
ordinary income and loss. The qualified electing fund and mark-to-market
elections may have the effect of accelerating the recognition of income (without
the receipt of cash) and increase the amount required to be distributed for the
fund to avoid taxation. Making either of these elections therefore may require a
fund to liquidate other investments (including when it is not advantageous to do
so) to meet its distribution requirement, which also may accelerate the
recognition of gain and affect a fund's total return.

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 Money Market Fund, Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Newport Tiger Fund, Colonial Newport Tiger Cub Fund,
Newport Japan Opportunities Fund and Newport Greater China 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 majority-owned subsidiary of Liberty Financial
Companies, Inc. (Liberty Financial), which in turn is a direct subsidiary of
majority-owned 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.

Trustees and Officers (this section applies to all of the Colonial funds)

<TABLE>
<CAPTION>
Name and Address Age Position with Fund Principal Occupation During Past Five Years
- ---------------- --- ------------------ --------------------------------------------

<S> <C> <C> <C>
Robert J. Birnbaum 70 Trustee Consultant(formerly Special Counsel, Dechert Price &
313 Bedford Road Rhoads from September, 1988 to December, 1993, President,
Ridgewood, NJ 07450 New York Stock Exchange from May, 1985 to June, 1988,
President, American Stock Exchange, Inc. from 1977 to
May, 1985).

Tom Bleasdale 67 Trustee Retired (formerly Chairman of the Board and Chief
102 Clubhouse Drive #275 Executive Officer, Shore Bank & Trust Company from
Naples, FL 34105 1992-1993), is a Director of The Empire Company since
June, 1995.

Lora S. Collins 62 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road Frankel from September, 1986 to November, 1996).
Southold, NY 11971

James E. Grinnell 68 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945

Richard W. Lowry 61 Trustee Private Investor since August, 1987.

<PAGE>

10701 Charleston Drive
Vero Beach, FL 32963

William E. Mayer* 57 Trustee Partner, Development Capital, LLC (formerly Dean, College
500 Park Avenue, 5th Floor of Business and Management, University of Maryland from
New York, NY 10022 October, 1992 to November, 1996, Dean, Simon Graduate
School of Business, University of Rochester from
October, 1991 to July, 1992).

James L. Moody, Jr. 66 Trustee Retired (formerly Chairman of the Board, Hannaford Bros.
16 Running Tide Road Co. from May, 1984 to May, 1997, and Chief Executive
Cape Elizabeth, ME 04107 Officer, Hannaford Bros. Co. from May, 1973 to May, 1992).

John J. Neuhauser 54 Trustee Dean, Boston College School of Management since
140 Commonwealth Avenue September, 1977.
Chestnut Hill, MA 0216

Robert L. Sullivan 70 Trustee Retired Partner, Peat Marwick Main & Co.
7121 Natelli Woods Lane
Bethesda, MD 20817

Harold W. Cogger 62 President President of Colonial funds since March, 1996 (formerly
Vice President from July, 1993 to March, 1996); is
Director, since March, 1984 and Chairman of the Board
since March, 1996 of the Adviser (formerly President
from July, 1993 to December, 1996, Chief Executive
Officer from March, 1995 to December, 1996 and
Executive Vice President from October, 1989 to July,
1993); Director since October, 1991 and Chairman of the
Board since March, 1996 of TCG (formerly President from
October, 1994 to December, 1996 and Chief Executive
Officer from March, 1995 to December, 1996); Executive
Vice President and Director since March, 1995, Liberty
Financial; Director since November, 1996 of Stein Roe &
Farnham Incorporated.

J. Kevin Connaughton 33 Controller and Controller and Chief Accounting Officer of Colonial
Chief Accounting funds since February, 1998, is Vice President of the
Officer Adviser since February, 1998 (formerly Senior Tax
Manager, Coopers & Lybrand, LLP from April, 1996 to
January, 1998; Vice President, 440 Financial Group/First
Data Investor Services Group from March ,1994 to April,
1996; Vice President, The Boston Company (subsidiary of
Mellon Bank) from December,
1993 to March, 1994; Assistant Vice President and Tax
Manager, Mellon Bank from March, 1992 to December, 1993).

Timothy J. Jacoby 45 Treasurer and Treasurer and Chief Financial Officer of Colonial funds
Chief Financial since October, 1996 (formerly Controller and Chief
Officer Accounting Officer from October, 1997 to February,
1998), is Senior Vice President of the Adviser since
September, 1996 (formerly Senior Vice President, Fidelity
Accounting and Custody Services from September, 1993 to
September, 1996 and Assistant Treasurer to the Fidelity
Group of Funds from August, 1990 to September, 1993).

Nancy L. Conlin 44 Secretary Secretary of Colonial funds since April, 1998 (formerly
Assistant Secretary from July, 1994 to April, 1998), is
Director, Senior Vice President, General Counsel, Clerk
and Secretary of the Adviser since April, 1998
(formerly Vice President, Counsel, Assistant Secretary
and Assistant Clerk from July, 1994 to April, 1998),
Vice President - Legal, General Counsel and Clerk of
TCG since April, 1998 (formerly Assistant Clerk from
July, 1994 to April, 1998)

Davey S. Scoon 51 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)
</TABLE>

* A Trustee who is an "interested person" (as defined in the Investment
Company Act of 1940) of the fund or the Adviser.

The business 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 $8,000 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 39 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 Money
Market Fund, Colonial Municipal Money Market Fund, Colonial Global Utilities
Fund, Newport Tiger Fund, Newport Japan Opportunities Fund, Colonial Newport
Tiger Cub Fund or Newport Greater China 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. Under the Agreement,
any liability of the Adviser to the Trust, a fund and/or its shareholders is
limited to situations involving the Adviser's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its 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

17
<PAGE>

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 printing and mailing any Prospectuses sent to
shareholders. LFII pays the cost of printing and distributing all other
Prospectuses.

Administration Agreement (this section applies only to the Colonial Money Market
Fund, Colonial Municipal Money Market Fund, Colonial Global Utilities Fund,
Newport Tiger Fund, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub
Fund and Newport Greater China Fund and their respective Trusts).

Under an Administration Agreement with each Fund named above, 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 Money Market Fund and Colonial Municipal Money
Market Fund, the Administration Agreement for these funds 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 following
Portfolios: SR&F Municipal Money Market Portfolio
(Municipal Money Market Portfolio) in which Colonial
Municipal Money Market Fund is invested; SR&F Cash
Reserves Portfolio in which Colonial Money Market Fund is
invested; and the LFC Utilities Trust (LFC Portfolio) in
which Colonial Global Utilities Fund is invested and
reporting to the Trustees from time to time with respect
thereto.

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 Adviser, in its capacity as
the Administrator to each of Colonial Money Market Fund, Colonial Municipal
Money Market Fund and Colonial Global Utilities Fund, is paid an annual fee of
$18,000, plus 0.0233% of average daily net assets in excess of $50 million. For
each of the other Colonial funds (except for Newport Tiger Fund, Newport Japan
Opportunities Fund, Colonial Newport Tiger Cub Fund and
Newport Greater China 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 Newport Tiger Fund,
Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport
Greater China Fund for an annual fee of $27,000, plus 0.035% of each Fund's
average daily net assets over $50 million.

Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.

Portfolio Transactions

The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Money Market Fund, Colonial
Municipal Money Market Fund, and Colonial Global Utilities Fund. For each of
these funds, see Part 1 of its respective SAI. The Adviser of Newport Tiger
Fund, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and
Newport Greater China 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 Money Market Fund, Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Newport Tiger Fund, Newport
Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport Greater
China Fund, each of which is administered by the 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.

It is the Adviser's policy generally 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.

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.

The Trustees have authorized the Adviser to 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 Adviser may use the services of AlphaTrade Inc. (ATI), its registered
broker-dealer subsidiary, when buying or selling equity securities for a Fund's
portfolio, pursuant to procedures adopted by the Trustees and Investment Company
Act Rule 17e-1. Under the Rule, the Adviser must ensure that commissions a Fund
pays ATI on portfolio transactions are reasonable and fair compared to
commissions received by other broker-dealers in connection with comparable
transactions involving similar securities being bought or sold at about the same
time. The Adviser will report quarterly to the Trustees on all securities
transactions placed through ATI so that the Trustees may consider whether such
trades complied with these procedures and the Rule. ATI employs electronic
trading methods by which it seeks to obtain best price and execution for the
Fund, and will use a clearing broker to settle trades.

Principal Underwriter

LFII is the principal underwriter of the Trust's shares. LFII 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 to CISC or generally by 6 months' notice by CISC to the Fund.
The agreement limits the liability of CISC to the Fund for loss or damage
incurred by the Fund to situations involving a failure of CISC to use reasonable
care or to act in good faith in performing its duties under the agreement. It
also provides that the Fund will indemnify CISC against, among other things,
loss or damage incurred by CISC on account of any claim, demand, action or suit
made on or against CISC not resulting from CISC's bad faith or negligence and
arising out of, or in connection with, its duties under the agreement.

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. Central time) each day the Exchange is open. Currently,
the Exchange is
closed Saturdays, Sundays and the following holidays: New Year's Day, Martin
Luther King, Jr. 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 by the
Adviser 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 Newport Tiger Fund, Newport
Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport Greater
China Fund - "Adviser" in these two paragraphs refers to each fund's Adviser,
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 does not apply to
the Colonial Money Market funds, - see "Amortized Cost for Money Market Funds"
under "Other Information Concerning the Portfolio" in Part 1 of the SAI of
Colonial Money Market Fund and 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 that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting 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 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, LFII'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 LFII retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFII generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFII 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 LFII.

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, 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
advised by Colonial, Newport Fund Management, Inc. and Stein Roe & Farnham
Incorporated 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 LFII 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 LFII.

Automated Dollar Cost Averaging (Classes A, B and C). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund advised by Colonial, Newport Fund Management, Inc.
and Stein Roe & Farnham Incorporated 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.

LFII 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. LFII 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. BankBoston, N.A. is the
Trustee of LFII prototype plans and charges a $10 annual fee. Detailed
information concerning these Retirement Plans and copies of the Retirement Plans
are available from LFII.

