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. 101 | X |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |
Amendment No. 42 | 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
- -------------------- -------------------
Nancy L. Conlin, 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)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ X ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
COLONIAL TRUST III
Cross Reference Sheet
(The Crabbe Huson Special Fund, Classes A, B, C)
(Crabbe Huson Small Cap Fund, Classes A, B, C)
(Crabbe Huson Equity Fund, Classes A, B, C)
(Crabbe Huson Asset Allocation Fund, Classes A, B, C)
(Crabbe Huson Real Estate Investment Fund, Classes A, B, C)
(Crabbe Huson Oregon Tax-Free Fund, Classes A, B, C)
(Crabbe Huson Income Fund, Class A)
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Cover Page
2. Summary of Expenses
3. The Funds' Financial History
4. Organization and History; The Funds'
Investment Objectives; How the Funds
Pursue their Objective and Certain
Risk Factors; Investment Techniques
and Additional Risk Factors
5. Cover Page; How the Funds are 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 Funds Value their Shares;
Cover Page; 12b-1 Plan; Back Cover
8. Summary of Expenses; How to Sell Shares;
How to Exchange Shares; Telephone
Transactions
9. Not Applicable
October 7, 1998
THE CRABBE HUSON SPECIAL FUND
CRABBE HUSON SMALL CAP FUND
CRABBE HUSON REAL ESTATE INVESTMENT FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON ASSET
ALLOCATION FUND
CRABBE HUSON OREGON
TAX-FREE FUND
CRABBE HUSON INCOME FUND
PROSPECTUS
Colonial Management Associates, Inc. (Administrator) and your full-service
financial adviser want you to understand both the risks and benefits of mutual
fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
The Crabbe Huson Special Fund (Special Fund) seeks significant long-term capital
appreciation.
Crabbe Huson Small Cap Fund (Small Cap Fund) seeks to provide long-term capital
appreciation.
Crabbe Huson Real Estate Investment Fund (Real Estate Fund) seeks to provide
growth of capital and current income.
Crabbe Huson Equity Fund (Equity Fund) seeks to provide long-term capital
appreciation.
Crabbe Huson Asset Allocation Fund (Asset Allocation Fund) seeks preservation of
capital, capital appreciation and income.
Crabbe Huson Oregon Tax-Free Fund (Oregon Tax-Free Fund) seeks to provide as
high a level of income exempt from federal and Oregon income taxes as is
consistent with prudent investment management and the preservation of capital.
Crabbe Huson Income Fund (Income Fund) seeks to provide the highest level of
current income that is consistent with preservation of capital.
Each of the Funds, other than the Oregon Tax-Free Fund which is a
non-diversified portfolio, is a diversified portfolio of Colonial Trust III
(Trust), an open-end management investment company.
Each Fund is managed by The Crabbe Huson Group, Inc. (Adviser), an investment
adviser since 1980 and an affiliate of the Administrator.
Contents Page
Summary of Expenses
The Funds' Financial History
The Funds' Investment Objectives
How the Funds Pursue their Objective and
Certain Risk Factors
Investment Techniques and Additional
Risk Factors
How the Funds Measure their Performance
How the Funds are Managed
How the Funds Value their 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 A
Appendix B
This Prospectus is also available on-line at our Web site
(http://www.libertyfunds.com). The SEC maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, materials that are
incorporated by reference into this Prospectus and the Statement of Additional
Information, and other information regarding the Funds.
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
THE SPECIAL FUND CAN ENTER INTO LEVERAGE TRANSACTIONS. THIS ACTIVITY COULD BE
CONSIDERED SPECULATIVE AND COULD RESULT IN GREATER COST TO THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
This Prospectus explains concisely what you should know before investing in a
Fund. Read it carefully and retain it for future reference. More detailed
information about the Funds is in the October 7, 1998 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 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
The Funds offer multiple classes of shares. Class A shares are offered at net
asset value plus a sales charge imposed at the time of purchase; Class B shares
are offered at net asset value and are subject to an annual distribution fee and
a declining contingent deferred sales charge on redemptions made within six
years after purchase; and Class C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year after purchase. Each of the Class A, B and C
shares is subject to a contingent redemption fee on redemptions and exchanges
made within five business days of purchase. Class B shares automatically convert
to Class A shares after approximately eight years. See "How to Buy Shares." The
Income Fund's Class A shares are closed to new purchases and exchanges into the
Fund.
Although each Fund is offering only its own shares and is not participating in
the sale of the shares of the other Funds, it is possible that a Fund might
become liable for any misstatement, inaccuracy or incomplete disclosure in the
Prospectus concerning the Funds.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in the Class A, B and C shares of a Fund. See "How
the Funds are Managed" and "12b-1 Plan" for more complete descriptions of each
Fund's various costs and expenses.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses(1)(2)
Special Fund, Small Cap Fund, Real Estate Fund, Equity Fund, Asset Allocation Fund:
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price)(3) 5.75% 0.00%(4) 0.00%(4)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(5) 5.00% 1.00%
Oregon Tax-Free Fund:
Class A Class B Class C
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price)(3) 4.75% 0.00%(4) 0.00%(4)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(5) 5.00% 1.00%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."
(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the distribution fee applicable to Class B and Class C shares,
long-term Class B and Class C shareholders may pay more in aggregate sales
charges than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because Class B shares
automatically convert to Class A shares after approximately 8 years, this
is less likely for Class B shares than for a class without a conversion
feature.
(5) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
<PAGE>
Estimated Annual Operating Expenses (as a % of average net assets)
<TABLE>
<CAPTION>
Special Fund Small Cap Fund
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Management fee (after fee waiver)(6) 0.74% 0.74% 0.74% 0.80% 0.80% 0.80%
12b-1 fees 0.25 1.00 1.00 0.25 1.00 1.00
Other expenses 0.51 0.51 0.51 0.37 0.37 0.37
---- ---- ---- ---- ---- ----
Total operating expenses (after fee
waiver)(6) 1.50% 2.25% 2.25% 1.50% 2.25% 2.25%
==== ==== ==== ==== ==== ====
Real Estate Fund Equity Fund
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Management fee (after fee waiver)(6) 0.72% 0.72% 0.72% 0.83% 0.83% 0.83%
12b-1 fees 0.25 1.00 1.00 0.25 1.00 1.00
Other expenses 0.53 0.53 0.53 0.34 0.34 0.34
---- ---- ---- ---- ---- ----
Total operating expenses (after
waiver)(6) 1.50% 2.25% 2.25% 1.42% 2.17% 2.17%
==== ==== ==== ==== ==== ====
Asset Allocation Fund Oregon Tax-Free Fund
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Management fee (after fee waiver)(6) 0.73% 0.73% 0.73% 0.40% 0.40% 0.40%
12b-1 fees 0.25 1.00 1.00 0.25 1.00 1.00
Other expenses 0.44 0.44 0.44 0.33 0.33 0.33
---- ---- ---- ---- ---- ----
Total operating expenses (after fee
waiver)(6) 1.42% 2.17% 2.17% 0.98% 1.73% 1.73%
==== ==== ==== ==== ==== ====
Income Fund
Class A
<S> <C>
Management fee (after fee waiver)(6) 0.00%
12b-1 fees 0.25
Other expenses (after fee waiver)(6) 0.55
----
Total operating expenses (after fee waiver)(6) 0.80%
====
</TABLE>
(6) The Adviser has voluntarily agreed to waive a portion of its Management
fee (and Other expenses as applicable) to the extent Total operating
expenses (exclusive of the 0.75% Rule 12b-1 distribution fee) exceed 1.50%
for the Special Fund, the Small Cap Fund and the Real Estate Fund, 1.42%
for the Equity Fund and the Asset Allocation Fund, 0.98% for the Oregon
Tax-Free Fund, and 0.80% for the Income Fund per annum of the Fund's net
asset value. If the waivers were not made, the Funds' Management fees
would have been 1.01%, 1.05%, 0.55%, 0.80%, 1.01%, 0.94%, 0.95%, and
estimated Total operating expenses would have been 1.63%, 1.83%, 1.13%,
1.70%, 1.53% and 1.71%, respectively, for the Small Cap Fund, the Real
Estate Fund, the Oregon Tax-Free Fund, the Asset Allocation Fund, the
Equity Fund and the Special Fund. Income Fund's Management fee would have
been 0.80%, estimated Other expenses would have been 1.56% and estimated
Total operating expenses would have been 2.61% had the waivers not been
made.
Example
The following Example shows the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in each Class of shares of the
Fund for the periods specified, assuming a 5% annual return and, unless
otherwise noted, redemption at period end. The expense numbers in the Example
assume the expense limit described above remains in effect for all periods
referenced. The 5% return and expenses used in this Example should not be
considered indicative of actual or expected Fund performance or expenses, both
of which will vary:
<TABLE>
<CAPTION>
Special Fund Small Cap Fund
Class A Class B Class C Class A Class B Class C
Period: (7) (8) (7) (8) (7) (8) (7) (8)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ $ $ $ $ $ $ $ $ $
3 years (9)
5 years
10 years (10)
(10)
Real Estate Fund Equity Fund
Class A Class B Class C Class A Class B Class C
Period: (7) (8) (7) (8) (7) (8) (7) (8)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ $ $ $ $ $ $ $ $ $
3 years (9)
5 years
10 years (10) (10)
Asset Allocation Fund Oregon Tax-Free Fund
Class A Class B Class C Class A Class B Class C
Period: (7) (8) (7) (8) (7) (8) (7) (8)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ $ $ $ $ $ $ $ $ $
3 years (9)
5 years
10 years (10) (10)
Income Fund
Class A
Period:
<S> <C>
1 year $
3 years
5 years
10 years
</TABLE>
(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
(10) Class B shares automatically convert to Class A shares after
approximately 8 years; therefore, years 9 and 10 reflect Class A
share expenses.
<PAGE>
THE FUNDS' FINANCIAL HISTORY
The following information for a share outstanding through October 31, 1997 has
been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, whose
report dated December 3, 1997 is incorporated by reference in the Funds'
Statement of Additional Information. For the years or periods ended on or after
October 31, 1996, calculations are based on a share outstanding during the
period. For years or periods ending prior to November 1, 1995, calculations are
based on average number of shares outstanding for each year or period. The
financial highlights for The Crabbe Huson Special Fund and Crabbe Huson Oregon
Tax-Free Fund for the year ended October 31, 1988 were audited by other auditors
whose reports dated December 28, 1988 and December 29, 1988, respectively,
expressed unqualified opinions on such financial highlights. Prior to the date
of this Prospectus, each Fund's Class A shares were known as the "Primary Class"
and no Class B or Class C shares had been offered.
<TABLE>
<CAPTION>
CRABBE HUSON SPECIAL FUND - CLASS A
(UNAUDITED)
PERIOD ENDED YEAR ENDED
------------ --------------------------------------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/93
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $16.80 $13.71 $13.80 $14.08 $11.82 $8.36
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................... 0.02 0.15 0.14 0.27 0.05 (0.08)
Net Realized & Unrealized Gain (Loss) on
Investments........................... (1.17) 3.41 0.55 (0.29) 2.30 3.54
----------------------------------------------------------------------------------------
Total from Investment Operations.... (1.15) 3.56 0.69 (0.02) 2.35 3.46
LESS DISTRIBUTIONS
Distributions from Net Investment
Income................................ 0.12 0.14 0.21 0.02 0.00 0.00
Distributions in excess of Net
Investment Income..................... 0.04 0.00 0.00 0.00 0.09 0.00
Distributions from Capital
Gains................................. 1.69 0.33 0.57 0.24 0.00 0.00
----------------------------------------------------------------------------------------
Total Distributions................. 1.85 0.47 0.78 0.26 0.09 0.00
----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $13.80 $16.80 $13.71 $13.80 $14.08 $11.82
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
TOTAL RETURN............................ (6.30)% 26.62% 5.03% 1.78% 22.40% 41.39%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....... $269,186 $396,335 $481,039 $878,560 $319,811 $238,167
Ratio of Expenses to Average Net
Assets................................ 1.50%(a)(b) 1.50% 1.37%(a) 1.40% 1.44% 1.57%
Ratio of Net Investment Income to
Average Net Assets.................... 0.45%(b) 0.86% 0.72% 1.95% 0.39% (0.73)%
Portfolio Turnover Rate................. 13.54% 32.76% 32.88% 122.97% 146.44% 73.29%
Average Commission Rate (c)............. $0.0294 $0.0428 $0.0358 -- -- --
<CAPTION>
10/31/92 10/31/91 10/31/90 10/31/89 10/31/88
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $12.05 $8.78 $11.49 $9.69 $8.13
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................... (0.02) 0.04 0.15 0.21 (0.05)
Net Realized & Unrealized Gain (Loss) on
Investments........................... (1.62) 4.01 (1.43) 1.59 1.61
----------------------------------------------------------------------------------------
Total from Investment Operations.... (1.64) 4.05 (1.28) 1.80 1.56
LESS DISTRIBUTIONS
Distributions from Net Investment
Income................................ 0.03 0.14 0.22 0.00 0.00
Distributions in excess of Net
Investment Income..................... 2.02 0.64 1.21 0.00 0.00
Distributions from Capital
Gains................................. 0.00 0.00 0.00 0.00 0.00
----------------------------------------------------------------------------------------
Total Distributions................. 2.05 0.78 1.43 0.00 0.00
----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $8.36 $12.05 $8.78 $11.49 $9.69
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
TOTAL RETURN............................ 8.11% 49.58% (10.90)% 18.68% 19.63%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)....... $5,857 $3,542 $2,926 $3,356 $4,393
Ratio of Expenses to Average Net
Assets................................ 1.74% 1.92% 2.00% 2.00% 3.94%
Ratio of Net Investment Income to
Average Net Assets.................... (0.25)% 0.32% 1.55% 1.96% 3.34%
Portfolio Turnover Rate................. 102.27% 256.68% 314.73% 275.62% 155.12%
Average Commission Rate (c)............. -- -- -- -- --
</TABLE>
<PAGE>
CRABBE HUSON SPECIAL FUND
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD ENDED YEAR ENDED
---------------- ------------------------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94 10/31/93
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA (cont.)
Average Number of Shares Outstanding.... 23,355,462* 27,679,105* -- -- -- --
Amount of Debt Outstanding.............. $17,463,386 -- -- -- -- --
Average Amount of Debt Outstanding
During the Period..................... $9,226,961* $1,701,322* -- -- -- --
Average Amount of Debt Per Share During
the Period............................ $0.40 $0.06 -- -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net
Assets................................ 1.75%(a)(b) 1.58% 1.37%(a) 1.40% 1.54% 1.59%
Ratio of Net Investment Income to
Average Net Assets.................... 0.20%(b) 0.78% 0.72% 1.95% 0.29% (0.75)%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net
Assets................................ 1.50%(b) 1.50% 1.37% -- -- --
Ratio of Net Investment Income to
Average Net Assets.................... 0.45%(b) 0.86% 0.72% -- -- --
<CAPTION>
10/31/92 10/31/91 10/31/90 10/31/89 10/31/88
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA (cont.)
