Registration Nos.: 2-15184
811-881
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | X |
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 93 | X |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |
Amendment No. 34 | X |
COLONIAL TRUST III
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02lll
(Address of Principal Executive Offices)
617-426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address
of Agent for Service Copy to
- -------------------- -------------------
Arthur O. Stern, Esq. John M. Loder, Esq.
Colonial Management Ropes & Gray
Associates, Inc. One International Place
One Financial Center Boston, Massachusetts 02110-2624
Boston, Massachusetts 02111
It is proposed that the filing will become effective (check appropriate box):
| | immediately upon filing pursuant to paragraph (b)
| | on (date) pursuant to paragraph (b)
| X | 60 days after filing pursuant to paragraph (a)(i)
| | on (date) pursuant to paragraph (a)(i) of Rule 485
| | 75 days after filing pursuant to paragraph (a)(ii)
| | on (date) pursuant to paragraph (a)(ii) 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.
STATEMENT PURSUANT TO RULE 24F-2
The Registrant has registered an indefinite number or amount of its shares
of beneficial interest under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940 and on December 29, 1994,
the Registrant filed the Rule 24f-2 Notice for the Registrant's most
recent fiscal year ended October 31, 1994.
MASTER/FEEDER REPRESENTATION
This Registration Statement includes the Prospectus and Statement of
Additional Information for the Colonial Global Utilities Fund, which uses
a master/feeder structure. In accordance with SEC requirements, the
master fund has executed this Registration Statement.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Utilities 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. Organization and history; The Fund's
investment objective; How the Fund pursues
its objective;
5. Cover page; How the Fund is
managed; Organization and history; Back
Cover
6. Organization and history; Distributions and
taxes; How to buy shares
7. Summary of expenses; How to buy shares; How
the Fund values its shares; Cover page; 12b-
1 Plans;
Back cover
8. Summary of expenses; How to sell shares; How
to exchange shares; Telephone transactions
9. Not applicable
March 6, 1995
COLONIAL GLOBAL UTILITIES FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) and your full-service
financial adviser want you to understand both the risks and benefits of
mutual fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risk 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 Global Utilities Fund (Fund), a diversified portfolio of Colonial
Trust III (Trust), an open-end management investment company seeks current
income and long-term growth of capital and income.
The Fund is the successor by merger to the Liberty Financial Utilities
Fund. The merger occurred on March 24, 1995. All references to the Fund
as of a time prior to such date are to the Liberty Financial Utilities
Fund.
Unlike a traditional mutual fund which invests directly in individual
securities, the Fund seeks to achieve its objective by investing all of its
assets in the LFC Utilities Trust (Portfolio), an open-end management
investment company having the same objective as the Fund. The Fund's
investment experience will correspond directly to that of the Portfolio.
The Portfolio is managed by Stein Roe & Farnham Incorporated (Adviser),
successor to an investment advisory business that was founded in 1932.
xxx-xx/xxxx-395
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 March 6, 1995 Statement of
Additional Information which has been filed with the Securities and
Exchange Commission and is obtainable free of charge by calling the
Administrator at 1-800-248-2828. The Statement of Additional Information
is incorporated by reference in (which means it is considered to be a part
of) this Prospectus.
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 plus a distribution fee and a
declining contingent deferred sales charge on redemptions made within six
years after purchase; and Class D shares are offered at net asset value
plus a small initial sales charge, a contingent deferred sales charge on
redemptions made within one year after purchase and a continuing
distribution fee. Class B shares automatically convert to Class A shares
after approximately eight years. See "How to buy shares."
Contents Page
Summary of expenses
The Fund's financial history
Two-tiered structure
The Fund's investment objective
How the Fund pursues its objective
and certain risk factors
How the Fund measures its performance
How the Fund and the Portfolio are managed
How the Fund values its shares
Distributions and taxes
How to buy shares
How to sell shares
How to exchange shares
Telephone transactions
12b-1 plans
Organization and history
Appendix
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund.
The following tables summarize your maximum transaction costs and estimated
annual expenses for an investment in each Class of the Fund's shares.
Annual Operating Expenses include the expenses of the Portfolio. See "How
the Fund and the Portfolio are managed."
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
Maximum Initial Sales Charge
Imposed on a Purchase (as a %
of offering price) (3) 5.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred
Sales Charge (as a % of 1.00%(4) 5.00% 1.00%
offering price) (3)
(1) For accounts less than $1,000 an annual fee of $10 may be
deducted. See "How to sell shares."
(2) Redemption proceeds exceeding $5,000 sent via federal
funds wire will be subject to a $7.50 charge per
transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1
million to $5 million redeemed within approximately 18
months after purchase. See "How to buy shares."
(5) Because of the 0.75% distribution fee applicable to Class
B and D shares, long-term Class B and Class D
shareholders may pay more in aggregate sales charges than
the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because
the Fund's Class B shares automatically convert to Class A
shares after approximately eight years, this is less
likely for Class B shares than for a class without a
conversion feature.
Annual Operating Expenses (as a % of net assets)
Class Class Class
A B D
Management and administration 0.55% 0.55% 0.55%
fees
12b-1 fees 0.25 1.00 1.00
Other expenses 0.54 0.54 0.54
Total expenses 1.34% 2.09% 2.09%
Amounts in the table reflect the aggregate operating expenses incurred by
the Fund and the Portfolio during the fiscal year ended October 31, 1994,
adjusted to reflect current fees of the Fund. See "How the Fund and the
Portfolio are Managed." The Trustees believe that the potential for
economies of scale that may be achieved by the Fund and the Portfolio in
the event additional Mutual Funds invest in the Portfolio outweighs the
slight increase (less than 0.01% of average net assets per year at current
asset levels) in the aggregate expenses of the Fund and the Portfolio over
what the Fund's expenses would be if it invested directly in the securities
held by the Portfolio.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example
should not be considered indicative of actual or expected Fund performance
or expenses, both of which will vary:
Class A Class B Class D
Period: (6) (7) (6) (7)
1 year $ 70 $ 71 $ 21 $ 41 $ 31
3 years 98 96 66 75 75
5 years 127 133 113 121 121
10 years 209 225 225 250 250
(6) Assumes redemption at period end.
(7) Assumes no redemption.
THE FUND'S FINANCIAL HISTORY
The following schedule of financial highlights for a Class A share outstanding
throughout each period through October 31, 1994, has been audited by KPMG Peat
Marwick LLP, independent auditors. Their unqualified report is included in the
1994 Annual Report and is incorporated by reference into the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year ended October 31 Period August 23, 1991
through
1994 1993 1992 October 31, 1991
<S> <C> <C> <C>
Net asset value - Beginning of period............... 12.15 $10.43 $9.99 $10.00
Income from investment operations:
Net investment income(a)........................... 0.55 0.57 0.59 0.02
Net realized and unrealized gain (loss)
on investments..................................... (1.43) 1.79 0.46 (0.03)
Total from investment operations................. (0.88) 2.36 1.05 (0.01)
Less distributions declared to shareholders:
From net investment income......................... (0.50) (0.61) (0.61) ---
From net realized gains on investments............. (0.16) (0.03) (0.02) ---
Total distributions declared to shareholders..... (0.66) (0.64) (0.61) 0.00
Net asset value - End of period..................... 10.61 $12.15 $10.43 $9.99
Total return(b)..................................... (7.40)% 23.3% 10.8% (2.1)%(e)
Ratios to average net assets:
Expenses (a)...................................... 1.20% 1.13% 1.25%(c) 1.25%(c)(e)
Net investment income (a)......................... 4.90% 4.80% 5.81%(d) 5.75%(d)(e)
Net assets at end of period (in thousands)..........$260,450 $304,500 $118,997 $6,617
_________________________________
(a) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's
proportionate share of the income and expenses of LFC Utilities Trust.
(b) Total return based on net asset value with all distributions reinvested.
(c) If the Fund had paid all of its expenses excluding distribution fees waived and there had been no
reimbursement from the Adviser and the Administrator, as described in Note 3 of the Fund's 1994
Annual Report, these ratios would have been 1.61% and 9.81% for the periods ended October 31,
1992 and 1991, respectively.
(d) Computed giving effect to Adviser's and Administrator's expense limitation undertaking.
(e) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling
1-800-248-2828.
TWO-TIERED STRUCTURE
Unlike other mutual funds which invest directly in individual
securities, the Fund is an open-end management investment company that
seeks to achieve its investment objective by investing all of its
assets in the Portfolio, a separate registered investment company with
the same investment objective as the Fund and which invests directly
in portfolio securities. See "The Fund's Investment Objective," "How
the Fund Pursues its Objective and Certain Risk Factors" and "How the
Fund and the Portfolio are Managed" for information concerning the
Portfolio's and the Fund's investment objectives, policies, management
and expenses. The following describes certain of the effects and
risks of this structure.
The Fund's and the Portfolio's investment objectives may not be
changed without shareholder approval. Generally, matters submitted by
the Portfolio to its investors for a vote will be passed along by the
Fund to its shareholders, and the Fund will vote its interest in the
Portfolio in proportion to the votes received from Fund shareholders.
As of the date of this Prospectus, the Fund was the only investor in
the Portfolio, so that the outcome of any matter submitted to the
Portfolio's investors would be determined by the vote of Fund
shareholders. In the future, however, other funds or institutional
investors may invest in the Portfolio. Such other investors could
alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the
Portfolio. You may obtain information about whether there are other
investors in the Portfolio by writing or calling the Administrator at
1-800-248-2828. Fund shareholders will be notified at least 30 days
prior to any change in the Fund's or the Portfolio's objective.
Other funds or institutions would invest in the Portfolio on the same
terms and conditions as the Fund and would bear their proportionate
share of the Portfolio's expenses. However, such other mutual funds
would not be required to issue their shares at the same public
offering price as the Fund and may have direct expenses that are
higher or lower than those of the Fund. These differences may result
in such other funds generating investment returns higher or lower than
those of the Fund. Large scale redemptions by any such other
investors in the Portfolio could result in untimely liquidation of the
Portfolio's security holdings, loss of investment flexibility, and an
increase in the operating expenses of the Portfolio as a percentage of
its assets.
The Fund will continue to invest in the Portfolio so long as the
Trust's Board of Trustees determines it is in the best interest of
Fund shareholders to do so. In the event that the Portfolio's
investment objective or policies were changed so as to be inconsistent
with the Fund's investment objective or policies, the Board of
Trustees would consider what action might be taken, including changes
to the Fund's investment objective or policies, or withdrawal of the
Fund's assets from the Portfolio and investment of such assets in
another pooled investment entity or the retention of an investment
adviser to manage the Fund's investments. Certain of these actions
would require Fund shareholder approval. Further, because the same
individuals serve on the Boards of the Fund and the Portfolio,
decisions as to the appropriate actions to take my involve conflicts
of interest. Withdrawal of the Fund's assets from the Portfolio could
result in a distribution by the Portfolio to the Fund of portfolio
securities in kind (as opposed to a cash distribution), and the Fund
could incur brokerage fees or other transaction costs and could
realize distributable taxable gains in converting such securities to
cash. Such a distribution in kind could also result in a less
diversified portfolio of investments for the Fund.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks current income and long-term growth of capital and
income.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
As indicated above, the Fund seeks to achieve its objective by
investing all its assets in the Portfolio, which has the same
investment objective as the Fund. Following is a discussion of the
investment policies of the Portfolio.
The Portfolio normally invests at least 65% of its total assets in
U.S. and foreign equity and debt securities issued by public utility
companies (Utility Securities). Utility Securities include securities
issued by companies engaged in the manufacture, production,
generation, transmission, sale or distribution of electricity, natural
gas or other types of energy or water or other sanitary services, and
companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave and other communications media (but
not companies primarily engaged in public broadcasting or cable
television). Generally, at least 20% of the Portfolio's total assets
will be invested in equity Utility Securities and at least 20% in debt
Utility Securities. Because the Portfolio concentrates its
investments in Utility Securities, an investment in the Fund may
entail more risk than an investment in a more diversified portfolio.
See "Utility Securities" below.
Equity securities generally include common and preferred stock,
warrants (rights) to purchase such stock, securities convertible into
such stock and sponsored and unsponsored American Depository Receipts
(receipts issued in the U.S. by banks or trust companies evidencing
ownership of underlying foreign securities). Debt securities
generally include securities of any maturity that pay fixed, floating
or adjustable interest rates, as well as zero coupon securities (debt
securities that do not pay interest but, instead, are issued at a
significant discount to their stated maturity values) and pay-in-kind
securities (debt securities that pay interest, at the issuer's option,
in additional securities instead of cash). The debt securities in
which the Portfolio invests will be rated at the time of investment at
least Baa by Moody's Investors Service, Inc. (Moody's) or BBB by
Standard & Poor's Corporation (S&P), or will be unrated securities
deemed by the Adviser to be of comparable quality to Baa by Moody's or
BBB by S&P or higher. Such securities will not necessarily be sold if
the rating is subsequently reduced unless any such down-grade would
cause the Portfolio to hold more than 5% of its total assets in debt
securities rated below investment grade. Equity and debt securities
may be purchased on a "when-issued" or forward basis. This means that
the Portfolio will enter into a contract to purchase the underlying
security for a fixed price on a date beyond the customary settlement
date. No interest accrues until settlement.
The Portfolio may invest without limit in foreign securities. The
Fund normally will invest in securities issued by companies located in
at least three countries including the U.S. Up to 35% of the
Portfolio's total assets may be invested in equity securities of any
type and investment grade debt securities that are not Utility
Securities.
Utility Securities. Because the Portfolio invests primarily in
Utility Securities, the Fund's shares may fluctuate in value more
widely than shares of a more diversified portfolio. The values of
Utility Securities are especially affected by changes in prevailing
interest rate levels (as interest rates increase, the values of
Utility Securities tend to decrease, and vice versa), as well as
general competitive and market forces in the utility industries,
changes in federal and state regulation, energy conservation efforts
and other environmental concerns and, particularly with respect to
nuclear facilities, construction delays and cost overruns. Certain
utilities, especially gas and telephone utilities, have in recent
years been affected by increased competition, which could adversely
affect the profitability of such utilities. Similarly, the
profitability of certain electric utilities may in the future be
adversely affected by increased competition resulting from partial
deregulation.
Debt Securities Generally. The values of debt securities also
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 may also translate into lower distributions paid by the Fund.
Additionally, because zero coupon and pay-in-kind securities do not
pay interest but the Portfolio nevertheless must accrue and distribute
the income deemed to be earned on a current basis, the Portfolio may
have to sell other investments to raise the cash needed to make income
distributions.
Debt securities rated BBB or Baa have speculative characteristics, and
changes in economic conditions or other circumstances are more likely
to lead to a weakened capacity of the issuers of such securities to
make principal and interest payments than would likely be the case
with investments in securities with higher credit ratings.
Foreign Investments. Investments in foreign securities (both debt and
equity) and American Depository Receipts have special risks related to
political, economic and legal conditions outside of the U.S. As a
result, the prices of such securities, and therefore of Fund shares,
may fluctuate substantially more than the prices of securities of
issuers based in the U.S. Special risks associated with foreign
securities include the possibility of unfavorable currency exchange
rates, the existence of less liquid markets, the unavailability of
reliable information about issuers, the existence (or potential
imposition) of exchange control regulations (including currency
blockage), and political and economic instability, among others. In
addition, transactions in foreign securities may be more costly due to
currency conversion costs and higher brokerage and custodial costs.
See "Foreign Securities" and "Foreign Currency Transactions" in the
Statement of Additional Information for more information about foreign
investments.
Other Investment Practices. The Portfolio may also engage to a
limited extent in the following investment practices, which are
described more fully in the Statement of Additional Information.
Options, Forwards, Futures and Other Derivatives. Consistent with its
objective, the Portfolio may, without limit, purchase and write both
call options and put options on securities, indexes and foreign
currencies, enter into interest rate, index and foreign currency
futures contracts and options on such futures, and purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. Such transactions will be
entered into to provide additional revenue, to hedge against changes
in security prices, interest rates or currency fluctuations, or as an
efficient means of adjusting its exposure to the market. Call and put
options will be written only if they are covered.
The Portfolio will not attempt, nor would it be able, to eliminate all
foreign currency or interest rate risk. Further, although hedging may
lessen the risk of loss, it also limits the potential gain if the
hedged instrument's value increases. If an option expires
unexercised, the holder will lose any amount it paid to acquire the
option. Transactions in futures and options may not precisely achieve
the goals of hedging or gaining market exposure to the extent there is
an imperfect correlation between the price movements of the contracts
and of the underlying securities. In addition, if the Adviser's
prediction on currency exchange or interest rates or stock market
movements is inaccurate, the Portfolio may be worse off than if it had
not hedged. See the Statement of Additional Information for
information relating to the Portfolio's obligations in entering into
such transactions.
Securities Lending. For the purpose of realizing additional income,
the Portfolio may lend its portfolio securities to broker-dealers or
institutional investors. Such loans will be limited to securities not
exceeding 30% in value of the Portfolio's total assets. Each such
loan will be continuously secured by collateral at least equal to the
value of the securities loaned. In the event of bankruptcy or other
default of the borrower, the Portfolio could experience both delays in
liquidating the loan collateral or recovering the loaned securities
and losses including (a) possible decline in the value of the
collateral or in the value of the securities loaned during the period
while the Portfolio seeks to enforce its rights thereto, (b) possible
subnormal levels of income and lack of access to income during this
period, and (c) expenses of enforcing its rights.
Leverage. The purchase of securities on a "when-issued" basis and the
purchase and sale of futures and forward contracts may present
additional risks associated with the use of leverage. Leverage may
magnify the effect on Fund shares of fluctuations in the values of the
securities underlying these transactions. In accordance with
Securities and Exchange Commission pronouncements, to reduce (but not
necessarily eliminate) leverage, the Portfolio will either "cover" its
obligations under such transactions by holding the currency or
instrument (or rights to acquire the currency or instrument) it is
obligated to deliver under such contracts, or deposit and maintain in
a segregated account with its custodian cash, high quality liquid debt
securities, or equity securities denominated in the particular foreign
currency, equal in value to the Portfolio's obligations under such
contracts.
Temporary/Defensive Investments. Temporarily available cash may be
invested in certificates of deposit, bankers' acceptances, high
quality commercial paper, Treasury bills and repurchase agreements.
Some or all of the Portfolio's assets also may be invested in such
investments or in investment grade U.S. or foreign debt securities,
Eurodollar certificates of deposit and obligations of savings
institutions during periods of unusual market conditions. Under a
repurchase agreement, the 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 may be added so that the
obligation will at all times be fully collateralized. However, if the
bank or dealer defaults or enters bankruptcy, the Fund may experience
costs and delays in liquidating the collateral, and may experience a
loss if it is unable to demonstrate its rights to the collateral in a
bankruptcy proceeding. Not more than 15% of the Fund's total assets
will be invested in repurchase agreements maturing in more than 7 days
and other illiquid securities.
Other. The Portfolio and, therefore, the Fund may not always achieve
its investment objective. The Fund's and the Portfolio's non-
fundamental policies may be changed without shareholder approval. The
Fund's and the Portfolio's investment objectives and fundamental
policies listed in the Statement of Additional Information cannot be
changed without the approval of a majority of the Fund's or the
Portfolio's outstanding voting securities. Additional information
concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional
Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula and assume the
reinvestment of all distributions, the maximum initial sales charge of
5.75% on Class A shares and 1.00% on Class D shares, and the
contingent deferred sales charge applicable to the time period quoted
on Class B and Class D shares. Other total returns differ from
average annual total return only in that they may relate to different
time periods, may represent aggregate as opposed to average annual
total returns and may not reflect the initial or contingent deferred
sales charges.
Each Class's yield, which differs from total return because it does
not consider changes in net asset value, is calculated in accordance
with the Securities and Exchange Commission's formula. Each Class's
distribution rate is calculated by dividing the most recent quarter's
distributions, annualized, by the maximum offering price of that Class
at the end of the quarter. Each Class's performance may be compared
to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance
Measures" in the Statement of Additional Information for more
information. All performance information is historical and does not
predict future results.
HOW THE FUND AND THE PORTFOLIO ARE MANAGED
The Fund's Trustees formulate the Fund's general policies and oversee
the Fund's affairs. The Fund has not retained the services of an
investment adviser because the Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio.
The Portfolio is managed by the Adviser. Subject to the supervision
of the Portfolio's Trustees, the Adviser makes the Portfolio's day-to-
day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Portfolio's investments. The
Adviser is an indirect subsidiary of Liberty Financial Companies, Inc.
(Liberty Financial), which in turn is an indirect subsidiary of
Liberty Mutual Insurance Company (Liberty Mutual). The same
individuals serve as Trustees of the Fund and the Portfolio. See
"Management of the Fund" in the Statement of Additional Information
for information concerning the Trustees and officers of the Fund and
the Portfolio.
Robert A. Christensen, Senior Vice President of the Adviser, has been
the Portfolio's portfolio manager since its inception in August, 1991,
and has been associated with the Adviser since 1962. Ophelia
Barsketis, Senior Vice President of the Adviser, has co-managed the
Portfolio since September 1993. Ms. Barsketis has been associated
with the Adviser since 1983.
The Adviser places all orders for the purchase and sale of securities
for the Portfolio. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors. When the Adviser believes that more than one
broker-dealer is capable of providing the best combination of price
and execution in a particular portfolio transaction, the Adviser often
selects a broker-dealer that furnishes it with research products or
services, and may consider sales of shares of the Fund as a factor in
the selection of the broker-dealer.
For its management services, the Adviser receives from the Portfolio a
monthly fee at an annual rate of 0.55% of the Portfolio's average
daily net assets up to $400 million and 0.50% of its average daily net
assets over that amount.
The Administrator provides the Fund with certain administrative
services and generally oversees the operation of the Fund. The Fund
pays the Administrator a monthly fee at the annual rate of 0.10% of
average daily net assets for these services. The Administrator also
provides pricing and bookkeeping services to the Fund for a monthly
fee at the annual rate of $18,000 plus 0.0233% annually of average
daily net assets over $50 million, and certain administrative and
accounting services to the Portfolio. Colonial Investment Services,
Inc. (Distributor), a subsidiary of the Administrator, serves as the
Fund's distributor. Colonial Investors Service Center, Inc.
(Transfer Agent), an affiliate of the Administrator, serves as the
Fund's shareholder services and transfer agent for a fee of 0.20%
annually of average net assets plus out-of-pocket expenses. The
Administrator, the Distributor and the Transfer Agent are all indirect
subsidiaries of Liberty Financial.
Each of the foregoing fees is subject to any fee waiver or expense
reimbursement to which the Adviser or the Administrator may agree.
See "Summary of Expenses" above.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued each day the New York Stock Exchange is open as of the
close of the Exchange (generally 4:00 p.m. Eastern time). Portfolio
securities for which market quotations are readily available are
valued at market. Short-term investments maturing in 60 days or less
are valued at amortized cost when it is determined, pursuant to
procedures adopted by the Trustees, that such cost approximates market
value. All other securities and assets are valued at their fair value
following procedures adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain, at least annually. The Fund
generally declares and pays income distributions monthly.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be issued as checks to shareholders but will be
invested in additional shares of the same Class of the Fund at net
asset value. To change your election, call the Transfer Agent for
information.
Whether you receive distributions in cash or in additional Fund
shares, you must report them as taxable income unless you are a tax-
exempt institution. If you buy shares shortly before a distribution
is declared, the distribution will be taxable although it is in effect
a partial return of the amount invested. Each January, information on
the amount and nature of distributions for the prior year is sent to
shareholders.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a
financial service firm before such time and transmitted by the
financial service firm before the Fund processes that day's share
transactions) will be processed based on that day's closing net asset
value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may
be as small as $50. The minimum initial investment for the Colonial
Fundamatic program is $50 and the minimum initial investment for a
Colonial retirement account is $25. Certificates will not be issued
for Class B or Class D shares and there are some limitations on the
issuance of Class A certificates. The Fund may refuse any purchase
order for its shares. See the Statement of Additional Information for
more information.
Class A Shares. Class A shares are offered at net asset value plus an
initial or a contingent deferred sales charge as follows:
_______Initial Sales Charges
Retained
by
Financial
Service
Firm
_____as % of______ as % of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than 4.71% 4.50% 3.75%
$100,000
$100,000 to less than 3.63% 3.50% 2.75%
$250,000
$250,000 to less than 2.56% 2.50% 2.00%
$500,000
$500,000 to less than 2.04% 2.00% 1.75%
$1,000,000
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial
service firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to
the extent the shares remain
outstanding.
Purchases of $1 million to $5 million are subject to a 1.00%
contingent deferred sales charge payable to the Distributor on
redemptions within 18 months from the first day of the month following
the purchase. The contingent deferred sales charge does not apply to
the excess of any purchase over $5 million.
Class A shares bear a 0.25% annual service fee.
Class B Shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee for approximately 8 years (at which time they convert
to Class A shares without a distribution fee), a 0.25% annual service
fee and a contingent deferred sales charge if redeemed within 6 years
after purchase. As shown below, the amount of the contingent deferred
sales charge depends on the number of years after purchase that the
redemption occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the
purchase was accepted and so on. The Distributor pays financial
service firms a commission of 4.00% on Class B share purchases.
Class D Shares. Class D shares are offered at net asset value plus a
1.00% initial sales charge, and are subject to a 0.75% annual
distribution fee, a 0.25% annual service fee and a 1.00% contingent
deferred sales charge on redemptions made within one year from the
first day of the month after purchase.
The Distributor pays financial service firms an initial commission of
1.85% on purchases of Class D shares and an ongoing commission of
0.65% annually. Payment of the ongoing commission is conditioned on
receipt by the Distributor of the 0.75% distribution fee referred to
above. The commission may be reduced or eliminated if the
distribution fee paid by the Fund is reduced or eliminated for any
reason.