Participants in non-Colonial prototype Retirement Plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
CISC. Participants in Colonial prototype Plans (other than IRAs) who liquidate
the total value of their account will also be charged a $15 close-out processing
fee payable to CISC. The fee is in addition to any applicable CDSC. The fee will
not apply if the participant uses the proceeds to open a Colonial IRA Rollover
account in any fund, or if the Plan maintains an omnibus account.

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 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, T and Z shares of the Colonial funds advised by Colonial, Newport Fund
Management, Inc. and Stein Roe & Farnham Incorporated. 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, T and Z shares).

LFII 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.

23
<PAGE>

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, 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 LFII the excess commission previously paid
during the thirteen-month period.

If the amount of the Statement is not purchased, the shareholder shall remit to
LFII 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:

<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>

*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. LFII 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, C 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, LFII 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 LFII; 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 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 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
LFII pursuant to which the Colonial funds are included as investment options in
programs involving fee-based compensation arrangements, and by participants in
certain retirement plans.

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 C) 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 CISC, to the extent the redemptions do not exceed, on an annual basis,
12% of the account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a period at
least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement does not apply
if the SWP is set up at the time the account is established, and
distributions are being reinvested. See below under "Investor 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 normal
retirement (as stated in the Plan document). CDSCs also will be waived on
SWP redemptions made to make required minimum distributions from qualified
retirement plans that have invested in funds distributed by LFII 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 delay
sending proceeds for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.

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 C 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 Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class C
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn in excess of 12% annually. 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 fund shareholders and/or their FSFs (except
for Colonial Newport Tiger Cub Fund, Newport Japan Opportunities Fund and
Newport Greater China 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, Newport Japan
Opportunities Fund and the Newport Greater China 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 FSFs will be required to provide their name, address
and account number. FSFs 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 shares of certain Colonial funds) Shares
may be redeemed by check if a shareholder has previously completed an
Application and Signature Card. CISC 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. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.

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
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks.

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 Money Market Fund and 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 or 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 1-800-426-3750.

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 the 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 may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.

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 of a fund 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 fund that were entitled to dividends
during 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 of a fund 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 are 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.

General. From time to time, the Fund may discuss, or quote its current portfolio
manager as well as other investment personnel, including such persons' views on:
the economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund, including the New
Value(TM) investment strategy that expands upon the principles of traditional
value investing; the Fund's portfolio holdings; the investment research and
analysis process; the formulation and evaluation of investment recommendations;
and the assessment and evaluation of credit, interest rate, market and economic
risks and similar or related matters.

The Fund may also quote evaluations mentioned in independent radio or television
broadcasts, and use charts and graphs to illustrate the past performance of
various indices such as those mentioned in Appendix II and illustrations using
hypothetical rates of return to illustrate the effects of compounding and
tax-deferral. The Fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar costs averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low.

From time to time, the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; general investment techniques (e.g.,
asset allocation and disciplined saving and investing); business succession;
issues with respect to insurance (e.g., disability and life insurance and
Medicare supplemental insurance); issues regarding financial and health care
management for elderly family members; and similar or related matters.

APPENDIX I
DESCRIPTION OF BOND RATINGS

STANDARD & POOR'S CORPORATION (S&P)

The following descriptions are applicable to municipal bond funds:

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, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.

BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.

B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.

CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.

C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.

CI rating is reserved for income bonds on which no interest is being paid.

D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.

<PAGE>

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.

The following descriptions are applicable to equity and taxable bond funds:

AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.

AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.

32
<PAGE>

CC bonds are currently highly vulnerable to nonpayment.

C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.

Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

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.

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.

(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.

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.

FITCH INVESTORS SERVICES

Investment Grade Bond Ratings

AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in the
`AAA' and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.

A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.

BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse

<PAGE>

impact on these securities and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher than
for securities with higher ratings.

Conditional
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.

Speculative-Grade Bond Ratings

BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.

B bonds are considered highly speculative. While securities in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C bonds are in imminent default in payment of interest or principal.

DDD, DD, and D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.

DUFF & PHELPS CREDIT RATING CO.

AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA - High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A+, A, A - Protection factors are average but adequate. However, risk factors
are more available and greater in periods of economic stress.

BBB+, BBB, BBB - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

BB+, BB, BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.

B+, B, B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.

CCC - Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

DD - Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.

<PAGE>

<TABLE>
<CAPTION>
APPENDIX II

1997
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------

<S> <C> <C>
Donoghue Tax-Free Funds 4.93
Donoghue U.S. Treasury Funds 4.65
Dow Jones & Company Industrial Index 24.87
Morgan Stanley Capital International EAFE Index 1.78
Morgan Stanley Capital International EAFE GDP Index 5.77
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 5.82
Lipper California Municipal Bond Funds 9.15
Lipper Connecticut Municipal Bond Funds 8.53
Lipper Closed End Bond Funds 12.01
Lipper Florida Municipal Bond Funds 8.53
Lipper General Municipal Bonds 9.11
Lipper Global Funds 13.04
Lipper Growth Funds 25.30
Lipper Growth & Income Funds 27.14
Lipper High Current Yield Bond Funds 12.96
Lipper High Yield Municipal Bond Debt 10.11
Lipper Fixed Income Funds 8.67
Lipper Insured Municipal Bond Average 8.39
Lipper Intermediate Muni Bonds 7.16
Lipper Intermediate (5-10) U.S. Government Funds 8.08
Lipper Massachusetts Municipal Bond Funds 8.64
Lipper Michigan Municipal Bond Funds 8.50
Lipper Mid Cap Funds 19.76
Lipper Minnesota Municipal Bond Funds 8.15
Lipper U.S. Government Money Market Funds 4.90
Lipper New York Municipal Bond Funds 8.99
Lipper North Carolina Municipal Bond Funds 8.84
Lipper Ohio Municipal Bond Funds 8.16
Lipper Small Cap Funds 20.75
Lipper General U.S. Government Funds 8.84
Lipper Pacific Region Funds-Ex-Japan (35.52)
Lipper International Funds 5.44
Lipper Balanced Funds 19.00
Lipper Tax-Exempt Money Market 3.08
Lipper Multi-Sector 8.77
Lipper Corporate Debt BBB 10.08
Lipper High Yield Municipal - Closed Ends 9.66
Lipper High Current Yield - Closed Ends 14.31
Lipper General Municipal Debt - Closed Ends 10.26
Lipper Intermediate Investment Grade Debt 8.57
Lipper Utilities 26.01
Lipper Japan (14.07)
Lipper China (22.92)
Shearson Lehman Composite Government Index 9.59
Shearson Lehman Government/Corporate Index 9.76
Shearson Lehman Long-term Government Index 9.58
Shearson Lehman Municipal Bond Index 9.19
Shearson Lehman U.S. Government 1-3 6.65
S&P S&P 500 Index 33.35
S&P Utility Index 24.65
S&P Barra Growth 36.38
S&P Barra Value 29.99
S&P Midcap 400 19.00
First Boston High Yield Index 12.63
</TABLE>

36
<PAGE>

<TABLE>

<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------

<S> <C> <C>
Swiss Bank 10 Year U.S. Government (Corporate Bond) 11.20
Swiss Bank 10 Year United Kingdom (Corporate Bond) 12.54
Swiss Bank 10 Year France (Corporate Bond) (4.79)
Swiss Bank 10 Year Germany (Corporate Bond) (6.13)
Swiss Bank 10 Year Japan (Corporate Bond) (3.39)
Swiss Bank 10 Year Canada (Corporate Bond) 7.79
Swiss Bank 10 Year Australia (Corporate Bond) (3.93)
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 19.18
Morgan Stanley Capital International 10 Year Belgium (Equity) 14.43
Morgan Stanley Capital International 10 Year Austria (Equity) 7.58
Morgan Stanley Capital International 10 Year France (Equity) 13.27
Morgan Stanley Capital International 10 Year Netherlands (Equity) 18.61
Morgan Stanley Capital International 10 Year Japan (Equity) (2.90)
Morgan Stanley Capital International 10 Year Switzerland (Equity) 18.53
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 13.95
Morgan Stanley Capital International 10 Year Germany (Equity) 13.75
Morgan Stanley Capital International 10 Year Italy (Equity) 6.15
Morgan Stanley Capital International 10 Year Sweden (Equity) 17.62
Morgan Stanley Capital International 10 Year United States (Equity) 17.39
Morgan Stanley Capital International 10 Year Australia (Equity) 9.25
Morgan Stanley Capital International 10 Year Norway (Equity) 13.29
Morgan Stanley Capital International 10 Year Spain (Equity) 10.58
Morgan Stanley Capital International World GDP Index 13.35
Morgan Stanley Capital International Pacific Region Funds Ex-Japan (31.00)
Bureau of Labor Statistics Consumer Price Index (Inflation) 1.70
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Salomon Six-Month Treasury Bill 5.41
Salomon One-Year Constant-Maturity Treasury Rate N/A
Salomon Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell Company Russell 2000(R)Index 22.36
Frank Russell Company Russell 1000(R)Value Index 35.18
Frank Russell Company Russell 1000(R)Growth Index 30.49
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>

The Russell 2000(R) Index, the Russell 1000(R) Value Index and the Russell
1000(R) Growth Index are each a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.

*in U.S. currency

<PAGE>

COLONIAL TRUST I

Cross Reference Sheet
(Colonial Income Fund)

Item Number of Form N-1A Statement of Additional
Information Location or Caption

Part B

10. Cover Page

11. Table of Contents

12. Not Applicable

13. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Portfolio Turnover;
Miscellaneous Investment Practices

14. 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; Shareholder
Liability

20. Taxes

21. Fund Charges and Expenses;
Management of the Colonial Funds

22. Fund Charges and Expenses;
Investment Performance;
Performance Measures

23. Independent Accountants
<PAGE>

COLONIAL INCOME FUND

Statement of Additional Information
April 30, 1998

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Income Fund (Fund). This SAI is not a prospectus and is only authorized for
distribution when accompanied or preceded by the Prospectus of the Fund dated
April 30, 1998. This SAI should be read together with the Prospectus and the
Fund's most recent Annual Report dated December 31, 1997. Investors may obtain a
free copy of the Prospectus and the Annual Report from Liberty Financial
Investments, Inc., One Financial Center, Boston, MA 02111-2621.