Average Number of Shares Outstanding.... -- -- -- -- --
Amount of Debt Outstanding.............. -- -- -- -- --
Average Amount of Debt Outstanding
During the Period..................... -- -- -- -- --
Average Amount of Debt Per Share During
the Period............................ -- -- -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net
Assets................................ 2.18% 2.40% 2.86% 2.44% --
Ratio of Net Investment Income to
Average Net Assets.................... (0.69)% (0.15)% 0.70% 1.53% --
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net
Assets................................ -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets.................... -- -- -- -- --
</TABLE>
<PAGE>
CRABBE HUSON SMALL CAP FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD ENDED YEAR ENDED PERIOD ENDED
------------------ ---------- ---------------
4/30/98 10/31/97 10/31/96(d)
-------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $15.48 $11.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... (0.04) 0.00 0.03
Net Realized & Unrealized Gain (Loss) on Investments........ (0.07) 4.62 0.99
-------------------------------------------------
Total from Investment Operations........................ (0.11) 4.62 1.02
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................... 0.00 0.02 0.00
Distributions from Capital Gains............................ 1.24 0.14 0.00
-------------------------------------------------
Total Distributions..................................... 1.24 0.16 0.00
-------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $14.13 $15.48 $11.02
-------------------------------------------------
-------------------------------------------------
TOTAL RETURN................................................ 0.23% 42.38% 10.20%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $37,812 $42,563 $19,156
Ratio of Expenses to Average Net Assets..................... 1.50%(a)(b) 1.50% 1.50%(a)(b)
Ratio of Net Investment Income to Average Net Assets........ (0.57)%(b) 0.03% 0.70%(b)
Portfolio Turnover Rate..................................... 9.17% 65.11% 39.34%
Average Commission Rate (c)................................. $0.0357 $0.0363 $0.0275
Average Number of Shares Outstanding........................ 9,483,973* -- --
Amount of Debt Outstanding.................................. $0 -- --
Average Amount of Debt Outstanding During the Period........ $19,983* -- --
Average Amount of Debt Per Share During the Period.......... $0 -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets..................... 1.59%(a)(b) 1.73%(a) 2.32%(a)(b)
Ratio of Net Investment Income to Average Net Assets........ (0.66)%(b) (0.20)%(a) (0.11)%(b)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets..................... 1.50%(b) 1.50% 1.51%(b)
Ratio of Net Investment Income to Average Net Assets........ (0.57)%(b) 0.03% 0.71%(b)
</TABLE>
<PAGE>
CRABBE HUSON ASSET ALLOCATION FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD
ENDED
--------------- YEAR ENDED
-------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95
-------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $14.94 $13.39 $13.64 $12.87
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.16 0.32 0.30 0.34
Net Realized & Unrealized Gain (Loss) on
Investments................................ 1.07 2.29 0.88 1.21
-------------------------------------------------------
Total from Investment Operations......... 1.23 2.61 1.18 1.55
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.14 0.32 0.30 0.33
Distributions from Capital Gains............. 1.80 0.74 1.13 0.45
-------------------------------------------------------
Total Distributions...................... 1.94 1.06 1.43 0.78
-------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $14.23 $14.94 $13.39 $13.64
-------------------------------------------------------
-------------------------------------------------------
TOTAL RETURN................................. 9.47% 20.60% 8.96% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $98,058 $95,960 $125,018 $136,530
Ratio of Expenses to Average Net Assets...... 1.38%(b) 1.42%(a) 1.47%(a) 1.48%
Ratio of Net Investment Income to Average Net
Assets..................................... 2.35%(b) 2.25% 2.22% 2.57%
Portfolio Turnover Rate...................... 58.19% 118.65% 252.29% 225.70%
Average Commission Rate (c).................. $0.0566 $0.0529 $0.0536 --
Average Number of Shares Outstanding
(Composite)................................ 9,685,020* 8,772,675 -- --
Amount of Debt Outstanding................... -- -- -- --
Average Amount of Debt Outstanding During the
Period..................................... -- $3,460 -- --
Average Amount of Debt Per Share During the
Period..................................... $0.00 $0.00 -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.51%(b) 1.55%(a) 1.47%(a) 1.49%
Ratio of Net Investment Income to Average Net
Assets..................................... 2.22%(b) 2.12%(a) 2.22%(a) 2.56%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... 1.38%(b) 1.42% 1.46% --
Ratio of Net Investment Income to Average Net
Assets..................................... 2.35%(b) 2.25% 2.22% --
</TABLE>
<PAGE>
CRABBE HUSON ASSET ALLOCATION FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
------------------------------------------------------------ ENDED
--------
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89(e)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........... $13.52 $11.68 $11.00 $9.24 $10.69 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.......................... 0.30 0.23 0.35 0.41 0.46 0.40
Net Realized & Unrealized Gain (Loss) on
Investments.................................. (0.08) 2.09 0.82 1.82 (1.12) 0.29
-------------------------------------------------------------------------
Total from Investment Operations........... 0.22 2.32 1.17 2.23 (0.66) 0.69
LESS DISTRIBUTIONS
Distributions from Net Investment Income....... 0.29 0.24 0.35 0.43 0.72 0.00
Distributions from Capital Gains............... 0.58 0.24 0.14 0.04 0.07 0.00
-------------------------------------------------------------------------
Total Distributions........................ 0.87 0.48 0.49 0.47 0.79 0.00
-------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD................. $12.87 $13.52 $11.68 $11.00 $9.24 $10.69
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL RETURN................................... 2.66% 20.93% 11.25% 24.55% (6.40)% 9.30%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's).............. $110,152 $85,390 $55,099 $23,893 $13,174 $12,578
Ratio of Expenses to Average Net Assets........ 1.44% 1.46% 1.52% 1.76% 1.90% 1.91%(b)
Ratio of Net Investment Income to Average Net
Assets....................................... 2.30% 1.85% 3.02% 3.97% 4.51% 5.02%(b)
Portfolio Turnover Rate........................ 149.19% 116.10% 155.26% 157.89% 161.72% 88.14%
Average Commission Rate (c).................... -- -- -- -- -- --
Average Number of Shares Outstanding
(Composite).................................. -- -- -- -- -- --
Amount of Debt Outstanding..................... -- -- -- -- -- --
Average Amount of Debt Outstanding During the
Period....................................... -- -- -- -- -- --
Average Amount of Debt Per Share During the
Period....................................... -- -- -- -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets........ 1.52% 1.54% 1.62% 1.79% 1.93% 1.93%(b)
Ratio of Net Investment Income to Average Net
Assets....................................... 2.22% 1.77% 2.92% 3.94% 4.49% 5.00%(b)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets........ -- -- -- -- -- --
Ratio of Net Investment Income to Average Net
Assets....................................... -- -- -- -- -- --
</TABLE>
<PAGE>
CRABBE HUSON EQUITY FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD
ENDED YEAR ENDED
----------------- ------------------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $23.32 $19.50 $18.17 $16.44
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.06 0.07 0.11 0.22
Net Realized & Unrealized Gain (Loss) on
Investments................................ 2.43 5.36 2.33 1.75
----------------------------------------------------------------------
Total from Investment Operations......... 2.49 5.43 2.44 1.97
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.05 0.07 0.17 0.09
Distributions from Capital Gains............. 4.74 1.54 0.94 0.15
----------------------------------------------------------------------
Total Distributions...................... 4.79 1.61 1.11 0.24
----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $21.02 $23.32 $19.50 $18.17
----------------------------------------------------------------------
----------------------------------------------------------------------
TOTAL RETURN................................. 13.87% 29.87% 13.78% 13.37%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $401,045 $380,047 $436,578 $387,184
Ratio of Expenses to Average Net Assets...... 1.36%(a)(b) 1.42%(a) 1.38%(a) 1.40%
Ratio of Net Investment Income to Average Net
Assets..................................... 0.57%(b) 0.29% 0.56% 1.30%
Portfolio Turnover Rate...................... 74.30% 128.65% 117.00% 92.43%
Average Commission Rate (c).................. $0.0572 $0.0537 $0.0530 --
Average Number of Shares Outstanding
(composite)................................ 21,949,236* 19,623,834 -- --
Amount of Debt Outstanding................... -- -- -- --
Average Amount of Debt Outstanding During the
Period..................................... $47,731* $21,750 -- --
Average Amount of Debt Per Share During the
Period..................................... $0.00 $0.00 -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.38%(a)(b) 1.44%(a) 1.38%(a) 1.30%
Ratio of Net Investment Income to Average Net
Assets..................................... 0.55%(b) 0.27% 0.56% 1.28%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... 1.36%(b) 1.42% 1.37% --
Ratio of Net Investment Income to Average Net
Assets..................................... 0.57%(b) 0.29% 0.57% --
</TABLE>
<PAGE>
CRABBE HUSON EQUITY FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
-------------------------------------------------------------- -----------
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89(f)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $16.08 $13.03 $12.57 $8.54 $10.50 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.19 0.10 0.20 0.19 0.25 0.31
Net Realized & Unrealized Gain (Loss) on
Investments................................ 0.57 3.45 0.92 4.15 (1.67) 0.19
------------------------------------------------------------------------------
Total from Investment Operations......... 0.76 3.55 1.12 4.34 (1.42) 0.50
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.04 0.11 0.10 0.31 0.39 0.00
Distributions from Capital Gains............. 0.36 0.39 0.56 0.00 0.15 0.00
------------------------------------------------------------------------------
Total Distributions...................... 0.40 0.50 0.66 0.31 0.54 0.00
------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $16.44 $16.08 $13.03 $12.57 $8.54 $10.50
------------------------------------------------------------------------------
------------------------------------------------------------------------------
TOTAL RETURN................................. 7.89% 29.90% 12.48% 52.44% (14.97)% 6.72%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $153,105 $34,520 $13,429 $5,930 $2,944 $5,018
Ratio of Expenses to Average Net Assets...... 1.45% 1.49% 1.55% 1.84% 1.93% 1.69%(b)
Ratio of Net Investment Income to Average Net
Assets..................................... 1.18% 0.67% 1.57% 1.60% 2.56% 3.98%(b)
Portfolio Turnover Rate...................... 106.49% 114.38% 180.72% 171.82% 265.25% 90.54%
Average Commission Rate (c).................. -- -- -- -- -- --
Average Number of Shares Outstanding
(composite)................................ -- -- -- -- -- --
Amount of Debt Outstanding................... -- -- -- -- -- --
Average Amount of Debt Outstanding During the
Period..................................... -- -- -- -- -- --
Average Amount of Debt Per Share During the
Period..................................... -- -- -- -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.56% 1.64% 1.93% 2.41% 2.66% 1.97%(b)
Ratio of Net Investment Income to Average Net
Assets..................................... 1.06% 0.52% 1.18% 1.03% 1.83% 3.68%(b)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... -- -- -- -- -- --
Ratio of Net Investment Income to Average Net
Assets..................................... -- -- -- -- -- --
</TABLE>
<PAGE>
CRABBE HUSON REAL ESTATE INVESTMENT FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD ENDED YEAR ENDED PERIOD ENDED
-------------- ------------------------------------------ ------------
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94(f)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $14.09 $11.58 $9.69 $9.50 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.23 0.38 0.38 0.44 0.37
Net Realized & Unrealized Gain (Loss) on
Investments................................ 0.16 3.02 2.01 0.31 (0.64)
--------------------------------------------------------------------------
Total from Investment Operations......... 0.39 3.40 2.39 0.75 (0.27)
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.23 0.38 0.38 0.44 0.23
Distributions from Capital Gains............. 1.69 0.51 0.12 0.12 0.00
--------------------------------------------------------------------------
Total Distributions...................... 1.92 0.89 0.50 0.56 0.23
--------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $12.56 $14.09 $11.58 $9.69 $9.50
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL RETURN................................. 3.04% 30.56% 25.39% 8.31% (3.25)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $27,589 $34,259 $20,649 $18,986 $18,280
Ratio of Expenses to Average Net Assets...... 1.50%(b) 1.50%(a) 1.50%(a) 1.50% 1.01%(b)
Ratio of Net Investment Income to Average Net
Assets..................................... 3.35%(b) 2.93% 3.59% 4.59% 6.30%(b)
Portfolio Turnover Rate...................... 54.52% 80.01% 120.19% 59.53% 43.30%
Average Commission Rate (c).................. $0.0415 $0.0617 $0.0570 -- --
Average Number of Shares Outstanding......... 2,384,062* 2,494,659 -- -- --
Amount of Debt Outstanding................... $143,864 -- -- -- --
Average Amount of Debt Outstanding
During the Period........................ $12,829* $72,728 -- -- --
Average Amount of Debt Per Share
During the Period........................ $0.01 $0.03 -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.73%(b) 1.76%(a) 1.88%(a) 1.89% 2.03%(b)
Ratio of Net Investment Income to Average Net
Assets..................................... 3.12%(b) 2.66% 3.21% 4.20% 5.28%(b)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... 1.50%(b) 1.50% 1.50% -- --
Ratio of Net Investment Income to Average Net
Assets..................................... 3.35%(b) 2.93% 3.59% -- --
</TABLE>
<PAGE>
CRABBE HUSON OREGON TAX-FREE FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED) YEAR ENDED
PERIOD ENDED ----------------------------------
4/30/98 10/31/97 10/31/96 10/31/95
-----------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $12.78 $12.50 $12.62 $11.99
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................................. 0.27 0.54 0.54 0.55
Net Realized & Unrealized Gain (Loss) on Investments... (0.07) 0.28 (0.12) 0.70
-----------------------------------------------------
Total from Investment Operations................... 0.20 0.82 0.42 1.25
LESS DISTRIBUTIONS
Distributions from Net Investment Income............... 0.27 0.47 0.54 0.55
Distributions from Capital Gains....................... 0.03 0.07 0.00 0.07
-----------------------------------------------------
Total Distributions................................ 0.30 0.54 0.54 0.62
-----------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................... $12.68 $12.78 $12.50 $12.62
-----------------------------------------------------
-----------------------------------------------------
TOTAL RETURN........................................... 1.57% 6.67% 3.43% 10.66%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)...................... $26,324 $26,487 $26,135 $28,070
Ratio of Expenses to Average Net Assets................ 0.98%(a)(b) 0.98% 0.98% 0.98%
Ratio of Net Investment Income to Average Net Assets... 4.19%(b) 4.25% 4.33% 4.45%
Portfolio Turnover Rate................................ 20.24% 17.19% 15.64% 22.91%
Average Number of Shares Outstanding................... 2,364,667* 2,073,284 -- --
Amount of Debt Outstanding............................. -- -- -- --
Average Amount of Debt Outstanding During the Period... $7,376* $2,734 -- --
Average Amount of Debt Per Share During the Period..... $0.00 $0.00 -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets................ 1.09%(a)(b) 1.10% 1.04% 1.08%
Ratio of Net Investment Income to Average Net Assets... 4.08%(b) 4.13% 4.27% 4.35%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets................ 0.98%(b) 0.98% 0.98% --
Ratio of Net Investment Income to Average Net Assets... 4.19%(b) 4.25% 4.33% --
</TABLE>
<PAGE>
CRABBE HUSON OREGON TAX-FREE FUND -CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------------------
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89 10/31/88
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $12.80 $12.20 $12.14 $11.74 $11.72 $11.72 $11.08
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.54 0.57 0.62 0.64 0.63 0.68 0.64
Net Realized & Unrealized Gain (Loss) on
Investments................................ (0.80) 0.69 0.15 0.48 0.05 0.08 0.64
----------------------------------------------------------------------------------
Total from Investment Operations......... (0.26) 1.26 0.77 1.12 0.68 0.76 1.28
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.54 0.57 0.62 0.65 0.64 0.67 0.64
Distributions from Capital Gains............. 0.01 0.09 0.09 0.07 0.02 0.09 0.00
----------------------------------------------------------------------------------
Total Distributions...................... 0.55 0.66 0.71 0.72 0.66 0.76 0.64
----------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $11.99 $12.80 $12.20 $12.14 $11.74 $11.72 $11.72
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
TOTAL RETURN................................. (2.06)% 10.71% 6.51% 9.85% 6.00% 6.67% 12.02%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $29,046 $29,408 $20,296 $18,383 $18,766 $19,173 $20,058
Ratio of Expenses to Average Net Assets...... 0.98% 1.05% 1.11% 1.21% 1.38% 1.04% 1.21%
Ratio of Net Investment Income to Average Net
Assets..................................... 4.37% 4.51% 5.04% 5.36% 5.41% 5.82% 5.53%
Portfolio Turnover Rate...................... 20.58% 11.62% 25.30% 53.40% 58.52% 45.25% 31.44%
Average Number of Shares Outstanding......... -- -- -- -- -- -- --
Amount of Debt Outstanding................... -- -- -- -- -- -- --
Average Amount of Debt Outstanding During the
Period..................................... -- -- -- -- -- -- --
Average Amount of Debt Per Share During the
Period..................................... -- -- -- -- -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.08% 1.09% 1.13% 1.24% 1.55% 1.16% 1.32%
Ratio of Net Investment Income to Average Net
Assets..................................... 4.26% 4.46% 5.01% 5.34% 5.23% 5.71% 5.42%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... -- -- -- -- -- -- --
Ratio of Net Investment Income to Average Net
Assets..................................... -- -- -- -- -- -- --
</TABLE>
<PAGE>
CRABBE HUSON INCOME FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD
ENDED YEAR ENDED
------------ ----------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95
-------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $10.58 $10.20 $10.26 $9.71
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................................. 0.25 0.62 0.54 0.53
Net Realized & Unrealized Gain (Loss) on Investments... 0.14 0.38 (0.05) 0.58
-------------------------------------------------------
Total from Investment Operations................... 0.39 1.00 0.49 1.11
LESS DISTRIBUTIONS
Distributions from Net Investment Income............... 0.26 0.62 0.55 0.53
Distributions in excess of Net Investment Income....... 0.29 0.00 0.00 0.03
Distributions from Capital Gains....................... 0.00 0.00 0.00 0.00
-------------------------------------------------------
Total Distributions................................ 0.55 0.62 0.55 0.56
-------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................... $10.42 $10.58 $10.20 $10.26
-------------------------------------------------------
-------------------------------------------------------
TOTAL RETURN........................................... 3.79% 10.25% 4.94% 11.92%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)...................... $4,851 $3,248 $4,694 $7,190
Ratio of Expenses to Average Net Assets................ 0.80%(b) 0.80% 0.80% 0.80%
Ratio of Net Investment Income to Average Net Assets... 5.68%(b) 5.96% 5.31% 5.47%
Portfolio Turnover Rate................................ 31.96% 56.37% 468.75% 543.15%
Average Number of Shares Outstanding................... 365,372* 359,151 -- --
Amount of Debt Outstanding............................. -- -- -- --
Average Amount of Debt Outstanding During the Period... $162* $1,408 -- --
Average Amount of Debt Per Share During the Period..... $0.00 $0.00 -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets................ 2.45%(b) 2.78% 2.29% 1.95%
Ratio of Net Investment Income to Average Net Assets... 4.03%(b) 3.98% 3.82% 4.32%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets................ 0.80%(b) 0.80% 0.80% --
Ratio of Net Investment Income to Average Net Assets... 5.68%(b) 5.96% 5.31% --
</TABLE>
<PAGE>
CRABBE HUSON INCOME FUND - CLASS A
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
------------------------------------------------------------------- -------------
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89(f)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $10.75 $10.90 $10.63 $10.01 $10.27 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.50 0.46 0.66 0.70 0.69 0.55
Net Realized & Unrealized Gain (Loss) on
Investments................................ (0.76) 0.33 0.36 0.62 (0.24) 0.28
-----------------------------------------------------------------------------------
Total from Investment Operations......... (0.26) 0.79 1.02 1.32 0.45 0.83
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.50 0.49 0.66 0.70 0.69 0.56
Distributions in excess of Net Investment
Income..................................... 0.01 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains............. 0.27 0.45 0.09 0.00 0.02 0.00
-----------------------------------------------------------------------------------
Total Distributions...................... 0.78 0.94 0.75 0.70 0.71 0.56
-----------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $9.71 $10.75 $10.90 $10.63 $10.01 $10.27
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
TOTAL RETURN................................. (2.71)% 7.73% 9.74% 13.51% 4.43% 10.43%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $5,273 $5,697 $5,634 $5,486 $2,123 $1,356
Ratio of Expenses to Average Net Assets...... 0.80% 0.81% 0.90% 0.98% 1.51% 1.15%(b)
Ratio of Net Investment Income to Average Net
Assets..................................... 4.92% 4.34% 6.09% 6.82% 6.89% 7.23%(b)
Portfolio Turnover Rate...................... 306.79% 260.22% 227.45% 115.76% 73.76% 86.60%
Average Number of Shares Outstanding......... -- -- -- -- -- --
Amount of Debt Outstanding................... -- -- -- -- -- --
Average Amount of Debt Outstanding During the
Period..................................... -- -- -- -- -- --
Average Amount of Debt Per Share During the
Period..................................... -- -- -- -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 2.16% 1.96% 1.94% 2.42% 3.07% 4.56%(b)
Ratio of Net Investment Income to Average Net
Assets..................................... 3.56% 3.19% 5.06% 5.38% 5.33% 3.81%(b)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... -- -- -- -- -- --
Ratio of Net Investment Income to Average Net
Assets..................................... -- -- -- -- -- --
</TABLE>
-------------------
(a) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(b) Computed on an annualized basis.
(c) Disclosure of the average commission rate paid relates to the purchase
and sale of investment securities and is required for funds that
invest greater than 10% of average net assets in equity transactions.
This disclosure is required for fiscal periods beginning on or after
September 1, 1995.
(d) Commencement of operations - 2/16/96.
(e) Commencement of operations - 1/31/89.
(f) Commencement of operations - 4/1/94.
* Computed on a daily basis.
Further performance information is contained in the Funds' Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.
<PAGE>
THE FUNDS' FINANCIAL HISTORY
The following information for a share outstanding through October 31, 1997 has
been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, whose
report dated December 3, 1997 appears in the Funds' Statement of Additional
Information. For the years or periods ended on or after October 31, 1996,
calculations are based on a share outstanding during the period. Prior to the
date of this Prospectus, each Fund's Class I shares were known as the
"Institutional Class".
Further performance information is contained in the Funds' Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
The Special Fund seeks to provide significant long-term capital appreciation.
The Small Cap Fund seeks to provide long-term capital appreciation.
The Real Estate Fund seeks to provide growth of capital and current income.
The Equity Fund seeks to provide long-term capital appreciation.
The Asset Allocation Fund seeks preservation of capital, capital appreciation
and income.
The Oregon Tax-Free Fund seeks to provide as high a level of income exempt from
federal and Oregon income taxes as is consistent with prudent investment
management and the preservation of capital.
The Income Fund seeks to provide the highest level of current income that is
consistent with preservation of capital.
HOW THE FUNDS PURSUE THEIR OBJECTIVES AND CERTAIN RISK FACTORS
Each Fund that invests in common stocks and preferred stocks (the Equity, Small
Cap, Special, Real Estate and Asset Allocation Funds) follows a basic value,
contrarian approach in selecting stocks for its portfolio. This approach puts
primary emphasis on security price, balance sheet and cash flow analysis and on
the relationship between the market price of a security and its value as a share
of an ongoing business. These investments represent situations or opportunities
that arise when companies, whose long-term financial structure is intact, are
viewed as out of favor and thus present an opportunity to buy these companies'
stocks at substantial discounts. The basic value contrarian approach is based on
the Adviser's belief that the securities of many companies often sell at a
discount from the securities' estimated theoretical (intrinsic) value. These
Funds attempt to identify and invest in such undervalued securities,
anticipating that capital appreciation will be realized as the securities'
prices rise to their estimated intrinsic value. This approach, while not unique,
contrasts with certain other methods of investment analysis, which rely upon
market timing, technical analysis, earnings forecasts, or economic predictions.
The Special Fund seeks significant long-term growth of capital through a
flexible policy of investing in a diversified portfolio of selected domestic and
foreign securities (principally, common stocks and, secondarily, preferred
stocks and bonds) that represent more aggressive investments than the equity
market as a whole (as measured by the S&P 500 Stock Index). The production of
current income is secondary to the primary objective. The Fund seeks to invest
up to 100%, and under normal conditions at least 75%, of its assets in
securities of companies that have small (under $1 billion) to medium (from $1
billion to $3 billion) market capitalization.
The Special Fund's investment policies are adapted to changing market
conditions. The Adviser believes that common stocks will generally, over the
long-term, offer the greatest potential for capital appreciation and
preservation of purchasing power.
By itself, the Special Fund does not constitute a balanced investment plan.