General. All contingent deferred sales charges are deducted from the
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments
(including initial sales charges, if any,) in the account, reduced by
prior redemptions on which a contingent deferred sales charge was paid
and any exempt redemptions). See the Statement of Additional
Information for more information.
Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. Large investments, qualifying
for a reduced Class A sales charge, avoid the distribution fee.
Investments in Class B shares have 100% of the purchase invested
immediately. Investors investing for a relatively short period of
time might consider Class D shares. Purchases of $250,000 or more
must be for Class A or Class D shares. Purchases of $500,000 or more
must be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay
additional compensation to financial service firms which have made or
may make significant sales. Initial or contingent deferred sales
charges may be reduced or eliminated for certain persons or
organizations purchasing Fund shares alone or in combination with
certain other Colonial funds. See the Statement of Additional
Information for more information.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call
1-800-345-6611. Some services are described in the attached account
application. A shareholder's manual explaining all available services
will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to the Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15
days).
Selling Shares Directly To The Fund. Send a signed letter of
instruction or stock power form to the Transfer Agent, along with any
certificates for shares to be sold. The sale price is the net asset
value (less any applicable contingent deferred sales charge) next
calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national
stock exchange or another eligible guarantor institution. Stock power
forms are available from financial service firms, the Transfer Agent
and many banks. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service
firms must receive requests before 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 federal tax
purposes and may be subject to a contingent deferred sales charge.
The contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, the Fund
may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped below $1,000
solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before
the fee is deducted.
HOW TO EXCHANGE SHARES
Fund shares generally may be exchanged at net asset value for shares
of the same class of shares of most Colonial funds. Not all Colonial
funds offer all classes, so that you may not be able to exchange into
all of the other Colonial funds. Shares will continue to age without
regard to the exchange for purposes of conversion and determining the
contingent deferred sales charge, if any, upon redemption. Carefully
read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-248-2828 to receive a prospectus
and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction.
The exchange service may be changed, suspended or eliminated on 60
days' written notice.
Class A Shares. An exchange from a money market fund into a non-money
market fund will be at the applicable offering price next determined
(including sales charge), except for amounts on which an initial sales
charge was paid. Non-money market fund shares must be held for five
months before qualifying for exchange to a fund with a higher sales
charge, after which exchanges are made at the net asset value next
determined.
Class B Shares. Exchanges of Class B shares are not subject to the
contingent deferred sales charge. However, if shares are redeemed
within six years after the original purchase, a contingent deferred
sales charge will be assessed using the schedule of the fund into
which the original investment was made.
Class D Shares. Exchanges of Class D shares will not be subject to
the contingent deferred sales charge. However, if shares are redeemed
within one year after the original purchase, a 1.00% contingent
deferred sales charge will be assessed.
TELEPHONE TRANSACTIONS
All shareholders may redeem up to $50,000 of Fund shares by telephone,
and may elect telephone redemption privileges for larger amounts on
the account application. All exchanges may be accomplished by
telephone. See the Statement of Additional Information for more
information. The Administrator, the Transfer Agent and the Fund will
not be liable when following telephone instructions reasonably
believed to be genuine and a shareholder may suffer a loss from
unauthorized transactions. The Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine,
and may be liable if reaonable proceedings are not employed.
Shareholders will be required to provide their name, address and
account number. Proceeds and confirmations of telephone transactions
will be mailed or sent to the address of record. Telephone
redemptions are not available on accounts with an address change in
the preceding 60 days. All telephone transactions are recorded.
Shareholders are not obligated to transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor an annual service fee
of 0.25% of the Fund's average net assets attributed to each Class of
shares. The Fund also pays the Distributor an annual distribution fee
of 0.75% of the average net assets attributed to its Class B and Class
D shares. Because the Class B and Class D shares bear the
additionaldistribution fees, their dividends will be lower than the
dividends of Class A shares. Class B shares automatically convert to
Class A shares, approximately eight years after the Class B shares
were purchased. Class D shares do not convert. The multiple class
structure could be terminated should certain Internal Revenue Service
rulings be rescinded. See the Statement of Additional Information for
more information. The Distributor uses the fees to defray the cost of
commissions and service fees paid to financial service firms which
have sold Fund shares, and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder
servicing costs and compensation to wholesalers. Should the fees
exceed the Distributor's expenses in any year, the Distributor would
realize a profit. The Plans also authorize other payments to the
Distributor and its affiliates (including the Administrator and the
Adviser) which may be construed to be indirect financing of sales of
Fund shares.
ORGANIZATION AND HISTORY
The Fund is the successor by merger to the Liberty Financial Utilities
Fund, which commenced operations in August 1991. The Fund was
organized in 1994 as a separate portfolio of the Trust, which is a
Massachusetts business trust established in 1986. The Trust is not
required to hold annual shareholder meetings, but special meetings may
be called for certain purposes. You receive one vote for each of your
Fund shares. Shares of the Trust vote together except when required
by law to vote separately by fund or by class. Shareholders owning in
the aggregate ten percent of Trust shares may call meetings to
consider removal of Trustees. Under certain circumstances, the Trust
will provide information to assist shareholders in calling such a
meeting. See the Statement of Additional Information for more
information.
APPENDIX
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong
capacity to repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal
and pay interest is very strong, and in the majority of instances,
they differ from AAA only in small degree.
A bonds have a strong capacity to repay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to repay principal and
interest than for bonds in the A category.
BB, B, CCC and CC bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and principal in
accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree. While likely to have
some quality and protection characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being
paid.
D bonds are in default, and payment of interest and/or principal is in
arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the
major rating categories.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa bonds are judged to be of high quality by all standards. Together
with Aaa bonds they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger
than in Aaa securities. Those bonds in the Aa through B groups which
Moody's believes possess the strongest investment attributes are
designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length
of time. Such bonds lack outstanding investment characteristics and
in fact, have speculative characteristics as well.
Ba bonds are judged to have speculative elements; their future cannot
be considered as well secured. Often, the protection of interest and
principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes these bonds.
B bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may
be present elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having
other marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Investment Adviser
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02108
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.
March 6, 1995
COLONIAL GLOBAL UTILITIES FUND
PROSPECTUS
Colonial Global Utilities Fund seeks current income and long-term
growth of capital and income.
For more detailed information about the Fund, call the Administrator
at
1-800-248-2828 for the March 6, 1995 Statement of Additional
Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Mutual Funds
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 8.
To apply for special services for a new or existing account,
complete sections 4, 5, 6, 7, or 9 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S.
citizen status.
__Joint Tenant: Print all names, the Social Security # for
the first person, and his/her U.S. citizen status.
__Uniform Gift to Minors: Name of custodian and minor,
minor's Social Security #, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name,
Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's
Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? Yes___ No___
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class
is indicated. Certificates are not available for Class B or
D shares. If no distribution option is selected,
distributions will be reinvested in additional Fund shares.
Please consult your financial adviser to determine which
class of shares best suits your needs.
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
___ D Shares (less than $500,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
___ D Shares (less than $500,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
___ D Shares (less than $500,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that
his/her actions are authorized.
I have received and read each appropriate Fund prospectus
and understand that its terms are incorporated by reference
into this application. I understand that this application
is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales
charge. I certify, under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is
correct.
Cross out 2(a) or 2(b) if either is not true in your case.
2. I am not subject to 31% backup withholding because (a) I
have not been notified that I am subject to backup
withholding or (b) the Internal Revenue Service has notified
me that I am no longer subject to backup withholding.
It is agreed that the Fund, all Colonial companies and their
officers, directors, agents, and employees will not be
liable for any loss, liability, damage, or expense for
relying upon this application or any instruction believed
genuine.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following
features. Complete only the section(s) that apply to the
features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks
from your account in any amount you select, with certain
limitations. Your redemption checks can be sent to you at
the address of record for your account, to your bank
account, or to another person you choose. The value of the
shares in your account must be at least $5,000 and you must
reinvest all of your distributions. Checks will be processed
on the 10th calendar day of the month or the following
business day. Withdrawals in excess of 12% annually of your
current account value will not be accepted. Redemptions made
in addition to Plan payments may be subject to a contingent
deferred sales charge for Class B or Class D shares. Please
consult your financial or tax adviser before electing this
option.
Funds for Withdrawal:
______________________________________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _________________ (month).
______________________________________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _________________ (month).
______________________________________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _________________ (month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via Colonial Cash Connection. Please
complete Section 4B and the Bank Information section below.
__The payee listed at right.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
X_____________________________________________
Signature of account owner(s)
X_____________________________________________
Signature of account owner(s)
Signatures of all owners must be guaranteed. Provide the
name, address, payment amount, and frequency for other
payees (maximum of 5) on a separate sheet.
B. Direct Deposit via Colonial Cash Connection
You can arrange to have distributions from your Colonial
fund account(s) or Systematic Withdrawal Plan checks
automatically deposited directly into your bank checking
account. Distribution deposits will be made 2 days after the
Fund's payable date. Please complete Bank Information below
and attach a blank check marked "VOID."
Please deposit my:
__Dividend distributions only
__Dividend and capital gain distributions
__Systematic Withdrawal Plan payments
I understand that my bank must be a member of the Automated
Clearing House system.
C. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options
are not available for retirement accounts.
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 on our records. For
your protection, this service is only available on accounts
that have not had an address change within
60 days of the redemption request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege.
You may withdraw shares from your fund account by telephone
and send your money to your bank account. If you are adding
this service to an existing account, complete the Bank
Information section below and have all shareholder
signatures guaranteed.
Colonial's and the Fund's liability is limited when
following telephone instructions; a shareholder may suffer a
loss from an unauthorized transaction reasonably believed by
Colonial to have been authorized. Telephone redemptions
exceeding $5,000 will be sent via Federal Fund Wire, usually
on the next business day ($7.50 will be deducted).
Redemptions of $5,000 or less will be sent by check to your
designated bank.
Bank Information (For A, B, or C 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)
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of
varying share prices. Please consider your ability to
continue purchases through periods of price fluctuations.
Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing fund
distributions in another Colonial fund. These investments
will be made in the same share class and without sales
charges. I have carefully read the prospectus for the
fund(s) listed below.
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any
Colonial fund in which you have a balance of at least
$5,000 transferred into the same share class of up to four
other Colonial funds, on a monthly basis. The minimum amount
for each transfer is $100. Please complete the section
below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
C. Fundamatic
Fundamatic automatically transfers the specified amount from
your bank checking account to your Colonial fund account.
Your bank needs to be a member of the Automated Clearing
House system. Please attach a blank check marked "VOID."
Also, complete the section below and Fundamatic
Authorization (Section 6).
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
6 -------------Fundamatic Authorization--------------------
Authorization to honor checks drawn by Colonial Investors
Service Center. Do Not Detach. Make sure all depositors on
the bank account sign to the far right. Please attach a
blank check marked "VOID" here. See reverse for bank
instructions.
I authorize Colonial to draw on my bank account, by check or
electronic funds transfer, for an investment in a Colonial
fund. Colonial and my bank are not liable for any loss
arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and
Colonial may reverse the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
7--Ways to Reduce Your Sales Charges for Class A Shares--
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 Class A, B, or D
shares in other Colonial funds, you may be eligible for a
reduced sales charge. The combined value of your accounts
must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from
another Colonial fund.
The sales charge for your purchase will be based on the sum
of the purchase added to the value of all shares in other
Colonial funds at the previous day's public offering price.
__Please link the accounts listed below for Right of
Accumulation privileges, so that this and future purchases
will receive any discount for which they are eligible.
_____________________________________
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.
8-------------Financial Service Firm---------------------
To be completed by a Representative of your financial
service firm.
This application is submitted in accordance with our selling
agreement with Colonial Investment Services (CIS), the
Fund's prospectus, and this application. We will notify CIS
of any purchase made under a Statement of Intent, Right of
Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the
signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
9--Request for a Combined Quarterly Statement Mailing--
Colonial can mail all of your quarterly statements in one
envelope. This option simplifies your record keeping and
helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my
accounts.
Fundamatic (See Reverse Side)
Applications must be received before the start date for
processing.
This program's deposit privilege can be revoked by Colonial
without prior notice if any check is not paid upon
presentation. Colonial has no obligation to notify the
shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30
business days prior to the due date of any draw or by the
shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service
Center to collect amounts due under an investment program
from his/her personal checking account. When you pay and
charge the draws to the account of your depositor executing
the authorization payable to the order of Colonial Investors
Service Center, Colonial Management Associates, Inc., hereby
indemnifies and holds you harmless from any loss (including
reasonable expenses) you may suffer from honoring such draw,
except any losses due to your payment of any draw against
insufficient funds.
D-461L-594
Checkwriting Signature Card
(Class A Shares Only)
Colonial Mutual Funds
Signature Card for the Bank of Boston ("Bank").
- -----------------------------------------------
Name of Fund
- -----------------------------------------------
Fund account number
To request additional signature cards, please call Colonial at 1-800-248-2828.
Account Name:
You must sign below exactly as your account is registered.
X
- -----------------------------------------------
Signature
X
- -----------------------------------------------
Signature
By signing this card, you are subject to the conditions printed on the reverse
side. If adding this privilege to an existing account, your signatures must be
guaranteed.
Part A of Post-Effective Amendment No. 90 filed with the Commission on
December 21, 1994 (Colonial Global Utilities Fund), is incorporated herein
in its entirety by reference.
Part A of Post-Effective Amendment No. 91 filed with the Commission on
December 29, 1994 (Colonial Growth Shares Fund), is incorporated herein in
its entirety by reference.
Part A of Post-Effective Amendment No. 92 filed with the Commission on
February 14, 1995 (Colonial Federal Securities Fund, Colonial Strategic
Balanced Fund, Colonial International Fund for Growth, Colonial Global
Natural Resources Fund, Colonial Global Equity Fund, The Colonial Fund), is
incorporated herein in its entirety by reference.
COLONIAL TRUST III
Cross Reference Sheet (Colonial Global Utilities Fund)
Item Number of Form N-1A Location or Caption in the Statement of
Additional Information
Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies;
Fundamental Investment Policies; Other
Investment Policies; Portfolio Turnover;
Miscellaneous Investment Practices
14. Fund Charges and Expenses; Management of the
Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses; Management of the
Funds
17. Fund Charges and Expenses; Management of the
Funds
18. Shareholder Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Investor Services
20. Taxes
21. Fund Charges and Expenses; Management of the
Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Accountants
COLONIAL GLOBAL UTILITIES FUND
Statement of Additional Information
March 6, 1995
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is not
included in the Prospectus of Colonial Global Utilities 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 March 6, 1995. This SAI should be read
together with the Prospectus. Investors may obtain a free copy
of the Prospectus from Colonial Investment Services Inc., One
Financial Center, Boston, MA 02111-2621.
The Fund is the successor by merger to the Liberty Financial
Utilities Fund. The merger occurred on March 24, 1995. All
references to the Fund as of a time prior to such date shall be
deemed to refer to the Liberty Financial Utilities Fund.
Part 1 of this SAI contains specific information about the Fund.
Part 2 includes information about the Colonial funds generally
and additional information about certain securities and
investment techniques described in the Fund's prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
Certain Information Concerning the Portfolio
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Fund
Determination of Net Asset Value
How to Buy Shares
Investor Services
Suspension of Redemptions
Shareholder Liability
Performance Measures
Appendix I
Appendix II
XX-XX/XXXX-395
COLONIAL GLOBAL UTILITIES FUND
Statement of Additional Information
March 6, 1995
DEFINITIONS
"Fund" Colonial Global Utilities Fund
"Trust" Colonial Trust III
"Administrator" Colonial Management Associates, Inc., the Fund's
administrator
"CISI" Colonial Investment Services, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
"Portfolio" LFC Utilities Trust
"Adviser" Stein Roe & Farnham Incorporated, the Portfolio's
investment adviser
INVESTMENT OBJECTIVE AND POLICIES
As described in the Fund's Prospectus, the Fund currently seeks
to achieve its objective by investing all its assets in the
Portfolio. Part 1 contains additional information concerning the
Fund and the Portfolio, including a description of the Fund's and
the Portfolio's fundamental investment practices. Except where
otherwise indicated, references to the "Fund" in connection with
descriptions of investment policies and practices shall include
the Portfolio. Part 2 of this SAI contains additional information
about the following securities and investment techniques that are
described or referred to in the Prospectus
Foreign Securities
Money Market Instruments
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options
Foreign Currency Transactions
Securities Lending
Derivative Products
Zero Coupon Securities
Pay-in-Kind Securities
Options on Securities
Except as described below under "Fundamental Investment
Policies," the Fund's and the Portfolio's investment policies are
not fundamental, and the Fund's Trustees may change the policies
without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of
a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy. The
following fundamental investment policies can not be changed
without such a vote.
Total assets and net assets are determined at current value for
purposes of compliance with investment restrictions and policies.
All percentage limitations will apply at the time of investment
and are not violated unless an excess or deficiency occurs as a
result of such investment. For the purpose of the Act's
diversification requirement, an issuer is the entity whose
revenues support the security.
As fundamental policies, neither the Fund nor the Portfolio may:
1. Issue senior securities (as defined in the Act and the
rules thereunder) or borrow money, except that as a
temporary measure for extraordinary or emergency purposes
each of the Fund and the Portfolio may borrow from banks
in aggregate amounts at any one time outstanding not
exceeding 33 1/3% of the total assets (including the
amount borrowed) of the Fund or Portfolio, respectively,
valued at market; and neither the Fund nor the Portfolio
may purchase any securities at any time when borrowings
exceed 5% of the total assets of the Fund or the
Portfolio, respectively (taken at market value); and
except that the Fund and the Portfolio may enter into
options and futures transactions;
2. Purchase any security on margin, except that the Fund or
the Portfolio may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of
securities (this restriction does not apply to securities
purchased on a when-issued basis or to margin deposits in
connection with futures and options transactions);
3. Underwrite securities issued by other persons, except
insofar as the Fund or the Portfolio may technically be
deemed an underwriter under the Securities Act of 1933 in
selling a security and except that the Fund may invest all
or substantially all of its assets in another registered
investment company having substantially the same
investment objective as the Fund;
4. Make loans to other persons except (a) through the lending
of securities held by the Fund or the Portfolio, but not
in excess of 30% of the total assets of the Fund or the
Portfolio, respectively, or (b) through the purchase of
debt securities in accordance with the respective
investment policies of the Fund and the Portfolio;
5. Purchase the securities of any one issuer (except
securities issued or guaranteed by the U.S. Government and
its agencies or instrumentality's, as to which there are
no percentage limits or restrictions) if immediately after
and as a result of such purchase (a) more than 5% of the
value of its assets would be invested in that issuer, or
(b) the Fund or the Portfolio would hold more than 10% of
the outstanding voting securities of that issuer and
except that the Fund may invest all or substantially all
of its assets in another registered investment company
having substantially the same investment objective as the
Fund;
6. Purchase or sell real estate or interests in real estate
limited partnerships (other than securities secured by
real estate or interests therein), interests in oil, gas
or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Fund and the
Portfolio each reserves the freedom of action to hold and
to sell real estate acquired as a result of the ownership
of securities and to enter into futures and options
transactions in accordance with its investment policies);
or
7. Invest more than 25% of its total assets in the securities
of issuers whose principal business activities are in the
same industry (excluding obligations of the U.S.
Government and repurchase agreements collateralized by
obligations of the U.S. Government), except that the Fund
and the Portfolio may invest without limit (but may not
invest less than 25% of its total assets) in the
securities of companies in the public utilities industry
and except that the Fund may invest all or substantially
all of its assets in another registered investment company
having substantially the same investment objective as the
Fund.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed
without a shareholder vote, neither the Fund nor the Portfolio
may:
1. Invest in illiquid securities, including repurchase
agreements maturing in more than seven days but excluding
securities which may be resold pursuant to Rule 144A under
the Securities Act of 1933, if, as a result thereof, more
than 15% of the net assets (taken at market value at the
time of each investment of the Fund or the Portfolio, as
the case may be) would be invested in such securities and
except that the Fund may invest all or substantially all
of its assets in another registered investment company
having substantially the same investment objective as the
Fund;
2. Invest in companies for the purpose of exercising control
or management except that the Fund may invest all or
substantially all its assets in another registered
investment company having substantially the same
investment restrictions as the Fund;
3. Invest in the voting securities of a public utility
company if, as a result, it would own 5% or more of the
outstanding voting securities of more than one public
utility company;
4. Make investments in the securities of other investment
companies except that the Fund may invest all or
substantially all its assets in another registered
investment company having substantially the same
investment restrictions as the Fund;
5. Invest in securities of issuers (other than U.S.
Government Securities) having a record of less than three
years of continuous operation (for this purpose, the
period of operation of any issuer shall include the period
of operation of any predecessor or unconditional guarantor
of such issuer) if more than 5% of the total assets (taken
at market value at the time of each investment) of the
Fund or the Portfolio, as the case may be, would be
invested in such securities except that the Fund may
invest all or substantially all its assets in another
registered investment company having substantially the
same investment restrictions as the Fund;
6. Make short sales of securities or maintain a short
position except in connection with futures and options
transactions;
7. Mortgage, pledge, hypothecate or in any manner transfer,
as security for indebtedness, any securities owned by the
Fund or the Portfolio except (a) as may be necessary in
connection with borrowings mentioned in (1) above, and (b)
they may enter into futures and options transactions;
8. Invest more than 5% of its net assets (valued at the time
of purchase) in warrants, nor more than 2% of its net
assets in warrants that are not listed on the New York or
American Stock Exchange or a recognized foreign exchange;
9. Invest more than 5% of its total assets in puts, calls,
straddles, spreads, or any combination thereof (except
that the Fund or the Portfolio may enter into transactions
in options, futures and options on futures);
10. Write secured puts if the aggregate value of the
obligations underlying such puts would exceed 50% of its
net assets;
11. Purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers,
trustees or directors of the Fund or the Portfolio or the
investment adviser of the Portfolio, who each own more
than 1/2 of 1% of the securities of the issuer; or
12. Invest more than 10% of its total assets in securities
(debt or equity) which the Fund or the Portfolio would be
restricted from selling without registration under the
Securities Act of 1933, excluding securities which are
eligible for resale pursuant to Rule 144A thereunder, or
more than 5% of its total assets in equity securities
which are not readily marketable except in either case,
the Fund may invest all or substantially all its assets in
another registered investment company having substantially
the same investment restrictions as the Fund; .
PORTFOLIO TURNOVER
1994 1993
34% 41%
Portfolio turnover is the lesser of the aggregate purchases or
sales of securities other than short-term divided by the average
assets for the period. The Portfolio turnover indicated above
was for the Liberty Financial Utilities Fund for fiscal years ended
October 31.
FUND CHARGES AND EXPENSES
Aggregate Fund expenses include the expenses of the Portfolio,
which are borne indirectly by the Fund, and the Fund's direct
expenses. The Portfolio's expenses include (i) a management fee
paid to the Adviser at an annual rate of 0.55% of average daily
net assets up to $400 million and 0.50% of average daily net
assets thereafter, (ii) an annual $7,500 accounting services fee
paid to the Administrator, and (iii) custody, legal and audit
fees and other miscellaneous expenses. The Fund's expenses
include (i) an administrative fee paid to the Administrator at
the annual rate of 0.10% of average daily net assets, (ii) a
transfer agency and shareholder services fee paid to CISC at the
annual rate of 0.20% of average daily net assets plus CISC's out-
of-pocket expenses, (iii) the Rule 12b-1 fees paid to CISI
described below, (iv) a pricing and bookkeeping fee paid to the
Administrator in the amount of $18,000 per year plus 0.0233% of
average daily net assets in excess of $50 million and (v)
custody, legal and audit fees and other miscellaneous expenses.
Recent Fees paid to the Adviser, Liberty Investment Services,
Inc. (Liberty Services) (a), Liberty Securities Corporation
(Liberty Securities) (b) and State Street Bank and Trust Company
(c) (dollars in thousands)
1994 1993 1992
Management fee $1,603 $1,061 $233
Administration fee 292 193 0
Bookkeeping fee (Accounting) 62 62 57
Shareholders services and 776 541 223
transfer agent fee
12b-1 Fees 0 0
Distribution fee (d) 0 0 0
Service fee 471 0 0
Investor Accounting fee 8 19 23
(a) Liberty Services was the Fund's Administrator prior to
March 6, 1995.
(b) Liberty Securities Corporation was the Fund's distributor
prior to March 6, 1995.
(c) State Street Bank and Trust Company was the Fund's
transfer agent prior to March 6, 1995.
(d) Prior to March 1, 1994, no distribution fees had been paid
pursuant to the 12b-1 Plan.
Brokerage Commissions (in thousands)
1994 1993 1992
Total commissions $ 228 $ 218 $ 132
Directed transactions (e) 20,440 24,881 5,677
Commissions on directed 52 51 13
transactions
(e) See "Management of the Funds-Portfolio Transactions-
Brokerage and research services" in Part 2 of this SAI.
Trustees Fees
Prior to March 6, 1995, the Fund was a series of the Liberty
Financial Trust. The following table sets forth the amount of
compensation paid to the Trustees of the Fund by the Fund and the
Liberty Financial Trust Complex during the calendar year ended
December 31, 1994:
Pension or
Retirement Estimated
Benefits Annual Total
Aggregate Accrued As Benefits Compensation
Compensation Part of Upon From Fund and
Trustee From Fund Fund Expense Retiremen Fund Complex (f)
Richard R. $ 0 $0 $0 $ 0
Christensen
James E. Grinnell 2,298 0 0 31,032
Harold Krensky 1,526 0 0 18,382
Richard W. Lowry 2,298 0 0 31,282
Richard I. Roberts 0 0 0 0
(f) The Liberty Financial Trust Complex consists of 5 open-end
management investment company portfolios.