TABLE OF CONTENTS
Part 1 Page

Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants

Part 2

Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II

IF-16/911E-0498

<PAGE>

Part 1
COLONIAL INCOME FUND

Statement of Additional Information
April 30, 1998

DEFINITIONS

<TABLE>
<CAPTION>
<S> <C>
"Trust" Colonial Trust I
"Fund" Colonial Income Fund
"Adviser" Colonial Management Associates, Inc., the Fund's
investment adviser
"LFII" Liberty Financial Investments, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the investment restrictions of the Fund. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectus:

Lower Rated Debt Securities
Zero Coupon Securities
Step Coupon Bonds
Pay-In-Kind Securities
Forward Commitments (When Issued and Delayed Delivery Securities)
Repurchase Agreements
Futures Contracts and Related Options (interest rate futures and
related options only)
Foreign 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 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
diversification requirement, an issuer is the entity whose revenues support the
security.

The Fund may:

1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however, the
Fund will not purchase additional portfolio securities while borrowings
exceed 5% of net assets;

2. Only own real estate acquired as a result of owning securities and not more
than 5% of total assets;

3. Invest up to 10% of its net assets in illiquid assets;

4. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on contracts do not exceed 5% of its
total assets;

5. Underwrite securities issued by others only when disposing of portfolio
securities;

6. Make loans through lending of securities not exceeding 30% of total assets,
through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and through
repurchase agreements; and

7. Not concentrate more than 25% of its total assets in any one industry, or
with respect to 75% of total assets purchase any security (other than
obligations of the U.S. Government and cash items including receivables) if
as a result more than 5% of its total assets would then be invested in
securities of a single issuer, or purchase voting securities of an issuer
if, as a result of such purchase, the Fund would own more than 10% of the
outstanding voting shares of such issuer.

b
<PAGE>

OTHER INVESTMENT POLICIES

As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:

2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities.

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 at the annual rate of 0.50%.

Recent Fees paid to the Adviser, LFII and CISC (for the fiscal years ended
December 31) (dollars in thousands)

1997 1996 1995
---- ---- ----

Management fee $787 $852 $849
Bookkeeping fee 65 69 69
Shareholder services
and transfer
agent fee 350 385 384
12b-1 fees:
Service fee (Classes
A, B and C)(a) 394 425 426
Distribution fee
(Class B) 264 271 223
Distribution fee
(Class C) (b) -- --

(a) Class C shares were initially offered on August 1, 1997.
(b) Rounds to less than one.

Brokerage Commissions

The Fund did not pay brokerage commissions during the fiscal years ended
December 31, 1997, 1996 and 1995 .

Trustees and Trustees' Fees

For the fiscal and calendar year ended December 31, 1997, the Trustees received
the following compensation for serving as Trustees (c):

Total Compensation
Aggregate From Trust And
Compensation Fund Complex Paid To The
From Fund For The Fiscal Trustees For The Calendar
Year Ended December 31, Year Ended December 31,
Trustee 1997 1997(d)
- ------- ---- -------
Robert J. Birnbaum $1,347 $ 93,949
Tom Bleasdale 1,398(e) 106,432(f)
Lora S. Collins 1,348 93,949
James E. Grinnell 1,490(g) 94,698(h)
William D. Ireland, Jr.(i) 1,455 101,445
Richard W. Lowry 1,356 94,968
William E. Mayer 1,289 89,949
James L. Moody, Jr. 1,412(j) 98,447(k)
John J. Neuhauser 1,361 94,989
George L. Shinn(i) 1,484 103,443
Robert L. Sullivan 1,433 99,945
Sinclair Weeks, Jr.(i) 1,455 101,445

c
<PAGE>

(d) At December 31, 1997, the Colonial Funds complex consisted of 39 open-end
and 5 closed-end management investment company portfolios.

(e) Includes $699 payable in later years as deferred compensation.

(f) Includes $57,454 payable in later years as deferred compensation.

(g) Includes $137 payable in later years as deferred compensation.

(h) Includes $4,797 payable in later years as deferred compensation.

(i) Retired as Trustee of the Trust effective April 24, 1998.

(j) Total compensation of $1,412 for the fiscal year ended December 31, 1997
will be payable in later years as deferred compensation.

(k) Total compensation of $98,447 for the calendar year ended December 31, 1997
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.
(together, Liberty Funds) for service during the calendar year ended December
31, 1997:

<TABLE>
<CAPTION>
Total Compensation
From Liberty Funds For
The Calendar Year
Ended December 31,
Trustee 1997 (l)
<S> <C>
Robert J. Birnbaum $26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800
</TABLE>

(l) The Liberty Funds are 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, 1998, the officers and Trustees of the Trust as a group
beneficially owned less than 1% of the aggregate outstanding shares of the Fund.

At March 31, 1998 there were the following shareholders of record owning 5% or
more of the outstanding shares of each class:

Merrill Lynch Pierce Fenner & Smith For the Sole Benefit of its Customers, Attn:
Fund Administration, 4800 Deer Lake Dr., E 3rd Floor, Jacksonville, FL 32246,
owned 666,863 Class B and 11,487 Class C shares, representing 12.09% and 21.74%
of the respective Classes outstanding shares.

The Adviser owned 15,962 Class C shares representing 30.21% of such Class's
outstanding shares.

At March 31, 1998, there were 6,946 Class A, and 2,719 Class B and 43 Class C
shareholders of record of the Fund.

Sales Charges (for the fiscal years ended December 31) (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on
Fund share sales $68 $159 $204
Initial sales charges retained by LFII 8 19 24

d
<PAGE>

Class B Shares
1997 1996 1995
---- ---- ----
Aggregate contingent deferred sales
charges (CDSC) on Fund
redemptions retained by LFII $93 $142 $82
</TABLE>

There were no CDSCs retained by LFII on Class C share redemptions for the fiscal
year ended December 31, 1997.

12b-1 Plan, CDSC and Conversion of Shares

The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays LFII monthly a service fee at an annual rate of 0.25% of net assets
attributed to each Class of shares. The Fund also pays LFII monthly a
distribution fee at an annual rate of 0.75% of average daily net assets
attributed to Class B and Class C shares. The Distributor has voluntarily agreed
to waive a portion of the Class C share distribution fee so that it does not
exceed 0.60% annually. LFII may use the entire amount of such fees to defray the
costs of commissions and service fees paid to financial service firms (FSFs) and
for certain other purposes. Since the distribution and service fees are payable
regardless of the amount of LFII's expenses, LFII may realize a profit from the
fees.

The Plan also authorizes any other payments by the Fund to LFII and its
affiliates (including the Adviser) to the extent that such payments might be
construed to be indirectly financing the distribution of Fund shares.

The Trustees believe the Plan 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 Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase materially the fee without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are non-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. Class C shares
are offered at net asset value and are subject to a 1.00% CDSC on redemptions
within one year after purchase. The CDSCs are described in the Prospectus.

No CDSC will be imposed on shares derived from reinvestment of distributions or
on amounts representing capital appreciation. In determining the applicability
and rate of any CDSC, it will be assumed that a redemption is made first of
shares representing capital appreciation, next of shares representing
reinvestment of distributions and finally of other shares held by the
shareholder for the longest period of time.

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 LFII relating to the Fund for
the fiscal year ended December 31, 1997 were:

<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Fees to FSFs $311 $226 $12
Cost of sales material relating to the
Fund (including printing and mailing
expenses) 18 26 1
Allocated travel, entertainment and
other promotional expenses (including
advertising) 11 16 1
</TABLE>

e
<PAGE>

INVESTMENT PERFORMANCE

The Fund's Class A, Class B and Class C yields for the month ended December 31,
1997, were 5.70%, 5.22% and 5.37%, respectively.

The Fund's Class A and Class B average annual and total returns at December 31,
1997, were:

<TABLE>
<CAPTION>
Class A Shares
--------------
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of
4.75% 3.51% 6.75% 8.33%
Without sales charge 8.67% 7.79% 8.86%
</TABLE>

<TABLE>
<CAPTION>
Class B Shares
--------------
May 15, 1992
(Class B shares
intially offered)
through
1 year 5 years December 31, 1997
------ ------- ------------------
<S> <C> <C> <C>
With applicable
CDSC 2.87% (5.00% CDSC) 6.69% (2.00% CDSC) 7.16% (1.00% CDSC)
Without CDSC 7.87% 7.00% 7.29%
</TABLE>

The Fund's Class C total returns at December 31, 1997 were (m):

Class C Shares
--------------
August 1, 1997
(Class C shares initially
offered)
through December 31, 1997
-------------------------
With 1.00% CDSC 1.17%
Without CDSC 2.17%

(m) Performance results reflect any voluntary waiver or reimbursement by the
Adviser or its affiliates of Class expenses. Absent this waiver or
reimbursement arrangement, performance results would have been lower. See
the Prospectus for details.

The Fund's Class A, Class B and Class C distribution rates at December 31, 1997,
based on the most recent month's distributions, annualized, and the maximum
offering price at the end of the month, were 6.51%, 6.09% and 6.24%,
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 the Report of Independent Accountants appearing in
the Fund's December 31, 1997 Annual Report, are incorporated in this SAI by
reference.

<PAGE>

COLONIAL TRUST I

Cross Reference Sheet
(Colonial Strategic Income Fund)

Item Number of Form N-1A Statement of Additional
Information Location or Caption

Part B

10. Cover Page

11. Table of Contents

12. Not Applicable

13. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Portfolio Turnover;
Miscellaneous Investment Practices

14. 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; Shareholder
Liability

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 STRATEGIC INCOME FUND

Statement of Additional Information
April 30, 1998

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, 1998. This SAI should be read together with the Prospectus and
the Fund's most recent Annual Report dated December 31, 1997. Investors may
obtain a free copy of the Prospectus and the Annual Report from Liberty
Financial Investments, Inc., One Financial Center, Boston, MA 02111-2621.