Securities that the Adviser believes have the greatest growth potential may be
regarded as speculative, and an investment in the Fund may involve greater risk
than is inherent in other mutual funds. The Fund's focus on small to medium
market capitalization stocks may cause it to be more volatile than other funds
with different strategies. Because the Fund invests primarily in common stocks,
it may be appropriate only for investors who have a longer term investment
horizon or perspective.
The Special Fund also intends to sell securities "short" and to employ leverage.
These techniques are subject to certain restrictions and involve certain risks.
See "Short Sales" and "Leverage" below.
The Small Cap Fund seeks long-term growth of capital by investing in a
diversified portfolio of selected domestic and foreign securities. The Fund will
invest principally in common stocks and, secondarily, preferred stocks and
bonds. The production of current income is secondary to the primary objective.
The Fund seeks to invest up to 100%, and under normal conditions at least 65%,
of its total assets in securities of companies that have small market
capitalization (under $1 billion).
Investments in companies with small market capitalization may involve greater
risks and volatility than more traditional equity investments due to the
potential for limited product lines, reduced market liquidity for the trading of
their shares and less depth in management than more established companies. For
this reason, the Small Cap Fund does not constitute a balanced investment
program, but rather as an investment for persons who are in a financial position
to assume above average risk and share price volatility over time. The Small Cap
Fund may be appropriate only for investors who have a longer term investment
horizon or perspective.
The Real Estate Fund seeks capital appreciation and income. The Fund seeks to
achieve this objective through a policy of investing in a diversified portfolio
consisting primarily of equity securities of real estate investment trusts
(REITs) and other real estate industry companies, in mortgage-backed securities
and, to a lesser extent, in debt securities of such companies.
The Real Estate Fund's investment policies will be adapted to changing market
conditions, but under normal circumstances, at least 75% of the Real Estate
Fund's total assets will be invested in equity securities of REITs and other
real estate industry companies. For purposes of the Fund's investments, a "real
estate industry company" is a company that derives at least 50% of its gross
revenues or net profits from either (a) the ownership, development,
construction, financing, management or sale of commercial, industrial or
residential real estate or (b) products or services related to the real estate
industry, such as building supplies or mortgage servicing. The equity securities
of real estate industry companies in which the Fund will invest consist of
common stock, shares of beneficial interest of real estate investment trusts and
securities with common stock characteristics, such as preferred stock and debt
securities convertible into common stock (Real Estate Equity Securities). Real
Estate Equity Securities are subject to unique risks. See "Investment Techniques
and Additional Risk Factors - Investments in REITs" below.
The Real Estate Fund may also invest up to 25% of its total assets in (a) debt
securities of real estate industry companies, (b) mortgage-backed securities,
such as mortgage pass-through certificates, real estate mortgage investment
conduit (REMIC) certificates and collateralized mortgage obligations (CMOs), and
(c) short-term investments (as described below). Investing in mortgage-backed
securities involves certain unique risks in addition to those associated with
investing in the real estate industry in general.
See "Mortgage-Backed Securities" below for more information.
Short-term investments that the Real Estate Fund may invest in consist of the
following: (1) corporate commercial paper and other short-term commercial
obligations, in each case rated or issued by companies with similar securities
outstanding that are rated Prime-1, Aa or better by Moody's Investors Service
(Moody's) or A-1, AA or better by Standard & Poor's Corporation (S&P); (2)
obligations (including certificates of deposit, time deposits, demand deposits
and banker's acceptances) of banks with securities outstanding that are rated
Prime-1, Aa or better by Moody's, or A-1, AA or better by S&P; (3) obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
with remaining maturities not exceeding 18 months; and (4) repurchase
agreements.
By itself, the Real Estate Fund does not constitute a balanced investment plan.
A more complete discussion concerning the investment objectives and policies of
the Real Estate Fund is included below and in the Statement of Additional
Information.
The Equity Fund seeks long-term capital appreciation. The Fund will seek to
achieve this objective by investing, under normal conditions, at least 65% of
its total assets in common stocks. It will focus its investments in widely and
actively traded stocks with medium (from $1 billion to $3 billion) and large (in
excess of $3 billion) market capitalizations.
The Fund will purchase and hold for investment common stock, and may also
purchase convertible and nonconvertible preferred stocks and bonds or
debentures. These securities will not be considered common stock for purposes of
the 65% limitation referenced above. The Fund may invest up to 35% of its total
assets in foreign securities. Although the Fund intends to adapt to changing
market conditions, the Adviser believes that common stocks will generally, over
the long-term, offer the greatest potential for capital appreciation. Therefore,
the Fund may be appropriate for investors who have a longer term investment
horizon or perspective.
The Asset Allocation Fund seeks preservation of capital, capital appreciation
and income. The Fund seeks to achieve these objectives by a flexible policy of
investing in a select portfolio of common stocks, fixed income securities, cash
or cash equivalents. Depending upon economic and market conditions, the Fund may
invest as little as 20%, or as much as 75%, of its portfolio in common stocks.
The Adviser will purchase common stocks which, in its opinion, have the greatest
potential for capital appreciation. The remaining portion of the portfolio will
be invested in fixed income securities, cash or cash equivalents. The fixed
income securities that the Fund will invest in consist of corporate debt
securities (bonds, debentures and notes), asset-backed securities, bank
obligations, collateralized bonds, loan and mortgage obligations, commercial
paper, preferred stocks, repurchase agreements, savings and loan obligations and
U.S. Government and agency obligations. There are no limitations on the average
maturity of the Fund's portfolio of fixed income securities. Securities will be
selected on the basis of the Adviser's assessment of interest rate trends and
the liquidity of various instruments under prevailing market conditions. The
Fund may invest up to 35% of its total assets in fixed income securities that
are either unrated or are rated less than Baa by Moody's or BBB by S&P, or in
commercial paper that is rated less than B-1 by Moody's or A- by S&P. However,
not more than 5% of the Fund's total assets may be invested in fixed income
securities that are unrated (including convertible stock).
Many factors will be considered in determining what portion of the portfolio
will be invested in stocks, fixed income securities, or cash and cash
equivalents. The Adviser will constantly monitor and adjust its weighting of
investments in any particular area to adapt to changing market and economic
conditions. Under normal market conditions, the Fund generally expects to invest
its net assets as follows: 30% to 55% in fixed income securities; 25% to 60% in
common stocks; and 5% to 30% in cash, cash equivalents or other money market
instruments. Furthermore, the Fund may take advantage of opportunities to earn
short-term profits if the Adviser believes that such a strategy will benefit the
Fund's overall objective in light of the increased tax and brokerage expenses
associated with such a strategy.
The Oregon Tax-Free Fund seeks as high a level of income exempt from Federal and
Oregon income taxes as is consistent with prudent investment management and
preservation of capital. The Fund seeks to achieve this objective by investing
primarily in a portfolio of municipal securities (including private activity
bonds), the interest on which, in the opinion of counsel for the issuer, is
exempt from Federal and Oregon income taxes. It is the Fund's general policy to
avoid purchasing bonds on which the interest is subject to the federal
alternative minimum tax. The Fund may, however, purchase such bonds when their
yield is sufficiently above the yield on bonds not so taxed to compensate for
the adverse tax consequences. For purposes of its investment policy, the Fund
considers a "bond" to be any municipal debt security.
Under normal market conditions, at least 80% of the Fund's total assets will be
invested in municipal securities, and at least 65% of its total assets will be
invested in municipal bonds issued by the State of Oregon and its political
subdivisions, agencies, authorities and instrumentalities. Securities that are
subject to the federal alternative minimum tax will not be included in this
calculation.
Municipal securities purchased for the Fund's portfolio must, at the time of
purchase, be "investment-grade" municipal securities, rated no lower than Baa by
Moody's or BBB by S&P, or unrated municipal securities which the Adviser
believes to be comparable in quality to investment-grade municipal securities.
If any of the Fund's securities fall below "investment grade," the Fund will
typically dispose of such securities, but it is not required to do so. For a
discussion concerning the risk factors associated with municipal securities to
be purchased by the Fund, see "Municipal Securities" below.
Under normal market conditions, the Oregon Tax-Free Fund may invest up to 20% of
its net assets in the following categories of investments:
1. Municipal securities issued by entities other than the State of Oregon or its
political subdivisions, agencies, authorities and instrumentalities.
2. Notes of municipal issuers which have, at the time of purchase, an issue of
outstanding municipal bonds rated within the four highest grades by Moody's
or S&P and which are, if unrated, in the opinion of the Adviser, of a
quality comparable to municipal bonds rated in one of the four highest
categories by Moody's or S&P.
3. Temporary investments in fixed income obligations, the interest on which is
subject to federal income tax and which may be subject to Oregon income tax.
Investments in such taxable obligations will be in short-term (less than one
year) securities and may consist of obligations issued or guaranteed by the
United States Government, its agencies, instrumentalities or authorities;
commercial paper rated Prime-1 by Moody's; certificates of deposit of United
States banks (including commercial banks and savings and loan associations)
with assets of at least $1 billion or more; and repurchase agreements in
respect of any of the foregoing with securities dealers or banks.
Where market conditions, due to rising interest rates or other adverse factors,
would cause serious erosion of portfolio value, the Fund's assets may, on a
temporary basis, as a defensive measure to preserve net asset value, be
substantially invested in temporary investments of the types described above.
There are specific risks involved in investments in municipal securities,
particularly those concentrated among issuers in a specific geographic location.
See "Municipal Securities" below.
In the last fiscal year, the average percentage of the Fund's assets invested in
bonds of each rating was:
AAA 57.8%
AA 21.9%
A 19.6%
Cash 0.7%
---
Total: 100%
The Income Fund seeks a high level of current income by investing in a
diversified portfolio of fixed income securities (such as bonds and notes of
corporate and government issuers) and preferred or convertible preferred stock
while, at the same time, attempting to preserve capital by varying the overall
average maturity of the Fund's portfolio.
There are no limitations on the average maturity of the Fund's portfolio. In
general, the Adviser will seek to adjust the average maturity of the Fund's
portfolio in response to changes in interest rates.
The Income Fund invests in a variety of fixed income securities, including
domestic and foreign corporate bonds, debentures, convertible bonds and
debentures, foreign and U.S. Government securities, preferred and convertible
preferred stock, and short-term money market instruments.
At least 65% of the Fund's total assets will be invested in (1) debt securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (2) investment-grade debt securities, including convertible
securities and preferred or convertible preferred stock, which are rated "A" or
higher by the major recognized bond services (for a description of ratings, see
Appendix A); or (3) cash and cash equivalents (such as certificates of deposit,
repurchase agreements maturing in one week or less, and bankers' acceptances).
The Fund may invest up to 35% of its total assets in fixed income securities
that are either unrated or are rated less than A by Moody's or A by S&P, or in
commercial paper that is rated less than B-1 by Moody's or A- by S&P. However,
not more than 5% of the Fund's total assets may be invested in fixed income
securities that are unrated (including convertible stock).
INVESTMENT TECHNIQUES AND ADDITIONAL RISK FACTORS
The following describes in greater detail different types of securities and
investment techniques used by the Funds, and discusses certain risks related to
such securities and techniques. Additional information about the Funds'
investments and investment practices may be found in the Statement of Additional
Information.
The Special, Small Cap, Real Estate, Equity and Asset Allocation Funds are
subject to the risks of investments in common stock, principally that the prices
of stocks can fluctuate dramatically in response to company, market, or economic
news. The Special, Equity, Asset Allocation and Income Funds historically have
had turnover rates in their portfolios in excess of 75% per year, resulting in
potentially higher brokerage costs and the potential loss of advantageous
long-term capital gain treatment for tax purposes. In addition, the Special,
Small Cap, Equity, Asset Allocation and Income Funds may each invest up to 35%
of its total assets in securities issued by foreign issuers. Both the Small Cap
Fund and Real Estate Fund have a limited operating history. In addition, the
Real Estate Fund invests primarily in real estate equity securities, and
investments in that Fund are subject to certain risks associated with the real
estate industry. A significant risk associated with investments in the Oregon
Tax-Free and Income Funds is that of increasing interest rates causing a decline
in the net asset value of the Fund. The Oregon Tax-Free Fund may be subject to
greater risks resulting from economic difficulties unique to the State of
Oregon, where most of its securities are originated. The Special Fund may, from
time to time, leverage its assets by using borrowed money to increase its
portfolio positions and may engage in short sales.
Foreign Securities. Each of the Special, Small Cap, Equity, Asset Allocation and
Income Funds may invest up to 35% of its total assets in foreign securities,
which may or may not be traded on an exchange. The Funds may purchase securities
issued by issuers in any country. Securities of foreign companies are frequently
denominated in foreign currencies, and the Funds may temporarily hold uninvested
reserves in bank deposits in foreign currencies. As a result, the Funds will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and they may incur expenses in connection with conversion
between various currencies. Subject to its investment restrictions, the Funds
may invest in other investment companies that invest in foreign securities.
Foreign securities may be subject to foreign government taxes that would reduce
the income yield on such securities. Certain foreign governments levy
withholding taxes against dividend and interest income. Although in some
countries a portion of these taxes is recoverable, the non-recovered portion of
any foreign withholding taxes would reduce the income a Fund received from any
foreign investments.
Foreign investments involve certain risks, such as political or economic
instability of the issuer or of the country of the issuer, difficulty of
predicting international trade patterns, and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of domestic corporations or of the United States
government. In addition, the net asset value of a Fund is determined and shares
of a Fund can be redeemed only on days during which securities are traded on the
New York Stock Exchange (NYSE). However, foreign securities held by a Fund may
be traded on Saturdays or other holidays when the NYSE is closed. Accordingly,
the net asset value of a Fund may be significantly affected on days when an
investor has no access to the Fund.
In addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, and the absence of negotiated brokerage commissions
in certain countries may result in higher brokerage fees. With respect to
certain foreign countries, there is a possibility of expropriation,
nationalization, or confiscatory taxation, which could affect investment in
those countries.
Each of the Funds may invest a portion of its assets in developing countries or
in countries with new or developing capital markets, such as countries in
Eastern Europe and the Pacific Rim. The considerations noted above regarding the
risks of investing in foreign securities are generally more significant for
these investments. These countries may have relatively unstable governments and
securities markets in which only a small number of securities trade. Markets of
developing countries may be more volatile than markets of developed countries.
Investments in these markets may involve significantly greater risks, as well as
the potential for greater gains.
Leverage. The Special Fund may, from time to time, use borrowed money to
increase its portfolio positions. This practice is known as leverage. Investment
gains realized with borrowed funds that exceed the cost of such borrowings
(including interest costs) will cause the net asset value of Fund shares to
increase more dramatically than would otherwise be the case. On the other hand,
leverage can cause the net asset value of Fund shares to decrease more rapidly
than normal if the securities purchased with borrowed money decline in value or
if the investment performance of such securities does not cover the cost of
borrowing.
Puts, Call Options, Futures Contracts. The Special, Small Cap, Real Estate,
Equity, Asset Allocation, Oregon Tax-Free and Income Funds may use options and
futures contracts to attempt to enhance income, and to reduce the overall risk
of its investments ("hedge"). These instruments are commonly referred to as
"derivative instruments" due to the fact that their value is derived from or
related to the value of some other instrument or asset. Each Fund's ability to
use these strategies may be limited by market conditions, regulatory limits, and
tax considerations. Appendix B to this prospectus describes the instruments that
the Funds may use and the way the Funds may use the instruments for hedging
purposes.
Each of these Funds (other than the Oregon Tax-Free Fund) may invest up to 10%
of its total assets in premiums on put and call options, both exchange-traded
and over-the-counter, and write call options on securities the Fund owns or has
a right to acquire. Each of these Funds may also purchase options on securities
indices, foreign currencies, and futures contracts. Besides exercising its
option or permitting the option to expire, prior to expiration of the option, a
Fund may sell the option in a closing transaction. Other than the Special Fund,
the Funds may only write call options that are covered. A call option is covered
if written on a security a Fund already owns.
The Special, Small Cap, Real Estate, Equity, Asset Allocation, Oregon Tax- Free
and Income Funds may invest in interest rate futures contracts and the Special,
Small Cap, Real Estate, Equity and Asset Allocation Funds may invest in stock
index futures provided that the aggregate initial margin of all futures
contracts in which the Fund invests shall not exceed 10% of the total assets of
the Fund after taking into account unrealized profits and unrealized losses on
any such transactions it has entered into. Upon entering into a futures
contract, the Fund will set aside liquid assets, such as cash, U.S. Government
securities, or other high grade debt obligations in a segregated account with
the Fund's custodian to secure its potential obligation under such contract.
The principal risks of options and futures transactions are: (a) imperfect
correlation between movements in the prices of options or futures contracts and
movements in the prices of the securities hedged or used for cover; (b) lack of
assurance that a liquid secondary market will exist for any particular option or
futures contract at any particular time; (c) the need for additional skills and
techniques beyond those required for normal portfolio management; (d) losses on
futures contracts, which may be unlimited, from market movements not anticipated
by the Adviser; (e) possible need to defer closing out certain options or future
contracts in order to continue to qualify for beneficial tax treatment afforded
"regulated investment companies" under the Internal Revenue Code of 1986, as
amended (the "Code"). For a further discussion of put and call options and
futures contracts, see the Statement of Additional Information, "Special
Investment Risks."
Fixed Income Securities. Each of the Special, Small Cap, Equity and Asset
Allocation Funds may invest up to 20% and the Income Fund may invest up to 35%
of its total assets in fixed income securities, including convertible
securities, that are either unrated or rated below the fourth highest category
by Moody's or S&P, although not more than 5% of the Fund's total assets may be
invested in fixed income securities that are unrated. The Oregon Tax-Free Fund
may invest an unlimited amount in unrated fixed income securities, provided the
Adviser believes such securities to be comparable in quality to investment-grade
securities (securities rated in the fourth highest category or better by Moody's
or S&P). Securities rated below the fourth highest category are commonly
referred to as "junk bonds." Such securities are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. Investment
in such securities normally involves a greater degree of investment and credit
risk than does investment in a high-rated security. In addition, the market for
such securities is less broad than the market for higher-rated securities, which
could affect their marketability. The market prices of such securities tend to
fluctuate more than the market prices of higher-rated securities in response to
changes in interest rates and economic conditions. Moreover, with such
securities, there is a greater possibility that an adverse change in the
financial condition of the issuer, particularly a highly leveraged issuer, may
affect its ability to make payments of principal and interest.
Investment in REITs. Each of the Special, Small Cap, Real Estate, Equity and
Asset Allocation Funds may invest in REITs. For the Special, Small Cap, Equity
and Asset Allocation Funds, such investment may not exceed 25% of the Fund's
total assets. The Real Estate Fund may invest without limitation in shares of
REITs. REITs are pooled investment vehicles that invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. For
federal income tax purposes, REITs qualify for beneficial tax treatment by
distributing 95% of their taxable income. If a REIT is unable to qualify for
such beneficial tax treatment, it would be taxed as a corporation and
distributions to its shareholders would therefore be reduced.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. All REITs are dependent upon management skills, are not diversified,
and are subject to the risks of financing projects. REITs are subject to heavy
cash flow dependency, default by borrowers, self-liquidation, and the
possibilities of failing to qualify for the exemption from tax for distributed
income under the Code and failing to maintain their exemptions from the 1940
Act.
Investments in Real Estate Equity Securities. The Real Estate Fund does not
invest directly in real estate, but does invest primarily in Real Estate Equity
Securities. Therefore, an investment in the Fund may be subject to certain risks
associated with the ownership of real estate. These risks include, among others:
possible declines in the value of real estate; risks related to general and
local economic conditions; possible lack of availability of mortgage funds;
overbuilding, extended vacancies of properties; increases in competition;
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting from
environmental problems; casualty or condemnation losses, uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates.
Repurchase Agreements. Each of the Funds may engage in repurchase agreements.