Effective March 6, 1995, the Fund became a series of Colonial
Trust III, which is part of the Colonial Fund Complex. The
following table sets forth the amount of compensation paid to the
Trustees of the Colonial Funds during the calendar year ended
December 31, 1994:
Total Compensation
Trustee Colonial Fund Complex(h)
Tom Bleasdale $101,000
Lora S. Collins 95,000
William D. Ireland, Jr. 110,000
William E. Mayer 89,752
John A. McNeice, Jr. 0
James L. Moody, Jr. 109,000
John J. Neuhauser 95,000
George L. Shinn 112,000
Robert L. Sullivan 104,561
Sinclair Weeks, Jr. 116,000
(h) The Colonial Fund Complex consists of 31 open-end and 5 closed-end
investment company portfolios.
Ownership of the Fund
At January 31, 1995, the officers and Trustees of the Trust as a
group owned less than 1% of the outstanding shares of the Fund.
At January 31, 1995, there were 26,908 record holders of the Fund.
Sales Charges (for the fiscal year ended October 31) (in thousands)
1994 1993 1992
Aggregate initial sales $1,566 $6,210 $4,866
charges on
Fund share sales
12b-1 Plans, CDSCs and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and
Class D. The Fund may in the future offer other classes of
shares. The Trustees have approved 12b-1 Plans pursuant to Rule
12b-1 under the Act. Under the Plans, the Fund pays CISI a
service fee at an annual rate of 0.25% of average net assets
attributed to each class of shares and a distribution fee at an
annual rate of 0.75% of average net assets attributed to Class B
and Class D shares. CISI may use the entire amount of such fees
to defray the costs of commissions and service fees paid to
financial service firms (FSFs) and for certain other purposes.
Since the distribution and service fees are payable regardless of
the amount of CISI's expenses, CISI may realize a profit from the
fees. The Plans authorize any other payments by the Fund to CISI
and its affiliates (including the Administrator) to the extent
that such payments might be construed to be indirectly financing
the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in
the growth and retention of Fund assets resulting in a more
advantageous expense ratio and increased investment flexibility
which could benefit each class of Fund shareholders. The Plans
will continue in effect from year to year so long as continuance
is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons
of the Trust and have no direct or indirect financial interest in
the operation of the Plans or in any agreements related to the
Plans (independent Trustees), cast in person at a meeting called
for the purpose of voting on the Plans. The Plans may not be
amended to increase the fee materially without approval by vote
of a majority of the outstanding voting securities of the
relevant class of shares and all material amendments of the Plans
must be approved by the Trustees in the manner provided in the
foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the independent Trustees or by vote of a
majority of the outstanding voting securities of the relevant
class of shares. The continuance of the Plans will only be
effective if the selection and nomination of the Trustees who are
non-interested Trustees is effected by such non-interested
Trustees.
Class A shares are offered at net asset value plus varying sales
charges which may include a contingent deferred sales charge
(CDSC). Class B shares are offered at net asset value subject to
a CDSC if redeemed within six years after purchase. Class D
shares are offered at net asset value plus a 1.00% initial sales
charge and subject to a 1.00% CDSC on redemption's within one
year after purchase. The CDSCs are described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of
distributions on or amounts representing capital appreciation.
In determining the applicability and rate of any CDSC, it will be
assumed that a redemption is made first of shares representing
capital appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder
for the longest period of time.
Eight years after the end of the month in which a Class B share
is purchased, such share and a pro rata portion of any shares
issued on the reinvestment of distributions will be automatically
converted into Class A shares having an equal value which are not
subject to the distribution fee.
INVESTMENT PERFORMANCE
The Fund's average annual total returns at October 31, 1994 were:
Period October 15, 1991
(commencement of investment
1 year operations)
through October 31, 1994
With sales charge of 4.50% (g) (11.56)% 6.36%
Without sales charge (7.41)% 7.98%
(g) The sales charge prior to March 6, 1995 was 4.50%. As of
March 6, 1995, the sales charge will be 5.75%.
The Fund's distribution rate at October 31, 1994, which is based
on the latest quarter's distributions, annualized, by the maximum
offering price at the end of the quarter was 4.64%.
CUSTODIAN
State Street Bank and Trust Company is the Fund's custodian. The
custodian is responsible for safeguarding the Fund's cash and
securities, receiving and delivering securities and collecting
the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants
providing audit and tax return preparation services and
assistance and consultation in connection with the review of
various SEC filings. KPMG Peat Marwick were the Fund's
independent auditors prior to March 6, 1995.
The Financial Statements and Report of Independent Accountants
appearing on pages 16-23 and 28 through 36 of the October 31,
1994 Annual Report, are incorporated into the SAI by reference.
CERTAIN INFORMATION CONCERNING THE PORTFOLIO
Portfolio's Investment Adviser
Under its Management Agreement with the Portfolio, the Adviser
provides the Portfolio with discretionary investment services.
Specifically, the Adviser is responsible for supervising and
directing the investments of the Portfolio in accordance with the
Portfolio's investment objective, program, and restrictions as
provided in the Fund's prospectus and this Statement of
Additional Information. The Adviser is also responsible for
effecting all security transactions on behalf of the Portfolio,
including the allocation of principal business and portfolio
brokerage and the negotiation of commissions (See "Portfolio
Transactions") the Management Agreement provides for the payment
to the Adviser of the fee described above under "Fund Charges and
Expenses."
The Adviser is an indirect wholly-owned subsidiary of Liberty
Financial Companies, Inc., which in turn is an indirect
subsidiary of Liberty Mutual Insurance Company.
The Adviser is the successor to an investment advisory business
that was founded in 1932. The Adviser acts as investment adviser
to wealthy individuals, trustees, pension and profit sharing
plans, charitable organizations and other institutional
investors. As of December 31, 1994, the Adviser managed over
$22.8 billion in assets: over $5.4 billion in equities and over
$17.4 billion in fixed-income securities (including $2.3 billion
in municipal securities). The $22.8 billion in managed assets
included over $6.4 billion held by open-end mutual funds managed
by the Adviser (approximately 25% of the mutual fund assets were
held by clients of the Adviser). These mutual funds were owned
by over 149,000 shareholders. The $6.4 billion in mutual fund
assets included over $504 million in over 33,000 IRA accounts.
In managing those assets, the Adviser utilizes a proprietary
computer-based information system that maintains and regularly
updates information for approximately 6,500 companies. The
Adviser also monitors over 1,400 issues via a proprietary credit
analysis system. At January 31, 1995, the Adviser employed
approximately 20 research analysts and 42 account managers. The
average investment-related experience of these individuals is 19
years.
The directors of the Adviser are Gary L. Countryman, Kenneth R.
Leibler, Timothy K. Armour, N. Bruce Callow and Hans P. Ziegler.
Mr. Countryman is Chairman of Liberty Mutual Insurance Company;
Mr. Leibler is President and Chief Operating Officer of Liberty
Financial Companies; Mr. Armour is President of the Adviser's
Mutual Funds division; Mr. Callow is President of the Adviser's
Investment Counsel division; and Mr. Ziegler is Chief Executive
Officer of the Adviser. The business address of Mr. Countryman
is 175 Berkeley Street, Boston, MA 02117; that of Mr. Leibler is
Federal Reserve Plaza , Boston, Massachusetts 02210; that of
Messrs. Armour, Callow and Ziegler is One South Wacker Drive,
Chicago, Illinois 60606.
Under the Management Agreement, the Adviser is not liable for any
error of judgment or mistake of law or for any loss suffered by
the Portfolio or the Fund in connection with the matters to which
such Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of
its duties or from reckless disregard of its obligations and
duties under the Agreement.
Portfolio Transactions
The Adviser places the orders for the purchase and sale of the
Portfolio's portfolio securities and options and futures
contracts.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to brokerage
commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other
judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which
are considered; the Adviser's knowledge of the financial
stability of the broker or dealer selected and such other brokers
or dealers; and the Adviser's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the
value of these factors, the Portfolio may pay a brokerage
commission in excess of that which another broker or dealer may
have charged for effecting the same transaction. Evaluations of
the reasonableness of brokerage commissions, based on the
foregoing factors, are made on an ongoing basis by the Adviser's
staff while effecting portfolio transactions. The general level
of brokerage commissions paid is reviewed by the Adviser, and
reports are made annually to the Board of Trustees of the
Portfolio.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to
be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction for
the Portfolio, the Adviser often selects a broker or dealer that
has furnished it with research products or services such as
research reports, subscriptions to financial publications and
research compilations, compilations of securities prices,
earnings, dividends, and similar data, and computer data bases,
quotation equipment and services, research-oriented computer
software and services, and services of economic and other
consultants. Selection of brokers or dealers is not made
pursuant to an agreement or understanding with any of the brokers
or dealers; however, the Adviser uses an internal allocation
procedure to identify those brokers or dealers who provide it
with research products or services and the amount of research
products or services they provide, and endeavors to direct
sufficient commissions generated by its clients' accounts in the
aggregate, including the Portfolio, to such brokers or dealers to
ensure the continued receipt of research products or services
that the Adviser feels are useful. In certain instances, the
Adviser receives from brokers and dealers products or services
which are used both as investment research and for
administrative, marketing, or other non-research purposes. In
such instances, the Adviser makes a good faith effort to
determine the relative proportions of such products or services
which may be considered as investment research. The portion of
the costs of such products or services attributable to research
usage may be defrayed by the Adviser (without prior agreement or
understanding, as noted above) through brokerage commissions
generated by transactions by clients (including the Portfolio),
while the portions of the costs attributable to non-research
usage of such products or services is paid by the Adviser in
cash. No person acting on behalf of the Portfolio is authorized,
in recognition of the value of research products or services, to
pay a commission in excess of that which another broker or dealer
might have charged for effecting the same transaction. Research
products or services furnished by brokers and dealers may be used
in servicing any or all of the clients of the Adviser and not all
such research products or services are used in connection with
the management of the Portfolio.
As stated above, the Adviser's overriding objective in effecting
portfolio transactions for the Portfolio is to seek to obtain the
best combination of price and execution. However, consistent
with the provisions of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., the Adviser may, in
selecting broker dealers to effect portfolio transactions for the
Portfolio, and where more than one broker dealer is believed
capable of providing the best combination of price and execution
with respect to a particular transaction, select a broker dealer
in recognition of its sales of shares of the Fund. The Adviser
maintains an internal procedure to identify broker dealers which
have sold shares of the Fund and the amount of such shares sold
by them. None of the Fund, the Portfolio or the Adviser has
entered into any agreement with, or made any commitment to, any
broker dealer which would bind the Adviser or the Portfolio to
compensate any broker dealer, directly or indirectly, for sales
of shares of the Fund. The Adviser does not cause the Portfolio
to pay brokerage commissions higher than those obtainable from
other broker dealers in recognition of such sales.With respect to
the Portfolio's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, the Adviser
may also consider the part, if any, played by the broker or
dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Portfolio.
The Portfolio has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian
as a soliciting dealer in connection with any tender offer for
the Portfolio's portfolio securities held by the Portfolio. The
custodian will credit any such fees received against its
custodial fees. In addition, the Board of Trustees has reviewed
the legal developments pertaining to and the practicability of
attempting to recapture underwriting discounts or selling
concessions when portfolio securities are purchased in
underwritten offerings. However, the Board has been advised by
counsel that recapture by a mutual fund currently is not
permitted under the Rules of Fair Practice of the National
Association of Securities Dealers.
Custodian
State Street Bank and Trust Company (Bank) is the custodian for
the securities and cash of the Portfolio, but it does not
participate in the investment decisions of the Portfolio. The
Portfolio has authorized the Bank to deposit certain portfolio
securities in central depository systems as allowed by federal
law. The Bank's main office is at 225 Franklin Street, Boston,
Massachusetts 02107.
Portfolio securities purchased by the Portfolio in the U.S. are
maintained in the custody of the bank or of other domestic banks
or depositories. Portfolio securities purchased outside of the
U.S. are maintained in the custody of foreign banks and trust
companies that are members of the Bank's Global Custody Network
or foreign depositories used by such foreign banks and trust
companies. Each of the domestic and foreign custodial
institutions holding portfolio securities has been approved by
the Board of Trustees of the Portfolio in accordance with
regulations under the Investment Company Act of 1940.
The Portfolio may invest in obligations (including repurchase
agreements) of the Bank and may purchase or sell securities from
or to the Bank.
Independent Accountants
The independent auditor for the Portfolio is KPMG Peat Marwick,
One Boston Place, Boston, Massachusetts 02108. KPMG Peat Marwick
audits and reports on the annual financial statement of the
Portfolio, reviews certain regulatory reports of the Portfolio
and their Federal income tax returns, and performs such
accounting, auditing, tax and advisory services as the Portfolio
may engage them to do so.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to your Fund
and to the other Colonial funds. In certain cases
the discussion applies to some but not all of the 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.
American Depository Receipts
The Fund may purchase American Depository Receipts ("ADRs")
if in the opinion of the Adviser trading conditions make
them more attractive than direct investment in the
underlying securities. ADRs are receipts typically issued
in the U.S. by a bank or trust company evidencing ownership
of an underlying foreign security. The Fund may invest in
ADRs which are structured by a U.S. bank without the
sponsorship of the underlying foreign issuer. In
addition to the risks of foreign investment applicable to
the underlying securities, such unsponsored ADRs may also be
subject to the risks that the foreign issuer may not be
obligated to cooperate with the U.S. bank, may not provide
financial and other information to the bank or the investor,
or that such information in the U.S. market may not be
current.
Short-Term Trading
In seeking the Fund's objective, the Adviser will buy or
sell portfolio securities whenever the Adviser
believes it 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. Portfolio
turnover rate for a fiscal year is the ratio of the
lesser of purchases or sales of portfolio securities to
the monthly average of the value of portfolio securities,
excluding securities whose maturities at acquisition were
one year or less. The Fund's portfolio turnover rate is not
a limiting factor when the Adviser considers a change in the
Fund's portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's,
BBB by S&P, or comparable unrated securities. Relative to
comparable securities of higher quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a
more significant effect on the yield, price and potential
for default;
b. the secondary market may at times become less liquid or respond
to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
c. recent or future legislation limits and may further limit
(i) investment by certain institutions or (ii) tax deductibility
of the interest by the issuer, which may adversely affect value;
d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the Fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate cash
for distributions.
2. the Fund's achievement of its investment objective is more dependent on
the Adviser's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes, but are
more sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer
greater opportunities for capital appreciation than
larger, better established companies, but may also involve
certain special risks related to limited product lines,
markets, or financial resources and dependence on a small
management group. Their securities may trade less
frequently, in smaller volumes, and fluctuate more sharply
in value than securities of larger companies.
Foreign Securities
The Fund may invest in securities traded in markets outside
the United States. Foreign investments can be affected
favorably or unfavorably by changes in currency rates and
in exchange control regulations. There may be less
publicly available information about a foreign company
than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S.
companies. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees may
be higher than in the United States. Investments in
foreign securities can involve other risks different
from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or
interest payments. Foreign securities, like other assets
of the Fund, will be held by the Fund's custodian or by a
subcustodian or depository. See also "Foreign Currency
Transactions" below.
The Fund may invest in certain Passive Foreign
Investment Companies (PFICs) which may be subject to U.S.
federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the
investment. The PFIC tax is the highest ordinary income
rate and it could be increased by an interest charge on
the deemed tax deferral.
The Fund may possibly elect to include in its income its pro
rata share of the ordinary earnings and net capital gain
of PFICs. This election requires certain annual
information from the PFICs which in many cases may be
difficult to obtain. An alternative election would permit
the Fund to recognize as income any appreciation (but
not depreciation) on its holdings of PFICs as of the end
of its fiscal year.
Zero Coupon Securities
The Fund may invest in debt securities which do not pay
interest, but instead are issued at a deep discount from
par. The value of the security increases over time to reflect
the interest accreted. The value of these securities may fluctuate more
than similar securities which are issued at par and pay
interest periodically. Although these securities pay no
interest to holders prior to maturity, interest on these securities
is reported as income to the Fund and distributed to its shareholders.
These distributions must be made from the Fund's cash assets or, if
necessary, from the proceeds of sales of portfolio securities. The Fund
will not be able to purchase additional income producing securities
with cash used to make such distributions and its
current income ultimately may be reduced as a result.
Step Coupon Bonds (Steps)
The Fund may invest in debt securities which do not pay
interest for a stated period of time and then pay interest
at a series of different rates for a series of periods.
In addition to the risks associated with the credit
rating of the issuers, these securities are subject to
the volatility risk of zero coupon bonds for the period
when no interest is paid.
Pay-in-kind (PIK) Securities
The Fund may invest in securities which pay interest
either in cash or additional securities at the issuer's
option. These securities are generally high yield
securities and in addition to the other
risks associated with investing in high yield
securities are subject to the risks that the interest
payments that are securities are also subject to the risks
of high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or
foreign government, its 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 funds deposited in a commercial bank
with a defined return and maturity. Banker's
acceptances are used to finance the import, export or
storage of goods and are "accepted" when guaranteed at
maturity by a bank. Commercial paper are promissory notes
issued by businesses to finance short-term needs
(including those with floating or variable interest
rates, or including a frequent interval put feature). Short-term
corporate obligations are bonds and notes (with one year or less
to maturity at the time of purchase) issued by businesses to finance
long-term needs. Participation Interests include the underlying securities
and any related guaranty, letter of credit, or
collateralization arrangement which the Fund would be
allowed to invest in directly.
Forward Commitments
The Fund may enter into contracts to purchase securities
for a fixed price at a future date beyond customary
settlement time ("forward commitments" and "when issued
securities") if the Fund holds until the settlement date,
in a segregated account, cash or high-grade debt obligations
in an amount sufficient to meet the purchase price, or if
the Fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments
may be considered securities in themselves, and involve
a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where
such purchases are made through dealers, the Fund relies on
the dealer to consummate the sale. The dealer's failure to
do so may result in the loss to the Fund of an
advantageous yield or price. Although the Fund will
generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if
the Adviser deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward
commitments.
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, a Fund sells a security
and agrees to repurchase the same security at a mutually
agreed upon date and price. It may also be viewed as the
borrowing of money by the Fund and, therefore, is a form of
leverage. The Fund will invest the proceeds of
borrowings under reverse repurchase agreements. In
addition, a Fund will enter into a reverse
repurchase agreement only when the interest income to be
earned from the investment of the proceeds is greater than
the interest expense of the transaction. A Fund will not
invest the proceeds of a reverse repurchase agreement for a
period which exceeds the duration of the reverse
repurchase agreement. A 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.
Securities Lending
Any loans of portfolio securities by a Fund will be
secured continuously by cash or equivalent collateral or by
a letter of credit in favor of the Fund at least equal at
all times to 100% of the market value of the securities
loaned, plus accrued interest. While such securities are
on loan, the borrower will pay the Fund any income
accruing thereon. Loans will be subject to termination by
the Fund in the normal settlement time, generally five
business days after notice, or by the borrower on one
day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of
the loan inures to a Fund and its respective shareholders.
A Fund may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Fund will
consider all facts and circumstances including the
creditworthiness of the borrowing financial
institution, and a Fund will not make any loans in excess of
one year.
Synthetic Variable Rate instruments
Certain funds may invest in certain synthetic variable
rate instruments as described in the Prospectus. In the
case of some types of instruments credit enhancement is
not provided, and if certain events, which may include (a)
default in the payment of principal or interest on the
underlying bond, (b) downgrading of the bond below
investment grade or (c) a loss of the bond's tax exempt
status, occur, then (i) the put will terminate, (ii) the
risk to a Fund will be that of holding a long-term bond,
and (iii) in the case of a money market fund, the
disposition of the bond may be required which could be at a
loss.
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
objectives and policies. Call options written by the
Fund give the purchaser the right to buy the underlying
securities from the Fund at a stated exercise price; put
options give the purchaser the right to sell the underlying
securities to the Fund at a stated price.
The Fund may write only covered options, which means
that, so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities
subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges).
In the case of put options, the Fund will hold cash and/or
high-grade short-term debt obligations equal to the price to be paid
if the option is exercised. In addition, the Fund will be considered to have
covered a put or call option if and to the extent that it holds an
option that offsets some or all of the risk of the option it
has written. The Fund may write combinations of covered
puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or
call option, which increases the Fund's return on the
underlying security if the option expires unexercised or is
closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the
exercise price and the current market value of the underlying
security, the volatility of the underlying security, the amount of time
remaining until expiration, current interest rates, and
the effect of supply and demand in the options market and
in the market for the underlying security. By
writing a call option, the Fund limits its
opportunity to profit from any increase in the market
value of the underlying security above the exercise price
of the option but continues to bear the risk of a decline
in the value of the underlying security. By writing a put
option, the Fund assumes the risk that it may be
required to purchase the underlying security for an
exercise price higher than its then-current market
value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The Fund may terminate an option that it has written prior
to its expiration by entering into a closing purchase
transaction in which it purchases an offsetting option.
The Fund realizes a profit or loss from a closing
transaction if the cost of the transaction (option
premium plus transaction costs) is less or more than the
premium received from writing the option. Because increases
in the market price of a call option generally reflect
increases in the market price of the security underlying
the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized
appreciation of the underlying security.
If the Fund writes a call option but does not own the
underlying security, and when it writes a put option,
the Fund may be required to deposit cash or
securities with its broker as "margin" or collateral
for its obligation to buy or sell the underlying
security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with
the broker. Margin requirements are complex and are
fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve
Board and by stock exchanges and other self-regulatory
organizations.
Purchasing put options. The Fund may purchase put
options to protect its portfolio holdings in an underlying
security against a decline in market value. Such hedge
protection is provided during the life of the put option
since the Fund, as holder of the put option, is able to
sell the underlying security at the put exercise price
regardless of any decline in the underlying security's
market price. For a put option to be profitable, the
market price of the underlying security must decline
sufficiently below the exercise price to cover the premium
and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise
have realized from appreciation of the underlying security
by the premium paid for the put option and by transaction
costs.
Purchasing call options. The Fund may purchase call
options to hedge against an increase in the price of
securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call
option since the Fund, as holder of the call option, is
able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's
market price. In order for a call option to be
profitable, the market price of the underlying security must
rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any
profit the Fund might have realized had it bought the
underlying security at the time it purchased the call
option.
Over-the-Counter (OTC) options. The Staff of the
Division of Investment Management of the Securities and
Exchange Commission has taken the position that OTC options purchased
by the Fund and assets held to cover OTC options written by the Fund are
illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further
developments, the Fund intends to enter into OTC options
transactions only with primary dealers in U.S. Government
Securities and, in the case of OTC options written by the
Fund, only pursuant to agreements that will assure that
the Fund will at all times have the right to repurchase
the option written by it from the dealer at a
specified formula price. The Fund will treat the amount by
which such formula price exceeds the amount, if any, by
which the option may be "in-the-money" as an illiquid
investment. It is the present policy of the Fund not to enter into any OTC
option transaction if, as a result, more than 15% 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 the 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
The Fund will enter into futures contracts only
when, in compliance with the SEC's requirements, cash or cash
equivalents, (or, in the case of a fund investing primarily
in foreign equity securities, such equity 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.
A futures contract sale creates an obligation by the
seller to deliver the type of instrument called for in the
contract in a specified delivery month for a stated price.
A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument
called for in the contract in a specified delivery month at
a stated price. The specific instruments delivered or taken at
settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of
the exchanges on which the futures contract was made.
Futures contracts are traded in the United States only on
commodity exchange or boards of trade -known as "contract
markets" -- approved for such trading by the Commodity
Futures Trading Commission (CFTC), and must be executed
through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for
actual delivery or acceptance of commodities or securities, the
contracts usually are closed out before the settlement
date without the making or taking of delivery. Closing out a
futures contract sale is effected by purchasing a futures
contract for the same aggregate amount of the specific type of
financial instrument or commodity with the same delivery date. If
the price of the initial sale of the futures contract exceeds the
price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial
sale, the seller realizes a loss. Similarly, the closing
out of a futures contract purchase is effected by the
purchaser's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price
exceeds the offsetting sale price, the purchaser realizes a
loss.
Unlike when the Fund purchases or sells a security, no
price is paid or received by the Fund upon the purchase
or sale of a futures contract, although the Fund is
required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of cash
and/or U.S. Government Securities. This amount is known
as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds
by the Fund to finance the transactions.
Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract
that is returned to the Fund upon termination of the
futures contract, assuming all contractual obligations
have been satisfied. Futures contracts also involve
brokerage costs. Subsequent payments, called "variation margin", to and
from the broker (or the custodian) are made on a daily basis as
the price of the underlying security or commodity
fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as
"marking to market."
The Fund may elect to close some or all of its futures
positions at any time prior to their expiration. The
purpose of making such a move would be to reduce or
eliminate the hedge position then currently held by the
Fund. The Fund may close its positions by taking
opposite positions which will operate to terminate the
Fund's position in the futures contracts. Final
determinations of variation margin are then made, additional
cash is required to be paid by or released to the Fund, and
the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
Options on futures contracts. The Fund will enter into
written options on futures contracts only when, in
compliance with the SEC's requirements, cash or
equivalents equal in value to the commodity value (less
any applicable margin deposits) have been deposited in a
segregated account of the Fund's custodian. The
Fund may purchase and write call and put options on
futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate
existing positions. The Fund may use such options on
futures contracts in lieu of writing options directly
on the underlying securities or purchasing and
selling the underlying futures contracts. Such options
generally operate in the same manner as options purchased or
written directly on the underlying investments.
As with options on securities, the holder or writer of an
option may terminate his position by selling or purchasing
an offsetting option. There is no guarantee that such
closing transactions can be effected.