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 g
Independent Accountants g
Part 2
Miscellaneous Investment Practices 1
Taxes 10
Management of the Colonial Funds 13
Determination of Net Asset Value 18
How to Buy Shares 19
Special Purchase Programs/Investor Services 20
Programs for Reducing or Eliminating Sales Charges 21
How to Sell Shares 23
Distributions 25
How to Exchange Shares 25
Suspension of Redemptions 26
Shareholder Liability 26
Shareholder Meetings 26
Performance Measures 26
Appendix I 28
Appendix II 33

SI-16/183F-0498

<PAGE>

Part 1

COLONIAL STRATEGIC INCOME FUND
Statement of Additional Information

April 30, 1998

DEFINITIONS

"Trust" Colonial Trust I
"Fund" Colonial Strategic Income Fund
"Adviser" Colonial Management Associates, Inc., the Fund's investment
adviser
"LFII" Liberty Financial Investments, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's shareholder
services and transfer agent

INVESTMENT OBJECTIVE AND POLICIES

The Fund's Prospectus describes its investment objective and investment
policies. Part 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)

Mortgage Dollar Rolls

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.

The Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however, the
Fund will not purchase additional portfolio securities while borrowings
exceed 5% of net assets;
2. Only own real estate acquired as a result of owning securities and not
more than 5% of total assets;
3. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on contracts do not exceed 5% of its
total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and
through repurchase agreements; and
6. Not concentrate more than 25% of its total assets in any one industry or,
with respect to 75% of total assets, purchase any security (other than
obligations of the U.S. government and cash items including receivables)
if as a result more than 5% of its total assets would then be invested in
securities of a single issuer or purchase the voting securities of an
issuer if, as a result of such purchases, the Fund would own more than 10%
of the outstanding voting shares of such issuer.

<PAGE>

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.

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.

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, LFII and CISC (dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Management fee $10,020 $9,243 $8,488
Bookkeeping fee 506 474 442
Shareholder service and transfer agent fee 3,865 3,464 3,254
12b-1 fees:
Service fee (Classes A, B and C) (a) 3,655 3,370 3,041
Distribution fee (Class B) 6,059 5,514 4,931
Distribution fee (Class C) 9 -- --
</TABLE>

(a) Class C Shares were initially offered on July 1, 1997.

Brokerage Commissions (dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total commissions $ 2 $1 $ 24
Directed transactions 386 1 584
Commissions on directed transactions (b) 1 6
</TABLE>

(b) Rounds to less than one.

<PAGE>

Trustees and Trustees' Fees
For the fiscal year ended December 31, 1997 and the calendar year ended December
31, 1997, the Trustees received the following compensation for serving as
Trustees(c):

<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, 1997 December 31, 1997(d)
- ------- ----------------------------------- --------------------
<S> <C> <C>
Robert J. Birnbaum $ 6,531 $ 93,949
Tom Bleasdale 6,826(e) 106,432(f)
Lora S. Collins 6,531 93,949
James E. Grinnell 7,243(g) 94,698(h)
William D. Ireland, Jr.(i) 7,051 101,445
Richard W. Lowry 6,587 94,698
William E. Mayer 6,252 89,949
James L. Moody, Jr. 6,840(j) 98,447(k)
John J. Neuhauser 6,603 94,948
George L. Shinn(i) 7,189 103,443
Robert L. Sullivan 6,950 99,945
Sinclair Weeks, Jr.(i) 7,052 101,445
</TABLE>

(c) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(d) At December 31, 1997, the Colonial Funds complex consisted of 39 open-end
and 5 closed-end management investment company portfolios. (e) Includes
$3,413 payable in later years as deferred compensation.
(f) Includes $57,454 payable in later years as deferred compensation.
(g) Includes $657 payable in later years as deferred compensation.
(h) Includes $4,797 payable in later years as deferred compensation.
(i) Retired as Trustee of the Trust effective April 24, 1998.
(j) Total compensation of $6,840 for the fiscal year ended December 31, 1997,
will be payable in later years as deferred compensation.
(k) Total compensation of $98,447 for the calendar year ended December 31,
1997, 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.
(together, Liberty Funds) for service during the calendar year ended December
31, 1997:

<TABLE>
<CAPTION>
Total Compensation From Liberty
Funds For The Calendar Year Ended
Trustee December 31, 1997 (k)

<S> <C>
Robert J. Birnbaum $ 26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800
</TABLE>

(k) The Liberty Funds are 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

As of record on March 31, 1998, the officers and Trustees of the Trust as a
group owned less than 1% of the outstanding Class A, Class B and Class C shares
of the Fund.

<PAGE>

As of record on April 4, 1998, Merrill Lynch, Pierce Fenner & Smith, Inc., Attn.
Book Entry, 4800 Deer Lake Drive E., 3rd Floor, Jacksonville, FL 33216, owned
8.00% of outstanding Class A shares, 8.49% of outstanding Class B shares and
9.28% of outstanding Class C shares of the Fund.

At March 31, 1998, there were 41,851 Class A and 39,837 Class B and 510 Class C
record holders of the Fund.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
Years ended December 31

1997 1996 1995
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $1,809 $2,340 $1,521
Initial sales charges retained by LFII 226 268 177

Class B Shares
Years ended December 31

1997 1996 1995
<S> <C> <C> <C>
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by LFII $2,079 $2,180 $2,035

Class C Shares
Years ended December 31

1997 1996 1995
<S> <C> <C> <C>
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by LFII $1 N/A N/A
</TABLE>

12b-1 Plan, CDSCs and Conversion of Shares

The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays LFII monthly a service fee at an annual rate of 0.15% of the Fund's net
assets attributed to each Class of shares issued on or before January 1, 1993, a
service fee of 0.25% of the Fund's net assets attributed to each Class of shares
issued and outstanding thereafter. The Fund also pays LFII monthly a
distribution fee at an annual rate of 0.75% of average daily net assets
attributed to Class B and Class C shares. The Distributor has voluntarily agreed
to waive a portion of the Class C share distribution fee so that it does not
exceed 0.60% annually. LFII 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 LFII's expenses, LFII may realize a profit from the fees. The Plan
authorize any other payments by the Fund to LFII 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 Plan 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 Plan 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 Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan 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 Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan 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 Plan 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.

e
<PAGE>

asset value and are subject to a 1.00% CDSC on redemptions within one year after
purchase. The CDSCs are described in the Prospectus.

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 LFII relating to the Fund were:

<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Fees to FSFs $1,496 $6,087 $55
Cost of sales material relating to the Fund
(including printing and mailing expenses) 549 574 21
Allocated travel, entertainment and other promotional
expenses (including advertising) 441 463 24
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A, Class B and Class C share yields for the month ended
December 31, 1997 were 6.23%, 5.78% and 5.93%, respectively.

The Fund's Class A and Class B share average annual total returns at December
31, 1997 were:

<TABLE>
<CAPTION>
Class A Shares
--------------
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 3.45% 8.70% 9.81%
Without sales charge 8.61% 9.76% 10.35%
</TABLE>

<TABLE>
<CAPTION>
Class B Shares
--------------
May 15, 1992
(commencement of investment
operations)
1 year 5 years through December 31, 1997
------ ------- -------------------------
<S> <C> <C> <C>
With applicable CDSC 2.81% (5.00% CDSC) 8.67% (2.00% CDSC) 8.63% (1.00% CDSC)
Without CDSC 7.81% 8.95% 8.75%
</TABLE>

The Fund's Class C share average total returns at December 31, 1997 were:

<TABLE>
<CAPTION>
Class C Shares
Period July 1, 1997
(commencement of investment operations)
through December 31, 1997
-------------------------
<S> <C>
With applicable CDSC (l) 4.06% (1.00% CDSC)
Without CDSC (l) 5.06%
</TABLE>

(l) Performance results reflect any voluntary waiver or reimbursement by the
Adviser or its affiliates of

<PAGE>

class expenses. Absent this waiver or reimbursement arrangement,
performance results would have been lower. See the Prospectus for details.

The Fund's Class A, Class B and Class C share distribution rates at December 31,
1997, based on the most recent quarter's distribution, annualized, and the
maximum offering price at the end of the quarter, were 7.87%, 7.11% and 7.26%,
respectively.

See Part 2 of this SAI, "Performance Measures," for how calculations are made.

CUSTODIAN

INDEPENDENT ACCOUNTANTS

The financial statements and Report of Independent Accountants appearing in the
December 31, 1997 Annual Report are incorporated in this SAI by reference.

<PAGE>

Part C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Included in Part A

Summary of Expenses

The Fund's Financial History

Incorporated by reference into Part B are the financial statements
contained in the Annual Reports for the Registrant's series, Colonial High Yield
Securities Fund, Colonial Income Fund and Colonial Strategic Income Fund, dated
December 31, 1997 (which were previously filed electronically pursuant to
Section 30(b)(2) of the Investment Company Act of 1940):

Fund Accession Number

Colonial High Yield Securities Fund (CHYSF) 0000021847-98-000013
Colonial Income Fund (CIF) 0000021847-98-000015
Colonial Strategic Income Fund (CSIF) 0000021847-98-000009

The Financial Statements contained in such series' Annual Report are as
follows:

Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants

(b) Exhibits:

1. Amendment No. 3 to the Agreement and Declaration of Trust (c)

2. Amended By-Laws dated 2/16/96 (a)

3. Not applicable

4. Form of Specimen of Share Certificate - filed
as Exhibit 4 in Part C, Item 24(b) of
Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A of Colonial
Trust IV (File Nos. 2-62492 and 811-2865) and
is hereby incorporated by reference and made a
part of this Registration Statement

5.(a)Management Agreement between Colonial Trust I, with respect
to CHYSF and Colonial Management Associates, Inc. (a)

(b)Management Agreement between Colonial Trust I, with respect
to CIF and Colonial Management Associates, Inc. (a)

(c)Management Agreement between Colonial Trust I,
with respect to CSIF and Colonial Management
Associates, Inc. (a)

6.(a)Distributor's Contract with Colonial Investment Services,
Inc. (d)

(b)Form of Selling Agreement with Liberty
Financial Investments, Inc. - filed as Exhibit
6(b) in Part C, Item 24(b) of Post-Effective
Amendment No. 10 to the Registration Statement
on Form N-1A of Colonial Trust VI (File Nos.
33-45117 and 811-6529) and is hereby
incorporated by reference and made a part of
this Registration Statement

(c)Form of Bank and Bank Affiliated Selling
Agreement - filed as Exhibit 6(c)in Part C,
Item 24(b) of Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 and
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement

(d)Form of Asset Retention Agreement - filed as
Exhibit 6(d) in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Colonial
Trust VI (File Nos. 33-45117 and 811-6529) and
is hereby incorporated by reference and made a
part of this Registration Statement