Repurchase agreements are agreements under which a person purchases a security
and simultaneously commits to resell that security to the seller (a commercial
bank or recognized securities dealer) at an agreed upon price on an agreed upon
date within a number of days (usually not more than seven) from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
market rate of interest that is unrelated to the coupon rate or maturity of the
purchased security. A Fund will engage in repurchase agreements only with banks
or broker-dealers whose obligations would qualify for direct purchase by that
Fund. A repurchase agreement involves the obligation of the seller to pay an
agreed-upon price, which obligation is, in effect, secured by the value of the
underlying security. All repurchase agreements are fully collateralized and
marked to market daily, and may therefore be viewed by the SEC or the courts as
loans collateralized by the underlying security. There are some risks associated
with repurchase agreements. For instance, in the case of default by the seller,
a Fund could incur a loss or, if bankruptcy proceedings are commenced against
the seller, the Fund could incur costs and delays in realizing upon the
collateral.
Mortgage-Backed Securities. The Real Estate, Asset Allocation and Income Funds
may invest in mortgage pass-through certificates and multiple-class pass-through
securities, such as CMOs and Stripped Mortgage Back Securities (SMBS), and other
types of mortgage-backed securities that may be available in the future
(collectively, "Mortgage-Backed Securities").
Mortgage pass-through securities represent participation interests in pools of
mortgage loans secured by residential or commercial real property in which
payments of both interest and principal on the securities are generally made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities).
Payment of principal and interest on some mortgage pass-through securities, but
not the market value of the securities themselves, may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
GNMA); or guaranteed by the agency or instrumentality of the U.S. Government
issuing the security (in the case of securities guaranteed by FNMA or the
Federal Home Loan Mortgage Corporation (FHLMC), which are supported only by the
discretionary authority of the U.S. Government to purchase the agencies'
obligations). Mortgage pass-through securities created by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit, which
may be issued by governmental entities, private insurers or the mortgage
poolers.
CMOs are hybrid mortgage related instruments. Similar to a bond, interest and
prepaid principal on a CMO are paid, in most cases, semi-annually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or
FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. Monthly payments of principal, including prepayments,
are first returned to investors holding the shortest maturity class and
investors holding the longer maturity classes receive principal only after the
first class has been retired. CMOs that are issued or guaranteed by the U.S.
Government or by any of its agencies or instrumentalities will be considered
U.S. Government securities by the Fund, while other CMOs, even if collateralized
by U.S. Government securities, will have the same status as other privately
issued securities for purposes of applying the Fund's diversification test.
SMBS are derivative multiple-class mortgage-backed securities usually structured
with two classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. A typical SMBS will have one class
receiving some of the interest and most of the principal, while the other class
will receive most of the interest and the remaining principal. In the most
extreme case, one class will receive all of the interest (the "interest only"
class), while the other class will receive all of the principal (the "principal
only" class).
Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those risks associated with investing in the real estate industry in
general. These risks include the failure of a counter-party to meet its
commitments, adverse interest rate changes and the effects of prepayment on
mortgage cash flows. In addition, investing in the lowest tranche of CMOs
involves risks similar to those associated with investing in equity securities.
Further, the yield characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major differences typically
include more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
If the Mortgage-Backed Security is a fixed-income security, when interest rates
decline, the value of an investment in fixed rate obligations can be expected to
rise. Conversely, when interest rates rise, the value of an investment in fixed
rate obligations can be expected to decline. If interest rates increase rapidly
and substantially, fixed rate obligations may become illiquid. In contrast, if
the Mortgage-Backed Security represents an interest in a pool of loans with
adjustable interest rates, as interest rates on adjustable rate mortgage loans
are reset periodically, yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
If a security subject to prepayment has been purchased at a premium, in the
event of prepayment the value of the premium would be lost. Prepayment rates are
influenced by changes in current interest rates and a variety of economic,
geographic, social and other factors, and cannot be predicted with certainty.
Both adjustable rate mortgage loans and fixed rate mortgage loans may be subject
to a greater rate of principal prepayments in a declining interest rate
environment, and to a lesser rate of principal prepayments in an increasing
interest rate environment. Under certain interest rate and prepayment rate
scenarios, the Fund may fail to recoup fully its investment in Mortgage-Backed
Securities, notwithstanding any direct or indirect governmental or agency
guarantee. When the Fund reinvests amounts representing payments and unscheduled
prepayments of principal, it may receive a rate of interest that is lower than
the rate on existing adjustable rate mortgage pass-through securities. Thus,
Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities
in particular, may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.
Short Sales. The Special Fund intends from time to time to sell securities
short. A short sale is effected when it is believed that the price of a
particular security will decline, and involves the sale of a security which the
Fund does not own in the hope of purchasing the same security at a later date at
a lower price. To make delivery to the buyer, the Special Fund must borrow the
security. The Fund is then obligated to return the security to the lender, and
therefore it must subsequently purchase the same security.
When the Special Fund makes a short sale, it must leave the proceeds from the
short sale with the broker, and it must deposit with the broker a certain amount
of cash or liquid securities to collateralize its obligation to replace the
borrowed securities which have been sold. In addition, the Fund must put in a
segregated account (with the Fund's custodian) an amount of cash, U.S.
Government securities or other liquid securities equal to the difference between
the market value of the securities sold short at the time they were sold short
and any cash or securities deposited as collateral with the broker in connection
with the short sale (not including the proceeds from the short sale).
Furthermore, until the Fund replaces the borrowed security, it must daily
maintain the segregated account at a level so that (1) the amount deposited in
it plus the amount deposited with the broker (not including the proceeds from
the short sale) will equal the current market value of the securities sold
short, and (2) the amount deposited in it plus the amount deposited with the
broker (not including the proceeds from the short sale) will not be less than
the market value of the securities at the time they were sold short. As a result
of these requirements, the Special Fund will not gain any leverage merely by
selling short, except to the extent that it earns interest on the immobilized
cash or securities while also being subject to the possibility of gain or loss
from the securities sold short. The amount of the Fund's net assets that will at
any time be in the type of deposits described above (that is, collateral
deposits or segregated accounts) will not exceed 25%. These deposits do not have
the effect of limiting the amount of money that the Fund may lose on a short
sale, as the Fund's possible losses may exceed the total amount of deposits.
The Special Fund will realize a gain if the price of a security declines between
the date of the short sale and the date on which the Fund purchases a security
to replace the borrowed security. On the other hand, the Special Fund will incur
a loss if the price of the security increases between those dates. The amount of
any gain will be decreased and the amount of any loss increased by any premium
or interest that the Fund may be required to pay in connection with a short
sale. It should be noted that possible losses from short sales differ from those
that could arise from a cash investment in a security in that the former may be
limitless, while the latter cannot exceed the total amount of the Fund's
investment in the security. For example, if the Fund purchases a $10 security,
potential loss is limited to $10. However, if the Fund sells a $10 security
short, it may have to purchase the security for return to the lender when the
market value of that security is $50, thereby incurring a loss of $40.
The Special, Small Cap, Real Estate, Equity, and Asset Allocation Fund may also
engage in short sales "against the box." While a short sale is made by selling a
security the Fund does not own, a short sale is "against the box" to the extent
that the Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
Municipal Securities. Because the Oregon Tax-Free Fund intends to focus its
investments in Oregon municipal securities, the Fund and the value of its shares
will be significantly affected by any economic, political, or regulatory
developments that affect the ability of Oregon issuers to pay interest or repay
principal on their obligations.
Certain municipal securities purchased by the Oregon Tax-Free Fund from Oregon
issuers may rely in whole or in part on ad valorem real property taxes as a
source of revenue for the payment of principal and interest. There are
constitutional and statutory limitations on the issuance of securities payable
from tax revenues. In 1990, a voter initiative in Oregon was passed which
restricts the ability of taxing entities to increase real property taxes by
placing a limit on the property tax rate. This initiative did, however, exempt
from the property tax rate limit assessments to pay bonded indebtedness.
However, implementation of this limit has adversely affected the property tax
revenues of certain issuers of Oregon municipal securities.
Nondiversified Portfolio; Trading Market for Portfolio Securities. The Oregon
Tax-Free Fund is a nondiversified investment company, meaning that it is not
subject to the provisions of the 1940 Act with respect to diversification of its
investments.
Because the Fund's "nondiversified status" permits the investment of a greater
portion of the Fund's assets in the securities of individual issuers than would
be permissible under a "diversified status," the Fund's shareholders are
considered to be subject to a greater degree of risk. The Fund reserves the
right to operate as a diversified investment company if such a course appears
desirable in the opinion of the Board of Trustees; in that event, 75% of the
Fund's total assets would have to be invested in securities issued by entities
in which the Fund had not invested 5% or more of its total assets.
With the exception of general obligation securities issued by the State of
Oregon, most issues of municipal securities in Oregon are relatively small in
size. Due to the small size of some issues, only a limited trading market in the
securities develops following their issuance. When there is only a limited
trading market for a particular security, a small change in the supply of or
demand for that security can result in a relatively large change in the market
price of the security. If the Oregon Tax-Free Fund is required to sell portfolio
securities for which there is only a limited trading market, the market value of
such securities (and of securities which are part of the same issue which are
retained in the Fund's portfolio) could be adversely affected, which could
result in a decrease in the net asset value of the Fund's shares. In order to
enhance the liquidity of the Fund's portfolio, a portion of its assets will be
maintained in general obligation securities of the state of Oregon and in other
issues for which an active trading market is expected to be maintained. The Fund
expects that approximately 65% of its net assets will normally be invested in
general obligation securities of the state of Oregon. A portion of the Oregon
Tax-Free Fund's assets may also be invested, on a temporary basis, in assets
other than municipal securities in order to increase the liquidity of the Fund's
portfolio. However, there is no assurance that these strategies will completely
eliminate the risks associated with investing in municipal securities for which
only a limited trading market exists.
When Issued and/or Delayed Delivery Securities. Each of the Funds may purchase
and sell securities on a when-issued or delayed-delivery basis. When-issued or
delayed-delivery transactions arise when securities are purchased or sold by the
Fund, with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous price and yield to the Fund at the time
of entering into the transaction. Such securities are subject to market
fluctuations, and no interest accrues to a Fund until the time of delivery. The
value of the securities may be less at the time of delivery than the value of
the securities when the commitment was made. When a Fund engages in when-issued
and delayed-delivery transactions, it relies on the buyer or seller, as the case
may be, to consummate the sale. Failure to do so may result in the Fund missing
the opportunity of obtaining a price or yield considered to be advantageous. To
the extent any Fund engages in when-issued and delayed-delivery transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies, and not for the purpose of investment
leverage. No Fund may commit more than 25% of its total assets to the purchase
of when-issued and delayed-delivery securities. A separate account of liquid
assets consisting of cash, U.S. Government securities or other liquid securities
equal to the value of any purchase commitment of a Fund shall be maintained by
the Fund's custodian until payment is made.
Illiquid Securities. The Funds may invest in illiquid securities, which may be
difficult to sell promptly at an acceptable price. This difficulty may result in
a loss or be costly to a Fund.
Interest Rates. Each Fund may invest in debt securities. The market value of
debt securities that are sensitive to prevailing interest rates is inversely
related to actual changes in interest rates. That is, an interest rate decline
produces an increase in a security's market value and an interest rate increase
produces a decrease in value. The longer the remaining maturity of a security,
the greater the effect of an interest rate change. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of its creditworthiness also affect the market value of that issuer's debt
securities.
U.S. Government Securities. Although U.S. Government securities and high-quality
debt securities are issued or guaranteed by the U.S. Treasury or an agency or
instrumentality of the U.S. Government, not all U.S. Government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Federal Farm Credit Bank or by the Federal National
Mortgage Association are supported by the instrumentality's right to borrow
money from the U.S. Treasury under certain circumstances. On the other hand,
securities issued by the Student Loan Marketing Association are supported only
by the credit of the instrumentality.
Small Companies. Both the Special and Small Cap Fund intend to invest in small
market capitalization companies. Investing in such securities may involve
greater risks since these securities may have limited marketability and, thus,
may be more volatile. Because small-sized companies normally have fewer
outstanding shares than larger companies, it may be difficult for a Fund to buy
or sell significant amounts of such shares without an unfavorable impact on
prevailing prices. In addition, small companies are typically subject to a
greater degree of changes in earnings and business prospects than are larger,
more established companies.
Lending of Portfolio Securities. The Funds may loan portfolio securities to
broker-dealers or other institutional investors if at least 100% cash (or cash
equivalent) collateral is pledged and maintained by the borrower. The Funds
believe that the cash collateral minimizes the risk of lending their portfolio
securities. Such loans of portfolio securities may not be made, under current
lending arrangements, if the aggregate of such loans would exceed 20% (10% in
the case of the Oregon Tax-Free Fund) of the value of a Fund's total assets. If
the borrower defaults, there may be delays in recovery of loaned securities or
even a loss of the securities loaned, in which case the Fund would pursue the
cash (or cash equivalent) collateral. While there is some risk in lending
portfolio securities, loans will be made only to firms or broker-dealers deemed
by the Adviser to be of good standing and will not be made unless, in the
judgment of the Adviser, the consideration to be earned from such loans would
justify the risk. For additional disclosure, see "Misellaneous Investment
Practices -- Securities Loans" in the Statement of Additional Information.
Portfolio Turnover. The Funds generally do not trade in securities with the goal
of obtaining short-term profits, but when circumstances warrant, securities will
be sold without regard to the length of time the security has been held. A
higher portfolio turnover rate may involve correspondingly greater transaction
costs, which will be borne directly by the Funds, as well as additional realized
gains and/or losses to shareholders. The annual portfolio turnover rate of the
Funds may at times exceed 100%. Portfolio turnover rates are shown in "The
Funds' Financial History" above.
Temporary Defensive Investments. For temporary defensive purposes, the Special,
Small Cap, Real Estate, Equity and Asset Allocation Funds may invest up to 100%
(80% for Asset Allocation) of their assets in fixed income securities, cash and
cash equivalents. The fixed income securities in which each Fund will invest in
such a situation shall consist of corporate debt securities (bonds, debentures
and notes), asset-backed securities, bank obligations, collateralized bonds,
loan and mortgage obligations, commercial paper, preferred stocks, repurchase
agreements, savings and loan obligations, and U.S. Government and agency
obligations. The fixed income securities will be rated investment grade or
higher (BBB by S&P and Baa by Moody's) and will have maturities of three years
or less. When the Fund assumes a temporary defensive position, it may not be
investing in securities designed to achieve its investment objective.
Other. The Funds may not always achieve their investment objectives. The Funds'
investment objectives, with the exception of the Real Estate Fund, and
non-fundamental investment policies may be changed without shareholder approval.
The Funds' fundamental investment policies listed in the Statement of Additional
Information, and the Real Estate Fund's investment objective, cannot be changed
without the approval of a majority of a Fund's outstanding voting securities.
Additional information concerning certain of the securities and investment
techniques described above is contained in the Statement of Additional
Information.
HOW THE FUNDS MEASURE THEIR 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 on Class A shares and the
contingent deferred sales charge applicable to the time period quoted on Class B
and Class C shares. Other total returns differ from average annual total return
only in that they may relate to different time periods, may represent aggregate
as opposed to average annual total returns, and may not reflect the initial
sales charge or contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent month's distribution, annualized, by the maximum
offering price of that Class at the end of the month. Each Class's performance
may be compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information. All performance
information is historical and does not predict future results.
Each of the Funds commenced operations on the dates referenced below, but
offered only the shares that are now designated Class A shares [or Class I]. The
historical performance of Class A shares of each of the Funds for all periods is
based on the performance of each Fund's predecessor, restated to reflect the
sales charges and other expenses applicable to Class A shares as set forth in
the "Summary of Expenses" above, without giving effect to any fee reimbursements
described therein and assuming reinvestment of dividends and capital gains.
Historical performance as restated should not be interpreted as indicative of
each Fund's future performance. Had Class A shares been outstanding, the average
annual returns for each Fund's Class A shares as of _______ and __________ would
have been as follows:
The Special Fund date date
1 year
5 years
10 years
Small Cap Fund
1 year
Since inception (February 16, 1996))
<PAGE>
Real Estate Fund
1 year
Since inception (April 1, 1994)
Equity Fund
1 year
5 years
Since inception (January 31, 1989)
Asset Allocation Fund
1 year
5 years
Since inception (January 31, 1989)
Oregon Tax-Free Fund
1 year
5 years
10 years
Income Fund
1 year
5 years
Since inception (January 31, 1989)
HOW THE FUNDS ARE MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
Liberty Funds Distributor, Inc. (Distributor), a subsidiary of the
Administrator, serves as the distributor for the Funds' shares. Liberty Funds
Services, Inc. (Transfer Agent), an affiliate of the Administrator, serves as
the shareholder services and transfer agent for the Funds. Each of the Adviser,
the Administrator, the Distributor and the Transfer Agent 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 considered to be the controlling entity of the
Adviser, the Administrator and their affiliates. Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.
Each Fund pays the Adviser a fee for its services that accrues daily and is
payable bi-monthly. Fees are based on a percentage of the average daily net
assets of each Fund, as set forth below:
Special Fund
Small Cap Fund
Real Estate Fund
Equity Fund
Asset Allocation Fund
Net Asset Value Annual Rate
First $100 million 1.05%
Next $400 million 0.90%
Amounts over $500 million 0.65%
Income Fund
Net Asset Value Annual Rate
First $100 million 0.80%
Next $400 million 0.65%
Amounts over $500 million 0.55%
Oregon Tax-Free Fund
Net Asset Value Annual Rate
First $100 million 0.55%
Next $400 million 0.50%
Amounts over $500 million 0.45%
James E. Crabbe is primarily responsible for the day-to-day management of the
Adviser. Mr. Crabbe is President and a Director of the Adviser.
Management of the Special and Small Cap Fund portfolios is handled on a
day-to-day basis by a team consisting of Mr. Crabbe, John W. Johnson, and Peter
P. Belton. Mr. Crabbe is coordinator of the team. Mr. Crabbe has served in
various management positions with the Adviser since 1980 and has managed the
predecessor to the Special Fund since January 1, 1990. Prior to joining the
Adviser, Mr. Johnson was a private investment banker from November, 1991 to May,
1995. Prior to joining the Adviser, Mr. Belton was a Vice President/Analyst at
Capital Management Associates from February, 1994 to September, 1997.
Management of the Real Estate Fund is handled on a day-to-day basis by a team
consisting of John E. Maack, Jr. and Michael B. Stokes. Mr. Maack has been
employed as a portfolio manager and securities analyst by the Adviser since
1988. Mr. Stokes joined the Adviser in August, 1996. Prior to joining the
Adviser, Mr. Stokes was a Financial Analyst for Salomon Brothers from July, 1994
to June, 1996.
The Oregon Tax-Free and Income Funds are managed on a day-to-day basis by a team
consisting of Garth R. Nisbet and Paul C. Rocheleau. Mr. Nisbet joined the
Adviser in April, 1995. Between February, 1993 and March, 1995 Mr. Nisbet worked
for Capital Consultants, Inc. as a portfolio manager of its fixed income
portfolio. Prior to joining Capital Consultants, Inc., Mr. Nisbet was a Vice
President and the fixed income portfolio manager at Lincoln National Investment
Management. Mr. Rocheleau joined the Adviser in December, 1992. Prior to joining
the Adviser, Mr. Rocheleau was employed by Barclays American Mortgage Corp.
The portfolios of the Equity and Asset Allocation Funds are managed on a
day-to-day basis by a team consisting of John E. Maack, Jr., Marian L. Kessler,
Robert E. Anton and Mr. Nisbet. Ms. Kessler joined the Adviser in August, 1995.
From September, 1993 until July, 1995, Ms. Kessler was a portfolio manager with
Safeco Asset Management. Mr. Anton joined the Adviser in June, 1995. Prior to
joining the Adviser, Mr. Anton served 17 years as Chief Investment Officer,
portfolio manager at Financial Aims Corporation.
The Administrator provides certain administrative and pricing and bookkeeping
services to the Fund for a monthly fee of $2,250 plus a percentage of the Fund's
average net assets over $50 million.