The Fund will be required to deposit initial margin
and maintenance margin with respect to put and call
options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related
options. Successful use of futures contracts by the Fund is
subject to the Adviser's ability to predict correctly
movements in the direction of interest rates and other
factors affecting securities markets.
Compared to the purchase or sale of futures contracts,
the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the
options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a
futures contract would result in a loss to the Fund when the
purchase or sale of a futures contract would not, such as
when there is no movement in the prices of the hedged
investments. The writing of an option on a futures
contract involves risks similar to those risks relating to
the sale of futures contracts.
There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at
times, render certain market clearing facilities
inadequate, and thereby result in the institution, by
exchanges, of special procedures which may interfere with
the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund,
the Fund may seek to close out a position. The ability to
establish and close out positions will be subject to the
development and maintenance of a liquid secondary market.
It is not certain that this market will develop or
continue to exist for a particular futures contract.
Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be
insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions
or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular
classes or series of contracts or options, or
underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of
contracts or options (or a particular class or series of
contracts or options), in which event the secondary market
on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued
by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance
with their terms.
Use by tax-exempt funds of U.S. Treasury security
futures contracts and options. A Fund investing in tax-
exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on
U.S. Treasury securities when, in the opinion of the
Adviser, price movements in Treasury security futures and
related options will correlate closely with price
movements in the tax-exempt securities which are the
subject of the hedge. U.S. Treasury securities futures
contracts require the seller to deliver, or the purchaser
to take delivery of, the type of U.S. Treasury security
called for in the contract at a specified date and price.
Options on U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to
assume a position in a U.S. Treasury futures contract at
the specified option exercise price at any time during
the period of the option.
In addition to the risks generally involved in using
futures contracts, there is also a risk that price
movements in U.S. Treasury security futures contracts and
related options will not correlate closely with price
movements in markets for tax-exempt securities.
Index futures contracts. An index futures contract is a
contract to buy or sell units of an index at a specified future date
at a price agreed upon when the contract is made.
Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract
or holding a long position in the index.
Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a
short position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts
appropriate to its objective(s). The Fund may also
purchase and sell options on index futures contracts.
There are several risks in connection with the use by the
Fund of index futures as a hedging device. One risk arises
because of the imperfect correlation between movements in
the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The
Adviser will attempt to reduce this risk by selling, to
the extent possible, futures on indices the movements of
which will, in its judgment, have a significant correlation
with movements in the prices of the Fund's portfolio
securities sought to be hedged.
Successful use of the index futures by the Fund for
hedging purposes is also subject to the Adviser's ability
to predict correctly movements in the direction of the
market. It is possible that, where the Fund has sold
futures to hedge its portfolio against a decline in the
market, the index on which the futures are written may
advance and the value of securities held in the Fund's
portfolio may decline. If this occurs, the Fund would lose
money on the futures and also experience a decline in the
value in its portfolio securities. However, while this
could occur to a certain degree, the Adviser believes that
over time the value of the Fund's portfolio will tend to
move in the same direction as the market indices which are
intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also
possible that, if the Fund has hedged against the
possibility of a decline in the market adversely affecting
securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the
benefit of the increased valued of those securities that
it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the
Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the index futures and the securities of the
portfolio being hedged, the prices of index futures may
not correlate perfectly with movements in the
underlying index due to certain market distortions.
First, all participants in the futures markets are subject
to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting
transactions which would distort the normal relationship
between the index and futures markets. Second, margin
requirements in the futures market are less onerous than margin
requirements in the securities market, and as a result the futures market may
attract more speculators than the securities market. Increased
participation by speculators in the futures market may also
cause temporary price distortions. Due to the possibility
of price distortions in the futures market and also
because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still
not result in a successful hedging transaction.
Options on index futures. Options on index futures are
similar to options on securities except that options on
index futures give the purchaser the right, in return for
the premium paid, to assume a position in an index
futures contract (a long position if the option is a call
and a short position if the option is a put), at a
specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of
the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin
account which represents the amount by which the market
price of the index futures contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the index future.
If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the
index on which the future is based on the expiration
date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the
premium paid.
Options on indices. As an alternative to purchasing call
and put options on index futures, the Fund may purchase
call and put options on the underlying indices themselves.
Such options could be used in a manner identical to the
use of options on index futures.
Foreign Currency Transactions. The Fund may engage in
currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and
"position hedging". When it engages in transaction
hedging, the Fund enters into foreign currency
transactions with respect to specific receivables or payables of
the Fund generally arising in connection with the purchase or sale of its
portfolio securities. The Fund will engage in transaction
hedging when it desires to "lock in" the U.S. dollar
price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the
Fund attempts to protect itself against a possible loss
resulting from an adverse change in the relationship between
the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is
purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments
are made or received.
The Fund may purchase or sell a foreign currency on a spot
(or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities
denominated in that foreign currency. The Fund may also
enter into contracts to purchase or sell foreign
currencies at a future date (forward contracts) and
purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also
purchase exchange-listed and over-the-counter call and
put options on foreign currency futures contracts and on
foreign currencies. Over-the-counter options are considered
to be illiquid by the SEC staff. A put option on a
futures contract gives the Fund the
right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives
the Fund the right to sell a currency at an exercise price
until the expiration of the option. A call option on a
futures contract gives the Fund the right to assume a long
position in the futures contract until the expiration of
the option. A call option on currency gives the Fund the
right to purchase a currency at the exercise price until
the expiration of the option.
When it engages in position hedging, the Fund enters into
foreign currency exchange transactions to protect against a
decline in the values of the foreign currencies in
which its portfolio securities are denominated (or an
increase in the value of currency for securities which
the Fund expects to purchase, when the Fund holds cash or
short-term investments). In connection with position
hedging, the Fund may purchase put or call options on
foreign currency and foreign currency futures contracts
and buy or sell forward contracts and foreign currency
futures contracts. The Fund may also purchase or sell
foreign currency on a spot basis.
The precise matching of the amounts of foreign currency
exchange transactions and the value of the portfolio
securities involved will not generally be possible since
the future value of such securities in foreign currencies
will change as a consequence of market movements in the
value of those securities between the dates the currency
exchange transactions are entered into and the dates they
mature.
It is impossible to forecast with precision the market
value of portfolio securities at the expiration or
maturity of a forward or futures contract. Accordingly,
it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense
of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign
currency the Fund is obligated to deliver and if a
decision is made to sell the security or securities and
make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or
securities if the market value of such security or
securities exceeds the amount of foreign currency the Fund
is obligated to deliver.
Transaction and position hedging do not eliminate
fluctuations in the underlying prices of the securities
which the 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. The Fund will enter
into such contracts only when, in compliance with
the SEC's requirements, cash or equivalents equal in
value to the underlying commodity value (less any applicable margin
deposits) have been deposited in a segregated account
of 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 changed 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 overthe-counter market, although options on currencies
have recently been listed on several exchanges. Options are
traded not only on the currencies of individual nations, but
also on the European Currency Unit (ECU). The ECU is composed
of amounts of a number of currencies, and is the official
medium of exchange of the European Economic Community's
European Monetary System.
The Fund will only purchase or write currency options when
the Adviser believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary
market will exist for a particular option at any specified
time. Currency options are affected by all of those factors
which influence exchange rates and investments generally. To
the extent that these options are traded over the counter, they
are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollars, may
be affected by complex political and economic factors applicable
to the issuing country. In addition, the exchange rates
of currencies (and therefore the values of currency options) may
be significantly affected, fixed, or supported directly
or indirectly by government actions. Government intervention
may increase risks involved in purchasing or selling
currency options, since exchange rates may not be free to
fluctuate in respect to other market forces.
The value of a currency option reflects the value of an
exchange rate, which in turn reflects relative values of two
currencies, the U.S. dollar and the foreign currency in
question.
Because currency transactions occurring in the interbank market
involve substantially larger amounts than those that may be
involved in the exercise of currency options, investors may
be disadvantaged by having to deal in an odd lot market
for the underlying currencies in connection with options at
prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse
changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information
for currencies and there is no regulatory requirement that
quotations available through dealers or other market sources
be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-
lot transactions in the interbank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less
than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock
market. To the extent that options markets are closed
while the markets for the underlying currencies remain
open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options
markets.
Settlement procedures. Settlement procedures relating to
the Fund's investments in foreign securities and to the
Fund's foreign currency exchange transactions may be more
complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve
certain risks not present in the Fund's domestic
investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also
involve the risk that an entity involved in the settlement may
not meet its obligations.
Foreign currency conversion. Although foreign exchange
dealers do not charge a fee for currency conversion, they do
realize a profit based on the difference (spread) between
prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser
rate of exchange should the Fund desire to
resell that currency to the dealer. Foreign currency
transactions may also involve the risk that an entity involved
in the settlement may not meet its obligation.
Participation Interests. The Fund may invest in
municipal obligations either by purchasing them directly or by
purchasing certificates of accrual or similar instruments
evidencing direct ownership of interest payments or principal
payments, or both, on municipal obligations, provided that, in
the opinion of counsel to the initial seller of each such
certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not
greater than the coupon rate of interest on the related
municipal obligations will be exempt from federal
income tax to the same extent as interest on such
municipal obligations. The Fund may also invest in tax-exempt
obligations by purchasing from banks participation interests
in all or part of specific holdings of municipal obligations. Such
participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank.
The selling bank may receive a fee from the Fund in
connection with the arrangement. The Fund will not
purchase such participation interests unless it receives an
opinion of counsel or a ruling of the Internal Revenue
Service that interest earned by it on municipal
obligations in which it holds such participation
interests is exempt from federal income tax.
Stand-by Commitments. When the Fund purchases
municipal obligations it may also acquire stand-by commitments from
banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put
option acquired by the Fund with respect to a particular
municipal obligation held in its portfolio. A stand-by commitment is a
security independent of the municipal obligation to which it relates.
The amount payable by a bank or dealer during the time a
stand-by commitment is exercisable, absent unusual
circumstances relating to a change in market value, would be
substantially the same as the value of the underlying
municipal obligation. A stand-by commitment might not be
transferable by the Fund, although it could sell the
underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will
be available without the payment of direct or
indirect consideration. However, if necessary and advisable, the Fund
may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are
acquired subject to such a commitment (thus reducing the yield
to maturity otherwise available for the same securities.) The
total amount paid in either manner for outstanding stand-by
commitments held in the Fund portfolio will not exceed 10%
of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired.
The Fund will enter into stand-by commitments only with
banks and broker-dealers that, in the judgment of the 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 the effects of
interest rate changes have a magnified effect on the values of
inverse floaters.
TAXES
All discussions of taxation at the shareholder level relate
to federal taxes only. Consult your tax adviser for state and
local tax considerations and for information about
special tax considerations that may apply to shareholders
that are not natural persons.
Dividends Received Deduction. Distributions will qualify for
the corporate dividends received deduction only to the extent
that dividends earned by the Fund qualify. Any such
dividends are, however, includable in adjusted current earnings for purposes
of computing corporate AMT.
Return of Capital Distributions. To the extent that
a distribution is a return of capital for federal tax purposes,
it reduces the cost basis of the shares on the record date
and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no
recognition of a gain or loss, however, unless the return of
capital reduces the cost basis in the shares to below zero.
If distributions are taken in additional shares, they will
have no impact since the capital returned is reinvested
and the cost basis of the investment is unchanged.
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 mortgagebacked securities (including GNMA, FNMA and
FHLMC Securities) collateralized by U.S. government
securities do not qualify as direct federal obligations in
most states and investments in repurchase
agreements do not qualify as direct federal
obligations in any states. Shareholders should consult
with their own tax advisers about the applicability of state
and local intangible property, income or other taxes to their
Fund shares and distributions and redemption proceeds received
from the Fund.
Distributions from Tax-Exempt Funds. Each tax-exempt Fund
will have at least 50% of its total assets invested in tax-
exempt bonds at the end of each quarter so that dividends
from net interest income on tax-exempt bonds will be exempt
from Federal income tax when received by a shareholder.
The tax-exempt portion of dividends paid will be designated
within 60 days after year end based upon the ratio of net tax-
exempt income to total net investment income earned during the
year. That ratio may be substantially different than the
ratio of net tax-exempt income to total net investment
income earned during any particular portion of the year.
Thus, a shareholder who holds shares for only a part of the
year may be allocated more or less tax-exempt dividends than
would be the case if the allocation were based on the ratio of
net tax-exempt income to total net investment income actually
earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain
"private activity bonds" issued after August 7, 1986, a tax
preference item for the alternative minimum tax (AMT) at the
maximum rate of 28% for individuals and 20% for
corporations. If the Fund invests in private activity
bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds.
Other provisions of the Tax Reform Act affect the tax
treatment of distributions for corporations, casualty
insurance companies and financial institutions; interest on all
tax-exempt bonds is included in corporate adjusted current
earnings when computing the AMT applicable to
corporations. Seventy-five percent of the excess of adjusted
current earnings over the amount of income otherwise subject
to the AMT is a preference item and added to the AMT
income, potentially creating an AMT liability.
Dividends derived from net income on any investments other
than tax-exempt bonds and any distributions of short-term
capital gains are taxable to shareholders as ordinary
income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains
regardless of the length of time Fund shares are held.
Shareholders receiving social security and certain
retirement benefits may be taxed on a portion of those benefits
as a result of receiving tax-exempt income, including tax-
exempt dividends from the Fund. The tax is imposed only
where the sum of the recipient's adjusted gross income,
tax-exempt interest and dividend income and one-half the social security
benefits exceeds a base amount ($25,000 for single individuals and
$32,000 for individuals filing a joint return). The tax is
imposed on the lesser of one-half of the social security
benefits or on one-half of the excess over the base amount.
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 Fund investments other than tax-
exempt instruments may give rise to taxable income. Fund
shares must be held for more than six months in order to
avoid the disallowance of a capital loss on the sale of Fund
shares to the extent of tax-exempt dividends paid during that
period. A shareholder that borrows money to purchase Fund
shares will not be able to deduct the interest paid with
respect to such borrowed money.
Backup Withholding. Certain distributions and redemptions may
be subject to a 31% backup withholding unless a
taxpayer identification number and certification that the shareholder
is not subject to the withholding is provided to the Fund.
This number and form may be provided by either a Form W-9
or the accompanying application. In certain instances
CISC may be notified by the Internal Revenue Service that a
shareholder is subject to backup withholding.
Excise Tax. To the extent that the Fund does not
annually distribute substantially all taxable income and
realized gains, it is subject to an excise tax. The Adviser
intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated
investment company," the Fund must (a) derive at least 90%
of its gross income from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition
of securities or foreign currencies or other income (including
but not limited to gains from options, futures or forward
contracts) derived with respect to its business of
investing in such securities or currencies; (b) derive less
than 30% of its gross income from the sale or other
disposition of certain assets held less than three months;
(c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S.
Government securities, and other securities limited
generally with respect to any one issuer to not more than 5%
of the total assets of the Fund and not more than 10% of
the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the
securities of any issuer (other than U.S. Government
securities).
Futures Contracts. Accounting for futures contracts will be
in accordance with generally accepted accounting principles.
The amount of any realized gain or loss on the closing out of
a futures contract will result in a capital gain or loss for
tax purposes. In addition, certain futures contracts held by
the Fund (so-called "Section 1256 contracts") will be required
to be "marked-to-market" (deemed sold) for federal income tax
purposes at the end of each fiscal year. Sixty percent of any
net gain or loss recognized on such deemed sales or on actual
sales will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or
loss.
However, if a futures contract is part of a "mixed
straddle" (i.e., a straddle comprised in part of Section 1256
contracts), a Fund may be able to make an election which
will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of
such gains or losses. In any event, the straddle
provisions described below will be applicable to such mixed
straddles.
Special Tax Rules Applicable to "Straddles". The
straddle provisions of the Code may affect the taxation of
the Fund's options and futures transactions and transactions
in securities to which they relate. A "straddle" is made up
of two or more offsetting positions in "personal
property," including debt securities, related options and
futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities,
and foreign currencies and related options and futures.
The straddle rules may operate to defer losses realized or
deemed realized on the disposition of a position in a
straddle, may suspend or terminate the Fund's holding period
in such positions, and may convert short-term losses to long-
term losses in certain circumstances.
Foreign Currency-Denominated Securities and Related
Hedging Transactions. The Fund's transactions in foreign
currencydenominated debt securities, certain foreign currency
options, futures contracts and forward contracts may give rise
to ordinary income or loss to the extent such income or loss
results from fluctuations in the value of the foreign currency
concerned.
If more than 50% of a Fund's total assets at the end of
its fiscal year are invested in securities of foreign
corporate issuers, the Fund may make an election
permitting its shareholders to take a deduction or credit for federal
tax purposes for their portion of certain foreign taxes paid
by the Fund. Colonial 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 the
shareholder in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit will
be subject to certain limitations imposed by the Code, as a
result of which a shareholder may not get a full credit for
the amount of foreign taxes so paid by the Fund. Shareholders
who do not itemize on their federal income tax returns may
claim a credit (but no deduction) for such foreign taxes.
Certain Securities are considered to be Passive
Foreign Investment Companies (PFICS) under the Code, and the Fund
is liable for any PFIC-related taxes.
MANAGEMENT OF THE FUND
The Adviser is an indirect subsidiary of Liberty
Financial Companies, Inc. (Liberty Financial), which in turn is
an indirect subsidiary of Liberty Mutual Insurance Company
(Liberty Mutual). Liberty Mutual is an underwriter of worker's
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. Colonial
is a subsidiary of The Colonial Group, Inc. (TCG), One Financial Center,
Boston, MA 02111. TCG also is a subsidiary of Liberty Financial.
The Adviser is the successor to an investment advisory
business that was founded in 1932. The Adviser's address is
One South Wacker Drive, Chicago, IL 60606.
Trustees and Officers of the Fund and the Portfolio:
Robert J. Birnbaum, Trustee, is a Trustee (formerly Special Counsel,
Dechert Price & Rhoads), 313 Bedford Road, Ridgewood, NJ 07405
Tom Bleasdale, Trustee, is a Trustee (formerly Chairman of the Board and
Chief Executive Officer, Shore Bank & Trust Company), 1508 Ferncroft Tower,
Danvers, MA 01923
Robert A. Christensen, Vice President, is Senior Vice President of Adviser.
Richard R. Christensen, Senior Vice President, is President, Liberty
Investment Services, Inc. 80 Exeter Street, Exeter, NH 03833.
Lora S. Collins, Trustee, is an Attorney with Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel, 919 Third Avenue, New York, NY 10022
John L. Davenport, Secretary, is Vice President and Associate General
Counsel, Liberty Financial Companies, Inc., Federal Reserve Plaza,
600 Atlantic Avenue, Boston, MA 02210.
Ernest E. Dunbar, Vice President and Treasurer, is Senior Vice President,
Liberty Investment Services, Inc., Federal Reserve Plaza, 600 Atlantic
Avenue, Boston, MA 02210.
James E. Grinnell, Trustee, is a Private Investor, 22 Harbor Avenue,
Marblehead, MA 01945
William D. Ireland, Jr., Trustee, is a Trustee (formerly Chairman of the
Board, Bank of New England, Worcester), 103 Springline Drive, Vero Beach,
FL 32963
Richard W. Lowry, Trustee, is a Private Investor, 10701 Charleston
Drive, Vero Beach, FL 32963
Willliam E. Mayer, Trustee, is Dean, College of Business and
Management, University of Maryland (formerly Dean, Simon
Graduate School of Business, University of Rochester; Chairman
and Chief Executive Officer, C.S. First Boston Merchant Bank;
and President and Chief Executive Officer, The First
Boston Corporation), College Park, MD 20742.
John A. McNeice, Jr.*, Trustee and President, is Chairman of
the Board, The Colonial Group, Inc., Director, Liberty Financial
(formerly Chief Executive Officer and Director, TCG).
James L. Moody, Jr., Trustee, is Chairman of the Board,
Hannaford Bros., Co. (formerly Chief Executive Officer,
Hannaford Bros. Co.), P.O. Box 1000, Portland, ME 04104
John J. Neuhauser, Trustee, is Dean, Boston College School
of Management, 140 Commonwealth Avenue, Chestnut Hill, MA 02167
Richard I. Roberts, President. Retired effective January
1, 1994. (formerly President, Chief Executive Officer
and Director, Liberty Asset Management Company).
George L. Shinn, Trustee, is a Financial Consultant
(formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation), The First Boston Corporation,
Tower Forty Nine, 12 East 49th Street, New York, NY 10017
Robert L. Sullivan, Trustee, is a Management Consultant,
7121 Natelli Woods Lane, Bethesda, MD 20817
Sinclair Weeks, Jr., Trustee, is Chairman of the Board, Reed
& Barton Corporation, Bay Colony Corporate Center, Suite 4550,
1000 Winter Street, Waltham, MA 02154
Harold W. Cogger, Vice President, is President and
Chief Executive Officer, Colonial; Executive Vice
President and Director, Liberty Financial (formerly Director and Executive
Vice President; Colonial, Director, TCG).
Peter L. Lydecker, Controller (formerly Assistant Controller), is Vice
President, Colonial (formerly Assistant Vice President, Colonial).
Davey S. Scoon, Vice President, is Executive Vice President
and Chief Operating Officer, Colonial (formerly Director,
Senior Vice President and Treasurer, Colonial, Vice President - Finance
and Administration, Treasurer, TCG)
Richard A. Silver, Treasurer and Chief Financial Officer (formerly
Controller), is Senior Vice President, Director, Treasurer and Chief
Financial Officer, Colonial; Treasurer and Chief Financial Officer, The
Colonial Group, Inc.
Thomas J. Simpson, Controller, is Vice President, Liberty Investment
Services, Inc., Federal Reserve Plaza, 600 Atlantic Avenue, Boston, MA 02210.
Arthur O. Stern, Secretary, is Executive Vice President - Legal and
Compliance, Colonial (formerly General Counsel, Director, Clerk, Secretary,
Senior Vice President, Colonial; Vice President - Legal and Clerk, TCG).
*Trustees who are "interested persons" (as defined in the
1940 Act) of the Fund, the Adviser or Colonial.
The Trustees serve as trustees to all Colonial Funds, for
which each Trustee (except Mr. McNeice) will receive an annual
retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint
meeting. Committee chairs receive an annual retainer of
$5,000. Committee members receive an annual retainer of
$1,000 and $1,000 for each special meeting attended. Two-
thirds of the Trustee fees are allocated among the Colonial
funds based on the funds' relative net assets and one-third of
the fees are divided equally among the Colonial funds.
The Agreement and Declaration of Trust (Declaration) of the
Trust provides that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in
connection with litigation in which they may be involved
because of their offices with the Trust but that such
indemnification will not relieve any officer or Trustee of
any liability to the Trust or its shareholders by reason
of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
The Trust, at its expense, provides liability insurance for
the benefit of its Trustees and officers.
Colonial or its wholly-owned subsidiary, Colonial
Advisory Services, Inc. (CASI), has rendered investment
advisory services to investment company, institutional and
other clients since 1931. Colonial currently serves as
investment adviser for 31 open-end and 5 closed-end
management investment company portfolios (collectively, Colonial Funds).
Trustees and officers of the Trust who are also officers of Colonial or its
affiliates or who are stockholders of Liberty Financial will
benefit from the advisory fees, administration 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 $14 billion in assets.
The Management Contract
Under a Management Contract (Contract), the Adviser
has contracted to furnish the Fund with investment research and
fund management, respectively, at the Adviser's expense. For
these services, the Fund pays a monthly fee based on the
average of the daily closing value of the total net assets of
the Fund for such month.
The Adviser's compensation under the Contract is subject
to reduction in any fiscal year to the extent that the
total expenses of the Fund for such year (subject to
applicable exclusions) exceed the most restrictive
applicable expense limitation prescribed by any state
statute or regulatory authority in which the Trust's
shares are qualified for sale. The most restrictive expense
limitation applicable to the Fund is 2.5% of the first $30
million of the Trust's average net assets for such year, 2%
of the next $70 million and 1.5% of any excess over $100
million.
Under the Contract, any liability of the Adviser to the Fund
and its shareholders is limited to situations involving the
Adviser's own willful misfeasance, bad faith, gross negligence
or reckless disregard of duties.
The Contract 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 Contract
will automatically terminate upon any assignment thereof
and shall continue in effect from year to year only so
long as such continuance is approved at least annually (i) by
the Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of the Fund and (ii) by vote of
a majority of the Trustees who are not interested persons (as
such term is defined in the 1940 Act) of the Adviser or the
Trust, cast in person at a meeting called for the purpose of
voting on such approval.
Certain Expenses
Colonial or the Adviser pays all salaries of officers of
the Trust and the Portfolio. The Trust and the Portfolio pay
their respective expenses not assumed by the Adviser or
Colonial including, but not limited to, auditing, legal,
custodial, investor servicing and shareholder reporting
expenses. The Trust pays the cost of typesetting for its
Prospectuses and the cost of printing and mailing any
Prospectuses sent to shareholders. CISI pays the cost of
printing and distributing all other Prospectuses.
The Administration Agreement (applies only to Colonial
Global Utilities Fund and Colonial Newport Tiger Fund)
Colonial provides the following adminstrative services to
the Fund pursuant to an Administration Agreement:
(a) provide office space, equipment and
clerical personnel;
(b) arrange, if desired by the Trust, for its
Directors, officers and employees to serve as
Trustees, officers or agents of the Fund;
(c) prepare and, if applicable, file all
documents required for compliance by the Fund with
applicable laws and regulations;
(d) prepare agendas and supporting documents for
and minutes of meetings of Trustees,
committees of Trustees and shareholders;
(e) monitor the investments and operations of the Fund
and report to the Trustees from time to time with
respect thereto;
(f) coordinate and oversee the activities of the
Fund's other third-party service providers; and
(g) maintain certain books and records of the Fund.