7. Not applicable

8. (a)Custody Agreement with Boston Safe Deposit
and Trust Company - filed as Exhibit 8 in Part
C, Item 24(b) of Post-Effective Amendment No.
10 to the Registration Statement on Form N-1A
of Colonial Trust VI (File Nos. 33-45117 and
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement

(b)Amendment to Custody Agreement with Boston Safe
Deposit and Trust Company filed as Exhibit 8(a)
in Part C, Item 24(b) of Post-Effective
Amendment No. 10 to the Registration Statement
on Form N-1A of Colonial Trust VI (File Nos.
33-45117 and 811-6529) and is hereby
incorporated by reference and made a part of
this Registration Statement

(c)Custody Agreement with The Chase Manhattan Bank
- filed as Exhibit 8. in Part C, Item 24(b) of
Post-Effective Amendment No 13 to the
Registration Statement on Form N-1A of Colonial
Trust VI (File Nos. 33-45117 and 811-6529) and
is hereby incorporated by reference and made a
part of this Registration Statement

(d)Form of Customer, Safekeeping and Procedural Agreements (c)

9. (a)Pricing and Bookkeeping Agreement - filed
as Exhibit 9(b) in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Colonial
Trust VI (File Nos. 33-45117 and 811-6529) and
is hereby incorporated by reference and made a
part of this Registration Statement

(b)Amendment to Appendix I of Pricing and
Bookkeeping Agreement - filed as Exhibit
9(b)(i) in Part C, Item 24(b) of Post-Effective
Amendment No. 97 to the Registration Statement
on Form N-1A of Colonial Trust III (File Nos.
2-15184 and 811-881) and is incorporated by
reference and made a part of this Registration
Statement

(c)Amended and Restated Shareholders' Servicing
and Transfer Agent Agreement as amended -filed
as Exhibit No. 9(b) in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Colonial
Trust VII, (File Nos. 33-41559 & 811-6347) and
is hereby incorporated by reference and made a
part of this Registration Statement

(d)Amendment No. 10 to Schedule A of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
9(a)(ii) in Part C, Item 24(b) of
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Colonial
Trust VI (File Nos. 33-45117 & 811-6529) and is
hereby incorporated by reference and made a
part of this Registration Statement

(e)Amendment No. 15 to Appendix I of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
9(a)(ii) in Part C, Item 24(b) of
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Colonial
Trust VI (File Nos. 33-45117 & 811-6529) and is
hereby incorporated by reference and made a
part of this Registration Statement

(f)Credit Agreement - filed as Exhibit 9.(f) in
Part C, Item 24(b) of Post-Effective Amendment
No. 19 to the Registration Statement on Form
N-1A of Colonial Trust V (File Nos. 33-12109 &
811-5030) and is hereby incorporated by
reference and made a part of this Registration
Statement

(g)Amendment No. 1 to the Credit Agreement - filed
as Exhibit 9(f) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 and 811-881) and
is hereby incorporated by reference and made a
part of this Registration Statement

(h)Amendment No. 2 to the Credit Agreement - filed
as Exhibit 9(g) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 and 811-881) and
is hereby incorporated by reference and made a
part of this Registration Statement

(i)Amendment No. 3 to the Credit Agreement - filed
as Exhibit 9(h) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 and 811-881) and
is hereby incorporated by reference and made a
part of this Registration Statement

(j)Investment Account Application (incorporated herein by
reference to the Prospectuses)

10. Opinion and Consent of Counsel (b)

11. Consent of Independent Accountants

12. Not applicable

13. Not applicable

14.(a) Form of Colonial Mutual Funds Money
Purchase Pension and Profit Sharing Plan
Document and Employee Communications Kit -
filed as Exhibit 14(a) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 & 811-881) and is
hereby incorporated by reference and made a
part of this Registration Statement

(b) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Establishment
Booklet - filed as Exhibit 14(b) in Part C,
Item 24(b) of Post-Effective Amendment No. 99
to the Registration Statement on Form N-1A of
Colonial Trust III (File Nos. 2-15184 &
811-881) and is hereby incorporated by
reference and made a part of this Registration
Statement

(c) Form of Colonial IRA Application, Forms,
Custodial Agreement and Disclosure Statement
and Distribution Form - filed as Exhibit 14(c)
in Part C, Item 24(b) of Post-Effective
Amendment No. 99 to the Registration Statement
on Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881) and is hereby incorporated
by reference and made a part of this
Registration Statement

(d) IRA Application and Fact Kit- filed as Exhibit
14(d) in Part C, Item 24(b) of Post-Effective
Amendment No. 99 to the Registration Statement
on Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881) and is hereby incorporated
by reference and made a part of this
Registration Statement

(e) Form of Colonial Mutual Funds Simplified
Employee Pension Plan and Salary Reduction
Simplified Employee Pension Plan Application
and Fact Kit - filed as Exhibit 14(e) in Part
C, Item 24(b) of Post-Effective Amendment No.
99 to the Registration Statement on Form N-1A
of Colonial Trust III (File Nos. 2-15184 &
811-881) and is hereby incorporated by
reference and made a part of this Registration
Statement

(f) Form of Colonial of Mutual Funds 401(k) Plan
Document, Trust Agreement and IRS Opinion
Letter - filed as Exhibit 14.(v) in Part C,
Item 24(b) of Post-Effective Amendment No. 27
to the Registration Statement on Form N-1A of
Colonial Trust II (File Nos. 2-66976 &
811-3009) and is hereby incorporated by
reference and made a part of this Registration
Statement

(g) Form of Colonial Mutual Funds 401(k) Plan
Establishment Booklet and Employee
Communications Kit - filed as Exhibit 14.(vi)
in Part C, Item 24(b) of Post-Effective
Amendment No. 27 to the Registration Statement
on Form N-1A of Colonial Trust II (File Nos.
2-66976 & 811-3009) and is hereby incorporated
by reference and made a part of this
Registration Statement

(h) Form of Colonial 401(k) Beneficiary Designation
and Participant Enrollment Forms filed as
Exhibit 14(h) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 & 811-881) and is
hereby incorporated by reference and made a
part of this Registration Statement

(i) Form of Liberty Simple Ira Plan (e)

(j) Form of Liberty Roth IRA (e)

15.(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(a)
hereto

16.(a) Calculation of Performance Information
(Classes A and B) (CHYSF)(a)

(a)(1)Calculation of Performance Information (Class C) (CHYSF)

(b) Calculation of Yield (CHYSF)

(c)(1)Calculation of Performance Information (Class C) (CIF)

(d) Calculation of Yield (CIF)

(e) Calculation of Performance Information (Classes A and B)
(CSIF)(a)

(e)(1)Calculation of Performance Information (Class C)(CSIF)

(f) Calculation of Yield (CSIF)

17.(a) Financial Data Schedule (Class A)(CHYSF)

(b) Financial Data Schedule (Class B)(CHYSF)

(d) Financial Data Schedule (Class A)(CIF)

(e) Financial Data Schedule (Class B)(CIF)

(f) Financial Data Schedule (Class C)(CIF)

(g) Financial Data Schedule (Class A)(CSIF)

(h) Financial Data Schedule (Class B)(CSIF)

(i) Financial Data Schedule (Class C)(CSIF)

18.(a) Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale,
Lora S. Collins, James E. Grinnell, Richard W. Lowry,
William E. Mayer, James L. Moody, Jr., John J. Neuhauser,
and Robert L. Sullivan - filed as Exhibit 18(a) in
Part C, Item 24(b) of Post-Effective Amendment No. 99 to
the Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 and 811-881) and is hereby
incorporated by reference and made a part of this
Registration Statement

18.(b) Plan pursuant to Rule 18f-3(d) under the Investment
Company Act of 1940 (d)

(a) Incorporated by reference to Post-Effective
Amendment No. 40 filed with the Commission
via EDGAR on April 15, 1996.

(b) Incorporated by reference to Post-Effective
Amendment No. 41 filed with the Commission
via EDGAR on October 15, 1996.

(d) Incorporated by reference to Post-Effective
Amendment No. 44 filed with the Commission
via EDGAR on July 28, 1997.

(e) Incorporated by reference to Post-Effective
Amendment No. 45 filed with the Commission
via EDGAR on February 25, 1998.

Item 25. Persons Controlled by or under Common Control with Registrant

None

Item 26. Number of Holders of Securities

(1) (2)

Title of Class Number of Shareholders of Record as of
March 31, 1998

Shares of beneficial interest 25,359 Class A recordholders (CHYSF)
21,688 Class B recordholders (CHYSF)
948 Class D recordholders (CHYSF)
Shares of beneficial interest 6,946 Class A recordholders (CIF)
2,719 Class B recordholders (CIF)
43 Class C recordholders (CIF)
Shares of beneficial interest 41,851 Class A recordholders (CSIF)
39,837 Class B recordholders (CSIF)
510 Class C recordholders (CSIF)

Item 27. Indemnification

See Article VIII of Amendment No. 3 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.

Item 28. Business and Other Connections of Investment Adviser

The following sets forth business and other
connections of each director and officer of Colonial
Management Associates, Inc. (see next page):

Registrant's investment adviser/administrator, Colonial Management
Associates, Inc. ("Colonial"), is registered as an investment adviser under
the Investment Advisers Act of 1940 (1940 Act). Colonial Advisory Services,
Inc. (CASI), an affiliate of Colonial, is also registered as an investment
adviser under the 1940 Act. As of the end of its fiscal year, December
31, 1996, CASI had one institutional, corporate or other account under
management or supervision, the market value of which was approximately $42.0
million. As of the end of its fiscal year, December 31, 1997, Colonial
was the investment adviser, sub-adviser and/or administrator to 50 Colonial
mutual funds (including funds sub-advised by Colonial, the market value of
which investment companies was approximately $17,319.00 million. Liberty
Financial Investments, Inc., a subsidiary of Colonial Management Associates,
Inc., is the principal underwriter and the national distributor of all of
the funds in the Colonial Mutual Funds complex, 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 11/01/97. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Allard, Laurie V.P.

Archer, Joseph A. V.P.

Ballou, William J. V.P., Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec., Municipal Trust Asst. Sec.
Counsel 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.
LFC Utilities Trust Asst. Sec.