The Transfer Agent provides transfer agency and shareholder services to the Fund
for a monthly fee at the annual rate of 0.% of average daily net assets plus
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser and its affiliates may agree.
The Adviser places all orders for purchases and sales of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services.
Subject to seeking best execution, the Adviser may consider sales of shares of a
Fund (and of certain other funds advised by the Adviser, the Administrator and
their affiliates, Stein Roe & Farnham Incorporated and Newport Fund Management,
Inc.) in selecting broker-dealers for portfolio security transactions.
Year 2000. The Funds' Adviser, Administrator, Distributor and Transfer Agent
(Liberty Companies) are actively coordinating, managing and monitoring Year 2000
readiness for the Funds. A central program office at the Liberty Companies is
working within the Liberty Companies and with vendors who provide services,
software and systems to the Funds to ensure that date-related information and
data can be properly processed and calculated on and after January 1, 2000. Many
Fund service providers and vendors, including the Liberty Companies, are in the
process of making Year 2000 modifications to their services, software and
systems and believe that such modifications will be completed on a timely basis
prior to January 1, 2000. The cost of these modifications will not affect the
Funds. However, no assurances can be given that all modifications required to
ensure proper data processing and calculation on and after January 1, 2000 will
be timely made or that services to the Funds will not be adversely affected.
HOW THE FUNDS VALUE THEIR SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Funds are
generally valued as of the close of regular trading of the NYSE (normally 4:00
p.m. Eastern time) each day the NYSE is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, pursuant to procedures adopted by the Trustees,
that such cost approximates current market value. The Board of Trustees has
adopted procedures to value at their fair value (i) all other securities and
(ii) foreign securities if the value of such securities have been materially
affected by events occurring after the closing of a foreign market.
DISTRIBUTIONS AND TAXES
The Funds intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income and any net
realized gain annually.
Distributions are invested in additional shares of the same Class of a Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash to
shareholders but will be invested in additional shares of the same Class of a
Fund at net asset value. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. To change your election, call the
Transfer Agent for information.
The Oregon Tax-Free Fund intends to pay "exempt interest dividends" to its
shareholders. Shareholders receiving distributions properly designated by the
Oregon Tax-Free Fund as exempt interest dividends representing net tax-exempt
interest received on municipal securities will not be required to include such
distributions in their gross income for federal income tax purposes. However, a
portion of the interest dividends earned by the Oregon Tax-Free Fund may be
subject to the federal alternative minimum tax. Distributions representing net
taxable income of the Oregon Tax-Free Fund from sources other than municipal
securities, such as temporary investments and income from securities loans, or
capital gains, will be taxable to shareholders as ordinary income.
The Oregon Tax-Free Fund anticipates that distributions which represent
tax-exempt interest on municipal securities issued by the state of Oregon and
its political subdivisions, agencies, authorities and instrumentalities will not
be subject to the Oregon personal income tax. However, it is expected that other
types of income received from the Oregon Tax-Free Fund will be subject to the
Oregon personal income tax. The Oregon Tax-Free Fund anticipates that
corporations which are subject to the Oregon corporation excise tax will be
subject to that tax on all income from the Oregon Tax-Free Fund, including
income that is exempt from federal income taxes.
Shareholders of the Oregon Tax-Free Fund that are obligated to pay state or
local taxes outside Oregon may be required to pay such taxes on distributions
from the Oregon Tax-Free Fund, even if such distributions are exempt from
federal and Oregon income taxes.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Oregon Tax-Free Fund will not be deductible for federal
income tax purposes.
Whether you receive taxable distributions in cash or in additional Fund shares,
you must report them as taxable income unless you are a tax-exempt institution.
If you buy shares shortly before a distribution is declared, the distribution
may be taxable although it is, in effect, a partial return of the amount
invested. Each January, information on the amount and nature of distributions
for the prior year is sent to shareholders.
HOW TO BUY SHARES
Shares of the Funds are offered continuously, with the exception of Income
Fund's Class A shares, which are not available for purchase. Orders received in
good form prior to the time at which the Fund values its shares (or placed with
the financial service firm before such time and transmitted by the financial
service firm before the Funds process 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 Fundamatic program is $50; and
the minimum initial investment for retirement accounts sponsored by the
Distributor is $25. Certificates will not be issued for Class B or Class C
shares and there are some limitations on the issuance of Class A share
certificates. The Funds may refuse any purchase order for their shares. See the
Statement of Additional Information for more information.
The Small Cap, Asset Allocation, Equity and Income Funds also offer Class I
shares which are offered through a separate Prospectus only to pension and
profit sharing plans, employee benefit trusts, endowments, foundations and
corporations and high net worth individuals, or through certain broker-dealers,
financial institutions and other financial intermediaries which have entered
into agreements with a Fund. The minimum initial investment in Class I shares is
$1 million.
Class A Shares. The Class A shares of Special Fund, Small Cap Fund, Real Estate
Fund, Equity Fund and Aset Allocation Fund, are offered at net asset value plus
an initial sales charge as follows:
Initial Sales Charge
----------------------------------
Retained
by
Financial
Service
Firm as
as % of % of
---------------------
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than
$100,000 4.71% 4.50% 3.75%
$100,000 to less than
$250,000 3.63% 3.50% 2.75%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
Class A Shares. The Class A shares of the Oregon Tax-Free Fund are
offered at net asset value plus an initial sales charge as follows:
<PAGE>
Initial Sales Charge
--------------------------------------
Retained
by
Financial
Service
Firm
as % of as % of
-------------------------
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than
$100,000 4.71% 4.50% 4.00%
$100,000 to less than
$250,000 3.63% 3.50% 3.00%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the shares remain outstanding.
In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held by an investor. If a
purchase results in an account having a value from $1 million to $5 million,
then the portion of the shares purchased that caused the account's value to
exceed $1 million will be subject to a 1.00% contingent deferred sales charge,
payable to the Distributor, if redeemed within 18 months after the end of the
month in which the purchase was accepted. If the purchase results in an account
having a value in excess of $5 million, the contingent deferred sales charge
will not apply to the portion of the purchased shares comprising such excess
amount.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee) and a declining contingent deferred sales
charge if redeemed within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the number of years after
purchase that the redemption occurs:
Years After Contingent Deferred
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
5.00% on Class B share purchases of the Special Fund, Small Cap Fund, Real
Estate Fund, Equity Fund and Asset Allocation Fund and 4.00% on Oregon Tax-Free
Fund share purchases.
Class C Shares. Class C shares are offered at net asset value and are subject to
a 0.75% annual distribution fee and a 1.00% contingent deferred sales charge on
redemptions made after the end of the month in which the purchase was accepted.
The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.75% annually, commencing
after the shares purchased have been outstanding for one year. Payment of the
ongoing commission is conditioned on receipt by the Distributor of the 0.75%
annual distribution fee referred to above. The commission may be reduced or
eliminated by the Distributor at any time.
Only one "roundtrip" exchange of each Fund's Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund X to Fund Y and back to Fund X would be permitted only
once during each three-month period.
Class I Shares. Class I shares are offered continuously at net asset value
without a sales charge. 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. Certificates will not be issued for Class I shares. The Fund may
refuse any purchase order for its shares.
See the Statement of Additional Information.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is made, generally,
older shares will be redeemed first unless the shareholder instructs otherwise.
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 price invested immediately. Investors investing for a
relatively short period of time might consider Class C shares. Purchases of
$250,000 or more must be for Class A or Class C shares. Purchases of $1,000,000
or more must be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. See the
Statement of Additional Information for more information.
Special Purchase Programs. The Funds allow certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."
Class A shares of the Funds (except Income Fund) may also be purchased at net
asset value by (i) shareholders of any Fund with an open account on October 7,
1998, (ii) investment advisers or financial planners who have entered into
agreements with the Distributor (or who maintain a master account with a broker
or agent that has entered into such an agreement) and who charge a management,
consulting or other fee for their services, and clients of such investment
advisers or financial planners who place trades for their own accounts, if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent; and (iii)
retirement and deferred compensation plans and trusts used to fund those plans,
including, but not limited to, those defined in Section 401(a), 403(b), or 457
of the Internal Revenue Code and "rabbi trusts," where the plans are
administered by firms that have entered into agreements with the Distributor or
the Transfer Agent.
Investors may be charged a fee if they effect transactions in a Fund's shares
through a broker or agent.
Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.
In June of any year, a Fund may deduct $10 (payable to the Transfer Agent) from
accounts valued at less than $1,000 unless the account value has dropped below
$1,000 solely as a result of share value depreciation. Shareholders will receive
60 days' written notice to increase the account value before the fee is
deducted. The Funds may deduct annual maintenance and processing fees (payable
to the Transfer Agent) in connection with certain retirement plan accounts
sponsored by the Distributor. See "Special Purchase Programs/Investor Services"
in the Statement of Additional Information for more information.
HOW TO SELL SHARES
Shares of the Funds may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will delay sending proceeds for 15 days in order to protect the Fund
against financial losses and dilution in net asset value caused by dishonored
purchase payment checks. To avoid delay in payment, investors are advised to
purchase shares unconditionally, such as by certified check or other immediately
available funds.
Selling Shares Directly To A 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:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which a Fund values its shares to receive
that day's price, are responsible for furnishing all necessary documentation to
the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, a Fund
may suspend repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
HOW TO EXCHANGE SHARES
Except as described below with respect to money market funds, Fund shares may be
exchanged at net asset value for shares of other mutual funds distributed by the
Distributor, including funds advised by the Adviser, the Administrator and their
affiliates, Stein Roe & Farnham Incorporated and Newport Fund Management, Inc.
Generally, such exchanges must be between the same classes of shares. Consult
your financial service firm or the Transfer Agent for information regarding what
funds are available.
Shares will continue to age without regard to the exchange for purposes of
conversion and in determining the contingent deferred sales charge, if any, upon
redemption. Carefully read the prospectus of the fund into which the exchange
will go before submitting the request. Call 1-800-426-3750 to receive a
prospectus. 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. A Fund will terminate the exchange
privilege as to a particular shareholder if the Adviser determines, in its sole
and absolute discretion, that the shareholder's exchange activity is likely to
adversely impact the Adviser's ability to manage a Fund's investments in
accordance with its investment objective or otherwise harm the Fund or its
remaining shareholders.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund in which the original investment was made.
Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one "round-trip" exchange of the Funds' Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund A to Fund B and back to Fund A would be permitted only
once during each three-month period.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of the Fund's shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges may be elected
on the account application. The Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine and may be
liable for losses related to unauthorized or fraudulent transactions in the
event reasonable procedures are not employed. Such procedures include
restrictions on where proceeds of telephone redemptions may be sent, limitations
on the ability to redeem by telephone shortly after an address change, recording
of telephone lines and requirements that the redeeming shareholder and/or his or
her financial adviser provide certain identifying information. Shareholders
and/or their financial advisers wishing to redeem or exchange shares by
telephone may experience difficulty in reaching the Fund at its toll-free
telephone number during periods of drastic economic or market changes. In that
event, shareholders and/or their financial advisers should follow the procedures
for redemption or exchange by mail as described above under "How to Sell
Shares." The Adviser, the Administrator, the Transfer Agent and each Fund
reserve the right to change, modify or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
12B-1 PLANS
Under its 12b-1 Plan, each Fund pays the Distributor monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to Class A, Class B and
Class C shares. Each Fund's 12b-1 Plan also requires the Fund to pay the
Distributor monthly a distribution fee at an annual rate of 0.75% of the average
daily net assets attributed to its Class B and Class C shares. Because the Class
B and Class C shares bear additional distribution fees, their dividends will be
lower than the dividends of Class A shares. Class B shares automatically convert
to Class A shares, approximately eight years after the Class B shares were
purchased. Class C shares do not convert. The multiple class structure could be
terminated should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The Distributor uses
the fees to defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution, shareholder servicing
costs and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. Each Fund's Plan
also authorizes other payments to the Distributor and its affiliates (including
the Adviser and the Administrator) which may be construed to be indirect
financing of sales of Fund shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. Each Fund
represents the entire interest in a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Funds and any other series of the Trust that may
be in existence from time to time generally vote together except when required
by law to vote separately by fund or by class. Shareholders owning in the
aggregate ten percent of Trust shares may call meetings to consider removal of
Trustees. Under certain circumstances, the Trust will provide information to
assist shareholders in calling such a meeting. See the Statement of Additional
Information for more information.
The Special Fund is the successor to an Oregon corporation organized in 19__ .
Each other Fund is a successor series to the Crabbe Huson Funds, a Delaware
business trust organized in 19__.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
S&P
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this obligation are
being continued.
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa bonds are considered as medium grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba bonds are judged to have speculative elements; their future cannot be
considered as well secured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
APPENDIX B
HEDGING INSTRUMENTS:
Options on Equity and Debt Securities--A call option is a short-term contract
pursuant to which the purchaser of the option, in return for a premium, has the
right to buy the security underlying the option at a specified price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option during the option term,
to deliver the underlying security against payment of the exercise price. A put
option is a similar contract that gives its purchaser, in return for a premium,
the right to sell the underlying security at a specified price during the option
term. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to buy the
underlying security at the exercise price.
Options on Securities Indices--A securities index assigns relative values to the
securities included in the index and fluctuates with changes in the market
values of those securities. An index option operates in the same way as a more
traditional stock option, except that exercise of an index option is effected
with cash payment and does not involve delivery of securities. Thus, upon
exercise of an index option, the purchase will realize, and the writer will pay,
an amount based on the difference between the exercise price and the closing
price of the index.
Stock Index Futures Contracts--A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar amount
times the difference between the stock index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the stocks comprising the index is made. Generally,
contracts are closed out prior to the expiration date of the contract.
Interest Rate Futures Contracts--Interest rate futures contracts are bilateral
agreements pursuant to which one party agrees to make, and the other party
agrees to accept, delivery of a specified type of debt security at a specified
future time and at a specified price. Although such futures contracts by their
terms call for actual delivery or acceptance of debt securities, in most cases
the contracts are closed out before the settlement date without the making or
taking of delivery.
Options on Futures Contracts--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exercise
of the option, the delivery of the futures position to the holder of the option
will be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract 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 future. The writer of an option, upon exercise, will assume a short
position in the case of a call and a long position in the case of a put.
Purchase of these financial instruments allows the Adviser to hedge against
changes in market conditions. For example, the Adviser may purchase a put option
in a securities index or when it believes that the stock prices will decline.
Conversely, the Adviser may purchase a call option in a securities index when it
anticipates that stock prices will increase.
<PAGE>
Investment Adviser
The Crabbe Huson Group, Inc.
121 S.W. Morrison, Suite 1400
Portland, OR 97204
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Services and Transfer Agent
Liberty Funds Services, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Auditors
KPMG Peat Marwick LLP
1211 S.W. Fifth Avenue, Suite 2000
Portland, OR 97204
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
October 7, 1998
THE CRABBE HUSON
SPECIAL FUND
CRABBE HUSON SMALL CAP FUND
CRABBE HUSON REAL ESTATE INVESTMENT FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON ASSET
ALLOCATION FUND
CRABBE HUSON OREGON
TAX-FREE FUND
CRABBE HUSON INCOME FUND
PROSPECTUS
The Crabbe Huson Special Fund seeks to provide significant long-term capital
appreciation.
Crabbe Huson Small Cap Fund seeks to provide long-term capital appreciation.
Crabbe Huson Real Estate Investment Fund seeks to provide growth of capital and
current income.
Crabbe Huson Equity Fund seeks to provide long-term capital appreciation.
Crabbe Huson Asset Allocation Fund seeks preservation of capital, capital
appreciation and income.
Crabbe Huson Oregon Tax-Free Fund seeks to provide as high a level of income
exempt from federal and Oregon income taxes as is consistent with prudent
investment management and the preservation of capital.
Crabbe Huson Income Fund seeks to provide the highest level of current income
that is consistent with preservation of capital.
For more detailed information about the Funds, call the Distributor at
1-800-426-3750 for the October 7, 1998 Statement of Additional Information.
- ----------------------------- ------------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- ------------------------------
<PAGE>
<PAGE>
COLONIAL TRUST III
Cross Reference Sheet
(Crabbe Huson Income Fund, Class I)
(Crabbe Huson Small Cap Fund, Class I)
(Crabbe Huson Asset Allocation Fund, Class I)
(Crabbe Huson Equity Fund, Class I)
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Cover Page
2. Summary of Expenses
3. The Funds' Financial History
4. Organization and History; The Funds'
Investment Objectives; How the Funds
Pursue their Objective and Certain
Risk Factors; Investment Techniques
and Additional Risk Factors
5. Cover Page; How the Funds are 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 Funds Value their Shares;
Cover Page; Back Cover
8. Summary of Expenses; How to Sell Shares;
How to Exchange Shares; Telephone
Transactions
9. Not Applicable
<PAGE>
October 7, 1998
CRABBE HUSON SMALL CAP FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON ASSET
ALLOCATION FUND
CRABBE HUSON INCOME FUND
PROSPECTUS
Colonial Management Associates, Inc. (Administrator) and your full-service
financial adviser want you to understand both the risks and benefits of mutual
fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Crabbe Huson Small Cap Fund (Small Cap Fund) seeks to provide long-term capital
appreciation.
Crabbe Huson Equity Fund (Equity Fund) seeks to provide long-term capital
appreciation.
Crabbe Huson Asset Allocation Fund (Asset Allocation Fund) seeks preservation of
capital, capital appreciation and income.
Crabbe Huson Income Fund (Income Fund) seeks to provide the highest level of
current income that is consistent with preservation of capital.
Each of the Funds is a diversified portfolio of Colonial Trust III (Trust), an
open-end management investment company.
Each Fund is managed by The Crabbe Huson Group, Inc. (Adviser), an investment
adviser since 1980 and an affiliate of the Administrator.
Contents Page
Summary of Expenses
The Funds' Financial History
The Funds' Investment Objectives
How the Funds Pursue their Objective and
Certain Risk Factors
Investment Techniques and Additional
Risk Factors
How the Funds Measure their Performance
How the Funds are Managed
How the Funds Value their Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
Organization and History
Appendix A
Appendix B
This Prospectus is also available on-line at our Web site
(http://www.libertyfunds.com). The SEC maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, materials that are
incorporated by reference into this Prospectus and the Statement of Additional
Information, and other information regarding the Funds.
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
This Prospectus explains concisely what you should know before investing in the
Class I shares of a Fund. Read it carefully and retain it for future reference.
More detailed information about the Funds is in the October 7, 1998 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
1-800-426-3750. The Statement of Additional Information is incorporated by
reference in (which means it is considered to be a part of) this Prospectus.
Class I shares may be purchase only by pension and profit sharing plans,
employee benefit trusts, endowments, foundations and corporations and high net
worth individuals, or through certain broker-dealers, financial institutions and
other financial intermediaries which have entered into agreements with a Fund,
and which investment a minimum of $1 million.
Although each Fund is offering only its own shares and is not participating in
the sale of the shares of the other Funds, it is possible that a Fund might
become liable for any misstatement, inaccuracy or incomplete disclosure in the
Prospectus concerning the Funds.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in the Class I shares of a Fund. See "How the Funds
are Managed" for more complete descriptions of each Fund's various costs and
expenses.
Shareholder Transaction Expenses(1)(2)
Class I
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price) 0.00%
Maximum Contingent Deferred Sales Charge (as a % of offering price) 0.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See "How
to Buy Shares." (2) Redemption proceeds exceeding $500 sent via federal funds
wire will be subject to a $7.50 charge per
transaction.