The Administration Agreement has a one year term. Colonial
is paid monthly a 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 (this section does
not apply to Colonial Newport Tiger Fund or Colonial Global
Utilities Fund)
Colonial provides pricing and bookkeeping services to the
Funds pursuant to a Pricing and Bookkeeping Agreement. The
Pricing and Bookkeeping Agreement has a one-year term.
Colonial 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 0.0233% of the next $950 million;
1/12 of 0.017% of the next $1 billion;
1/12 of 0.005% of the next $1 billion;
and 1/12 of 0.001% on the excess over $3 billion
Portfolio Transactions (this section does not apply to
Colonial Global Utilities Fund)
Investment decisions. The Adviser acts as investment adviser
to certain other funds and accounts. The other funds and
accounts advised 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
and such other funds and accounts 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 Fund outweighs the
disadvantages, if any, which might result from these
practices.
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
Fund and of the other Colonial Funds as a factor in the
selection of broker-dealers to execute securities transactions
for the Fund.
The Adviser places the transactions of the Fund with
brokerdealers 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 Fund from
time to time also executes portfolio transactions with such
broker-dealers acting as principal.
The Fund does not intend to deal exclusively with any
particular broker-dealer or group of broker-dealers.
Except as described below in connection with commissions paid
to a clearing agent on sales of securities, it is the Fund's
and the Adviser's policy always to seek best execution, which
is to place the Fund's transactions where the Fund can
obtain the most favorable combination of price and execution services
in particular transactions or provided on a continuing basis by
a broker-dealer, and to deal directly with a principal market
maker in connection with over-the-counter transactions, except
when it is believed that best execution is obtainable
elsewhere.
In evaluating the execution services of, including the
overall reasonableness of brokerage commissions paid to, a
broker-dealer, consideration is given to, among other things,
the firm's general execution and operational capabilities, and
to its reliability, integrity and financial condition.
Subject to such practice of always seeking best
execution, securities transactions of the Fund may be executed
by brokerdealers who also provide research services (as
defined below) to the Adviser, the Fund and the other funds
and accounts managed by the Adviser. The Adviser may use
all, some or none of such research services in providing
investment advisory services to each of its investment
company and other clients, including the Fund. To the extent
that such services are used by the Adviser, they tend to
reduce the Adviser's expenses. In the Adviser's opinion, it
is impossible to assign an exact dollar value for such
services.
Subject to such policies as the Trustees may determine,
the Adviser may cause the Fund 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 Fund 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 brokerdealer
viewed in terms of that particular transaction or the
Adviser's overall responsibilities to the Fund and all its
other clients.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares.
CISI has no obligation to buy the Fund's shares, and purchases
the Fund's 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 the fund. 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
The Fund determines net asset value (NAV) per share for
each Class as of the close of the New York Stock Exchange
(Exchange) each day the Exchange is open. Currently, the
Exchange is closed Saturdays, Sundays and the following
holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, the Fourth of July, Labor Day, Thanksgiving and
Christmas. 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
approved by the Trustees. The values of foreign securities
quoted in foreign currencies are translated
into U.S. dollars at the exchange rate as of the close of
the Exchange. Portfolio positions for which there are no such
valuations and other assets are valued at fair value
as determined in good faith under the direction of the
Trustees.
Generally, trading in certain securities (such as
foreign securities) is substantially completed each day at
various times prior to the close of the Exchange. Trading on
certain foreign securities markets may not take place on all
business days in New York, and trading on some foreign
securities markets takes place on days which are not business
days in New York and on which the Fund's NAV is not
calculated.The values of these securities used in determining
the NAV are computed as of such times. Also, because of
the amount of time required to collect and process trading
information as to large numbers of securities issues, the
values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are
determined based on market quotations collected earlier in the
day at the latest practicable time prior to the close of
the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of
the Exchange which will not be reflected in the computation of
the Fund's NAV. If events materially affecting the value of
such securities occur during such period, then these
securities will be valued at their fair value following
procedures approved by the Trustees.
Amortized Cost for Money Market Funds
Money market funds generally value their portfolio securities
at amortized cost according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost
method, whereby the instrument is recorded at cost and
thereafter amortized to maturity. This method assures a
constant NAV but may result in a yield different than that
of the same portfolio under the market value method. The
Trustees have adopted procedures intended to stabilize the
Fund's NAV per share at $1.00. When the Fund's market
value deviates from the amortized cost of $1.00, and results
in a material dilution to existing shareholders, the
Trustees will take corrective action to: realize gains
or losses; shorten the portfolio's maturity; withhold
distributions; redeem shares in kind; or convert to the market
value method (in which case the NAV per share may differ from
$1.00). All investments will be determined pursuant to
procedures approved by the Trustees to present minimal
credit risk.
See the Statement of Assets and Liabilities of the 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 before the time of
pricing the Fund's portfolio securities 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 Fund has priced its
securities, 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.
As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Check
Program. Preauthorized monthly bank drafts or electronic
funds transfer for a fixed amount (at least $50) are used
to purchase Fund shares at the public offering price next
determined after CISI receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the
next business day thereafter). Further information and
application forms are available from FSFs or from CISI.
Class A Shares
Most Funds continuously offer Class A shares. The Fund
receives the entire NAV of shares sold. CISI's commission is
the sales charge shown in the Prospectus less any applicable
FSF discount. The FSF discount is the same for all FSFs,
except that CISI retains the entire sales charge on any
sales made to a shareholder who does not specify an FSF on
the investment account application and retains the entire
contingent deferred sales charge (CDSC).
CISI offers several plans by which an investor may obtain
reduced sales charges on purchases of Fund Class A shares.
These plans may be altered or discontinued at any time.
Right of Accumulation and Statement of Intent (Class A and
T Shares only)
Reduced sales charges on Class A and T shares can be effected
by combining a current purchase with prior purchases of Class
A, B, D and T shares of the Colonial Funds. The
applicable sales charge is based on the combined total of:
1- the current purchase; and
2- the value at the public offering price at the close
of business on the previous day of all Colonial Fund
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 any Class C shares)
and Class B, D, T and Z shares.
CISI must be promptly notified of each purchase which entitles
a shareholder to a reduced sales charge. Such reduced sales
charge will be applied upon confirmation of the shareholder's
holdings by CISC. The Fund may terminate or amend this
Right of Accumulation.
Any person may qualify for reduced sales charges on purchases
of Class A and T shares (exclusive of reinvested
distributions of all Colonial Funds) made within a thirteen-
month period pursuant to a Statement of Intent (Statement). A
shareholder may include, as an accumulation credit towards the
completion of such Statement, the value of all Class A, B, D, T and Z
shares held by the shareholder in Colonial Funds (except money market
fund, unless acquired by exchange from another non-money
market Colonial Fund). The value is determined at the public
offering price on the date of the Statement.
During the term of a Statement, CISC will hold shares in
escrow to secure payment of the higher sales charge applicable
to Class A or T shares actually purchased. Dividends and
capital gains will be paid on all escrowed shares and these
shares will be released when the amount indicated has
been purchased. A Statement does not obligate the investor
to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and
reaches an amount which would qualify for a further quantity
discount, a retroactive price adjustment will be made at
the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares
for the shareholder's account at the applicable offering
price. As a part of this adjustment, the FSF shall return
to CISI the excess commission previously paid during the
thirteen-month period.
If the amount of the Statement is not purchased, the
shareholder shall remit to CISI an amount equal to the
difference between the sales charge paid and the sales charge
that should have been paid. If the shareholder fails
within twenty days after a written request to pay such
difference in sales charge, CISC will redeem that number of
escrowed Class A or T 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.
Class B, C, D, T and Z Shares
For those Funds offering Class B, C, D, T and Z shares,
the Prospectus contains a general description of how
investors may buy such shares and any initial or contingent
deferred sales charges (CDSC) that may apply. This SAI
contains additional information which may be of interest to
investors.
With respect to all classes, the Fund receives the entire NAV
of shares sold. The FSF commission is the same for all FSFs
selling the same classes of shares; CISI retains the entire
CDSC.
Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes
A, B, T and D)
CDSCs may be waived on redemptions in the following
situations with the proper documentation.
1. Death. CDSCs may be waived on redemptions within one year
following the death of (i) the sole shareholder on an
individual account, (ii) a joint tenant where the
surviving joint tenant is the deceased's spouse, or
(iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA),
Uniform Transfers to Minors Act (UTMA) or other custodial
account. If, upon the occurrence of one of the foregoing,
the account is transferred to an account registered in the
name of the deceased's estate, the CDSC will be waived on
any redemption from the estate account occurring within one
year after the death. If the Class B shares are not redeemed within one
year of the death, they will remain subject to the
applicable CDSC, when redeemed from the transferee's
account.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly, quarterly or
semi-annual SWP established with Colonial, 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).
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
current beneficiary, (ii) death occurs following the
purchase and (iii) the trust document provides for
dissolution of the trust upon the trustee's death.
If the account is transferred to a new registration (including that
of a successor trustee), the applicable CDSC will be charged
upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on
redemptions required to return excess contributions made to
retirement plans or individual retirement accounts, so
long as the FSF agrees to return the applicable portion
of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on
redemptions required to make distributions from qualified
retirement plans following (i) normal retirement (as
stated in the Plan document) or (ii) separation from
service. CDSCs also will be waived on SWP redemptions
made to make required minimum distributions from qualified
retirement plans that have invested in Colonial funds for
at least two years.
Fundamatic Check Program (Classes A, B, C, D, T and Z)
As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Check
Program. Preauthorized monthly bank drafts or electronic
funds transfer for a fixed amount of at least $50 are used
to purchase Fund shares at the public offering price next
determined after CISI receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the
next business day thereafter). Further information and
application forms are available from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B, D, T and Z)
Colonial's Automated Dollar Cost Averaging Program allows you
to exchange on a monthly basis from any Colonial fund in which
you have a current balance of at least $5,000 into up to four
other Colonial funds. Except for Classes T and Z, exchanges
are made into the same class of shares of such other funds.
Complete the Automated Dollar Cost Averaging section of
the application agreeing to a monthly exchange of $100 or more
to the same class of shares of the Colonial fund you
designate on your written application. The
designated amount will be exchanged on the
third Tuesday of each month. There is no charge for
the 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 Funds, exchange into other
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 Fund will
extend the time of the Automated Dollar Cost Averaging program.
An exchange is a taxable capital transaction for federal
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 it to Colonial Investors Service
Center, 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.
Colonial Asset Builder Investment Program (Class A [and T]
only) A reduced sales charge applies to a purchase of certain
Colonial fund's Class A or T 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. 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. Prior to completion of the Program, only scheduled
Program investments may be made in a Colonial fund in which
an investor has a Program account. The following services are
not available to Program accounts until a Program has ended:
Systematic Withdrawal Plan Telephone Redemption Statement of Intent
Sponsored Arrangements Colonial Cash Connection Share Certificates
$50,000 Fast Cash Reduced Sales Charges Right of Accumulation
Automatic Dividend
Diversification for any "person" Exchange Privilege*
*Exchanges may be made to other Colonial funds offering
the Program.
Because of the unavailability of certain services, the
Program may not be suitable for all investors.
The FSF receives 3% of the investor's intended purchases under
a Program at the time of initial investment and 1% after the
24th monthly payment. CISI may require the FSF to
return all applicable commissions paid with respect to a
Program terminated within six months of inception, and
thereafter to return commissions in excess of the FSF discount applicable
to shares actually purchased.
Since the Asset Builder plan involves continuous
investment regardless of the fluctuating prices of Fund
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.
Tax-Sheltered Retirement Plans (Classes A, B, D, T and Z)
Certain Colonial funds offer prototype tax-qualified
plans, including Individual Retirement Accounts, and Pension
and ProfitSharing Plans for individuals, corporations,
employees and the self-employed. The minimum initial
Retirement Plan investment in any of the Funds is $25. The
First National Bank of Boston is the Trustee and charges a $10 annual fee.
Detailed information concerning these retirement plans and copies of
the Retirement Plans are available from CISI.
Other Plans (Class A and T only)
Shares of certain funds may be sold at NAV to current
and retired: Trustees of funds advised or administrated by
Colonial; current and retired directors, officers and
employees, and private advisory clients of Colonial, CISI and
other companies affiliated with Colonial; registered
representatives and employees of FSFs (including their affiliates) that are
parties to Dealer Agreements or other sales arrangements with
CISI; and such persons' families and their beneficial
accounts.
Class A and 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
organizations group, the term of the organization's
existence and certain characteristics of the members of its
group. The 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 T shares of certain funds may also be purchased
at reduced or no sales charge by clients of dealers,
brokers or registered investment advisers that have entered
into agreements with CISI pursuant to which the funds are
included as investment options in programs involving
fee-based compensation arrangements. Class A shares of
certain funds may also be purchased at reduced or no sales
charges by investors moving from another mutual fund complex
and by participants in certain retirement plans. In lieu
of the commissions described in the Prospectus, Colonial will
pay the FSF a finder's fee of 0.25% of the applicable account
value during the first twelve months in connection with such
purchases.
Consultation with a competent financial and tax advisor
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.
INVESTOR SERVICES
Your Open Account
The following information provides more detail concerning
the operation of a Colonial Open Account (an account with book
entry shares only). For further information or assistance,
investors should consult CISC.
The Open Account permits a shareholder to 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.
The $10 fee on small accounts is paid to CISC.
If a shareholder changes the shareholder's address and does
not notify the Fund, the Fund will reinvest all future
distributions regardless of the option chosen.
The Open Account also provides a way to accumulate shares of
the Fund. Checks presented for the purchase of shares of the
Fund which are returned by the purchaser's bank, or
checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover
redemption, will subject such purchaser or shareholder to
a $15 service fee for each check returned. Checks must
be drawn on a U.S. bank and must be payable in U.S.
dollars.
CISC acts as the shareholder's agent whenever it
receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares are to be
purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may
change FSFs at any time by written notice to CISC, provided the
new FSF has a sales agreement with CISI.
Shares credited to an account are transferable upon
written instructions in good order to CISC and may be
redeemed as described under "How to sell shares" in
the Prospectus. Certificates will not be issued for Class A shares
unless specifically requested and no certificates will be
issued for Class B, D, T or Z shares. Money market funds
will not issue certificates. A shareholder may send any
certificates which have been previously acquired to CISC for
deposit to their account.
Shares of 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.
Undelivered distribution checks returned by the post office
may be invested in your account.
Reinvestment Privilege
An investor who has redeemed Class A, B, D, T or Z shares
may reinvest (within 90 days) 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 request and payment. Any CDSC paid at the time of the redemption
will be credited to the shareholder upon reinvestment. The
period between the redemption and the reinvestment will not be
counted in aging the reinvested 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 their Reinvestment Privilege an unlimited
number of times.
Exercise of this Privilege does not alter the federal
income tax treatment. The sale of Fund shares constitutes
a capital transaction for federal tax purposes. Consult your
tax adviser.
Exchange Privilege
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 Fund describes its investment objective and
policies, and shareholders should obtain a prospectus and
consider these objectives and policies carefully before
requesting an exchange. Shares of certain Colonial funds
are not available to residents of all states. Consult CISC
before requesting an exchange.
By calling CISC, shareholders or their FSF of record may
exchange among accounts with identical registrations, provided
that the shares are held on deposit. During periods of
unusual market changes and shareholder activity,
shareholders may experience delays in contacting CISC by
telephone to exercise the Telephone Exchange Privilege.
Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be
delayed under unusual circumstances, such as if the Fund
suspends repurchases or postpones payment for the Fund shares
being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange
request and, share certificates, if any. If the shareholder is
a corporation, partnership, agent, or surviving joint owner,
CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available
from the Colonial Literature Department.
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 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.
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. The $50,000 Fast Cash privilege
is suspended for 60 days after an address change is effected.
Plans Available To Shareholders
The Plans described below are offered by most Colonial funds,
are voluntary and may be terminated at any time without
the imposition by the Fund or CISC of any penalty.
Checkwriting (Available only on the Class A and C shares
of certain Funds)
Shares may be redeemed by check if a shareholder completed
an Investment Account Application and Signature Card. Colonial
will provide checks to be drawn on The First National Bank of
Boston (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. Certificated 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.
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.
Systematic Withdrawal Plan
If a shareholder's Account Balance is at least $5,000,
a shareholder may establish a Systematic Withdrawal Plan (SWP).
A specified dollar amount or percentage of the then current
net asset value of a shareholder's investment in any Fund
will be paid monthly or quarterly to a designated payee. The
amount or percentage a shareholder specifies generally may
not, on an annualized basis, exceed 12% of the value, as of
the time the shareholder makes the election, of the
shareholder's investment. Withdrawals from Class B and Class D
shares of a 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. Generally, no
CDSCs apply to a redemption pursuant to a SWP, even if, after
giving effect to the redemption, a shareholder's Account
Balance is less than the shareholder's Base Amount. Qualified
Plan participants who are required by Internal Revenue Code
regulation to withdraw more than 12%, on an annual basis, of
the value of their Class B and Class D share account may do so
but will be subject to a CDSC ranging from 1.00% to 5% of
the amount withdrawn. If a shareholder wishes to
participate in a SWP, the shareholder must elect to have all
of the shareholder's income dividends and other Fund
distributions payable in shares of the Fund rather than in
cash.
A shareholder or a shareholder's FSF of record may establish
a SWP account by telephone on a recorded line. However, the
check 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 a 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 Open Account.
The Funds 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 Funds 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 her or his FSF to determine
whether she or he may participate in a SWP.
Colonial cash connection. Dividends and any other
distributions, including 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 Investment Account 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
the other Colonial funds. 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.
Telephone Redemptions. Shareholders may select
telephonic redemptions on their account application. A redemption of up
to $50,000 may be sent to a shareholder's address without
preauthorization, by calling 1-800-422-3737 between 9:00 a.m.
and 4:00 p.m. (NY time) on business days. The Fund 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 60 days and proceeds and confirmations will be mailed or sent
to the address of record. Shareholders will be required to
provide their name, address and account 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.
Non cash Redemptions. For redemptions of any single
shareholder within any 90-day period exceeding the lesser of
$250,000 or 1% of the Fund's net asset value, the Fund may
make the payment or a portion of the payment with portfolio
securities held by the Fund instead of cash, in which case
the redeeming shareholder may incur brokerage and other
costs in selling the securities received.
SUSPENSION OF REDEMPTIONS
The Fund may not suspend shareholders' right of redemption
or postpone payment for more than seven days unless the New
York Stock Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC
during periods when trading on the Exchange is
restricted or during any emergency which makes it
impracticable for the Fund to dispose of its securities or
to determine fairly the value of its net assets, or during
any other period permitted by order of the SEC for protection
of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Fund. However, the Declaration
disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of such disclaimer be given
in each agreement, obligation, or instrument entered into or
executed by the Fund or the 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 in which
the Fund would be unable to meet its obligations. The
likelihood of such circumstances is remote.
As described under the caption "Organization and history" in
the Prospectus, the Fund will not hold annual shareholders'
meetings. The Trustees may fill any vacancies in the Board
of Trustees except that the Trustees may not fill a vacancy
if, immediately after filling such vacancy, less than two-
thirds of the Trustees then in office would have been elected
to such office by the shareholders. In addition, at such
times as less than a majority of the Trustees then in office
have been elected to such office by the shareholders, the
Trustees must call a meeting of shareholders. Trustees
may be removed from office by a written
consent signed by a majority of the outstanding shares of
the Trust or by a vote of the holders of a majority
of the outstanding shares at a meeting duly called for the
purpose, which meeting shall be held upon written request of
the holders of not less than 10% of the outstanding shares
of the Trust. Upon written request by the holders of 1% of
the outstanding shares of the Trust stating that such
shareholders of the Trust, for the purpose of obtaining the
signatures necessary to demand a shareholder's meeting to
consider removal of a Trustee, request information regarding
the Trust's shareholders the Trust will provide appropriate
materials (at the expense of the requesting shareholders).
Except as otherwise disclosed in the Prospectus and this SAI,
the Trustees shall continue to hold office and may appoint
their successors.
At any shareholders' meetings that may be held, shareholders
of all series would vote together, irrespective of series, on
the election of Trustees or the selection 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 investment
advisory 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 a Fund, made at
the beginning of a stated period, adjusted for the
maximum sales charge or applicable CDSC for the class of shares of the
Fund and assuming that all distributions were reinvested at NAV,
converted to an average annual return assuming annual
compounding.
Nonstandardized total return. Nonstandardized total
returns differ from standardized average annual total returns
only in that they may relate to nonstandardized periods,
represent aggregate rather than average annual total returns or
in that the sales charge or CDSC is not deducted.
Yield
Money market. A Money Market fund's yield and effective yield
is computed in accordance with the SEC's formula for money
market fund yields.
Non money market. The yield for each class of shares
is determined by (i) calculating the income (as defined by the
SEC for purposes of advertising yield) during the base
period and subtracting
actual expenses for the period (net of any
reimbursements), and (ii) dividing the result by the product
of the average daily number of shares of the Fund
entitled to dividends for the period and the maximum offering
price of the Fund on the last day of the period, (iii) then
annualizing the result assuming semi-annual compounding. Tax-
equivalent yield is calculated by taking that portion of the
yield which is exempt from income tax and determining the
equivalent taxable yield which would produce the same
after tax yield for any given Federal and State tax rate,
and adding to that the portion of the yield which is fully
taxable. Adjusted yield is calculated in the same manner as
yield except that expenses voluntarily borne or waived by
Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class
of shares is calculated by annualizing the most current
period's distributions and dividing by the maximum offering
price on the last day of the period. Generally, a Fund's
distribution rate reflects total amounts actually paid to
shareholders, while yield reflects the current earning
power of a Fund's portfolio securities (net of a Fund's
expenses). A Fund's yield for any period may be more or
less than the amount actually distributed in respect of such
period.
A Fund may compare its performance to various unmanaged
indices published by such sources as listed in Appendix II.
A Fund may also refer to quotations, graphs and
electronically transmitted data from sources believed by
Colonial to be reputable, and publications in the press
pertaining to a Fund's performance or to Colonial or
its affiliates, including comparisons with competitors and
matters of national and global economic and financial
interest. Examples include Forbes, Business Week, MONEY
Magazine, The Wall Street Journal, The New York Times, The
Boston Globe, Barron's National Business & Financial
Weekly, Financial Planning, Changing Times, Reuters
Information Services, Wiesenberger Mutual Funds
Investment Report, Lipper Analytical Services Corporation,
Morningstar, Inc., Sylvia Porter's Personal Finance Magazine,
Money Market Directory, SEI Funds Evaluation Services, FTA
World Index and Disclosure Incorporated.
All data is based on past performance and does not predict
future results. All non-standardized performance measures will
be accompanied by standardized performance.
APPENDIX I
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely
strong capacity to repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and
pay interest is very strong, and in the majority of instances, they
differ from AAA only in small degree.
A bonds have a strong capacity to repay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to repay principal and
interest than for bonds in the A category.
BB, B, CCC, and CC bonds are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest
and principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree.
While likely to have some quality and protection characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C ratings are reserved for income bonds on which no interest is being
paid. D bonds are in default, and payment of interest and/or principal
is in arrears.
Plus(+) or minus (-) are modifiers relative to the standing within
the major rating categories.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa bonds are judged to be of high quality by all standards. Together
with Aaa bonds they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger
than in Aaa securities. Those bonds in the Aa through B groups which
Moody's believes possess the strongest investment attributes are
designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa bonds are considered as medium grade, neither highly protected
nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact,
have speculative characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot
be considered as well secured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes these bonds.