Berliant, Allan V.P.

Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal

Boatman, Bonny E. Sr.V.P.; Colonial Advisory Services, Inc. Exec. V.P.
IPC Mbr.

Bunten, Walter V.P.

Campbell, Kimberly V.P.

Carnabucci,
Dominick V.P.

Carroll, Sheila A. Sr.V.P.;

Citrone, Frank V.P.

Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.;
Chairman; Chrm.
IPC Mbr.; Colonial Trusts I through VII Pres.
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.
LFC Utilities Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Stein Roe & Farnham Dir.
Incorporated

Conlin, Nancy L. Sr. V.P.; Colonial Trusts I through VII Secretary
Sec.; Clerk Colonial High Income
IPC Mbr.; Municipal Trust Secretary
Dir; Gen. Colonial InterMarket Income
Counsel Trust I Secretary
Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
LFC Utilities Trust Secretary
Liberty Financial Investments,
Inc. Dir., Clerk
Colonial Investors Service
Center, Inc. Clerk, Dir.
The Colonial Group, Inc. V.P., Gen.
Counsel and
Clerk
Colonial Advisory Services,
Inc. Dir., Clerk
AlphaTrade Inc. Dir., Clerk

Connaughton,
J. Kevin V.P.; Colonial Trust I through VII CAO; Controller
Controller LFC Utilities Trust CAO; Controller
Colonial High Income
Municipal Trust CAO; Controller
Colonial Intermarket Income
Trust I CAO; Controller
Colonial Intermediate High
Income Fund CAO; Controller
Colonial Investment Grade
Municipal Trust CAO; Controller
Colonial Municipal Income
Trust CAO; Controller

Daniszewski, V.P.
Joseph J.

Desilets, Marian V.P. Liberty Financial Investments,
Inc. V.P.

DiSilva-Begley, V.P. Colonial Advisory Services, Compliance
Linda IPC Mbr. Inc. Officer

Ericson, Carl C. Sr.V.P. Colonial Intermediate High
IPC Mbr. Income Fund V.P.
Colonial Advisory Services,
Inc. Exec. V.P.

Evans, C. Frazier Sr.V.P. Liberty Financial Investments,
Inc. Mng. Director

Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. Sr. V.P.

Feloney, Joseph L. V.P.
Asst. Treasurer

Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.

Franklin, Sr. V.P. AlphaTrade Inc. President
Fred J. IPC Mbr.

Gibson, Stephen E. Dir.; Pres.; The Colonial Group, Inc. Dir.;
CEO; Pres.; CEO;
Exec. Cmte.
Mbr.
Liberty Financial Investments, Dir.; Chm.
Inc.
Colonial Advisory Services, Dir.; Chm.
Inc.
Colonial Investors Service Dir.; Chm.
Center, Inc.
AlphaTrade Inc. Dir.

Hanson, Loren Sr. V.P.

Harasimowicz, V.P.
Stephen

Harris, David V.P. Stein Roe Global Capital Mngmt Principal

Hartford, Brian V.P.

Haynie, James P. V.P. Colonial Advisory Services,
Inc. Sr. V.P.

Hernon, Mary V.P.

Hill, William V.P.

Iudice, Jr. Philip V.P.; The Colonial Group, Inc. Controller,
Controller CAO, Asst.
Asst. Treas.
Treasurer Liberty Financial Investments, CFO,
Inc. Treasurer
Colonial Advisory Services,
Inc. Controller;
Asst. Treas.
AlphaTrade Inc. CFO, Treas.

Jacoby, Timothy J. Sr. V.P.; The Colonial Group, Inc. V.P., Treasr.,
CFO; CFO
Treasurer Colonial Trusts I through VII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO
LFC Utilities Trust
Treasr.,CFO
Colonial Advisory Services,
Inc. CFO, Treasr.

Johnson, Gordon V.P.

Knudsen, Gail V.P.

Lasher, Ben V.P.

Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.

Lenzi, Sharon V.P.

Lessard, Kristen V.P.

Loring, William C. V.P.

MacKinnon,
Donald S. Sr.V.P.

Marcus, Harold V.P.

Muldoon, Bob V.P.

Newman, Maureen V.P.

O'Brien, David V.P.

Ostrander, Laura V.P.

Peterson, Ann T. V.P. Colonial Advisory Services,
Inc. V.P.

Rao, Gita V.P.

Reading, John 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 Liberty Financial Investments,
Inc. Asst. Clerk
AlphaTrade 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.
LFC Utilities Trust Asst. Sec.V.P.

Rega, Michael V.P. Colonial Advisory Services
Inc. Vice President

Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Municipal Trust V.P.
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.
LFC Utilities Trust V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Liberty Financial Investments,
Inc. Director
AlphaTrade Inc. Director

Seibel, Sandra L. V.P.

Spanos, Gregory Sr. V.P.

Stern, Arthur O. Exe.V.P.; The Colonial Group, Inc. Exec. V.P.

Steck, Nicholas V.P.

Stevens, Richard V.P.

Stoeckle, Mark V.P. Colonial Advisory Services,
Inc. V.P.
Swayze, Gary V.P.

Wallace, John V.P.
Asst.Treasurer

Ware, Elizabeth V.P.

- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.

Item 29 Principal Underwriter
- ------- ---------------------

(a) Liberty Financial Investments, Inc. (LFII), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFII acts in such capacity for Colonial Trust I, Colonial
Trust II, Colonial Trust III, Colonial Trust IV, Colonial Trust V,
Colonial Trust VI and Colonial Trust VII, Stein Roe Advisor Funds and
Stein Roe NO-LOAD Funds. LFII is also the 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)

Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------

Anderson, Judith V.P. None

Armour, Timothy K. V.P. None

Babbitt, Debra V.P. and None
Comp. Officer

Ballou, Rich Regional V.P. None

Balzano, Christine R. V.P. None

Bartlett, John Managing Director None

Blumenfeld, Alex Regional V.P. None

Brown, Beth V.P. None

Burtman, Tracy V.P. None

Butch, Tom Sr. V.P. None

Campbell, Patrick V.P. None

Chrzanowski, Regional V.P. None
Daniel

Claiborne, Regional V.P. None
Douglas

Clapp, Elizabeth A. Sr. V.P. None

Conlin, Nancy L. Dir; Clerk Secretary

Davey, Cynthia Regional Sr. V.P. None

Desilets, Marian V.P. None

Devaney, James Regional V.P. None

DiMaio, Steve V.P. None

Donovan, John Regional V.P. None

Downey, Christopher V.P. None

Eckelman, Bryan Sr. V.P. None

Emerson, Kim P. Regional V.P. None

Erickson, Cynthia G. Sr. V.P. None

Evans, C. Frazier Managing Director None

Feldman, David Sr. V.P. None

Fifield, Robert Regional V.P. None

Gauger, Richard V.P. None

Gerokoulis, Sr. V.P. None
Stephen A.

Gibson, Stephen E. Director; Chairman None
of the Board

Goldberg, Matthew Regional V.P. None

Guenard, Brian Regional V.P. None

Harrington, Tom Sr. Regional V.P. None

Hodgkins, Joseph Sr. Regional V.P. None

Iudice, Jr., Philip Treasurer and CFO None

Jones, Cynthia V.P. None

Jones, Jonathan Regional V.P. None

Karagiannis, Managing Director None
Marilyn

Kelley, Terry M. Regional V.P. None

Kelson, David W. Sr. V.P. None

Libutti, Chris Regional V.P. None

Marcel, Anne V.P. None

McCombs, Gregory Regional Sr. V.P. None

McKenzie, Mary V.P. None

Menchin, Catherine V.P. None

Miller, Anthony Regional V.P. None

Moberly, Ann R. Regional Sr. V.P. None

Morner, Patrick V.P. None

Morse, Jonathan Regional V.P. None

Nerney, Andrew Regional V.P. None

O'Shea, Kevin Managing Director None

Piken, Keith V.P. None

Predmore, Tracy Regional V.P. None

Quirk, Frank V.P. None

Reed, Christopher B. Sr. Regional V.P. None

Riegel, Joyce V.P. None

Robb, Douglas Regional V.P. None

Sandberg, Travis Regional V.P. None

Scarlott, Rebecca V.P. None

Schulman, David Regional V.P. None

Scoon, Davey Director V.P.

Scott, Michael W. Sr. V.P. None

Sideropoulos, Lou V.P. None

Smith, Darren Regional V.P. None

Spanos, Gregory J. Sr. V.P. None

Studer, Eric Regional V.P. None

Sutton, R. Andrew Regional V.P. None

Tambone, James CEO None

Tasiopoulos, Lou President None

VanEtten, Keith H. Sr. V.P. None

Villanova, Paul Regional V.P. None

Wallace, John V.P. None

Walter, Heidi V.P. None

Welsh, Stephen Treasurer Asst. Treasurer

Wess, Valerie Regional V.P. None

Young, Deborah V.P. None

- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.

Item 30. Location of Accounts and Records

Persons maintaining physical possession of accounts,
books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of
1940 and the Rules thereunder include Registrant's
Secretary; Registrant's investment adviser and/or
administrator, Colonial Management Associates, Inc.;
Registrant's principal underwriter, Colonial
Investment Services, Inc.; Registrant's transfer and
dividend disbursing agent, Colonial Investors Service
Center, Inc.; and the Registrant's custodian, Boston
Safe Deposit and Trust Company. The custodian's
address is One Boston Place, Boston, MA 02108-2624.

Item 31. Management Services
See Item 5, Part A and Item 16, Part B

Item 32. Undertakings

(a) Not applicable

(b) The Registrant hereby undertakes to promptly
call a meeting of shareholders for the purpose
of voting upon the question of removal of any
trustee or trustees when requested in writing
to do so by the record holders of not less
than 10 per cent of the Registrant's
outstanding shares and to assist its
shareholders in the communicating with other
shareholders in accordance with the
requirements of Section 16(c) of the
Investment Company Act of 1940.

(c) The Registrant hereby undertakes to furnish
each person to whom a prospectus is delivered
a copy of the Registrant's series' latest
annual report to shareholders upon request and
without charge.