Estimated Annual Operating Expenses (as a % of average net assets)
Small Cap Fund Equity Fund
Class I Class I
Management fee 1.01% 0.94%
12b-1 fees 0.00 0.00
Other expenses 0.08 0.10
---- ----
Total operating expenses (6) 1.09% 1.04%
==== ====
Asset Allocation Fund Income Fund
Class I Class I
Management fee
(after fee waiver) (7) 1.01% 0.00%(7)
12b-1 fees 0.00 0.00
Other expenses
(after fee waiver) (7) 0.18 0.80(7)
---- ----
Total operating expenses
(after fee waiver) 1.19% 0.80%
==== ====
(6) The Adviser has voluntarily agreed to waive a portion of its Management fee
(and Other expenses, if applicable) to the extent Total operating expenses
exceed 1.50% for the Small Cap Fund, 1.42% for the Equity Fund and the
Asset Allocation Fund and 0.80% for the Income Fund per annum of the
respective Fund's net asset value.
(7) Had the waiver referred to above not been made, the Income Fund's
Management fee would have been 0.80%, estimated Other expenses would have
been 1.39% and estimated Total operating expenses would have been 2.19%.
<PAGE>
Example
The following Examples show the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in the Class I shares of the
Funds for the periods specified, assuming a 5% annual return with or without
redemption at period end. The expense numbers in the Example assume the expense
limit described above remains in effect for all periods referenced. The 5%
return and expenses used in this Example should not be considered indicative of
actual or expected Fund performance or expenses, both of which will vary:
Small Cap Fund Equity Fund
Class I Class I
Period:
1 year
3 years
5 years
10 years
Asset Allocation Fund Income Fund
Class I Class I
Period:
1 year
3 years
5 years
10 years
<PAGE>
THE FUNDS' FINANCIAL HISTORY
The following information for a share outstanding through October 31, 1997 has
been audited by KPMG Peat Marwick LLP, each Fund's independent auditors, whose
report dated December 3, 1997 is incorporated by reference in the Funds'
Statement of Additional Information. For the years or periods ended on or after
October 31, 1996, calculations are based on a share outstanding during the
period. Prior to the date of this Prospectus, each Fund's Class I shares were
known as the "Institutional Class".
<PAGE>
CRABBE HUSON SMALL CAP FUND - CLASS I
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD ENDED YEAR ENDED PERIOD ENDED
--------------- ------------ ------------
4/30/98 10/31/97 10/31/96(a)
-------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $15.53 $11.01 $11.05
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... (0.01) 0.07 0.00
Net Realized & Unrealized Gain (Loss) on Investments........ (0.07) 4.62 (0.04)
-------------------------------------------------
Total from Investment Operations........................ (0.08) 4.69 (0.04)
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................... 0.01 0.03 0.00
Distributions in excess of Net Investment Income............ 0.05 0.00 0.00
Distributions from Capital Gains............................ 1.24 0.14 0.00
-------------------------------------------------
Total Distributions..................................... 1.30 0.17 0.00
-------------------------------------------------
NET ASSET VALUE, END OF PERIOD.............................. $14.15 $15.53 $11.01
-------------------------------------------------
-------------------------------------------------
TOTAL RETURN................................................ 0.46% 43.11% (0.36)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $111,974 $71,655 $1,514
Ratio of Expenses to Average Net Assets..................... 1.00%(b)(c) 1.00%(b) 1.00%(b)(c)
Ratio of Net Investment Income to Average Net Assets........ (0.13)%(c) 0.60% (0.43)%(c)
Portfolio Turnover Rate..................................... 9.17% 65.11% 39.34%
Average Commission Rate (d)................................. $0.0357 $0.0363 $0.0275
Average Number of Shares Outstanding........................ 9,483,973* -- --
Amount of Debt Outstanding.................................. $0 -- --
Average Amount of Debt Outstanding During the Period........ $19,983* -- --
Average Amount of Debt Per Share During the Period.......... $0 -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets..................... 1.14%(b)(c) 1.28%(b) 3.55%(b)(c)
Ratio of Net Investment Income to Average Net Assets........ (0.27)%(c) 0.32% (2.98)%(c)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets..................... 1.00%(c) 1.00% 1.00%(c)
Ratio of Net Investment Income to Average Net Assets........ (0.13)%(c) 0.60% (0.43)%(c)
</TABLE>
<PAGE>
CRABBE HUSON ASSET ALLOCATION FUND - CLASS I
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD YEAR PERIOD
ENDED ENDED ENDED
---------------- ---------- --------
4/30/98 10/31/97 10/31/96(e)
------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $14.94 $13.39 $13.38
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.20 0.42 0.01
Net Realized & Unrealized Gain (Loss) on
Investments................................ 1.06 2.24 0.08
------------------------------------------
Total from Investment Operations......... 1.26 2.66 0.09
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.17 0.37 0.08
Distributions from Capital Gains............. 1.80 0.74 0.00
------------------------------------------
Total Distributions...................... 1.97 1.11 0.08
------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $14.23 $14.94 $13.39
------------------------------------------
------------------------------------------
TOTAL RETURN................................. 9.65% 21.18% 0.59%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $36,536 $28,598 $2,526
Ratio of Expenses to Average Net Assets...... 1.00%(c) 1.00%(b) 1.00%(b)(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 2.75%(c) 2.70% 2.87%(c)
Portfolio Turnover Rate...................... 58.19% 118.65% 252.29%
Average Commission Rate (d).................. $0.0566 $0.0529 $0.0536
Average Number of Shares Outstanding
(Composite)................................ 9,685,020* 8,772,675* --
Amount of Debt Outstanding................... -- -- --
Average Amount of Debt Outstanding During the
Period..................................... -- $3,460 --
Average Amount of Debt Per Share During the
Period..................................... $0.00 $0.00 --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.23%(c) 1.42%(b) 2.00%(b)(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 2.52%(c) 2.28% 1.87%(c)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... 1.00%(c) 1.00% 1.00%(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 2.75%(c) 2.70% 2.87%(c)
</TABLE>
<PAGE>
CRABBE HUSON EQUITY FUND - CLASS I
THE FUNDS' FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD YEAR PERIOD
ENDED ENDED ENDED
------------------ --------------- ------------------
4/30/98 10/31/97 10/31/96(f)
-------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $23.40 $19.51 $19.82
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.10 0.21 0.00
Net Realized & Unrealized Gain (Loss) on
Investments................................ 2.43 5.31 (0.31)
-------------------------------------------------------------
Total from Investment Operations......... 2.53 5.52 (0.31)
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.15 0.09 0.00
Distributions from Capital Gains............. 4.74 1.54 0.00
-------------------------------------------------------------
Total Distributions...................... 4.89 1.63 0.00
-------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $21.04 $23.40 $19.51
-------------------------------------------------------------
-------------------------------------------------------------
TOTAL RETURN................................. 14.08% 30.35% (1.56)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $33,685 $24,084 $4,415
Ratio of Expenses to Average Net Assets...... 1.00%(b)(c) 1.00%(b) 1.00%(b)(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 0.95%(c) 0.71% 0.15%(c)
Portfolio Turnover Rate...................... 74.30% 128.65% 117.00%
Average Commission Rate (d).................. $0.0572 $0.0537 $0.0530
Average Number of Shares Outstanding
(composite)................................ 21,949,236* 19,623,834* --
Amount of Debt Outstanding................... -- -- --
Average Amount of Debt Outstanding During the
Period..................................... $47,731* $21,750* --
Average Amount of Debt Per Share During the
Period..................................... $0.00 $0.00 --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.13%(b)(c) 1.23%(b) 1.58%(b)(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 0.82%(c) 0.48% (0.43)%(c)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... 1.00%(c) 1.00% 1.00%(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 0.95%(c) 0.71% 0.15%(c)
</TABLE>
(a) Commencement of operations - 10/10/96.
(b) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(c) Computed on an annualized basis.
(d) Disclosure of the average commission rate paid relates to the purchase
and sale of investment securities and is required for funds that
invest greater than 10% of average net assets in equity transactions.
This disclosure is required for fiscal periods beginning on or after
September 1, 1995.
(e) Commencement of operations - 10/28/96.
(f) Commencement of operations - 10/3/96.
* Computed on a daily basis.
Further performance information is contained in the Funds' Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
The Small Cap Fund seeks to provide long-term capital appreciation.
The Equity Fund seeks to provide long-term capital appreciation.
The Asset Allocation Fund seeks preservation of capital, capital appreciation
and income.
The Income Fund seeks to provide the highest level of current income that is
consistent with preservation of capital.
HOW THE FUNDS PURSUE THEIR OBJECTIVES AND CERTAIN RISK FACTORS
Each Fund that invests in common stocks and preferred stocks (the Equity, Small
Cap and Asset Allocation Funds) follows a basic value, contrarian approach in
selecting stocks for its portfolio. This approach puts primary emphasis on
security price, balance sheet and cash flow analysis and on the relationship
between the market price of a security and its value as a share of an ongoing
business. These investments represent situations or opportunities that arise
when companies, whose long-term financial structure is intact, are viewed as out
of favor and thus present an opportunity to buy these companies' stocks at
substantial discounts. The basic value contrarian approach is based on the
Adviser's belief that the securities of many companies often sell at a discount
from the securities' estimated theoretical (intrinsic) value. These Funds
attempt to identify and invest in such undervalued securities, anticipating that
capital appreciation will be realized as the securities' prices rise to their
estimated intrinsic value. This approach, while not unique, contrasts with
certain other methods of investment analysis, which rely upon market timing,
technical analysis, earnings forecasts, or economic predictions.
The Small Cap Fund seeks long-term growth of capital by investing in a
diversified portfolio of selected domestic and foreign securities. The Fund will
invest principally in common stocks and, secondarily, preferred stocks and
bonds. The production of current income is secondary to the primary objective.
The Fund seeks to invest up to 100%, and under normal conditions at least 65%,
of its total assets in securities of companies that have small market
capitalization (under $1 billion).
Investments in companies with small market capitalization may involve greater
risks and volatility than more traditional equity investments due to the
potential for limited product lines, reduced market liquidity for the trading of
their shares and less depth in management than more established companies. For
this reason, the Small Cap Fund does not constitute a balanced investment
program, but rather as an investment for persons who are in a financial position
to assume above average risk and share price volatility over time. The Small Cap
Fund may be appropriate only for investors who have a longer term investment
horizon or perspective.
The Equity Fund seeks long-term capital appreciation. The Fund will seek to
achieve this objective by investing, under normal conditions, at least 65% of
its total assets in common stocks. It will focus its investments in widely and
actively traded stocks with medium (from $1 billion to $3 billion) and large (in
excess of $3 billion) market capitalizations.
The Fund will purchase and hold for investment common stock, and may also
purchase convertible and nonconvertible preferred stocks and bonds or
debentures. These securities will not be considered common stock for purposes of
the 65% limitation referenced above. The Fund may invest up to 35% of its total
assets in foreign securities. Although the Fund intends to adapt to changing
market conditions, the Adviser believes that common stocks will generally, over
the long-term, offer the greatest potential for capital appreciation. Therefore,
the Fund may be appropriate for investors who have a longer term investment
horizon or perspective.
The Asset Allocation Fund seeks preservation of capital, capital appreciation
and income. The Fund seeks to achieve these objectives by a flexible policy of
investing in a select portfolio of common stocks, fixed income securities, cash
or cash equivalents. Depending upon economic and market conditions, the Fund may
invest as little as 20%, or as much as 75%, of its portfolio in common stocks.
The Adviser will purchase common stocks which, in its opinion, have the greatest
potential for capital appreciation. The remaining portion of the portfolio will
be invested in fixed income securities, cash or cash equivalents. The fixed
income securities that the Fund will invest in consist of corporate debt
securities (bonds, debentures and notes), asset-backed securities, bank
obligations, collateralized bonds, loan and mortgage obligations, commercial
paper, preferred stocks, repurchase agreements, savings and loan obligations and
U.S. Government and agency obligations. There are no limitations on the average
maturity of the Fund's portfolio of fixed income securities. Securities will be
selected on the basis of the Adviser's assessment of interest rate trends and
the liquidity of various instruments under prevailing market conditions. The
Fund may invest up to 35% of its total assets in fixed income securities that
are either unrated or are rated less than Baa by Moody's or BBB by S&P, or in
commercial paper that is rated less than B-1 by Moody's or A- by S&P. However,
not more than 5% of the Fund's total assets may be invested in fixed income
securities that are unrated (including convertible stock).
Many factors will be considered in determining what portion of the portfolio
will be invested in stocks, fixed income securities, or cash and cash
equivalents. The Adviser will constantly monitor and adjust its weighting of
investments in any particular area to adapt to changing market and economic
conditions. Under normal market conditions, the Fund generally expects to invest
its net assets as follows: 30% to 55% in fixed income securities; 25% to 60% in
common stocks; and 5% to 30% in cash, cash equivalents or other money market
instruments. Furthermore, the Fund may take advantage of opportunities to earn
short-term profits if the Adviser believes that such a strategy will benefit the
Fund's overall objective in light of the increased tax and brokerage expenses
associated with such a strategy.
The Income Fund seeks a high level of current income by investing in a
diversified portfolio of fixed income securities (such as bonds and notes of
corporate and government issuers) and preferred or convertible preferred stock
while, at the same time, attempting to preserve capital by varying the overall
average maturity of the Fund's portfolio.
There are no limitations on the average maturity of the Fund's portfolio. In
general, the Adviser will seek to adjust the average maturity of the Fund's
portfolio in response to changes in interest rates.
The Income Fund invests in a variety of fixed income securities, including
domestic and foreign corporate bonds, debentures, convertible bonds and
debentures, foreign and U.S. Government securities, preferred and convertible
preferred stock, and short-term money market instruments.
At least 65% of the Fund's total assets will be invested in (1) debt securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (2) investment-grade debt securities, including convertible
securities and preferred or convertible preferred stock, which are rated "A" or
higher by the major recognized bond services (for a description of ratings, see
Appendix A); or (3) cash and cash equivalents (such as certificates of deposit,
repurchase agreements maturing in one week or less, and bankers' acceptances).
The Fund may invest up to 35% of its total assets in fixed income securities
that are either unrated or are rated less than A by Moody's or A by S&P, or in
commercial paper that is rated less than B-1 by Moody's or A- by S&P. However,
not more than 5% of the Fund's total assets may be invested in fixed income
securities that are unrated (including convertible stock).
INVESTMENT TECHNIQUES AND ADDITIONAL RISK FACTORS
The following describes in greater detail different types of securities and
investment techniques used by the Funds, and discusses certain risks related to
such securities and techniques. Additional information about the Funds'
investments and investment practices may be found in the Statement of Additional
Information.
The Small Cap, Equity and Asset Allocation Funds are subject to the risks of
investments in common stock, principally that the prices of stocks can fluctuate
dramatically in response to company, market, or economic news. The Equity, Asset
Allocation and Income Funds historically have had turnover rates in their
portfolios in excess of 75% per year, resulting in potentially higher brokerage
costs and the potential loss of advantageous long-term capital gain treatment
for tax purposes. In addition, the Small Cap, Equity, Asset Allocation and
Income Funds may each invest up to 35% of its total assets in securities issued
by foreign issuers. The Small Cap Fund has a limited operating history. A
significant risk associated with investment in the Income Fund is that of
increasing interest rates causing a decline in the net asset value of the Fund.
Foreign Securities. Each of the Small Cap, Equity, Asset Allocation and Income
Funds may invest up to 35% of its total assets in foreign securities, which may
or may not be traded on an exchange. The Funds may purchase securities issued by
issuers in any country. Securities of foreign companies are frequently
denominated in foreign currencies, and the Funds may temporarily hold uninvested
reserves in bank deposits in foreign currencies. As a result, the Funds will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and they may incur expenses in connection with conversion
between various currencies. Subject to its investment restrictions, the Funds
may invest in other investment companies that invest in foreign securities.
Foreign securities may be subject to foreign government taxes that would reduce
the income yield on such securities. Certain foreign governments levy
withholding taxes against dividend and interest income. Although in some
countries a portion of these taxes is recoverable, the non-recovered portion of
any foreign withholding taxes would reduce the income a Fund received from any
foreign investments.
Foreign investments involve certain risks, such as political or economic
instability of the issuer or of the country of the issuer, difficulty of
predicting international trade patterns, and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of domestic corporations or of the United States
government. In addition, the net asset value of a Fund is determined and shares
of a Fund can be redeemed only on days during which securities are traded on the
New York Stock Exchange (NYSE). However, foreign securities held by a Fund may
be traded on Saturdays or other holidays when the NYSE is closed. Accordingly,
the net asset value of a Fund may be significantly affected on days when an
investor has no access to the Fund.
In addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, and the absence of negotiated brokerage commissions
in certain countries may result in higher brokerage fees. With respect to
certain foreign countries, there is a possibility of expropriation,
nationalization, or confiscatory taxation, which could affect investment in
those countries.
Each of the Funds may invest a portion of its assets in developing countries or
in countries with new or developing capital markets, such as countries in
Eastern Europe and the Pacific Rim. The considerations noted above regarding the
risks of investing in foreign securities are generally more significant for
these investments. These countries may have relatively unstable governments and
securities markets in which only a small number of securities trade. Markets of
developing countries may be more volatile than markets of developed countries.
Investments in these markets may involve significantly greater risks, as well as
the potential for greater gains.
Puts, Call Options, Futures Contracts. The Small Cap, Equity, Asset Allocation
and Income Funds may use options and futures contracts to attempt to enhance
income, and to reduce the overall risk of its investments ("hedge"). These
instruments are commonly referred to as "derivative instruments" due to the fact
that their value is derived from or related to the value of some other
instrument or asset. Each Fund's ability to use these strategies may be limited
by market conditions, regulatory limits, and tax considerations. Appendix B to
this prospectus describes the instruments that the Funds may use and the way the
Funds may use the instruments for hedging purposes.
Each of these Funds may invest up to 10% of its total assets in premiums on put
and call options, both exchange-traded and over-the-counter, and write call
options on securities the Fund owns or has a right to acquire. Each of these
Funds may also purchase options on securities indices, foreign currencies, and
futures contracts. Besides exercising its option or permitting the option to
expire, prior to expiration of the option, a Fund may sell the option in a
closing transaction. The Funds may only write call options that are covered. A
call option is covered if written on a security a Fund already owns.
The Small Cap, Equity, Asset Allocation and Income Funds may invest in interest
rate futures contracts and the Small Cap, Equity and Asset Allocation Funds may
invest in stock index futures provided that the aggregate initial margin of all
futures contracts in which the Fund invests shall not exceed 10% of the total
assets of the Fund after taking into account unrealized profits and unrealized
losses on any such transactions it has entered into. Upon entering into a
futures contract, the Fund will set aside liquid assets, such as cash, U.S.
Government securities, or other high grade debt obligations in a segregated
account with the Fund's custodian to secure its potential obligation under such
contract.
The principal risks of options and futures transactions are: (a) imperfect
correlation between movements in the prices of options or futures contracts and
movements in the prices of the securities hedged or used for cover; (b) lack of
assurance that a liquid secondary market will exist for any particular option or
futures contract at any particular time; (c) the need for additional skills and
techniques beyond those required for normal portfolio management; (d) losses on
futures contracts, which may be unlimited, from market movements not anticipated
by the Adviser; (e) possible need to defer closing out certain options or future
contracts in order to continue to qualify for beneficial tax treatment afforded
"regulated investment companies" under the Internal Revenue Code of 1986, as
amended (the "Code"). For a further discussion of put and call options and
futures contracts, see the Statement of Additional Information, "Special
Investment Risks."
Fixed Income Securities. Each of the Small Cap, Equity and Asset Allocation
Funds may invest up to 20% and the Income Fund may invest up to 35% of its total
assets in fixed income securities, including convertible securities, that are
either unrated or rated below the fourth highest category by Moody's or S&P,
although not more than 5% of the Fund's total assets may be invested in fixed
income securities that are unrated. Securities rated below the fourth highest
category are commonly referred to as "junk bonds." Such securities are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Investment in such securities normally involves a greater
degree of investment and credit risk than does investment in a high-rated
security. In addition, the market for such securities is less broad than the
market for higher-rated securities, which could affect their marketability. The
market prices of such securities tend to fluctuate more than the market prices
of higher-rated securities in response to changes in interest rates and economic
conditions. Moreover, with such securities, there is a greater possibility that
an adverse change in the financial condition of the issuer, particularly a
highly leveraged issuer, may affect its ability to make payments of principal
and interest.