B bonds generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa bonds are of poor standing. They may be in default or there may
be present elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having
other marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
APPENDIX II
1993
(Page 1 of 2)
SOURCE CATEGORY RETURN
%
Donoghue Tax-Free Funds 1.97
Donoghue U.S. Treasury Funds 2.62
Dow Jones Industrials 16.96
Morgan Stanley Capital 32.56
International EAFE Index
Morgan Stanley Capital 22.49
International EAFE GDP Index
Libor Six-month Libor Index 3.50
Lipper Adjustable Rate Mortgage 3.82
Lipper California Municipal 12.60
Bond Funds
Lipper Capital Appreciation 15.21
Lipper Connecticut Municipal 12.74
Bond Funds
Lipper Closed End Bond Funds 10.15
Lipper Florida Municipal Bond1 3.12
Funds
Lipper General Bond Fund 12.32
Lipper General Municipal 12.35
Bonds
Lipper General Short-Term Tax- 6.28
Exempt Bonds
Lipper Global Flexible 31.04
Portfolio Funds
Lipper Gold Oriented Funds 81.81
Lipper Growth Funds
10.61
Lipper Growth & Income Funds 11.56
Lipper High Current Yield
19.25
Bond Funds
Lipper High Yield Municipal 11.59
Bond Average
Lipper Fixed Income Funds 9.65
Lipper Insured Municipal Bond 11.93
Average
Lipper Intermediate Muni 10.36
Bonds
Lipper Intermediate (5-10) 8.26
U.S. Government Funds
Lipper Massachusetts 12.35
Municipal Bond Funds
Lipper Michigan Municipal 12.40
Bond Funds
Lipper Mid Cap Funds 16.13
Lipper Minnesota Municipal 11.76
Bond Funds
Lipper Money Market Funds 2.60
Lipper Natural Resources 22.94
Lipper New York Municipal 12.74
Bond Funds
Lipper North Carolina 12.34
Municipal Bond Funds
Lipper Ohio Municipal Bond 12.25
Funds
Lipper Small Company Growth 16.93
Funds
Lipper Specialty/Miscellaneous 24.09
s Funds
Lipper U.S. Government Funds 9.30
Shearson Lehman Composite 10.66
Government Index
Shearson Lehman 11.06
Government/Corporate Index
Shearson Lehman Long-term 17.47
Government Index
S&P 500 S&P 10.07
S&P Utility Index S&P 14.44
Bond Buyer Bond Buyer Index 12.08
First Boston High Yield Index 18.91
Swiss Bank 10 Year U.S. 11.94*
Government (Corporate
Bond)
Swiss Bank 10 Year United Kingdom 13.71*
(Corporate Bond)
Swiss Bank 10 Year France 12.12*
(Corporate Bond)
Swiss Bank 10 Year Germany 10.08*
(Corporate Bond)
Swiss Bank 10 Year Japan 29.09*
(Corporate Bond)
Swiss Bank 10 Year Canada 8.63*
(Corporate Bond)
Swiss Bank 10 Year Australia 8.76*
(Corporate Bond)
Morgan Stanley Capital 10 Year Hong Kong 36.03*
International (Equity)
Morgan Stanley Capital 10 Year Belgium 25.34*
International (Equity)
APPENDIX II
1993
(Page 2 of 2)
SOURCE CATEGORY
RETURN
Morgan Stanley Capital 10 Year Spain (Equity) 24.81*
International
Morgan Stanley Capital 10 Year Austria 23.54*
International (Equity)
Morgan Stanley Capital 10 Year France 22.02*
International (Equity)
Morgan Stanley Capital 10 Year Netherlands 21.93*
International (Equity)
Morgan Stanley Capital 10 Year Japan (Equity) 16.42*
International
Morgan Stanley Capital 10 Year Switzerland 19.42*
International (Equity)
Morgan Stanley Capital 10 Year United Kingdom 18.58*
International (Equity)
Morgan Stanley Capital 10 Year Germany 17.52*
International (Equity)
Morgan Stanley Capital 10 Year Italy (Equity) 16.84*
International
Morgan Stanley Capital 10 Year Sweden 16.57*
International (Equity)
Morgan Stanley Capital 10 Year United States 14.80*
International (Equity)
Morgan Stanley Capital 10 Year Australia 13.71*
International (Equity)
Morgan Stanley Capital 10 Year Norway 13.65*
International (Equity)
Inflation Consumer Price Index 2.75
FHLB-San Francisco 11th District Cost-of- 3.88
Funds Index
Federal Reserve Six-Month Treasury 3.31
Bill Index
Federal Reserve One-Year Constant- 3.61
Maturity Treasury Rate
Federal Reserve Five-Year Constant- 5.14
Maturity Treasury Rate
*in U.S. currency
SCHEDULE OF PORTFOLIO INVESTMENTS
LFC Utilities Trust / October 31, 1994
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Market
Shares Value
<S> <C> <C>
COMMON STOCKS (54.2%)
Electric Utilities (18.7%)
Cinergy Corp. 221,991 $ 5,133,542
Dominion Resources, Inc. 100,000 3,712,500
DPL Inc. 210,000 4,278,750
Empresa Nacional De Electricidad
(ADR) 129,000 5,917,875
Entergy Corp. 185,000 4,324,375
Northeast Utilities 150,000 3,468,750
Pacificorp 323,000 5,692,875
Powergen (ADR) 81,000 7,488,855
Southern Co. 256,000 5,056,000
Texas Utilities Co. 117,000 3,817,125
48,890,647
Gas & Electric Utilities (4.8%)
NIPSCO Industries Inc. 157,000 4,376,375
Pacific Gas & Electric Co. 158,000 3,555,000
UtiliCorp United Inc. 163,000 4,502,875
12,434,250
Oil/Gas Utilities (11.8%)
MCN Corp. 141,000 5,358,000
Northwest Natural Gas Co. 151,000 4,530,000
Piedmont Natural Gas Co. 149,000 2,998,625
Questar Corp. 154,000 4,427,500
UGI Corp. 247,000 4,970,875
West Coast Energy Inc. 313,000 5,125,375
WICOR Inc. 122,000 3,492,250
30,902,625
Telecommunications (13.4%)
American Telephone & Telegraph Co. 81,500 4,482,500
Ameritech Corp. 107,000 4,320,125
British Telecommunications (ADR) 80,000 5,150,000
GTE Corp. 124,200 3,819,150
Nationale Finaciero 61,100 3,528,525
Pacific Telesis Group 123,000 3,889,875
Southwestern Bell Corp. 119,000 4,983,125
U.S. West Inc. 123,500 4,646,687
34,819,987
Other (5.5%)
Burnham Pacific Properties Inc. 265,000 4,273,125
Equity Residential Properties 89,000 2,658,875
James River Corp. 207,500 4,565,000
Mark Centers Trust 224,000 2,912,000
14,409,000
Total Common Stocks
(Cost $144,015,842) 141,456,509
PREFERRED STOCK (3.4%)
GATX Corp. Cum. Pfd. 56,000 $ 2,961,000
Kenetech Corp. Pfd. 160,000 2,680,000
National Health Invs Inc. Pfd. 130,000 3,152,500
Total Preferred Stocks
(Cost $9,257,667) 8,793,500
Par
Value
(000)
CONVERTIBLE BONDS (11.6%)
Electric Utilities (3.3%)
AES Corp., 6.50%, 3/15/02 $5,000 4,931,250
Potomac Electric Power Co., 5.00%,
9/1/02 4,500 3,600,000
8,531,250
Oil/Gas Utilities (3.8%)
Consolidated Natural Gas Co., 7.25%,
12/15/15 5,000 5,006,250
SFP Pipeline Holdings, Inc., 10.41%,
8/15/10 4,100 4,838,000
9,844,250
Telecommunications (1.8%)
Compania De Telefonos De Chile,
4.50%, 1/15/03 4,000 4,820,000
Other (2.7%)
Dow Chemical Co. (Magma Power),
5.75%, 4/1/01 2,200 2,202,750
Freeport McMoRan Inc., 6.55%, 1/15/01 5,400 4,873,500
7,076,250
Total Convertible Bonds
(Cost $30,660,676) 30,271,750
CORPORATE BONDS (23.7%)
Electric Utilities (14.1%)
Arizona Public Service Co., 8.00%,
2/1/25 2,500 2,196,700
Duke Power Co. 1st Mtg., 8.625%,
3/1/22 1,000 959,740
Duquesne II Funding Corp., 8.70%,
6/1/16 3,500 3,235,715
Houston Lighting & Power Co., 7.50%,
7/1/23 5,000 4,290,300
National Rural Utilities Corp. Coll.
Tr. Ser O, 9.00%, 3/15/16 912 914,180
Niagara Mohawk Power Corp., 7.375%,
8/1/03 3,250 2,865,752
Old Dominion Electric Coop., 8.76%,
12/1/22 2,000 1,962,600
Pacificorp, 6.75%, 4/1/05 2,500 2,215,000
Pennsylvania Power & Light Co.,
9.25%, 10/1/19 2,000 2,001,260
See Notes to Financial Statements.
<PAGE>
Par
Value Market
(000) Value
CORPORATE BONDS (Continued)
Electric Utilities (Continued)
Public Service Co. of Colorado,
6.375%, 11/1/05 $5,000 $ 4,217,850
Public Service Co. of Colorado,
8.75%, 3/1/22 1,000 962,580
Puget Sound Power & Light Co., 7.75%,
2/1/07 5,000 4,629,300
RGS I+M Funding, 9.81%, 12/7/22 1,749 1,750,136
Washington Water Power Co., 6.15%,
5/8/00 5,000 4,576,500
36,777,613
Gas & Electric Utilities (3.9%)
Cincinnati Gas & Electric Co. 1st
Mtg., 5.875%, 7/1/97 2,135 2,055,407
Kansas Gas & Electric Co., 8.29%,
3/29/16 2,000 1,842,620
Long Island Lighting Co., 8.50%,
5/15/06 2,000 1,861,020
New York State Electric & Gas Corp.,
9.875%, 2/1/20 2,000 2,145,920
Public Service Electric & Gas. Co.,
8.75%, 2/1/22 2,356 2,263,291
10,168,258
Oil/Gas Utilities (2.5%)
Texas Eastern Transmission Co.,
10.00%, 8/15/01 1,500 1,624,230
Texas Eastern Transmission Co. Medium
Term Notes, 7.96%, 12/22/99 5,000 4,900,600
6,524,830
Telecommunications (1.1%)
New York Telephone Co., 8.625%,
11/15/10 $2,800 $ 2,829,036
Other (2.1%)
North American Mortgage Co. 5.800%,
11/2/98 2,500 2,268,350
North American Mortgage Co. 5.840%,
11/4/98 1,000 908,530
Prime Credit Card Master Trust Series
1992, 7.55%, 2/15/01 2,250 2,227,208
5,404,088
Total Corporate Bonds (Cost $68,689,673) 61,703,825
SHORT-TERM INVESTMENT (4.8%)
Lehman Brothers Holdings, Inc. 4.87%, 11/1/94
(Cost $12,525,000) 12,525,000
Total Investments (97.7%)
(Cost $265,148,858)(a) 254,750,584
Other Assets and Liabilities, Net (2.3%) 5,907,786
Net Assets (100%) $260,658,370
<FN>
(a) The cost of investments for Federal income tax
purposes is identical. Gross unrealized
appreciation and depreciation at October 31, 1994
is as follows:
Gross unrealized appreciation $ 9,318,064
Gross unrealized depreciation (19,716,338)
Net unrealized depreciation $(10,398,274)
</FN>
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Liberty Financial Trust Funds / October 31, 1994
<TABLE>
<CAPTION>
Utilities
<S> <C>
Assets:
Investments at market value (Identified cost -- $36,683,683,
$48,632,517, $235,896,568 and $936,419,671, respectively) --
Investment in LFC Utilities Trust, at value $260,657,065
Cash --
Receivable for investments sold --
Receivable for fund shares sold 44,937
Dividends receivable --
Interest receivable --
Receivable from Investment Adviser/Administrator --
Deferred organizational expense 38,697
Other assets 30,647
Total assets 260,771,346
Liabilities:
Payable for investments purchased --
Payable for fund shares redeemed 5,326
Income distribution payable 130,606
Management fee payable --
Administrative fee payable 22,278
Accrued expenses payable 161,600
Other liabilities 1,481
Total liabilities 321,291
Net assets $260,450,055
Net assets represented by:
Paid-in capital (unlimited number of shares of beneficial
interest without par value authorized) $269,487,264
Accumulated net investment income (distributions in excess of
net investment income) 327,855
Accumulated net realized gains (losses) on investments 1,033,250
Net unrealized appreciation (depreciation) of investments (10,398,314)
Total net assets applicable to outstanding shares of
beneficial interest $260,450,055
Shares of beneficial interest outstanding 24,550,654
Net asset value per share $ 10.61
Maximum offering price per share (net asset value per share,
plus a maximum sales charge of 4.5% of the offering price) $ 11.11
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF OPERATIONS
Liberty Financial Trust Funds / Year Ended October 31, 1994
<TABLE>
<CAPTION>
Utilities
<S> <C>
Investment income:
Interest income --
Dividend income --
Net investment income from LFC Utilities Trust $ 15,802,777
Total investment income 15,802,777
Expenses:
Management fee --
Service fee 471,161
Administrative fee 288,552
Shareholder servicing fees and expenses 757,500
Custodian and accounting fees and expenses 33,300
Registration expense 33,799
Insurance expense 10,391
Audit and legal fees 12,050
Printing expense 48,040
Trustees' fees and expenses 4,000
Amortization of organization expense 19,812
Miscellaneous expense 3,916
Less: Expenses reimbursable by Investment
Adviser/Administrator --
Total/net expenses 1,682,521
Net investment income 14,120,256
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments 1,053,827
Change in unrealized appreciation or depreciation of
investments (38,420,543)
Net losses on investments (37,366,716)
Net increase (decrease) in net assets resulting from
operations $(23,246,460)
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Liberty Financial Trust Funds
<TABLE>
<CAPTION>
Utilities
Year Ended October 31,
1994 1993
<S> <C> <C>
Operations:
Net investment income $ 14,120,256 $ 10,049,855
Net realized gains (losses) on investments 1,053,827 4,175,245
Change in unrealized appreciation or depreciation of
investments (38,420,543) 26,553,340
Net increase (decrease) in net assets resulting from
operations (23,246,460) 40,778,440
Distributions:
Distributions from net investment income (12,796,298) (10,093,364)
Distributions in excess of net investment income -- (924,629)
Distributions from net realized gains on investments (3,377,157) (391,405)
Distributions in excess of net realized gains on investments (801,595) --
Total distributions (16,975,050) (11,409,398)
Fund share transactions:
Shares sold 45,864,001 163,241,192
Distributions reinvested 15,293,679 10,056,431
Shares redeemed (64,985,664) (17,144,160)
Net increase (decrease) in net assets resulting from fund
share transactions (3,827,984) 156,153,463
Total increase (decrease) in net assets (44,049,494) 185,522,505
Net assets:
Beginning of year 304,499,549 118,977,044
End of year $260,450,055 $304,499,549
Accumulated net investment income
(distributions in excess of net investment income) $ 279,051 $ (996,103)
Transactions in shares of the Funds:
Shares sold 4,027,622 14,261,319
Distributions reinvested 1,369,805 878,836
Shares redeemed (5,908,148) (1,487,253)
Net increase (decrease) (510,721) 13,652,902
</TABLE>
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
Liberty Financial Utilities Fund
<TABLE>
<CAPTION>
For the Period
from August 23, 1991
Year Ended October 31, through
1994 1993 1992 October 31, 1991
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value at beginning of period $ 12.15 $ 10.43 $ 9.99 $10.00
Net investment income (a) .55 0.57 0.59 0.02
Net realized and unrealized gains (losses) on
investments (1.43) 1.79 0.46 (0.03)
Total from investment operations (0.88) 2.36 1.05 (0.01)
Less distributions:
Distributions from net investment income (0.50) (0.61) (0.61) --
Distributions from net realized gains on
investments (0.16) (0.03) -- --
Total distributions (0.66) (0.64) (0.61) 0.00
Net asset value at end of period $ 10.61 $ 12.15 $ 10.43 $ 9.99
Total investment return for shareholders (b) (7.4%) 23.3% 10.8% (2.1%)*
Ratios and supplemental data
Net assets at end of period (thousands) $260,450 $304,500 $118,977 $6,617
Ratio of expenses to average net assets (a) 1.20% 1.13% 1.25%(c) 1.25%*(c)
Ratio of net investment income to average net
assets (a) 4.90% 4.80% 5.81%(d) 5.75%*(d)
<FN>
* Annualized.
(a) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of LFC
Utilities Trust.
(b) Total return based on net asset value with all distributions reinvested.
(c) If the Fund had paid all of its expenses excluding distribution fees
waived and there had been no reimbursement from the Investment Adviser and
the Administrator, as described in Note 3, these ratios would have been 1.61%
and 9.81% for the periods ended October 31, 1992 and 1991, respectively.
(d) Computed giving effect to Investment Adviser's and Administrator's
expense limitation undertaking.
</FN>
</TABLE>
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Liberty Financial Trust Funds / October 31, 1994
Note 1. Organization and Accounting Policies
Liberty Financial Trust (the "Trust") was organized on July 3, 1991 as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940 as a diversified, open-end management investment company. The
Trust consists of five Funds: Liberty Financial Growth and Income Fund,
Liberty Financial Insured Municipals Fund, Liberty Financial Tax-Free Bond
Fund, Liberty Financial U.S. Government Securities Fund, and Liberty
Financial Utilities Fund, (the "Funds").
The Liberty Financial Utilities Fund invests substantially all of its assets
in the LFC Utilities Trust (the "Portfolio"), an open-end investment company
which has the same investment objective as the Fund and which invests
primarily in equity and debt securities of public utility companies. The
financial statements of the Portfolio, including the Schedule of Investments,
are included elsewhere in this Report and should be read in conjunction with
the Liberty Financial Utilities Fund financial statements. The percentage of
the Portfolio owned by the Fund at October 31, 1994 was 99.99%.
The following is a summary of significant accounting policies followed by the
Funds. The policies are in conformity with generally accepted accounting
principles.
Valuation of Investments -- Equity securities listed on an exchange and
over-the-counter equity securities quoted on the NASDAQ system are valued on
the basis of the last sale on the date as of which the valuation is made, or,
lacking any sales, at the latest bid prices. Over-the-counter equity
securities not quoted on the NASDAQ system are valued at the latest bid
quotations. Municipal securities and long-term debt securities are valued
primarily on the basis of valuations furnished by an independent pricing
service which utilizes both dealer-supplied quotations and statistical
techniques which take into account various factors. Securities for which
there are no such reliable quotations or valuations are valued at estimated
fair value, as determined in good faith by, or under the direction of, the
Trustees of the Funds.
Short-term securities with less than sixty days remaining to maturity are
valued on the amortized cost basis.
The valuation of securities held by the Portfolio is discussed in Note 1 of
the Notes to the Portfolio's financial statements which are included in this
report on page 35.
Delayed Delivery Transactions -- The Funds may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated. The Funds
identify liquid securities as segregated in their custodial records with a
value at least equal to the amount of the purchase commitment.
Premiums and Discounts -- Premiums on municipal securities are amortized on a
straight-line basis for both financial and tax reporting purposes. Discounts,
other than original issue discounts, which are amortized on a yield to
maturity basis, are not amortized for either purpose.
Organization Expenses -- Expenses incurred in connection with the
organization of the Liberty Financial Growth and Income Fund and Liberty
Financial Utilities Fund have been deferred and are being amortized on a
straight line basis over five years.
In the event any of the initial shares of the Liberty Financial Utilities
Fund are redeemed during the amortization period, the redemption proceeds
will be reduced by the pro rata portion of the then unamortized organization
expenses in the same proportion as the number of initial shares redeemed
bears to the number of initial shares outstanding at the time of such
redemption.
Federal Income Taxes -- The Funds now qualify and intend to continue
qualifying as "regulated investment companies" and as such (and by complying
with the applicable provisions of the Internal Revenue Code) will not be
subject to Federal income tax on income (including realized capital gains)
distributed to shareholders. By making the distributions required under the
Internal Revenue Code, the Funds intend to avoid excise tax liability.
Distributions to Shareholders -- Distributions to shareholders are recorded
on the ex-dividend date. Distributions from net income are paid monthly
except by the Growth and Income Fund which pays quarterly. Capital gains
distributions from all Funds, if any, will be distributed annually. Income
and capital gains distributions are determined in accordance with Federal
income tax regulations, which may differ from generally accepted accounting
principles.
Change in Accounting for Distributions to Shareholders -- Effective November
1, 1993, the Funds adopted Statement of Position 93-2, Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. As a result, the
Funds changed the classification of distributions to shareholders to better
disclose the differences between Financial Statement amounts and
distributions in accordance with Federal income tax regulations. Accordingly,
amounts as of October 31, 1994 have been reclassified as follows:
<TABLE>
<CAPTION>
Insured Tax-Free U.S. Government
Municipals Bond Securities
Fund Fund Fund
Increase/ Increase/ Increase/
(Decrease) (Decrease) (Decrease)
<S> <C> <C> <C>
Paid-in Capital (33,315) (14,428) 2,192,488
Undistributed Net
Investment Income 29,644 14,428 (2,193,648)
Accumulated Net
Realized Gains/
(Losses) on
Investments 3,671 -- 1,160
</TABLE>
In all cases, net investment income, net realized gains (losses) on
investments, and net assets were not affected by this change.
Other -- Investment transactions are accounted for on the trade date. Income
and expenses are recorded on the accrual basis. Dividend income is recorded
on the ex-dividend date.
On a daily basis, the Liberty Financial Utilities Fund is allocated income,
net of Portfolio expenses, based on its investment in the Portfolio. Expenses
directly attributable to the Fund are charged to the Fund on an accrual
basis.
Note 2. Investment Transactions
Realized gains and losses are computed on the identified cost basis for both
financial reporting and Federal income tax purposes.
<PAGE>
As of October 31, 1994, the Growth and Income Fund had a capital loss
carryover, which is available to offset future realized gains, of $286,573
which will expire in or before 2001. Insured Municipals Fund, Tax Free Bond
Fund, and U.S. Government Securities Fund had capital loss carryovers of
$982,307, $1,897,139 and $42,901,429, respectively, which will expire in or
before 2002.
The cost of investments purchased and the proceeds from investments sold,
excluding short-term investments, for the year ended October 31, 1994, for
all of the Funds except the Utilities Fund, were as follows:
<TABLE>
<CAPTION>
Growth and Insured
Income Fund Municipals Fund
<S> <C> <C>
Cost of investments
purchased $22,174,234 $50,641,305
Proceeds from
investments sold 6,575,842 44,156,599
Tax-Free U.S. Government
Bond Fund Securities Fund
Cost of investments
purchased $100,448,027 $1,074,338,687
Proceeds from
investments sold 107,528,604 1,218,114,123
</TABLE>
Gross contributions and withdrawals in the Utilities Fund's investment in the
Portfolio for the year ended October 31, 1994 were $46,602,825 and
$69,379,059, respectively.
Note 3. Investment Management Fees
and Other Transactions with Affiliates
Investment Management and Administration
Each of the Funds, except the Liberty Financial Utilities Fund, has a
management agreement with Stein Roe & Farnham Incorporated ("Stein Roe"), an
indirect wholly-owned subsidiary of Liberty Financial Companies, Inc.
("Liberty Financial"), under which Stein Roe provides investment management
services. The investment management fee paid to Stein Roe is accrued daily
and paid monthly based upon the average daily net assets of the Fund at the
following annual rates:
<TABLE>
<CAPTION>
Annual rate(s) as a percent
Liberty Financial Fund of average daily net assets
<S> <C>
Growth and Income Fund 0.55 of 1.00%
Insured Municipals
Fund 0.45 of 1.00%
Tax-Free Bond Fund various rates ranging from 0.45 of 1.00% of the
first $100 million to 0.40 of 1.00% of such
assets in excess of $500 million
U.S. Government various rates ranging from 0.45 of 1.00% of the
Securities first $100 million to 0.325 of 1.00% of such
Fund assets in excess of $1.5 billion
</TABLE>
Under an administration agreement with the Trust, Liberty Investment
Services, Inc. ("Liberty Services"), another indirect wholly-owned
subsidiary of Liberty Financial and an affiliate of Stein Roe, provides
certain administrative services to the Trust and the Funds for a fee accrued
daily and paid monthly at an annual rate of 0.10 of 1.00% of each Funds'
average daily net assets.
Liberty Services also provides certain sub-transfer agency services and
financial reporting and record keeping services to the Trust and the Funds
pursuant to a service agreement with the Trust. Under this agreement, for the
year ended October 31, 1994, the Liberty Financial Funds incurred
sub-transfer agency fees as follows:
<TABLE>
<S> <C>
Growth and Income Fund $ 96,500
Insured Municipals Fund 64,573
Tax-Free Bond Fund 130,828
U.S. Government Securities Fund 451,293
Utilities Fund 289,500
At October 31, 1994, accounting and service fees payable were as follows:
Growth and Income Fund $ 9,364
Insured Municipals Fund 5,817
Tax-Free Bond Fund 11,667
U.S. Government Securities Fund 39,167
Utilities Fund 24,528
</TABLE>
Distribution
Liberty Securities Corporation ("Liberty Securities"), another indirect
wholly-owned subsidiary of Liberty Financial, is the prin- cipal underwriter
of the shares of the Funds. For the year ended October 31, 1994, aggregate
commissions were paid to Liberty Securities with respect to sales of shares
of the Liberty Financial Funds as follows:
<TABLE>
<S> <C>
Growth and Income Fund $ 584,076
Insured Municipals Fund 416,990
Tax-Free Bond Fund 1,025,710
U.S. Government Securities Fund 1,992,510
Utilities Fund 1,566,388
</TABLE>
Liberty Securities may enter into selling agreements with other securities
broker-dealer firms for the sale of shares of the Funds by them.
Under the terms of the underwriting agreement between the Funds and Liberty
Securities, Liberty Securities, so long as the Funds' Distribution and
Service Plans ("Plans") adopted pursuant to Rule 12b-1 under the Act remains
in effect, would receive a service fee at an annual rate of 0.25 of 1.00% of
the Funds' average daily net assets and a distribution fee of 0.05 of 1.00%
of the Funds' average daily net assets, accrued daily and paid monthly.
Liberty Securities has voluntarily agreed to waive all amounts payable to it
under this agreement until October 31, 1993 in the case of the Liberty
Financial U.S. Government Securities Fund, until February 28, 1994 in the
case of the Liberty Financial Utilities Fund and until February 28, 1995 in
the case of all of the other Funds. Commencing November 1, 1993 and March 1, 31
1994, the Liberty Financial U.S. Government Securities Fund and the Liberty
Financial Utilities Fund, respectively, are making quarterly service fee
payments to Liberty Securities according to the Plan and the related
Underwriting Agreement with Liberty Securities at an annual rate of 0.25 of
1.00% of the Funds' average daily net assets, subject to the expense
limitation agreements referred to under "Expense Limitations" below.
<PAGE>
Expense Limitations
Stein Roe and Liberty Services have voluntarily agreed, until February 28,
1995, not to impose their fees under their management and administration
agreements to the extent those fees would cause the expenses, as defined, of
the Liberty Financial Funds to exceed the following rates:
<TABLE>
<S> <C>
Growth and Income Fund 1.25% per annum of the Fund's average
daily net assets
Insured Municipals Fund 0.60% per annum of the Fund's average
daily net assets
Tax-Free Bond Fund 0.60% per annum of the Fund's average
daily net assets
U.S. Government Securities Fund 1.00% per annum of the Fund's average
daily net assets
Utilities Fund 1.25% per annum of the Fund's average
daily net assets
</TABLE>
The rate in effect for the Tax-Free Bond Fund from March 1, 1991 to February
28, 1994 was 0.55% per annum of the Fund's average daily net assets.