******************

NOTICE

A copy of the Agreement and Declaration of Trust, as amended, of Colonial Trust
I is on file with the Secretary of State 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 certifies that it meets all of the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) and has duly caused this Post-Effective Amendment No. 46 to its
Registration Statement under the Securities Act of 1933 and the Post-Effective
Amendment No. 28 under the Investment Company Act of 1940, to be signed in this
City of Boston, and The Commonwealth of Massachusetts on this 27th day of April,
1998.

COLONIAL TRUST I

By: 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

HAROLD W. COGGER President (chief April 27, 1998
- ----------------
Harold W. Cogger executive officer)

TIMOTHY J. JACOBY Treasurer and Chief Financial April 27, 1998
- -----------------
Timothy J. Jacoby Officer (principal financial officer)

J. KEVIN CONNAUGHTON Controller and Chief Accounting April 27, 1998
- --------------------
J. Kevin Connaughton Officer (principal 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/RICHARD W. LOWRY* Trustee */s/ WILLIAM J. BALLOU
- -------------------- ---------------------
Richard W. Lowry William J. Ballou
Attorney-in-fact
For each Trustee
April 27, 1998
/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/ROBERT L. SULLIVAN* Trustee
- ----------------------
Robert L. Sullivan

Exhibit Index

Exhibit

11. Consent of Independent Accountants

16.(a)(1) Calculation of Performance Information (Class C)(CHYSF)

16.(b) Calculation of Yield (CHYSF)

16.(c)(1) Calculation of Performance Information (Class C)(CIF)

16.(d) Calculation of Yield (CIF)

16.(e)(1) Calculation of Performance Information (Class C)(CSIF)

16.(f) Calculation of Yield (CSIF)

17.(a) Financial Data Schedule (Class A)(CHYSF)

17.(b) Financial Data Schedule (Class B)(CHYSF)

17.(c) Financial Data Schedule (Class C)(CHYSF)

17.(d) Financial Data Schedule (Class A)(CIF)

17.(e) Financial Data Schedule (Class B)(CIF)

17.(f) Financial Data Schedule (Class C)(CIF)

17.(g) Financial Data Schedule (Class A)(CSIF)

17.(h) Financial Data Schedule (Class B)(CSIF)

17.(i) Financial Data Schedule (Class C)(CSIF)

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YIELD SECURITIES FUND, CLASS A YEAR END DEC-31-1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFRENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL HIGH YIELD SECURITIES FUND, CLASS A YEAR END DEC-31-1997
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 1
<NAME> COLONIAL HIGH YIELD SECURITIES FUND, CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1085210
<INVESTMENTS-AT-VALUE> 1126730
<RECEIVABLES> 21529
<ASSETS-OTHER> 180
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1148439
<PAYABLE-FOR-SECURITIES> 15008
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1370
<TOTAL-LIABILITIES> 16378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1116551
<SHARES-COMMON-STOCK> 83041
<SHARES-COMMON-PRIOR> 75556
<ACCUMULATED-NII-CURRENT> 1407
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27417)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41520
<NET-ASSETS> 1132061
<DIVIDEND-INCOME> 7518
<INTEREST-INCOME> 92773
<OTHER-INCOME> 0
<EXPENSES-NET> (15912)
<NET-INVESTMENT-INCOME> 84379
<REALIZED-GAINS-CURRENT> 33243
<APPREC-INCREASE-CURRENT> 12075
<NET-CHANGE-FROM-OPS> 45318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (48571)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36392
<NUMBER-OF-SHARES-REDEEMED> (32029)
<SHARES-REINVESTED> 3122
<NET-CHANGE-IN-ASSETS> 191818
<ACCUMULATED-NII-PRIOR> 1450
<ACCUMULATED-GAINS-PRIOR> (59471)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15912
<AVERAGE-NET-ASSETS> 1030815
<PER-SHARE-NAV-BEGIN> 6.920
<PER-SHARE-NII> 0.610
<PER-SHARE-GAIN-APPREC> 0.312
<PER-SHARE-DIVIDEND> (0.612)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.230
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YIELD SECURITIES FUND, CLASS B YEAR END DEC-31-1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFRENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL HIGH YIELD SECURITIES FUND, CLASS B YEAR END DEC-31-1997
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 1
<NAME> COLONIAL HIGH YIELD SECURITIES FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1085210
<INVESTMENTS-AT-VALUE> 1126730
<RECEIVABLES> 21529
<ASSETS-OTHER> 180
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1148439
<PAYABLE-FOR-SECURITIES> 15008
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1370
<TOTAL-LIABILITIES> 16378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1116551
<SHARES-COMMON-STOCK> 71125
<SHARES-COMMON-PRIOR> 59386
<ACCUMULATED-NII-CURRENT> 1407
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27417)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41520
<NET-ASSETS> 1132061
<DIVIDEND-INCOME> 7518
<INTEREST-INCOME> 92773
<OTHER-INCOME> 0
<EXPENSES-NET> (15912)
<NET-INVESTMENT-INCOME> 84379
<REALIZED-GAINS-CURRENT> 33243
<APPREC-INCREASE-CURRENT> 12075
<NET-CHANGE-FROM-OPS> 45318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36076)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33503
<NUMBER-OF-SHARES-REDEEMED> (24160)
<SHARES-REINVESTED> 2396
<NET-CHANGE-IN-ASSETS> 191818
<ACCUMULATED-NII-PRIOR> 1450
<ACCUMULATED-GAINS-PRIOR> (59471)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15912
<AVERAGE-NET-ASSETS> 1030815
<PER-SHARE-NAV-BEGIN> 6.920
<PER-SHARE-NII> 0.557
<PER-SHARE-GAIN-APPREC> 0.312
<PER-SHARE-DIVIDEND> (0.559)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.230
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YIELD SECURITIES FUND, CLASS C YEAR END DEC-31-1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFRENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL HIGH YIELD SECURITIES FUND, CLASS C YEAR END DEC-31-1997
</LEGEND>
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 1
<NAME> COLONIAL HIGH YIELD SECURITIES FUND, CLASS C
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1085210
<INVESTMENTS-AT-VALUE> 1126730
<RECEIVABLES> 21529
<ASSETS-OTHER> 180
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1148439
<PAYABLE-FOR-SECURITIES> 15008
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1370
<TOTAL-LIABILITIES> 16378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1116551
<SHARES-COMMON-STOCK> 2488
<SHARES-COMMON-PRIOR> 875
<ACCUMULATED-NII-CURRENT> 1407
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27417)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41520
<NET-ASSETS> 1132061
<DIVIDEND-INCOME> 7518
<INTEREST-INCOME> 92773
<OTHER-INCOME> 0
<EXPENSES-NET> (15912)
<NET-INVESTMENT-INCOME> 84379
<REALIZED-GAINS-CURRENT> 33243
<APPREC-INCREASE-CURRENT> 12075
<NET-CHANGE-FROM-OPS> 45318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (968)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3789
<NUMBER-OF-SHARES-REDEEMED> (2263)
<SHARES-REINVESTED> 87
<NET-CHANGE-IN-ASSETS> 191818
<ACCUMULATED-NII-PRIOR> 1450
<ACCUMULATED-GAINS-PRIOR> (59471)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15912
<AVERAGE-NET-ASSETS> 1030815
<PER-SHARE-NAV-BEGIN> 6.920
<PER-SHARE-NII> 0.562
<PER-SHARE-GAIN-APPREC> 0.312
<PER-SHARE-DIVIDEND> (0.564)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.230
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 2
<NAME> COLONIAL INCOME FUND, CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 150801
<INVESTMENTS-AT-VALUE> 153650
<RECEIVABLES> 3256
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 33
<TOTAL-ASSETS> 156950
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246
<TOTAL-LIABILITIES> 246
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169824
<SHARES-COMMON-STOCK> 18499
<SHARES-COMMON-PRIOR> 20219
<ACCUMULATED-NII-CURRENT> 171
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16161)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2890
<NET-ASSETS> 156704
<DIVIDEND-INCOME> 100
<INTEREST-INCOME> 12634
<OTHER-INCOME> 0
<EXPENSES-NET> (2007)
<NET-INVESTMENT-INCOME> 10727
<REALIZED-GAINS-CURRENT> 2339
<APPREC-INCREASE-CURRENT> (299)
<NET-CHANGE-FROM-OPS> 12767
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8496)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5109
<NUMBER-OF-SHARES-REDEEMED> (20501)
<SHARES-REINVESTED> 4458
<NET-CHANGE-IN-ASSETS> (8747)
<ACCUMULATED-NII-PRIOR> 322
<ACCUMULATED-GAINS-PRIOR> (18711)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 787
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2007
<AVERAGE-NET-ASSETS> 157386
<PER-SHARE-NAV-BEGIN> 6.410
<PER-SHARE-NII> 0.439
<PER-SHARE-GAIN-APPREC> 0.095
<PER-SHARE-DIVIDEND> (0.044)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.500
<EXPENSE-RATIO> 1.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 2
<NAME> COLONIAL INCOME FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 150801
<INVESTMENTS-AT-VALUE> 153650
<RECEIVABLES> 3256
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 33
<TOTAL-ASSETS> 156950
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246
<TOTAL-LIABILITIES> 246
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169824
<SHARES-COMMON-STOCK> 5554
<SHARES-COMMON-PRIOR> 5577
<ACCUMULATED-NII-CURRENT> 171
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16161)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2890
<NET-ASSETS> 156704
<DIVIDEND-INCOME> 100
<INTEREST-INCOME> 12634
<OTHER-INCOME> 0
<EXPENSES-NET> (2007)
<NET-INVESTMENT-INCOME> 10727
<REALIZED-GAINS-CURRENT> 2339
<APPREC-INCREASE-CURRENT> (299)
<NET-CHANGE-FROM-OPS> 12767
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2177)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6652
<NUMBER-OF-SHARES-REDEEMED> (7986)
<SHARES-REINVESTED> 1190
<NET-CHANGE-IN-ASSETS> (8747)
<ACCUMULATED-NII-PRIOR> 322
<ACCUMULATED-GAINS-PRIOR> (18711)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 787
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2007
<AVERAGE-NET-ASSETS> 157386
<PER-SHARE-NAV-BEGIN> 6.410
<PER-SHARE-NII> 0.391
<PER-SHARE-GAIN-APPREC> 0.095
<PER-SHARE-DIVIDEND> (0.396)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.500
<EXPENSE-RATIO> 1.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.