Investment in REITs. Each of the Small Cap, Equity and Asset Allocation Funds
may invest in REITs. The Funds investments in REITs may not exceed 25% of the
Fund's total assets. REITs are pooled investment vehicles that invest primarily
in income producing real estate or real estate related loans or interests. REITs
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. For federal income tax purposes, REITs qualify for beneficial tax
treatment by distributing 95% of their taxable income. If a REIT is unable to
qualify for such beneficial tax treatment, it would be taxed as a corporation
and distributions to its shareholders would therefore be reduced.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. All REITs are dependent upon management skills, are not diversified,
and are subject to the risks of financing projects. REITs are subject to heavy
cash flow dependency, default by borrowers, self-liquidation, and the
possibilities of failing to qualify for the exemption from tax for distributed
income under the Code and failing to maintain their exemptions from the 1940
Act.
Repurchase Agreements. Each of the Funds may engage in repurchase agreements.
Repurchase agreements are agreements under which a person purchases a security
and simultaneously commits to resell that security to the seller (a commercial
bank or recognized securities dealer) at an agreed upon price on an agreed upon
date within a number of days (usually not more than seven) from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
market rate of interest that is unrelated to the coupon rate or maturity of the
purchased security. A Fund will engage in repurchase agreements only with banks
or broker-dealers whose obligations would qualify for direct purchase by that
Fund. A repurchase agreement involves the obligation of the seller to pay an
agreed-upon price, which obligation is, in effect, secured by the value of the
underlying security. All repurchase agreements are fully collateralized and
marked to market daily, and may therefore be viewed by the SEC or the courts as
loans collateralized by the underlying security. There are some risks associated
with repurchase agreements. For instance, in the case of default by the seller,
a Fund could incur a loss or, if bankruptcy proceedings are commenced against
the seller, the Fund could incur costs and delays in realizing upon the
collateral.
Mortgage-Backed Securities. The Asset Allocation and Income Funds may invest in
mortgage pass-through certificates and multiple-class pass-through securities,
such as CMOs and Stripped Mortgage Back Securities (SMBS), and other types of
mortgage-backed securities that may be available in the future (collectively,
"Mortgage-Backed Securities").
Mortgage pass-through securities represent participation interests in pools of
mortgage loans secured by residential or commercial real property in which
payments of both interest and principal on the securities are generally made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities).
Payment of principal and interest on some mortgage pass-through securities, but
not the market value of the securities themselves, may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
GNMA); or guaranteed by the agency or instrumentality of the U.S. Government
issuing the security (in the case of securities guaranteed by FNMA or the
Federal Home Loan Mortgage Corporation (FHLMC), which are supported only by the
discretionary authority of the U.S. Government to purchase the agencies'
obligations). Mortgage pass-through securities created by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit, which
may be issued by governmental entities, private insurers or the mortgage
poolers.
CMOs are hybrid mortgage related instruments. Similar to a bond, interest and
prepaid principal on a CMO are paid, in most cases, semi-annually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or
FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. Monthly payments of principal, including prepayments,
are first returned to investors holding the shortest maturity class and
investors holding the longer maturity classes receive principal only after the
first class has been retired. CMOs that are issued or guaranteed by the U.S.
Government or by any of its agencies or instrumentalities will be considered
U.S. Government securities by the Fund, while other CMOs, even if collateralized
by U.S. Government securities, will have the same status as other privately
issued securities for purposes of applying the Fund's diversification test.
SMBS are derivative multiple-class mortgage-backed securities usually structured
with two classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. A typical SMBS will have one class
receiving some of the interest and most of the principal, while the other class
will receive most of the interest and the remaining principal. In the most
extreme case, one class will receive all of the interest (the "interest only"
class), while the other class will receive all of the principal (the "principal
only" class).
Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those risks associated with investing in the real estate industry in
general. These risks include the failure of a counter-party to meet its
commitments, adverse interest rate changes and the effects of prepayment on
mortgage cash flows. In addition, investing in the lowest tranche of CMOs
involves risks similar to those associated with investing in equity securities.
Further, the yield characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major differences typically
include more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of
principal may be made substantially earlier than their final distribution dates.
If the Mortgage-Backed Security is a fixed-income security, when interest rates
decline, the value of an investment in fixed rate obligations can be expected to
rise. Conversely, when interest rates rise, the value of an investment in fixed
rate obligations can be expected to decline. If interest rates increase rapidly
and substantially, fixed rate obligations may become illiquid. In contrast, if
the Mortgage-Backed Security represents an interest in a pool of loans with
adjustable interest rates, as interest rates on adjustable rate mortgage loans
are reset periodically, yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
If a security subject to prepayment has been purchased at a premium, in the
event of prepayment the value of the premium would be lost. Prepayment rates are
influenced by changes in current interest rates and a variety of economic,
geographic, social and other factors, and cannot be predicted with certainty.
Both adjustable rate mortgage loans and fixed rate mortgage loans may be subject
to a greater rate of principal prepayments in a declining interest rate
environment, and to a lesser rate of principal prepayments in an increasing
interest rate environment. Under certain interest rate and prepayment rate
scenarios, the Fund may fail to recoup fully its investment in Mortgage-Backed
Securities, notwithstanding any direct or indirect governmental or agency
guarantee. When the Fund reinvests amounts representing payments and unscheduled
prepayments of principal, it may receive a rate of interest that is lower than
the rate on existing adjustable rate mortgage pass-through securities. Thus,
Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities
in particular, may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.
Short Sales. The Small Cap, Equity, and Asset Allocation Funds may engage in
short sales "against the box." While a short sale is made by selling a security
the Fund does not own, a short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
When Issued and/or Delayed Delivery Securities. Each of the Funds may purchase
and sell securities on a when-issued or delayed-delivery basis. When-issued or
delayed-delivery transactions arise when securities are purchased or sold by the
Fund, with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous price and yield to the Fund at the time
of entering into the transaction. Such securities are subject to market
fluctuations, and no interest accrues to a Fund until the time of delivery. The
value of the securities may be less at the time of delivery than the value of
the securities when the commitment was made. When a Fund engages in when-issued
and delayed-delivery transactions, it relies on the buyer or seller, as the case
may be, to consummate the sale. Failure to do so may result in the Fund missing
the opportunity of obtaining a price or yield considered to be advantageous. To
the extent any Fund engages in when-issued and delayed-delivery transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies, and not for the purpose of investment
leverage. No Fund may commit more than 25% of its total assets to the purchase
of when-issued and delayed-delivery securities. A separate account of liquid
assets consisting of cash, U.S. Government securities or other liquid securities
equal to the value of any purchase commitment of a Fund shall be maintained by
the Fund's custodian until payment is made.
Illiquid Securities. The Funds may invest in illiquid securities, which may be
difficult to sell promptly at an acceptable price. This difficulty may result in
a loss or be costly to a Fund.
Interest Rates. Each Fund may invest in debt securities. The market value of
debt securities that are sensitive to prevailing interest rates is inversely
related to actual changes in interest rates. That is, an interest rate decline
produces an increase in a security's market value and an interest rate increase
produces a decrease in value. The longer the remaining maturity of a security,
the greater the effect of an interest rate change. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of its creditworthiness also affect the market value of that issuer's debt
securities.
U.S. Government Securities. Although U.S. Government securities and high-quality
debt securities are issued or guaranteed by the U.S. Treasury or an agency or
instrumentality of the U.S. Government, not all U.S. Government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Federal Farm Credit Bank or by the Federal National
Mortgage Association are supported by the instrumentality's right to borrow
money from the U.S. Treasury under certain circumstances. On the other hand,
securities issued by the Student Loan Marketing Association are supported only
by the credit of the instrumentality.
Small Companies. The Small Cap Fund intends to invest in small market
capitalization companies. Investing in such securities may involve greater risks
since these securities may have limited marketability and, thus, may be more
volatile. Because small-sized companies normally have fewer outstanding shares
than larger companies, it may be difficult for the Fund to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. In addition, small companies are typically subject to a greater degree
of changes in earnings and business prospects than are larger, more established
companies.
Lending of Portfolio Securities. The Funds may loan portfolio securities to
broker-dealers or other institutional investors if at least 100% cash (or cash
equivalent) collateral is pledged and maintained by the borrower. The Funds
believe that the cash collateral minimizes the risk of lending their portfolio
securities. Such loans of portfolio securities may not be made, under current
lending arrangements, if the aggregate of such loans would exceed 20% of the
value of a Fund's total assets. If the borrower defaults, there may be delays in
recovery of loaned securities or even a loss of the securities loaned, in which
case the Fund would pursue the cash (or cash equivalent) collateral. While there
is some risk in lending portfolio securities, loans will be made only to firms
or broker-dealers deemed by the Adviser to be of good standing and will not be
made unless, in the judgment of the Adviser, the consideration to be earned from
such loans would justify the risk. For additional disclosure, see "Misellaneous
Investment Practices -- Securities Loans" in the Statement of Additional
Information.
Portfolio Turnover. The Funds generally do not trade in securities with the goal
of obtaining short-term profits, but when circumstances warrant, securities will
be sold without regard to the length of time the security has been held. A
higher portfolio turnover rate may involve correspondingly greater transaction
costs, which will be borne directly by the Funds, as well as additional realized
gains and/or losses to shareholders. The annual portfolio turnover rate of the
Funds may at times exceed 100%. Portfolio turnover rates are shown in "The
Funds' Financial History" above.
Temporary Defensive Investments. For temporary defensive purposes, the Small
Cap, Equity and Asset Allocation Funds may invest up to 100% (80% for Asset
Allocation) of their assets in fixed income securities, cash and cash
equivalents. The fixed income securities in which each Fund will invest in such
a situation shall consist of corporate debt securities (bonds, debentures and
notes), asset-backed securities, bank obligations, collateralized bonds, loan
and mortgage obligations, commercial paper, preferred stocks, repurchase
agreements, savings and loan obligations, and U.S. Government and agency
obligations. The fixed income securities will be rated investment grade or
higher (BBB by S&P and Baa by Moody's) and will have maturities of three years
or less. When the Fund assumes a temporary defensive position, it may not be
investing in securities designed to achieve its investment objective.
Other. The Funds may not always achieve their investment objectives. The Funds'
investment objectives and non-fundamental investment policies may be changed
without shareholder approval. The Funds' fundamental investment policies listed
in the Statement of Additional Information, cannot be changed without the
approval of a majority of a Fund's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in the Statement of Additional Information.
HOW THE FUNDS MEASURE THEIR PERFORMANCE
Performance may be quoted in sales literature and advertisements. Average annual
total returns are calculated in accordance with the Securities and Exchange
Commission's formula and assume the reinvestment of all distributions. Other
total returns differ from average annual total return only in that they may
relate to different time periods and may represent aggregate as opposed to
average annual total returns.
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. Distribution rate is calculated by dividing the most
recent month's distribution, annualized, by the maximum offering price at the
end of the month. 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.
Each of the Funds Class I shares were first offered to the public on the dates
referenced below and were previously designated as the "Institutional Class". At
the date of this Prospectus, no Class I shares had been offered for the Income
Fund. The historical performance of Class I shares of each of the Funds for all
periods is based on the performance of each Fund's predecessor without giving
effect to any fee reimbursements described above and assuming reinvestment of
dividends and capital gains. Historical performance as restated should not be
interpreted as indicative of each Fund's future performance. Had Class I shares
been outstanding, the average annual returns for each Fund's Class I shares as
of _______ and __________ would have been as follows:
date date
Small Cap Fund
1 year
Since inception (October 10, 1996)
Equity Fund
1 year
Since inception (October 3, 1996)
Asset Allocation Fund
1 year
Since inception (October 28, 1996)
HOW THE FUNDS ARE MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
Liberty Funds Distributor, Inc. (Distributor), a subsidiary of the
Administrator, serves as the distributor for the Funds' shares. Liberty Funds
Services, Inc. (Transfer Agent), an affiliate of the Administrator, serves as
the shareholder services and transfer agent for the Funds. Each of the Adviser,
the Administrator, the Distributor and the Transfer Agent 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 considered to be the controlling entity of the
Adviser, the Administrator and their affiliates. Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.
Each Fund pays the Adviser a fee for its services that accrues daily and is
payable bi-monthly. Fees are based on a percentage of the average daily net
assets of each Fund, as set forth below:
Small Cap Fund
Equity Fund
Asset Allocation Fund
Net Asset Value Annual Rate
First $100 million 1.05%
Next $400 million 0.90%
Amounts over $500 million 0.65%
Income Fund
Net Asset Value Annual Rate
First $100 million 0.80%
Next $400 million 0.65%
Amounts over $500 million 0.55%
James E. Crabbe is primarily responsible for the day-to-day management of the
Adviser. Mr. Crabbe is President and a Director of the Adviser.
Management of the Small Cap Fund is handled on a day-to-day basis by a team
consisting of Mr. Crabbe, John W. Johnson, and Peter P. Belton. Mr. Crabbe is
coordinator of the team. Mr. Crabbe has served in various management positions
with the Adviser since 1980 and has managed the predecessor to the Special Fund
since January 1, 1990. Prior to joining the Adviser, Mr. Johnson was a private
investment banker from November, 1991 to May, 1995. Prior to joining the
Adviser, Mr. Belton was a Vice President/Analyst at Capital Management
Associates from February, 1994 to September, 1997.
The Income Fund is managed on a day-to-day basis by a team consisting of Garth
R. Nisbet and Paul C. Rocheleau. Mr. Nisbet joined the Adviser in April, 1995.
Between February, 1993 and March, 1995 Mr. Nisbet worked for Capital
Consultants, Inc. as a portfolio manager of its fixed income portfolio. Prior to
joining Capital Consultants, Inc., Mr. Nisbet was a Vice President and the fixed
income portfolio manager at Lincoln National Investment Management. Mr.
Rocheleau joined the Adviser in December, 1992. Prior to joining the Adviser,
Mr. Rocheleau was employed by Barclays American Mortgage Corp.
The portfolios of the Equity and Asset Allocation Funds are managed on a
day-to-day basis by a team consisting of John E. Maack, Jr., Marian L. Kessler,
Robert E. Anton and Mr. Nisbet. Ms. Kessler joined the Adviser in August, 1995.
From September, 1993 until July, 1995, Ms. Kessler was a portfolio manager with
Safeco Asset Management. Mr. Anton joined the Adviser in June, 1995. Prior to
joining the Adviser, Mr. Anton served 17 years as Chief Investment Officer,
portfolio manager at Financial Aims Corporation.
The Administrator provides certain administrative and pricing and bookkeeping
services to the Fund for a monthly fee of $2,250 plus a percentage of the Fund's
average net assets over $50 million.
The Transfer Agent provides transfer agency and shareholder services to each
Fund for a monthly fee at the annual rate of 0.___% of average daily net assets
plus certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser and its affiliates may agree.
The Adviser places all orders for purchases and sales of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services.
Subject to seeking best execution, the Adviser may consider sales of shares of a
Fund (and of certain other funds advised by the Adviser, the Administrator and
their affiliates, Stein Roe & Farnham Incorporated and Newport Fund Management,
Inc.) in selecting broker-dealers for portfolio security transactions.
Year 2000. The Funds' Adviser, Administrator, Distributor and Transfer Agent
(Liberty Companies) are actively coordinating, managing and monitoring Year 2000
readiness for the Funds. A central program office at the Liberty Companies is
working within the Liberty Companies and with vendors who provide services,
software and systems to the Funds to ensure that date-related information and
data can be properly processed and calculated on and after January 1, 2000. Many
Fund service providers and vendors, including the Liberty Companies, are in the
process of making Year 2000 modifications to their services, software and
systems and believe that such modifications will be completed on a timely basis
prior to January 1, 2000. The cost of these modifications will not affect the
Funds. However, no assurances can be given that all modifications required to
ensure proper data processing and calculation on and after January 1, 2000 will
be timely made or that services to the Funds will not be adversely affected.
HOW THE FUNDS VALUE THEIR SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Funds are
generally valued as of the close of regular trading of the NYSE (normally 4:00
p.m. Eastern time) each day the NYSE is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, pursuant to procedures adopted by the Trustees,
that such cost approximates current market value. The Board of Trustees has
adopted procedures to value at their fair value (i) all other securities and
(ii) foreign securities if the value of such securities have been materially
affected by events occurring after the closing of a foreign market.
DISTRIBUTIONS AND TAXES
The Funds intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income and any net
realized gain annually.
Distributions are invested in additional shares of the same Class of a Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash to
shareholders but will be invested in additional shares of the same Class of a
Fund at net asset value. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. To change your election, call the
Transfer Agent for information.
Whether you receive taxable 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
may be taxable although it is, in effect, a partial return of the amount
invested. Each January, information on the amount and nature of distributions
for the prior year is sent to shareholders.
HOW TO BUY SHARES
Shares of the Funds are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with the financial
service firm before such time and transmitted by the financial service firm
before the Funds process that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The Funds may refuse any purchase order for their shares. See the Statement of
Additional Information for more information.
Other Classes of Shares. Each of the Small Cap, Asset Allocation and Equity
Funds also offer Class A, Class B and Class C shares through a separate
Prospectus. Income Fund also offers Class A shares through a separate
Prospectus, but does not permit new purchases of its Class A shares. In general,
anyone eligible to purchase Class I shares, which do not bear Rule 12b-1 fees
nor initial or contingent deferred sales charges, should do so in preference
over other classes.
General. Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay additional
compensation to financial service firms which have made or may make significant
sales. See the Statement of Additional Information for more information.
Special Purchase Programs. The Funds allow certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."
Investors may be charged a fee if they effect transactions in a Fund's shares
through a broker or agent.
Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.
In June of any year, a Fund may deduct $10 (payable to the Transfer Agent) from
accounts valued at less than $1,000 unless the account value has dropped below
$1,000 solely as a result of share value depreciation. Shareholders will receive
60 days' written notice to increase the account value before the fee is
deducted. The Funds may deduct annual maintenance and processing fees (payable
to the Transfer Agent) in connection with certain retirement plan accounts
sponsored by the Distributor. See "Special Purchase Programs/Investor Services"
in the Statement of Additional Information for more information.
<PAGE>
HOW TO SELL SHARES
Shares of the Funds may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will delay sending proceeds for 15 days in order to protect the Fund
against financial losses and dilution in net asset value caused by dishonored
purchase payment checks. To avoid delay in payment, investors are advised to
purchase shares unconditionally, such as by certified check or other immediately
available funds.
Selling Shares Directly To A 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:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which a Fund values its shares to receive
that day's price, are responsible for furnishing all necessary documentation to
the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes.
See the Statement of Additional Information for more information. Under unusual
circumstances, a Fund may suspend repurchases or postpone payment for up to
seven days or longer, as permitted by federal securities law. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
HOW TO EXCHANGE SHARES
Except as described below with respect to money market funds, Fund shares may be
exchanged at net asset value among the Class I shares of other mutual funds
offered through this Prospectus.
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. A Fund will terminate the exchange
privilege as to a particular shareholder if the Adviser determines, in its sole
and absolute discretion, that the shareholder's exchange activity is likely to
adversely impact the Adviser's ability to manage a Fund's investments in
accordance with its investment objective or otherwise harm the Fund or its
remaining shareholders.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges may be elected
on the account application. The Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine and may be
liable for losses related to unauthorized or fraudulent transactions in the
event reasonable procedures are not employed. Such procedures include
restrictions on where proceeds of telephone redemptions may be sent, limitations
on the ability to redeem by telephone shortly after an address change, recording
of telephone lines and requirements that the redeeming shareholder and/or his or
her financial adviser provide certain identifying information. Shareholders
and/or their financial advisers wishing to redeem or exchange shares by
telephone may experience difficulty in reaching the Fund at its toll-free
telephone number during periods of drastic economic or market changes. In that
event, shareholders and/or their financial advisers should follow the procedures
for redemption or exchange by mail as described above under "How to Sell
Shares." The Adviser, the Administrator, the Transfer Agent and each Fund
reserve the right to change, modify or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. Each Fund
represents the entire interest in a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Funds and any other series of the Trust that may
be in existence from time to time generally vote together except when required
by law to vote separately by fund or by class. Shareholders owning in the
aggregate ten percent of Trust shares may call meetings to consider removal of
Trustees. Under certain circumstances, the Trust will provide information to
assist shareholders in calling such a meeting. See the Statement of Additional
Information for more information.