Except for the Liberty Financial U.S. Government Securities Fund, Stein Roe
and Liberty Services have also agreed to guarantee payment of the other
Funds' expenses in excess of these rates.
Note 4. Investment in Repurchase Agreements
Each Fund may enter into repurchase agreements with banks, broker-dealer
firms and other recognized financial institutions whereby such institutions
sell an instrument in which a Fund may invest to that Fund, and the seller
agrees, at the time of the sale, to repurchase that instrument at a specified
time and price. The Funds require the seller of the instrument to maintain on
deposit with the Funds' custodian bank or in the Federal Reserve Book- Entry
System securities in an amount at all times equal to or in excess of the
value of the repurchase agreement plus accrued interest. In the event that
the seller of the instrument defaults on the repurchase obligation, a Fund
could receive less than the purchase price on the sale of the securities to
another party or could be subject to delays in selling the securities.
Note 5. Subsequent Events
Merger with the Colonial Group
Liberty Financial Companies, Inc. ("Liberty"), the parent Company of Stein
Roe & Farnham Incorporated and Liberty Investment Services, Inc., has entered
into an agreement and plan of merger dated as of October 12, 1994 with The
Colonial Group ("Colonial") pursuant to which Colonial would become a wholly
owned subsidiary of Liberty Financial Companies, Inc.
On November 29, 1994 the Board of Trustees of Liberty Financial Trust
approved Plans of Reorganization and Agreements pursuant to which the Liberty
Financial U.S. Government Securities, Growth and Income, Tax-Free Bond and
Insured Municipals Funds would each be merged into the comparable fund of The
Colonial Group of Funds. Shareholders of the merging Liberty Financial Funds
would receive Class A shares of the comparable Colonial Fund having an
aggregate net asset value equal to the net asset value of their Liberty
Financial Fund shares.
The mergers of the four Liberty Financial Funds with the comparable Colonial
Funds are subject to approval by the shareholders of the respective merging
Liberty Financial Funds and the completion of the merger of Colonial into a
subsidiary of Liberty contemplated by the October 12, 1994 agreement.
Dividend Distributions
Dividends of $.042, $.048, $.051, and $.043 were declared by the Insured
Municipals Fund, the Tax-Free Bond Fund, the U.S. Government Securities Fund,
and the Utilities Fund, respectively, on November 16, 1994, payable on
December 1, 1994. These dividends are not reflected in the financial
statements.
<PAGE>
INDEPENDENT AUDITORS' REPORT
[KPMG logo]
The Trustees and Shareholders
Liberty Financial Trust Funds:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Liberty Financial Growth and
Income Fund, Insured Municipals Fund, Tax-Free Bond Fund, and U.S. Government
Securities Fund and the accompanying statement of assets and liabilities of
the Liberty Financial Utilities Fund as of October 31, 1994, and the related
statements of operations for the year then ended, the statements of changes
in net assets for each of the years in the two-year period then ended, and
the financial highlights for each of the years or periods in the five-year
period then ended for Growth and Income Fund, Tax-Free Bond Fund, U.S.
Government Securities Fund and Utilities Fund, and for the years ended
October 31, 1994 and 1993 and for the period from July 1, 1992 to October 31,
1992 for the Insured Municipals Fund. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial statements and
financial highlights of the Insured Municipals Fund for the period from
September 16, 1991 (Commencement of Operations) to June 30, 1992 (formerly
SteinRoe Insured Municipals Fund) were audited by other auditors whose report
thereon dated August 5, 1992 expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1994, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
each of the Funds constituting the Liberty Financial Trust as of October 31,
1994, the results of their operations, the changes in their net assets, and
the financial highlights for each of the years or periods described in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 15, 1994
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
LFC Utilities Trust / October 31, 1994
<TABLE>
<S> <C> <C>
Assets:
Investments at market value (Identified cost--$265,148,858) $254,750,584
Cash 1,339
Receivable for investments sold 4,060,377
Dividends and interest receivable 2,426,737
Deferred organizational expense 18,778
Other assets 56,138
Total assets $261,313,953
Liabilities:
Payable for investments purchased 497,850
Management fee payable 122,647
Accrued expenses payable 35,086
Total liabilities 655,583
Net assets applicable to investors' beneficial interest $260,658,370
STATEMENT OF OPERATIONS / Year Ended October 31, 1994
Investment income:
Dividend income $ 8,625,986
Interest income 8,946,581
Total investment income $ 17,572,567
Expenses:
Management fee 1,586,428
Custodian and accounting fees and expenses 138,799
Audit and legal fees 12,550
Insurance expense 10,391
Amortization of organization expense 9,610
Transfer agent fee 7,500
Trustees' fees and expenses 3,986
Miscellaneous expense 453
Total expenses 1,769,717
Net investment income 15,802,850
Realized and unrealized gains (losses) on investments:
Net realized gains on investments 1,053,832
Change in unrealized depreciation of investments (38,420,718)
Net losses on investments (37,366,886)
Net decrease in net assets resulting from operations $(21,564,036)
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
LFC Utilities Trust
<TABLE>
<CAPTION>
Year Ended October 31,
1994 1993
<S> <C> <C>
Operations:
Net investment income $ 15,802,850 $ 11,073,883
Net realized gains on investments 1,053,832 4,175,270
Change in unrealized appreciation or depreciation of investments (38,420,718) 26,553,517
Net increase (decrease) in net assets resulting from operations (21,564,036) 41,802,670
Transactions in investors' beneficial interests:
Contributions 46,602,825 170,414,407
Withdrawals (69,379,059) (25,373,019)
Net transactions in investors' beneficial interests (22,776,234) 145,041,388
Total increase (decrease) in net assets (44,340,270) 186,844,058
Net assets:
Beginning of period 304,998,640 118,154,582
End of period $260,658,370 $304,998,640
</TABLE>
RATIOS
<TABLE>
<CAPTION>
For the Period
from August 23, 1991
Year Ended October 31, through October 31,
1994 1993 1992 1991
<S> <C> <C> <C> <C>
Ratio of expenses to average net
assets 0.61% 0.64% 0.72%(a) 0.58%*(a)
Ratio of net investment income to
average net assets 5.48% 5.29% 6.36%(b) 6.46%*(b)
Portfolio turnover rate 34% 41% 31% 0%
</TABLE>
* Annualized.
(a) If the Trust had paid all of its expenses and there had been no
reimbursement from the Investment Adviser, as described in Note 3, these
ratios would have been 0.86% and 4.54% (annualized) for the periods ended
October 31, 1992 and 1991, respectively.
(b) Computed giving effect to the Investment Adviser's expense limitation
undertaking.
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LFC Utilities Trust / October 31, 1994
Note 1. Organization and Accounting Policies
LFC Utilities Trust (the "Portfolio") was organized on August 14, 1991 as a
trust under Massachusetts law and is registered under the Investment Company
Act of 1940 as an open-end investment company. The Declaration of Trust
permits the Trustees to issue non-transferable interests in the Portfolio.
The Portfolio commenced operations on August 23, 1991.
The following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
Valuation of Investments -- Equity securities listed on an exchange and
over-the-counter equity securities quoted on the NASDAQ system are valued on
the basis of the last sale on the date as of which the valuation is made, or,
lacking any sales, at the current bid prices. Over-the-counter equity
securities not quoted on the NASDAQ system are valued at the latest bid
quotations. Long-term debt securities are valued primarily on the basis of
valuations furnished by an independent pricing service which utilizes both
dealer-supplied quotations and electronic data processing techniques which
take into account various factors. Securities for which there are no such
reliable quotations or valuations are valued at fair value, as determined in
good faith by, or under the direction of, the Trustees of the Portfolio.
Short-term securities with less than sixty days remaining to maturity are
valued on the amortized cost basis.
Organization Expenses -- Expenses incurred in connection with the
organization of the Portfolio have been deferred and are being amortized on a
straight line basis over five years.
Federal Income Taxes -- The Portfolio has complied and intends to comply with
the applicable provisions of the Internal Revenue Code. Accordingly, no
provision for Federal income taxes is considered necessary.
Other -- Investment transactions are accounted for on the trade date.
Interest income and expenses are recorded on the accrual basis. Dividend
income is recorded on the ex-dividend date. Discounts are amortized on a
yield to maturity basis.
Note 2. Investment Transactions
Realized gains and losses are computed on the identified cost basis for both
financial reporting and Federal income tax purposes.
The cost of investments purchased and proceeds from investments sold,
excluding short-term investments, for the year ended October 31, 1994 was
$93,415,154 and $94,348,485, respectively.
Note 3. Transactions with Affiliates
Investment Management
The Portfolio has a management agreement with Stein Roe & Farnham
Incorporated ("Stein Roe"), an indirect wholly-owned subsidiary of Liberty
Financial Services, Inc. ("Liberty Financial") under which Stein Roe provides
investment management services. The investment management fee paid to Stein
Roe is accrued daily and paid monthly at an annual rate of 0.55 of 1.00% of
the Portfolio's average daily net assets up to $400 million and 0.50 of 1.00%
of its average daily net assets over that amount. Stein Roe has delegated the
performance of its administrative duties to Liberty Investment Services, Inc.
("Liberty Services"), also a wholly-owned subsidiary of Liberty Financial.
Liberty Services also provides certain financial reporting and record keeping
services to the Portfolio pursuant to a service agreement. For the year ended
October 31, 1994, the Portfolio incurred fees of $42,500 under these service
agreements. At October 31, 1994 service fees payable were $3,542.
Expense Limitations
Stein Roe and Liberty Services have voluntarily agreed, until February 28,
1995, not to impose their fees under their management and administration
agreements with the Liberty Financial Utilities Fund (the "Fund"), which
invests all its assets in the Portfolio, and the Portfolio, to the extent
those fees would cause the aggregate expenses, as defined, of the Fund and
the Portfolio to exceed the rate of 1.25% per annum of the Fund's average
daily net assets and to guaranty payment of expenses in excess of that rate.
Note 4. Investment in Repurchase Agreements
The Portfolio may enter into repurchase agreements with banks, broker-dealer
firms and other recognized financial institutions whereby such institutions
sell an instrument in which the Portfolio may invest to the Portfolio, and
the seller agrees, at the time of the sale, to repurchase that instrument at
a specified time and price. The Portfolio requires the seller of the
instrument to maintain on deposit with the Portfolio's Custodian Bank or in
the Federal Reserve Book-Entry System securities in an amount at all times
equal to or in excess of the value of the repurchase agreement plus accrued
interest. In the event that the seller of the instrument defaults on the
repurchase obligation, the Portfolio could receive less than the repurchase
price on the sale of the securities to another party or could be subject to
delays in selling the securities.
<PAGE>
INDEPENDENT AUDITORS' REPORT
[KPMG logo]
The Trustees and Investors
LFC Utilities Trust:
We have audited the accompanying statement of assets and liabilities of LFC
Utilities Trust, including the schedule of investments, as of October 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended, and the ratios for each of the years in the three-year
period then ended and the period from the commencement of operations on
August 23, 1991 through October 31, 1991. These financial statements and
ratios are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and ratios based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and ratios
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and ratios referred to above present
fairly, in all material respects, the financial position of LFC Utilities
Trust as of October 31, 1994, and the results of its operations for the year
then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the ratios for each of the years in the
three-year period then ended and the period from the commencement of
operations on August 23, 1991 through October 31, 1991 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 15, 1994
Part B of Post-Effective Amendment No. 90 filed with the Commission on
December 21, 1994 (Colonial Global Utilities Fund), is incorporated herein
in its entirety by reference.
Part B of Post-Effective Amendment No. 91 filed with the Commission on
December 29, 1994 (Colonial Growth Shares Fund), is incorporated herein in
its entirety by reference.
Part B of Post-Effective Amendment No. 92 filed with the Commission on
February 14, 1995 (Colonial Federal Securities Fund, Colonial Strategic
Balanced Fund, Colonial International Fund for Growth, Colonial Global
Natural Resources Fund, Colonial Global Equity Fund, The Colonial Fund), is
incorporated herein in its entirety by reference.
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Summary of expenses (for Colonial Growth Shares Fund
incorporated herein by reference to Part A of Post-Effective
Amendment No. 91 filed with the Commission on December 29,
1994)
Summary of expenses (for The Colonial Fund, Colonial Global
Natural Resources Fund, Colonial Federal Securities Fund,
Colonial Global Equity Fund, Colonial International Fund for
Growth and Colonial Strategic Balanced Fund, incorporated by
reference to Part A of Post-Effective Amendment No. 92 filed
with the Commission on February 14, 1995)
Summary of expenses (Colonial Global Utilities Fund)
The Fund's financial history (for Colonial Growth Shares Fund
incorporated herein by reference to Part A of Post-Effective
Amendment No. 91 filed with the Commission on December 29,
1994)
The Fund's financial history (The Colonial Fund, Colonial
Global Natural Resources Fund, Colonial Federal Securities
Fund, Colonial Global Equity Fund, Colonial International Fund
for Growth and Colonial Strategic Balanced Fund, incorporated
by reference to Part A of Post-Effective Amendment No. 92 filed
with the Commission on February 14, 1995)
The Fund's financial history (Colonial Global Utilities Fund)
Included in Part B
Colonial Global Utilities Fund (CGUF)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Period ended October 31, 1994
Statement of changes in net assets, Period ended October 31,
1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial International Fund for Growth (CIFfG)(incorporated
herein by reference to Part B of Post-Effective Amendment No.
92 filed with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Period ended October 31, 1994
Statement of changes in net assets, Period ended October 31,
1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Growth Shares Fund (CGSF)(incorporated herein by
reference to Part B of Post-Effective Amendment No. 91 filed
with the Commission on December 29, 1994)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Year ended October 31, 1994
Statement of changes in net assets,
Years ended October 31, 1994 and 1993
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
The Colonial Fund (TCF)(incorporated herein by reference to
Part B of Post-Effective Amendment No. 92 filed with the
Commission on February 14, 1995)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Year ended October 31, 1994
Statement of changes in net assets, Years ended October 31,
1994 and 1993
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Federal Securities Fund (CFSF)(incorporated herein by
reference to Part B of Post-Effective Amendment No. 92 filed
with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Year ended October 31, 1994
Statement of changes in net assets, Years ended October 31,
1994 and 1993
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Global Equity Fund (CGEF)(incorporated herein by
reference to Part B of Post-Effective Amendment No. 92 filed
with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Year ended October 31, 1994
Statement of changes in net assets, Year ended October 31, 1994
and Period ended October 31, 1993
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Global Natural Resources Fund (CGNRF)(incorporated
herein by reference to Part B of Post-Effective Amendment No.
92 filed with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Year ended October 31, 1994
Statement of changes in net assets, Years ended October 31,
1994 and 1993
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Strategic Balanced Fund (CSBF)(incorporated herein by
reference to Part B of Post-Effective Amendment No. 92 filed
with the Commission on February 14, 1995)
Investment portfolio, October 31, 1994
Statement of assets and liabilities, October 31, 1994
Statement of operations, Period ended October 31, 1994
Statement of changes in net assets, Period ended October 31,
1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
(b) Exhibits:
1 Amendment No. 3 to the Agreement and
Declaration of Trust (4)
2 By-Laws (4)
2(a) By-Laws as amended (10/9/92) (7)
3 Not Applicable
4 Form of Specimen of share certificate (4)
5(a) Form of Management Agreement between CGSF
and Colonial Management Associates, Inc. (6)
5(b) Form of proposed Management Agreement (CFSF,
TCF, CNRF, CGEF and CSBF) (4)
5(c) Management Agreement between CIFFG and
Colonial Management Associates, Inc. (9)
5(d) Sub-Advisory Agreement Among Gartmore
Capital Management Ltd., Colonial Management
Associates, Inc. and Colonial Trust III (CIFFG).
(9)
6(a) Form of Distributor's Contract with Colonial
Investment Services (incorporated herein by
reference to Exhibit 6(i)(b) to Post-Effective
Amendment No. 22 to the Registration Statement
of Colonial Trust II, Registration Nos 2-66976
and 811-3009, filed with the Commission on
October 28, 1994)
6(b) Form of Selling Agreement with Colonial
Investment Services (10)
6(c) Form of Bank and Bank Affiliated Selling
Agreement (incorporated herein by reference to
Exhibit 6(c) to Post-Effective Amendment No. 5
to the Registration Statement of Colonial
Trust VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on
October 11, 1994)
6(d) Mutual Fund Agreement between NCNB
Securities, Inc. and Colonial Investment Services
(incorporated herein by reference to Exhibit 6(f)
to Post-Effective Amendment No. 3 to the
Registration Statement of Colonial Massachusetts
Tax-Exempt Trust, Registration Nos. 33-12109 and
811-5030, filed with the Commission on
May 11, 1989)
6(e) Form of Asset Retention Agreement
(incorporated by reference to Exhibit 6(e) to
Post-Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission
on October 11, 1994).
7 Not Applicable
8 Proposed form of Custodian Agreement with
Boston Safe Deposit and Trust Company
(incorporated herein by reference to Exhibit 8(k)
to Post-Effective Amendment No. 36 to the
Registration Statement of Colonial Trust IV,
Registration Nos. 2-62492 and 811-2865, filed
with the Commission on March 12, 1993)
9(a) Form of Amended and Restated Shareholders'
Servicing and Transfer Agent Agreement as amended
with Colonial Investors Service Center, Inc.
(formerly Citadel Service Company, Inc.) and
Colonial Management Associates, Inc.
(incorporated herein by reference to Exhibit 9(a)
to Post-Effective Amendment No. 5 to the
Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 and 811-6529,
filed with the Commission on October 11, 1994)
9(b) Pricing and Bookkeeping Agreement with
Colonial Management Associates, Inc. (6)
9(c) Investment Account Application (incorporated
herein by reference to Prospectus)
9(d) Form of proposed Agreement and Plan of
Reorganization (incorporated herein by reference
to Exhibit 9(c) to Post-Effective Amendment
No. 67 to the Registration Statement of
The Colonial Fund, Registration File Nos. 2-15392
and 811-895, filed with the Commission on
February 26, 1987) (TCF)
9(e) Form of proposed Agreement and Plan of
Reorganization (CGSF) (1)
9(f) Form of Agreement and Plan of Reorganization
(TCF and CFSF) (5)
9(g) Form of Colonial Asset Builder Account
Application (TCF, CGSF) (8)
9(h) Form of Administration Agreement between
Colonial Trust III, with respect to CGUF, and
Colonial Management Associates, Inc. (12)
10 Opinion and Consent of Counsel (CGSF)(2)
10(a) Opinion and Consent of Counsel (incorporated
herein by reference to Exhibit 10 to
Pre-Effective Amendment No. 1 to the Registration
Statement of Colonial Government Securities Plus
Trust, Registration File Nos. 2-87530 and
811-3895, filed with the Commission on
January 6, 1984) (CFSF)
10(b) Opinion and Consent of Counsel (incorporated
herein by reference to Exhibit 10 to
Post-Effective Amendment No. 67 to the
Registration Statement of The Colonial Fund,
Registration File Nos. 2-15392 and 811-895,
filed with the Commission on February 26, 1987)
(TCF)
11(a) Consent of Independent Accountants
(TCF,CFSF, CGEF, CIFFG, CSBF and CGNRF)(14)
11(b) Consent of Independent Accountants
(CGSF)(12)
11(c) Consent of Independent Accountants (CGUF)
12 Not Applicable
13 Not Applicable
14(a) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Document and
Trust Agreement (incorporated herein by reference
to Exhibit 14(a) to Post-Effective Amendment No.
5 to the Registration Statement of Colonial
Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission
on October 11, 1994)
14(b) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Establishment Booklet
(incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-
45117 and 811-6529, filed with the Commission on
October 11, 1994)
14(c) Form of Colonial Mutual Funds Individual
Retirement Account and Application (incorporated
herein by reference to Exhibit 14(c) to Post-
Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-
45117and 811-6529, filed with the Commission on
October 11, 1994)
14(d) Form of Colonial Mutual Funds Simplified
Employee Pension Plan and Salary Reduction Simplified
Employee Pension Plan (incorporated herein by
reference to Exhibit 14(d) to Post-Effective
Amendment No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-
6529, filed with the Commission on October 11, 1994)
14(e) Form of Colonial Mutual Funds 401(k) Plan
Document and Trust Agreement (incorporated herein by
reference to Exhibit 14(e) to Post-Effective
Amendment No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-
6529, filed with the Commission on October 11, 1994)
14(f) Form of Colonial Mutual Funds 401(k) Plan
Establishment Booklet (incorporated herein by
reference to Exhibit 14(f) to Post-Effective
Amendment No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-
6529, filed with the Commission on October 11, 1994)
14(g) Form of Colonial Mutual Funds 401(k)
Employee Reports Booklet (incorporated herein by
reference to Exhibit 14(g)(a) to Post-Effective
Amendment No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-
6589, filed with the Commission on October 11, 1994)
15 Distribution Plan adopted pursuant to
Section 12b-1 of the Investment Company Act of 1940,
incorporated by reference to the Distributor's
Contracts filed as Exhibit 6(a) hereto
16(a) Calculation of Performance Information (CGSF)(13)
16(b) Calculation of Yield (CGSF)(13)
16(c) Calculation of Performance Information (CFSF)(14)
16(d) Calculation of Yield (CFSF)(14)
16(e) Calculation of Performance Information (TCF)(14)
16(f) Calculation of Yield (TCF)(14)
16(g) Calculation of Performance Information (CGEF)(14)
16(h) Calculation of Yield (CGEF)(14)
16(i) Calculation of Performance Information (CGNRF)(14)
16(j) Calculation of Yield (CGNRF)(14)
16(k) Calculation of Performance Information (CSBF)(14)
16(l) Calculation of Yield (CSBF)(14)
16(m) Calculation of Performance Information (CIFFG)(14)
16(n) Calculation of Yield (CIFFG)(14)
16(o) Calculation of Performance Information (CGUF)
16(p) Not Applicable (CGUF)
17(a) Financial Data Schedule (Class A)(CFSF)(14)
17(b) Financial Data Schedule (Class B)(CFSF)(14)
17(c) Not applicable (Class D)(CFSF)
17(d) Financial Data Schedule (Class A)(TCF)(14)
17(e) Financial Data Schedule (Class B)(TCF)(14)
17(f) Not applicable (Class D)(TCF)
17(g) Financial Data Schedule (Class A)(CGEF)(14)
17(h) Financial Data Schedule (Class B)(CGEF)(14)
17(i) Financial Data Schedule (Class A)(CGNRF)(14)
17(j) Financial Data Schedule (Class B)(CGNRF)(14)
17(k) Financial Data Schedule (Class A)(CSBF)(14)
17(l) Financial Data Schedule (Class B)(CSBF)(14)
17(m) Financial Data Schedule (Class D)(CSBF)(14)
17(n) Financial Data Schedule (Class A)(CIFFG)(14)
17(o) Financial Data Schedule (Class B)(CIFFG)(14)
17(p) Financial Data Schedule (Class D)(CIFFG)(14)
17(q) Not Applicable (Class A)(CGSF)
17(r) Not Applicable (Class B)(CGSF)
17(s) Financial Data Schedule (Hub)(CGUF)
17(t) Financial Data Schedule (Spoke)(CGUF)
18 Power of Attorney for: Tom Bleasdale, Lora
S. Collins, William D. Ireland, Jr., William E.
Mayer, John A. McNeice, Jr., James L. Moody, Jr.,
John J. Neuhauser, George L. Shinn, Robert L.
Sullivan and Sinclair Weeks, Jr. (incorporated herein
by reference to Exhibit 16 to Post-Effective
Amendment No. 38 to the Registration Statement of
Colonial Trust IV, Registration Nos. 2-62492 and 811-
2865, filed with the Commission on March 11, 1994)
(1) Incorporated by reference to Post-Effective Amendment No.
70 to Form N-1A filed on or about June 2, 1986
(2) Incorporated by reference to Post-Effective Amendment No.
71 to Form N-1A filed on or about August 27, 1986
(3) Incorporated by reference to Post-Effective Amendment No.
75 to Form N-1A filed on or about May 31, 1990
(4) Incorporated by reference to Post-Effective Amendment No.
78 to Form N-1A filed on or about December 17, 1991.
(5) Incorporated by reference to Post-Effective Amendment No.
79 to Form N-1A filed on or about February 11, 1992.
(6) Incorporated by reference to Post-Effective Amendment No.
80 to Form N-1A filed on or about July 13, 1992.
(7) Incorporated by reference to Post-Effective Amendment No.
81 to Form N-1A filed on or about November 19, 1992.
(8) Incorporated by reference to Post-Effective Amendment No.
85 to Form N-1A filed on or about July 30, 1993.
(9) Incorporated by reference to Post-Effective Amendment No.
86 to Form N-1A filed on or about January 12, 1994.
(10) Incorporated by reference to Post-Effective Amendment No.
87 to Form N-1A filed on or about February 9, 1994.
(11) Incorporated by reference to Post-Effective Amendment No.
88 to Form N-1A filed on or about April 20, 1994.
(12) Incorporated by reference to Post-Effective Amendment No.
90 to Form N-1A filed on or about December 21, 1994.
(13) Incorporated by reference to Post-Effective Amendment No.
91 to Form N-1A filed on or about December 29, 1994.
(14) Incorporated by reference to Post-Effective Amendment No.
92 to Form N-1A filed on or about February 14, 1995.