</TABLE>

<ARTICLE> 6
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 2
<NAME> COLONIAL INCOME FUND, CLASS C
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 150801
<INVESTMENTS-AT-VALUE> 153650
<RECEIVABLES> 3256
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 33
<TOTAL-ASSETS> 156950
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246
<TOTAL-LIABILITIES> 246
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169824
<SHARES-COMMON-STOCK> 37
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 171
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16161)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2890
<NET-ASSETS> 156704
<DIVIDEND-INCOME> 100
<INTEREST-INCOME> 12634
<OTHER-INCOME> 0
<EXPENSES-NET> (2007)
<NET-INVESTMENT-INCOME> 10727
<REALIZED-GAINS-CURRENT> 2339
<APPREC-INCREASE-CURRENT> (299)
<NET-CHANGE-FROM-OPS> 12767
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 237
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> (8747)
<ACCUMULATED-NII-PRIOR> 322
<ACCUMULATED-GAINS-PRIOR> (18711)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 787
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2007
<AVERAGE-NET-ASSETS> 157386
<PER-SHARE-NAV-BEGIN> 6.530
<PER-SHARE-NII> 0.163
<PER-SHARE-GAIN-APPREC> (0.024)
<PER-SHARE-DIVIDEND> (0.169)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.500
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 3
<NAME> COLONIAL STRAGETIC INCOME FUND, CLASS A
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1589960
<INVESTMENTS-AT-VALUE> 1620110
<RECEIVABLES> 35338
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 2847
<TOTAL-ASSETS> 1658327
<PAYABLE-FOR-SECURITIES> 8312
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1710
<TOTAL-LIABILITIES> 10022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1739020
<SHARES-COMMON-STOCK> 110479
<SHARES-COMMON-PRIOR> 103344
<ACCUMULATED-NII-CURRENT> 7673
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (131104)
<ACCUM-APPREC-OR-DEPREC> 32716
<NET-ASSETS> 1648305
<DIVIDEND-INCOME> 2223
<INTEREST-INCOME> 140018
<OTHER-INCOME> 0
<EXPENSES-NET> 24772
<NET-INVESTMENT-INCOME> 117469
<REALIZED-GAINS-CURRENT> 17807
<APPREC-INCREASE-CURRENT> (9879)
<NET-CHANGE-FROM-OPS> 125397
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (63388)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20964
<NUMBER-OF-SHARES-REDEEMED> (18479)
<SHARES-REINVESTED> 4650
<NET-CHANGE-IN-ASSETS> 109333
<ACCUMULATED-NII-PRIOR> 10314
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (251932)
<GROSS-ADVISORY-FEES> 10020
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24772
<AVERAGE-NET-ASSETS> 1586971
<PER-SHARE-NAV-BEGIN> 7.310
<PER-SHARE-NII> 0.578
<PER-SHARE-GAIN-APPREC> 0.025
<PER-SHARE-DIVIDEND> (0.593)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.320
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 3
<NAME> COLONIAL STRAGETIC INCOME FUND, CLASS B
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1589960
<INVESTMENTS-AT-VALUE> 1620110
<RECEIVABLES> 35338
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 2847
<TOTAL-ASSETS> 1658327
<PAYABLE-FOR-SECURITIES> 8312
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1710
<TOTAL-LIABILITIES> 10022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1739020
<SHARES-COMMON-STOCK> 113988
<SHARES-COMMON-PRIOR> 107215
<ACCUMULATED-NII-CURRENT> 7673
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (131104)
<ACCUM-APPREC-OR-DEPREC> 32716
<NET-ASSETS> 1648305
<DIVIDEND-INCOME> 2223
<INTEREST-INCOME> 140018
<OTHER-INCOME> 0
<EXPENSES-NET> 24772
<NET-INVESTMENT-INCOME> 117469
<REALIZED-GAINS-CURRENT> 17807
<APPREC-INCREASE-CURRENT> (9879)
<NET-CHANGE-FROM-OPS> 125397
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (59855)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20354
<NUMBER-OF-SHARES-REDEEMED> (17572)
<SHARES-REINVESTED> 3991
<NET-CHANGE-IN-ASSETS> 109333
<ACCUMULATED-NII-PRIOR> 10314
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (251932)
<GROSS-ADVISORY-FEES> 10020
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24772
<AVERAGE-NET-ASSETS> 1586971
<PER-SHARE-NAV-BEGIN> 7.310
<PER-SHARE-NII> 0.524
<PER-SHARE-GAIN-APPREC> 0.025
<PER-SHARE-DIVIDEND> (0.539)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.320
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<CIK> 0000021832
<NAME> COLONIAL TRUST 1
<SERIES>
<NUMBER> 3
<NAME> COLONIAL STRAGETIC INCOME FUND, CLASS c
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1589960
<INVESTMENTS-AT-VALUE> 1620110
<RECEIVABLES> 35338
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 2847
<TOTAL-ASSETS> 1658327
<PAYABLE-FOR-SECURITIES> 8312
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1710
<TOTAL-LIABILITIES> 10022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1739020
<SHARES-COMMON-STOCK> 849
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7673
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (131104)
<ACCUM-APPREC-OR-DEPREC> 32716
<NET-ASSETS> 1648305
<DIVIDEND-INCOME> 2223
<INTEREST-INCOME> 140018
<OTHER-INCOME> 0
<EXPENSES-NET> 24772
<NET-INVESTMENT-INCOME> 117469
<REALIZED-GAINS-CURRENT> 17807
<APPREC-INCREASE-CURRENT> (9879)
<NET-CHANGE-FROM-OPS> 125397
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (124)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 854
<NUMBER-OF-SHARES-REDEEMED> (13)
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 109333
<ACCUMULATED-NII-PRIOR> 10314
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (251932)
<GROSS-ADVISORY-FEES> 10020
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24772
<AVERAGE-NET-ASSETS> 1586971
<PER-SHARE-NAV-BEGIN> 7.240
<PER-SHARE-NII> 0.271
<PER-SHARE-GAIN-APPREC> 0.092
<PER-SHARE-DIVIDEND> (0.283)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.320
<EXPENSE-RATIO> 1.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Statements of
Additional Information constituting parts of this Post-Effective Amendment
No. 46 to the registration statement on Form N-1A (the "Registration Statement")
of our reports dated February 9, 1998, relating to the financial statements
and financial highlights appearing in the December 31, 1997 Annual Reports
to Shareholders of Colonial Income Fund, Colonial Strategic Income Fund and
Colonial High Yield Securities Fund, each a series of Colonial Trust I,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "The Fund's Financial
History" in the Prospectuses and "Independent Accountants" in the Statements
of Additional Information.

PRICE WATERHOUSE LLP
- --------------------
Price Waterhouse LLP
Boston, Massachusetts
April 27, 1998

PERFORMANCE CALCULATION

COLONIAL HIGH YIELD SECURITIES - CLASS C

Year End: 12/31/97

Inception Date: 1/15/96

<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR ENDED 12/31/97 1/15/96 to 12/31/97

Standard Non-Standard Standard Non-Standard
<S> <C> <C> <C> <C>

Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00 $1,000.00 $1,000.00
Initial NAV $6.92 $6.92 $6.78 $6.78
Initial Shares 144.509 144.509 147.493 147.493

Shares From Dist. 11.940 11.940 25.470 25.470
End of Period NAV $7.23 $7.23 $7.23 $7.23

CDSC Rate 1.00%
Total Return 12.11% 13.11% 25.05% 25.05
Average Annual
Total Return 12.11% 13.11% 12.05% 12.05

</TABLE>

COLONIAL HIGH YIELD SECURITIES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 12/31/97

a-b 6
FUND YIELD = 2 ----- +1 -1

c*d

CLASS A CLASS B CLASS C
a = dividends and interest earned

during the month $4,548,700 $3,879,994 $133,144

b = expenses accrued during the month 588,199 819,340 25,952

c = average dividend shares outstanding
during the month 82,406,844 70,294,254 2,412,327

d = class maximum offering price per share
on the last day of the month $7.59 $7.23 $7.23

YIELD 7.72% 7.34% 7.49%
----- ------ -----

PERFORMANCE CALCULATION

COLONIAL INCOME FUND - CLASS C

Fiscal Year End: 12/31/97

Inception Date: 8/1/97

SINCE INCEPTION
8/1/97 TO 12/31/97

Standard Non-Standard

Initial Inv. $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00
Initial NAV $6.53 $6.53
Initial Shares 153.139 153.139

Shares From Dist. 4.039 4.039
End of Period NAV $6.50 $6.50

CDSC Rate 1.00%
Total Return 1.17% 2.17%

Average Annual
Total Return N/A N/A

COLONIAL INCOME FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 12/31/97

a-b 6
FUND YIELD = 2 ----- +1 -1
c*d

CLASS A CLASS B CLASS C

a = dividends and interest earned
during the month $710,306 $212,586 $682

b = expenses accrued during the month 118,301 57,865 171

c = average dividend shares outstanding
during the month 18,497,979 5,536,212 17,773

d = class maximum offering price per share
on the last day of the month $6.82 $6.50 $6.50

YIELD 5.70% 5.22% 5.37%
----- ----- -----

PERFORMANCE CALCULATION

COLONIAL STRATEGIC INCOME FUND - CLASS C

Fiscal Year End: 12/31/97

Inception Date: 7/1/97

SINCE INCEPTION
7/1/97 TO 12/31/97

Standard Non-Standard

Initial Inv. $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.24 $7.24
Initial Shares 138.122 138.122

Shares From Dist. 5.407 5.407
End of Period NAV $7.32 $7.32

CDSC Rate 1.00%
Total Return 4.06% 5.06%

Average Annual
Total Return N/A N/A

COLONIAL STRATEGIC INCOME FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 12/31/97

a-b 6
FUND YIELD = 2 ----- +1 -1
c*d

CLASS A CLASS B CLASS C
a = dividends and interest earned during
the month $5,110,092 $5,265,754 $35,614

b = expenses accrued during the month 771,885 1,314,529 8,216

c = average dividend shares outstanding
during the month 110,057,101 113,409,467 767,109

d = class maximum offering price per share
on the last day of the month $7.69 $7.32 $7.32

YIELD 6.23% 5.78% 5.93%
----- ----- -----