Item 25. Persons Controlled by or under Common Group Control with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders
Title of Class as of January 31, 1995
Shares of Beneficial 13,348 - Class A record holders
Interest 5,424 - Class B record holders
(CGSF)
Shares of Beneficial 64,243 - Class A record holders
Interest 2,821 - Class B record holders
(CFSF)
Shares of Beneficial 37,868 - Class A record holders
Interest 24,893 - Class B record holders
0 - Class D record holders
(TCF)
Shares of Beneficial 6,306 - Class A record holders
Interest 2,381 - Class B record holders
(CGNRF)
Shares of Beneficial 1,327 - Class A record holders
Interest 5,598 - Class B record holders
(CGEF)
Shares of Beneficial 445 - Class A record holders
Interest 911 - Class B record holders
86 - Class D record holders
(CSBF)
Shares of Beneficial 6,993 - Class A record holders
Interest 10,340 - Class B record holders
58 - Class D record holders
(CIFfG)
Shares of Beneficial 0 - Class A record holders
Interest 0 - Class B record holders
0 - Class D record holders
(CGUF)
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. and, for CSBF (see next page):
ITEM 28
- --------
Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940.
Colonial Management Associates, Inc. and its affiliate, Colonial Advisory
Services, Inc., as of the end of its fiscal year December 31, 1994, had one
institutional, corporate or other accounts under management or supervision, the
market value of which was approximately $265.3 million, and Colonial Management
Associates, Inc. was the investment adviser to the 36 mutual funds in the
Colonial Group of Funds, the market value of which investment companies was
approximately $13,327.8 million. Colonial Investment Services, Inc. a
subsidiary of Colonial Management Associates, Inc., is the principal underwriter
and the national distributor of all of the funds in the Colonial Group of Funds,
including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business address* Affiliation
of officers and with Period is through 3/1/95. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ -------- ----------------------- -----------
Archer, Joseph A. V.P.
Augustine,
Jeffrey B. V.P.
Berliant, Allan V.P.
Bertelson, Lisa V.P.
Bissonette, V.P.
Michael
Boatman, Bonny E. Dir.;
Sr.V.P.;
Invest.
Plcy.
Cmte.
Mbr.
Carnabucci, V.P.
Dominick
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.: Pres.
Pres.; Colonial Trusts I through VI V.P.
Exe. Man. Colonial High Income Municipal V.P.
Cmte. Trust
Mbr.; Colonial InterMarket Income Trust V.P.
Invest. I
Plcy. Colonial Intermediate High Income V.P.
Cmte. Fund
Mbr. Colonial Investment Grade V.P.
Exe. Municipal Trust
Cmte. Colonial Municipal Income Trust V.P.
Collins, Anne V.P.
Conlin, Nancy V.P.; Colonial Investors Service Center, Asst. Clerk
Asst. Inc.
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst. Colonial Advisory Services, Inc. Asst. Clerk
Clerk and Colonial Investment Services, Inc. Asst. Clerk
Counsel
Cordes, Susan V.P.
Daniszewski, V.P.; Colonial Investment Services, Inc. V.P.
Joseph J. Asst.
Treasurer
DiSilva, Linda V.P.
Emilson, C. Dir.; Colonial Investors Service Center, Dir.; Ex.
Herbert Vice Inc. V.P.
Chm.; The Colonial Group, Inc. Dir.; Vice
Exe. Chairman
Cmte. Colonial Advisory Services, Inc. Dir.
Mbr.;
Exe. Man.
Cmte.
Mbr.;
Exe.
Cmte.
Ericson, Carl C. V.P. Colonial Intermediate High Income V.P.
Fund
Evans, C. Frazier Dir.; Colonial Investment Services, Inc. Sr. V.P.
Sr.V.P.
Feingold, Andrea V.P. Colonial Intermediate High Income V.P.
Fund
Finnemore, Leslie V.P.
W.
Gerokoulis, V.P. Colonial Investment Services, Inc. Sr. V.P.
Stephen A.
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services, Inc. V.P.
Hernandez, Sr.V.P.; Colonial Investors Service Center, Dir.; Pres.
Manuel R. Dir. Inc.
Koonce, Michael H. V.P.; Colonial Trusts I through VI Asst. Sec.
Asst. Colonial High Income Municipal Asst. Sec.
Sec.; Trust
Asst. Colonial InterMarket Income Trust Asst. Sec.
Clerk & I
Counsel Colonial Intermediate High Income Asst. Sec.
Fund
Colonial Investment Grade Asst. Sec
Municipal Trust
Colonial Municipal Income Trust Asst. Sec.
Colonial Investment Services, Inc. Asst. Clerk
Colonial Investors Service Center, Asst. Clerk
Inc.
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services, Inc. V.P.
Lennon, John E. V.P. Colonial Advisory Services, Inc. V.P.
Lenzi, Sharon V.P.
Lilienfeld, V.P.
Jonathan
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VI Controller
Asst. Colonial High Income Municipal Controller
Treasurer Trust Controller
Colonial InterMarket Income Trust Controller
I
Colonial Intermediate High Income Controller
Fund
Colonial Investment Grade Controller
Municipal Trust
Colonial Municipal Income Trust Controller
MacKinnon, Donald Dir.;
S. Sr.V.P.
McCue, Gerard A. V.P. Colonial Advisory Services, Inc. V.P.
McGregor, Jeffrey Dir.; Colonial Investment Services, Inc. Pres.; CEO;
L. Sr.V.P. Dir.
McNeice, Jr., John Chrmn. & Boston College Trustee
A. CEO; Boston College High School Trustee
Dir.; Carney Hospital Foundation Mbr. of the
Exe. Carney Fund
Cmte. Colonial Advisory Services, Inc. Dir.; Chm.;
Chm.; CEO & Pres.
Exe. Man. Colonial High Income Municipal Trustee;
Cmte. Trust Pres.
Mbr. Colonial InterMarket Income Trust Trustee;
I Pres.
Colonial Intermediate High Income Trustee;
Fund Pres.
Colonial Investment Grade Trustee;
Municipal Trust Pres.
Colonial Municipal Income Trust Trustee;
Pres.
The Colonial Group, Inc. Trustee;
Pres.
Colonial Trusts I through VI Trustee;
Pres.
Colonial Investors Service Center, Trustee;
Inc. Pres.
Nativity Preparatory School Chm., Bd of
Trustees;
Northeastern University Corp. Bd.
Member
Wentworth Institute of Technology Corp. Bd.
Member
Colonial Investment Services, Inc. Dir.; Chm of
the Bd.
Board of Visitors - Peter Drucker Board Mbr.
Graduate Center
St. John's Seminary Board Mbr.
Third Century Foundation Trustee;
Pres.
Peter F. Drucker Foundation Dir.
United Way of Mass Bay Board Mbr.
American Ireland Fund Board Mbr.
Catholic Charities - Board Mbr.
Archdiocese of Boston
O'Neill, Charles Sr.V.P.; Colonial Investment Services, Inc. Exec. V.P.
A. Dir.
Palmer, Elizabeth V.P.
Peters, Helen F. Dir.;
Sr.V.P.;
Invest.
Plcy.
Cmte.
Mbr.
Rie, Daniel Sr.V.P.; Colonial Advisory Services, Inc. Sr. V.P.
Invest.
Plcy.
Cmte.
Mbr.;
Dir.
Salloway, Jane M. Cntrllr. The Colonial Group, Inc. Cntrllr. &
and Chief Chief Acct.
Acct. Offr.; Asst.
Offr.; Treasurer
V.P.
Scoon, Davey S. Dir.; Colonial Advisory Services, Inc. Treasurer
Exe.V.P.; Colonial High Income Municipal V.P.
Exe. Man. Trust
Cmte. Colonial InterMarket Income Trust V.P.
Mbr. I
Colonial Intermediate High Income V.P.
Fund
Colonial Investment Grade V.P.
Municipal Trust
Colonial Municipal Income Trust V.P.
Colonial Trusts I through VI V.P.
Colonial Investors Service Center, Treasurer
Inc.
The Colonial Group, Inc. V.P.-Fin. &
Admin.
Shore, Janet V.P. and Colonial High Income Municipal Asst. Sec.
Compliance Trust
Offr.; Colonial InterMarket Income Trust Asst. Sec.
Invest. I
Plcy. Colonial Intermediate High Income Asst. Sec.
Cmte. Fund
Mbr. Colonial Investment Grade Asst. Sec.
Municipal Trust
Colonial Municipal Income Trust Asst. Sec
Colonial Trusts I through VI Asst. Sec
Colonial Investment Services, Inc. Asst. Clerk
Silver, Richard A. Dir.; Colonial Advisory Services, Inc. Controller
Sr.V.P.; Colonial High Income Municipal Treasurer &
Treasurer Trust CFO
& CFO Colonial InterMarket Income Trust Treasurer &
I CFO
Colonial Intermediate High Income Treasurer &
Fund CFO
Colonial Investment Grade Treasuer &
Municipal Trust CFO
Colonial Municipal Income Trust Treasurer &
CFO
Colonial Trusts I through VI Treasuer &
Inc. CFO
Colonial Investors Service Asst. Treas.
Center, Inc.
The Colonial Group, Inc. Treasuer &
CFO
Colonial Investment Services, Inc. Treasurer &
CFO
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services, Inc. Clerk
Dir.; Colonial High Income Municipal Secretary
Sec.; Trust
Clrk.& Colonial InterMarket Income Trust Secretary
Gnrl. I
Counsel; Colonial Intermediate High Income Secretary
Exe. Man. Fund
Cmt. Colonial Investment Grade Secretary
Mbr.; Municipal Trust
Invest. Colonial Municipal Income Trust Secretary
Plcy. Colonial Trusts I through VI Secretary
Cmte. Colonial Investors Service Center, Clerk
Mbr. Inc.
The Colonial Group, Inc. Clerk;
V.P. Legal
Colonial Investment Services, Inc. V.P.; Clerk
Counsel
Yacovoni, Priscilla V.P.
- ---------------------
*The Principal address of all of the officers and
directors of the investment adviser is One Financial
Center, Boston, MA 02111.
Item 28. Business and Other Connections of Investment Adviser
(only with respect to Colonial Global Utilities Fund, which is
the successor by merger to the Liberty Financial Utilities Fund
(LFUF), and which invests all of its assets in the LFC Utilities
Trust (Portfolio), which is managed by Stein Roe and Farnham
Incorporated). The LFUF was a series of the Liberty Financial
Trust (LFT).
Stein Roe & Farnham Incorporated (Manager), the investment manager of the
Portfolio, is a wholly owned subsidiary of SteinRoe Services Inc. (SSI),
which in turn is a wholly owned subsidiary of Liberty Financial Companies,
Inc., which in turn is a subsidiary of Liberty Mutual Equity Corporation,
which in turn is a subsidiary of Liberty Mutual Insurance Company (LMIC).
The Manager acts as investment adviser to individuals, trustees, pension
and profit-sharing plans, charitable organizations, and other investors.
In addition to the Portfolio, it also acts as investment adviser to other
investment companies having different investment policies.
During the past two years, neither the Manager nor any of its directors or
officers, except for Gary L. Countryman, Kenneth R. Leibler, Hans P.
Ziegler and N. Bruce Callow, have been engaged in any business, profession,
vocation, or employment of a substantial nature either on their own account
or in the capacity of director, officer, partner or trustee, other than as
an officer or associate of the Manager. Mr. Countryman is President of
LMIC and Liberty Mutual Fire Insurance Company; Mr. Leibler is President
and Chief Operating Officer of Liberty Financial Companies, Inc.; Mr.
Ziegler was formerly President and Chief Executive Officer of the Pitcairn
Financial Management Group from 1989 to July 1993; Mr. Callow was Senior
Vice President of the Trust and Financial Services for The Northern Trust
prior to June 1994.
Certain directors and officers of the Manager also serve and have during
the past two years served in various capacities as officers, directors or
trustees of SSI, the LFT or investment companies managed by the Manager, as
shown below. (The listed entities, except for LFT, are all located at One
South Wacker Drive, Chicago, IL 60606; the address of SteinRoe Variable
Investment Trust and LFT is Federal Reserve Plaza, 600 Atlantic Avenue,
Boston, MA 02110).
Position Formerly
Current Position Held Within Past
Two Years
SteinRoe Services,
Inc.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President;
Secretary
Gary L. Countryman Director; Chairman
Kenneth J. Kozanda Vice President
Alfred F. Kugel Vice President
Kenneth R. Leibler Director
Keith J. Rudolf Vice President
Hans P. Ziegler Director; President;
Vice Chairman
SR&F Base Trust
Gary A. Anetsberger Sr. V.P.; Controller Vice President
Timothy K. Armour Pres.; Trustee
Jilaine Hummel Bauer Executive Vice
President
Ann H. Benjamin Vice President
N. Bruce Callow Executive Vice
President
Michael T. Kennedy Vice President
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Shary Risting Stadler Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee Emeritus Trustee
SteinRoe Income Trust
Gary A. Anetsberger Sr. V.P.; Controller Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President
Ann H. Benjamin Vice President
N. Bruce Callow Executive Vice
President
Michael T. Kennedy Vice President
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Shary Risting Stadler Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee Ementus Trustee
SteinRoe Investment
Trust
Gary A. Anetsberger Sr. V.P.; Controller Vice President
Timothy K. Armour President
Jilaine Hummel Bauer Executive Vice
President
N. Bruce Callow Executive Vice
President
Daniel K. Cantor Vice President
Robert A. Christensen Vice President
Kenneth W. Corba Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Alfred F. Kugel Emeritus Trustee
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Shary Risting Stadler Vice President
Hans P. Ziegler Executive Vice
President
SteinRoe Municipal
Trust
Gary A. Anetsberger Sr. V.P.; Controller Vice President
Timothy K. Armour President
Jilaine Hummel Bauer Executive Vice
President
N. Bruce Callow Executive Vice
President
Joanne T. Costopoulos Vice President
Stephen P. Lautz Vice President
Lynn C. Maddox Vice President
M. Jane McCart Vice President
Thomas P. Sorbo Vice President
Shary Risting Stadler Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee Emeritus Trustee
SteinRoe Variable
Investment Trust
Robert A. Christensen Vice President
Kenneth W. Corba Vice President
E. Bruce Dunn Vice President
Ann H. Benjamin Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Paul E. Vawter, Jr. Vice President
Liberty Financial
Trust
Robert A. Christensen Vice President
Michael T. Kennedy Vice President
M. Jane McCart Vice President
Item 29 Principal Underwriter
(a) Colonial Investment Services, Inc. a subsidiary of
Colonial Management Associates, Inc., Registrant's principal
underwriter also acts in the same capacity to Colonial Trust
I, Colonial Trust II, Colonial Trust IV, Colonial Trust V
and Colonial Trust VI:
sponsor for Colony Growth Plans (public offering
of which were discontinued June 14, 1971).
(b) The table below lists each director or officer of
the principal underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
with Offices
Business Address Principal Underwriter with Registrant
- ------------------ -------------------- ---------------
Ballou, Rich Regional V.P. None
Balzano, Christine V.P. None
R.
Buckley, Anne P. Compliance Officer None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth V.P. None
A.
Clark, Cynthia V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Sr. V.P. None
Delaney, Noreen Regional V.P. None
Eckelman, Bryan Sr. V.P. None
Eldridge, Kenneth Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia V.P. None
G.
Evans, C. Frazier V.P. V.P.
Feldman, David Regional V.P. None
Flaherty, Michael Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Hanselman, J. Regional V.P. None
Michael
Hayes, Mary V.P. None
Elizabeth
Hodgkins, Joseph Regional V.P. None
Howard, Craig Sr. V.P. None
Judge, Dana V.P. None
Karagiannis, Sr. V.P. None
Marilyn
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Kilkenny Ann R. Sr. V.P. None
Kirby, Christopher V.P., Fin. Op. None
Principal
Lloyd, Judith H. Sr. V.P. None
Mahoney, D. Scott Sr. V.P. None
McCabe, Joanne Regional V.P. None
Mc Gregor, Jeffrey Director, CEO, None
L. President
McNeice, John A. Director, Chairman Trustee,
President
Meyer, Wayne Regional V.P. None
Murphy, Robert F. Sr. V.P. None
Norwood, Steve Regional V.P. None
O'Neill, Charles Exec. V.P. None
A.
Penitsch, Marilyn Regional V.P. None
L.
Potter, Cheryl Regional V.P. None
Reed, Christopher Regional V.P. None
B.
Ross, Gary J. Regional V.P. None
Rubin, James Regional V.P. None
Scott, Michael W. Sr. V.P. None
Silver, Richard A. Director, Treasurer, Treasurer, CFO
CFO
Sorrells, Sr. V.P. None
Elizabeth
Scoon, Davey S. COO V.P.
Stern, Arthur O. Clerk and Counsel Secretary
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
- ------------------------
* The address for each individual is One Financial Center,
Boston, MA 02111.
Item 30. Location of Accounts and Records
Registrant's accounts and records required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the
Rules thereunder are in the physical possession of the
following:
Registrant
Rule 31a-1 (b) (4)
Rule 31a-2 (a) (1)
Colonial Management Associates, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (b) (1), (2), (3), (5), (6), (7), (8),
(9), (10), (11), (12)
Rule 31a-1 (d), (f)
Rule 31a-2 (a) (1), (2), (c), (e)
Colonial Investment Services, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (d)
Rule 31a-2 (c)
Boston Safe Deposit and Trust Company
One Boston Place, Boston, Massachusetts 02108
Rule 31a-1 (b), (2), (3)
Rule 31a-2 (a) (2)
Colonial Investors Service Center, Inc.
P. O. Box 1722, Boston, Massachusetts 02105-1722
Rule 31a-1 (b) (2)
Rule 31a-1 (a) (2)
Item 31. Management Services
See Item 5, Part A and Item 16, Part B
Item 32. Undertakings
(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 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 free of
charge to each person to whom a prospectus is delivered, a
copy of the applicable series' annual report to shareholders
containing the information required by Item 5A of Form N-1A.
Part C of Post-Effective Amendment No. 90 filed with the Commission on
December 21, 1994 (Colonial Global Utilities Fund), is incorporated herein
in its entirety by reference.
Part C of Post-Effective Amendment No. 91 filed with the Commission on
December 29, 1994 (Colonial Growth Shares Fund), is incorporated herein in
its entirety by reference.
Part C of Post-Effective Amendment No. 92 filed with the Commission on
February 14, 1995 (Colonial International Fund for Growth, Colonial Federal
Securities Fund, Colonial Global Equity Fund, Colonial Global Natural
Resources Fund, The Colonial Fund, Colonial Strategic Balanced Fund), is
incorporated herein by reference in its entirety by reference.
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Colonial
Trust III is on file with the Secretary of The Commonwealth of
Massachusetts and notice is hereby given that the instrument has been
executed on behalf of the Trust by an officer of the Trust as an officer
and by the Trust's Trustees as trustees and not individually and the
obligations of or arising out of the 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 has duly caused this Post-
Effective Amendment No. 93 to its Registration Statement under the
Securities Act of 1933 and Amendment No. 34 under the Investment Company
Act of 1940, to be signed in this City of Boston, and The Commonwealth of
Massachusetts on this 1st day of March, 1995.
COLONIAL TRUST III
By: John A. McNeice, Jr.
--------------------
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to its Registration Statement has been signed below by
the following persons in their capacities and on the date indicated.
SIGNATURES TITLE DATE
John A. McNeice, Jr. President (chief March 1, 1995
- -------------------- executive officer)
John A. McNeice, Jr. and Trustee
Richard A. Silver Treasurer (principal March 1, 1995
- -------------------- financial officer)
Richard A. Silver
Peter L. Lydecker Controller (principal March 1, 1995
- -------------------- accounting officer)
Peter L. Lydecker
- --------------------------- Trustee
Tom Bleasdale
- --------------------------- Trustee
Lora S. Collins
- --------------------------- Trustee
William D. Ireland, Jr.
- --------------------------- Trustee
William E. Mayer
- --------------------------- Trustee Michael H. Koonce
James L. Moody, Jr. ------------------
Michael H. Koonce
Attorney-in-fact
For each Trustee
- --------------------------- Trustee March 1, 1995
John J. Neuhauser
- --------------------------- Trustee
George L. Shinn
- --------------------------- Trustee
Robert L. Sullivan
- --------------------------- Trustee
Sinclair Weeks, Jr.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940,LFC Utilites Trust has duly caused this Post-
Effective Amendment No. 93 to the Registration Statement on Form N-1A of
Colonial Trust III, insofar as it relates to the Global Utilities Fund of
said Trust, to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and The Commonwealth of Massachusetts on
the 28th day of February, 1995.
LFC UTILITIES TRUST
By: ERNEST E. DUNBAR
--------------------
Vice President
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement on Form N-1A of Colonial
Trust III has been signed below by the following trustees and officers of
LFC Utilities Trust in the capacities and on the date indicated.
(Signature) (Title and Capacity) (Date)
Richard I. Roberts President (Chief February 28, 1995
- -------------------- Executive Officer)
Richard I. Roberts and Trustee
Ernest E. Dunbar Treasurer (Principal February 28, 1995
- -------------------- Financial Officer)
Ernest E. Dunbar
Thomas J. Simpson Controller (Principal February 28, 1995
- -------------------- Accounting Officer)
Thomas J. Simpson
Richard R. Christensen
- ---------------------- Trustee February 28, 1995
Richard R. Christensen
James E. Grinnell
- ---------------------- Trustee February 23, 1995
James E. Grinnell
Richard W. Lowry
- ---------------------- Trustee, February 24, 1995
Richard W. Lowry
Robert J. Birnbaum
- ---------------------- Trustee February 28, 1995
Robert J. Birnbaum
EXHIBIT INDEX
Exhibit
11(c) Consent of Independent Accountants (CGUF)
16(o) Calculation of Performance Information (CGUF)
17(s) Financial Data Schedule (Hub)(CGUF)
17(t) Financial Data Schedule (Spoke)(CGUF)
Accountants' Consent
The Trustees
Liberty Financial Utilities Fund
We consent to the use of our report dated December 15, 1994 incorporated
herein by reference and to the references to our firm under the captions
"THE FUND'S FINANCIAL HISTORY" in the prospectus and "INDEPENDENT ACCOUNTANTS"
in the statement of additional information.
KPMG Peat Marwick LLP
- ---------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
March 1, 1995
PERFORMANCE CALCULATION
COLONIAL GLOBAL UTILITIES FUND - CLASS A
Fiscal Year End: 10/31/94
Inception Date: 10/15/91
SINCE INCEPTION
1 YEAR ENDED 10/31/94 10/15/91 TO 10/31/94
Standard Non-Standard Standard Non-Standa
---------- ------------ ---------- ----------
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00
Max. Load 4.50% 4.50%
Amt. Invested $955.00 $1,000.00 $955.00 $1,000.00
Initial NAV $12.15 $12.15 $10.00 $10.00
Initial Shares 78.616 82.305 95.511 100.000
Shares From Dist. 4.740 4.960 18.223 19.084
End of Period NAV $10.61 $10.61 $10.61 $10.61
Total Return -11.56% -7.41% 20.67% 26.35%
Average Annual
Total Return -11.56% -7.41% 6.36% 7.98%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF LIBERTY FINANCIAL TRUST UTILITIES FUND YEAR END OCT-31-1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF FUND YEAR
END OCT-31-1994.
</LEGEND>
<CIK> 0000021847
<NAME> LIBERTY FINANCIAL TRUST
<SERIES>
<NUMBER> 1
<NAME> UTILITIES FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 265,148,858
<INVESTMENTS-AT-VALUE> 254,750,584
<RECEIVABLES> 6,488,453
<ASSETS-OTHER> 76,255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 261,313,953
<PAYABLE-FOR-SECURITIES> 497,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157,733
<TOTAL-LIABILITIES> 655,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 260,658,370
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 260,658,370
<DIVIDEND-INCOME> 8,625,986
<INTEREST-INCOME> 8,946,581
<OTHER-INCOME> 0
<EXPENSES-NET> 1,769,717
<NET-INVESTMENT-INCOME> 15,802,850
<REALIZED-GAINS-CURRENT> 1,053,832
<APPREC-INCREASE-CURRENT> (38,420,718)
<NET-CHANGE-FROM-OPS> (21,564,036)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,586,428
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,769,717
<AVERAGE-NET-ASSETS> 288,571,050
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF LIBERTY FINANCIAL TRUST UTILITIES FUND YEAR END OCT-31-1994 AND
IS QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF FUND
YEAR END OCT-31-1994.
</LEGEND>
<CIK> 0000021847
<NAME> LIBERTY FINANCIAL TRUST
<SERIES>
<NUMBER> 1
<NAME> UTILITIES FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 260,657,065
<RECEIVABLES> 44,937
<ASSETS-OTHER> 00
<OTHER-ITEMS-ASSETS> 69,344
<TOTAL-ASSETS> 260,771,346
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 321,291
<TOTAL-LIABILITIES> 321,291
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 269,487,264
<SHARES-COMMON-STOCK> 24,550,654
<SHARES-COMMON-PRIOR> 25,061,375
<ACCUMULATED-NII-CURRENT> 327,855
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,033,250
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,398,314)
<NET-ASSETS> 260,450,055
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 15,802,777
<EXPENSES-NET> 1,682,521
<NET-INVESTMENT-INCOME> 14,120,256
<REALIZED-GAINS-CURRENT> 1,053,827
<APPREC-INCREASE-CURRENT> (38,420,543)
<NET-CHANGE-FROM-OPS> (23,246,460)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,796,298
<DISTRIBUTIONS-OF-GAINS> 4,178,752
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,027,622
<NUMBER-OF-SHARES-REDEEMED> 5,908,148
<SHARES-REINVESTED> 1,369,805
<NET-CHANGE-IN-ASSETS> (44,049,494)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,158,175
<OVERDISTRIB-NII-PRIOR> 996,103
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,682,521
<AVERAGE-NET-ASSETS> 288,571,050
<PER-SHARE-NAV-BEGIN> 12.15
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (1.43)
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> (0.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>