Each Fund is a successor series to the Crabbe Huson Funds, a Delaware business
trust organized in 19__.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
S&P
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this obligation are
being continued.
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa bonds are considered as medium grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba bonds are judged to have speculative elements; their future cannot be
considered as well secured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
APPENDIX B
HEDGING INSTRUMENTS:
Options on Equity and Debt Securities--A call option is a short-term contract
pursuant to which the purchaser of the option, in return for a premium, has the
right to buy the security underlying the option at a specified price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation, upon exercise of the option during the option term,
to deliver the underlying security against payment of the exercise price. A put
option is a similar contract that gives its purchaser, in return for a premium,
the right to sell the underlying security at a specified price during the option
term. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to buy the
underlying security at the exercise price.
Options on Securities Indices--A securities index assigns relative values to the
securities included in the index and fluctuates with changes in the market
values of those securities. An index option operates in the same way as a more
traditional stock option, except that exercise of an index option is effected
with cash payment and does not involve delivery of securities. Thus, upon
exercise of an index option, the purchase will realize, and the writer will pay,
an amount based on the difference between the exercise price and the closing
price of the index.
Stock Index Futures Contracts--A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar amount
times the difference between the stock index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the stocks comprising the index is made. Generally,
contracts are closed out prior to the expiration date of the contract.
Interest Rate Futures Contracts--Interest rate futures contracts are bilateral
agreements pursuant to which one party agrees to make, and the other party
agrees to accept, delivery of a specified type of debt security at a specified
future time and at a specified price. Although such futures contracts by their
terms call for actual delivery or acceptance of debt securities, in most cases
the contracts are closed out before the settlement date without the making or
taking of delivery.
Options on Futures Contracts--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short
position if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exercise
of the option, the delivery of the futures position to the holder of the option
will be accompanied by delivery of the accumulated balance that represents the
amount by which the market price of the futures contract 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 future. The writer of an option, upon exercise, will assume a short
position in the case of a call and a long position in the case of a put.
Purchase of these financial instruments allows the Adviser to hedge against
changes in market conditions. For example, the Adviser may purchase a put option
in a securities index or when it believes that the stock prices will decline.
Conversely, the Adviser may purchase a call option in a securities index when it
anticipates that stock prices will increase.
<PAGE>
Investment Adviser
The Crabbe Huson Group, Inc.
121 S.W. Morrison, Suite 1400
Portland, OR 97204
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Services and Transfer Agent
Liberty Funds Services, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Auditors
KPMG Peat Marwick LLP
1211 S.W. Fifth Avenue, Suite 2000
Portland, OR 97204
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
October 7, 1998
CRABBE HUSON SMALL CAP FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON ASSET
ALLOCATION FUND
CRABBE HUSON INCOME FUND
CLASS I SHARES
PROSPECTUS
Crabbe Huson Small Cap Fund seeks to provide long-term capital appreciation.
Crabbe Huson Equity Fund seeks to provide long-term capital appreciation.
Crabbe Huson Asset Allocation Fund seeks preservation of capital, capital
appreciation and income.
Crabbe Huson Income Fund seeks to provide the highest level of current income
that is consistent with preservation of capital.
For more detailed information about the Funds, call the Distributor at
1-800-426-3750 for the October 7, 1998 Statement of Additional Information.
- ----------------------------- ------------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- ------------------------------
<PAGE>
COLONIAL TRUST III
Cross Reference Sheet
(Crabbe Huson Asset Allocation Fund)
(The Crabbe Huson Special Fund)
(Crabbe Huson Equity Fund)
(Crabbe Huson Small Cap Fund)
(Crabbe Huson Income Fund)
(Crabbe Huson Real Estate Investment Fund)
(Crabbe Huson Oregon Tax-Free 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 Meetings; Shareholder
Liability
19. How to Buy Shares; Determination of Net
Asset Value; Suspension of Redemptions;
Special Purchase Programs/Investor
Services; Programs for Reducing or
Eliminating Sales Charge; How to Sell
Shares; How to Exchange Shares
20. Oregon Tax Considerations; Taxes
21. Fund Charges and Expenses; Management
of the Funds
22. Fund Charges and Expenses; Investment
Performance; Performance Measures
23. Independent Auditors
<PAGE>
THE CRABBE HUSON SPECIAL FUND
CRABBE HUSON SMALL CAP FUND
CRABBE HUSON REAL ESTATE INVESTMENT FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON ASSET ALLOCATION FUND
CRABBE HUSON OREGON TAX-FREE FUND
CRABBE HUSON INCOME FUND
(collectively, the Funds)
STATEMENT OF ADDITIONAL INFORMATION
October 7, 1998
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectuses of the Funds.
This SAI is not a prospectus and is authorized for distribution only when
accompanied or preceded by the Prospectuses of the Funds dated October 7, 1998.
This SAI should be read together with the Prospectuses. Investors may obtain a
free copy of the Prospectus from Liberty Funds Distributor, Inc. (LFDI), One
Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the funds distributed by LFDI generally and additional
information about certain securities and investment techniques described in the
Funds' Prospectuses.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Oregon Tax Considerations
Portfolio Turnover
Fund Charges and Expenses
Investment Performance
Custodian
Independent Auditors
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
<PAGE>
Part 1
THE CRABBE HUSON SPECIAL FUND
CRABBE HUSON SMALL CAP FUND
CRABBE HUSON REAL ESTATE INVESTMENT FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON ASSET ALLOCATION FUND
CRABBE HUSON OREGON TAX-FREE FUND
CRABBE HUSON INCOME FUND
Statement of Additional Information
October 7, 1998
DEFINITIONS
"Trust" Colonial Trust III
"Special Fund" The Crabbe Huson Special Fund
"Small Cap Fund" Crabbe Huson Small Cap Fund
"Real Estate Fund" Crabbe Huson Real Estate Investment Fund
"Equity Fund" Crabbe Huson Equity Fund
"Asset Allocation Fund" Crabbe Huson Asset Allocation Fund
"Oregon Tax-Free Fund" Crabbe Huson Oregon Tax-Free Fund
"Income Fund" Crabbe Huson Income Fund
"Adviser" The Crabbe Huson Group, Inc., the Funds'
investment adviser
"Administrator" Colonial Management Associates, Inc., the
Funds' administrator
"LFDI" Liberty Funds Distributor, Inc., the Funds'
distributor
"LFSI" Liberty Funds Services, Inc., the Funds'
shareholder services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Funds' Prospectuses describe their investment objectives and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the fundamental investment policies of the Funds. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectuses:
Foreign Securities Money Market Instruments
Repurchase Agreements Securities Loans
Participation Interests Forward Commitments
Futures Contracts and Related Options Options on Securities
Small Companies Rule 144A Securities
Except as indicated under "Fundamental Investment Policies," the Funds'
investment policies are not fundamental and the Trustees may change the policies
without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
Each Fund may:
1. Borrow from banks, other affiliated funds and other persons to the extent
permitted by applicable law, provided that a Fund's borrowings shall not
exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other percentage
permitted by law;
2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets;
3. Purchase and sell futures contracts and related options as long as the
total initial margin and premiums do not exceed 5% of total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans (a) through lending of securities, (b) through the purchase of
debt instruments or similar evidences of indebtedness typically sold
privately to financial institutions, (c) through an interfund lending
program with other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3% of the
value of its total assets (taken at market value at the time of such
loans), and (d) through repurchase agreements; and
6. Not concentrate more than 25% (not applicable to the Real Estate Fund) of
its total assets in any one industry or with respect to 75% of the Fund's
assets (not applicable to the Oregon Tax-Free Fund), purchase the
securities of any issuer (other than obligations issued or guaranteed as to
principal and interest by the Government of the United States or any agency
or instrumentality thereof) if, as a result of such purchase, more than 5%
of the Fund's total assets would be invested in the securities of such
issuer.
Notwithstanding the investment policies and restrictions of the Funds, each Fund
may invest all or a portion of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as such Fund.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:
<PAGE>
1. Have a short sales position (except for the Special Fund), unless the
Fund owns, or owns rights (exercisable without payment) to acquire, an
equal amount of securities; and
2. Invest more than 15% of its net assets in illiquid assets.
OREGON TAX CONSIDERATIONS
If the Oregon Tax-Free Fund does not qualify as a regulated investment company
under the Internal Revenue Code (Code), it will be treated for tax purposes as
an ordinary corporation and will receive no tax deduction for payments made to
shareholders and will be unable to pay "exempt interest dividends," as discussed
in the Prospectus.
From time to time, proposals have been introduced before Congress and the
Internal Revenue Service for the purpose of restricting or eliminating the
federal income tax exemption for interest on municipal securities, including
private activity bonds. It is likely that similar proposals will be introduced
in the future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund and the value of the Fund's portfolio
could be adversely affected. In such event, the Fund would re-evaluate its
investment objectives and policies and consider recommending to its shareholders
changes in the structure of the Fund.
Section 147 of the Code prohibits exemption from taxation of interest on certain
governmental obligations paid to persons who are "substantial users" (or persons
related thereto) of facilities financed by such obligations. "Substantial user"
is generally defined to include a "nonexempt person" who is entitled to use more
than 5% of a facility financed from the proceeds of industrial development
bonds. No investigation as to the substantial users of the facilities financed
by bonds in the Fund's portfolio will be made by the Fund. Potential investors
who may be, or may be related to, substantial users of such facilities should
consult their tax advisors before purchasing shares of the Fund.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The Fund provides each shareholder with an annual
statement of the federal income tax status of all distributions, including a
statement of percentage of the prior year's distributions designated by the Fund
to be treated as tax-exempt interest or long-term capital gain. The dollar
amounts of tax-exempt and taxable dividends and distributions paid by the Fund
that are reported annually to shareholders will vary for each shareholder,
depending upon the size and duration of the shareholder's investment in the
Fund. To the extent that the Fund derives investment income from taxable
interest, it intends to designate as the actual taxable income the same
percentage of each day's dividend as the actual taxable income bears to the
total investment income earned on that day. The percentage of the dividend
designated as taxable (if any), therefore, may vary from day to day.
Individuals, trusts, and estates who or which are residents of the state of
Oregon will not be subject to the Oregon personal income tax on distributions
from the Fund representing tax-exempt interest paid on municipal securities
issued by the State of Oregon and its political subdivisions. Distributions to
Oregon residents representing earnings of the Fund from sources other than such
tax-exempt interest will be subject to the Oregon personal income tax. In
addition, the Fund anticipates that all distributions from the Fund, from any
source, to corporations subject to the Oregon Corporation excise tax will be
subject to that tax. For purposes of the Oregon personal income tax and the
Oregon corporate excise tax, income from Fund distributions of interest paid on
municipal securities issued by a state, other than Oregon, and its political
subdivisions will be reduced by interest on indebtedness incurred to carry such
securities and expenses incurred to produce such income.
The Oregon Corporate Excise Tax Act generally taxes corporations on income
received from municipal securities, including those issued by the state of
Oregon and its political subdivisions. Since this Fund is a trust, it would
generally be subject to such a tax. However, the Oregon Department of Revenue
has adopted an administrative rule (Oregon Administrative Rule 150.317,010(10))
which provides that a registered investment company may deduct from its income
an amount equal to the exempt interest dividends paid to its shareholders. The
Fund expects to distribute substantially all of its interest income as dividends
to its shareholders and, therefore, does not expect to be liable for Oregon
Corporate Excise tax.
Under the Code, interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying "exempt interest dividends," such
as the Fund, is not deductible by the investor. Under rules used by the Internal
Revenue Service, the purchase of shares may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to the
purchase of shares. In addition, under Sections 265 and 291 of the Code, certain
financial institutions acquiring shares may be subject to a reduction in the
amount of interest expense that would otherwise be allowable as a deduction for
federal income tax purposes.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectus under "The Fund's Financial
History." High portfolio turnover may cause a Fund to realize capital gains
which, if realized and distributed by a Fund, may be taxable to shareholders as
ordinary income. High portfolio turnover may result in correspondingly greater
brokerage commission and other transaction costs, which will be borne directly
by a Fund.
FUND CHARGES AND EXPENSES
Under the Funds' management agreements, Each Fund pays the Adviser a fee for its
services that accrues daily and is payable bi-monthly. Fees are based on a
percentage of the average daily net assets of each Fund, as set forth below
(subject to reductions that the Adviser may agree to periodically):
<TABLE>
<CAPTION>
Special Fund
Small Cap Fund
Real Estate Fund
Equity Fund
Asset Allocation Fund Income Fund Oregon Tax-Free Fund
Net Asset Value Annual Rate Annual Rate Annual Rate
- --------------- ----------- ----------- -----------
<S> <C> <C> <C>
First $100 million 1.05% 0.80% 0.55%
Next $400 million 0.90% 0.65% 0.50%
Amounts over $500 million 0.65% 0.55% 0.45%
</TABLE>
The Funds each pay the Administrator a monthly pricing and bookkeeping fee of
$2,250 plus the following percentages of each Fund's average daily net assets
over $50 million (subject to reductions that the Administrator may agree to
periodically):
0.035% on the next $950 million
0.025% on the next $1 billion
0.015% on the next $1 billion
0.001% on the excess over $3 billion
Under each Fund's transfer agency and shareholder servicing agreement, each Fund
pays LFSI a monthly fee at the annual rate of % of average daily net assets,
plus certain out-of-pocket expenses.
The following information relates to expenses of each Fund's predecessor under
agreements in effect prior to October 7, 1998.
Fees paid to the Adviser, State Street Bank and Trust Company (formerly the
Funds' administrator, transfer agent and dividend disbursing agent) and Crabbe
Huson Securities, Inc.(CHSI) (formerly the Funds' distributor) (dollars in
thousands)
<TABLE>
<CAPTION>
Special Fund
Six-Months ended April 30 Year ended October 31
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $3,610 $5,876 $5,398
Fees waived by the Adviser (315) ---- (1)
Administration fee 174 298
<CAPTION>
Small Cap Fund
Six-Months ended April 30 Year ended October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $628 $66
Fees waived by the Adviser (124) (55)
Administration fee 28 2(b)
<CAPTION>
Real Estate Fund
Six-Months ended April 30 Year ended October 31
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $312 $165 $191
Fees waived by the Adviser (82) (63) (75)
Administration fee 13 6
The Real Estate Fund entered into a subadvisory agreement with Aldrich Eastman
Waltch, L.P. and the Adviser on September 6, 1995. The Adviser paid to Adlrich
Eastman Waltch, L.P. a portion of its Fee. In the years ending October 31, 1996
and 1997, the Adviser paid advisory fees of $62,591 and $121,986, respectively,
to Aldrich Eastman Waltch, L.P. This Subadvisory Agreement has been terminated.
<CAPTION>
Equity Fund
Six-Months ended April 30 Year ended October 31
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $3,617 $4,035 $2,471
Fees waived by the Adviser (78) (2) ----
Administration fee 178 168
<PAGE>
<CAPTION>
Asset Allocation Fund
Six-Months ended April 30 Year ended October 31
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $1,180 $1,355 $1,183
Fees waived by the Adviser (162) (a) (15)
Bookkeeping fee 57 53
<CAPTION>
Oregon Tax-Free Fund
Six-Months ended April 30 Year ended October 31
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $131 $139 $134
Fees waived by the Adviser (31) (15) (21)
Bookkeeping fee 11 11
<CAPTION>
Income Fund
Six-Months ended April 30 Year ended October 31
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $28 $45 $49
Fees waived by the Adviser (28) (45) (49)
Administrative fee 2 2
</TABLE>
(a) Rounds to less than $1,000.
(b) The Small Cap Fund commenced investment operations on February 16, 1996.
Additionally, the Adviser received a fee for certain shareholder liaison
services it provided to the Funds, including responding to shareholder
inquiries, providing information on shareholder investments and performing
certain clerical tasks. In each of the last three years, for such services, the
Adviser has been paid by the Funds $100,000 a year. The Funds paid their pro
rata share of such fee based upon their net asset value.
Brokerage Commissions (dollars in thousands)
In addition to placing the Funds' brokerage business with firms that provide
research and market and statistical services to the Adviser, the Funds'
brokerage business may also be placed with firms that agree to pay a portion of
certain Fund expenses, consistent with achieving the best price and execution.
On November 29, 1995, the Special, Equity, Asset Allocation and Real Estate
Funds entered into an arrangement with State Street Brokerage Services, Inc.
("SSBSI"), in which these Funds will receive credits to offset transfer agency,
administration and accounting fees by using SSBSI to execute their portfolio
transactions. For the fiscal year ending October 31, 1997, the Special Fund,
Equity Fund and Asset Allocation Fund received credits of $0, $4,274 and $147,
respectively. For the period ended April 30, 1998, the Special Fund, Equity Fund
and Asset Allocation Fund received credits of $___, $_____ and $____,
respectively
In the fiscal year ended October 31, 1995, the Special Fund paid $4,610,652, the
Equity Fund paid $1,228,492, the Asset Allocation Fund paid $279,948, the Income
Fund paid $416 and the Real Estate Fund paid $60,139 in brokerage commissions.
None of these commissions were paid to CHSI. The Oregon Tax-Free Fund did not
pay any brokerage commissions in the year ended October 31, 1995, as this Fund
executed all portfolio transactions on a principal basis. Of the commissions
paid in the fiscal year ending October 31, 1995, the Special Fund paid
$1,594,562, the Equity Fund paid $754,846, the Asset Allocation Fund paid
$180,671, and the Real Estate Fund paid $44,614 in commissions as a result of
research provided by the brokers. None of the other Funds directed brokerage on
the basis of research provided by a broker. The Small Cap Fund began operations
in 1996.
For the fiscal year ended October 31, 1996, the Special Fund paid $1,973,393,
the Small Cap Fund paid $49,126, the Equity Fund paid $1,891,778, the Asset
Allocation Fund paid $356,194 and the Real Estate Investment Fund paid $101,225
in brokerage commissions. None of these commissions were paid to CHSI. The
Oregon Tax-Free Fund and the Income Fund did not pay any brokerage commissions
in the fiscal year ended October 31, 1996. Of the commissions paid in the fiscal
year ended October 31, 1996, the Special Fund paid $653,329, the Equity Fund
paid $1,325,587, the Asset Allocation Fund paid $252,090, the Small Cap Fund
paid $12,592 and the Real Estate Fund paid $83,773 in commissions as a result of
research provided by the brokers.
For the fiscal year ended October 31, 1997, the Special Fund paid $1,277,614,
the Small Cap Fund paid $275,266, the Equity Fund paid $1,968,522, the Asset
Allocation Fund paid $366,934 and the Real Estate Investment Fund paid $115,913
in brokerage commissions. None of these commissions were paid to CHSI. The
Oregon Tax-Free Fund and the Income Fund did not pay any brokerage commissions
in the fiscal year ended October 31, 1997. Of the commissions paid in the fiscal
year ended October 31, 1997, the Special Fund paid $658,128, the Small Cap Fund
paid $1,503,609, the Equity Fund paid $275,112, the Asset Allocation Fund paid
$170,543 and the Real Estate Investment Fund paid $113,258 in commissions to
brokers that provided both research and execution services or third party
research products.
For the period ended April 30, 1998, the Special Fund paid $________, the Small
Cap Fund paid $_________, the Equity Fund paid $_________, the Asset Allocation
Fund paid $_________ and the Real Estate Investment Fund paid $__________ in
brokerage commissions. None of these commissions were paid to CHSI. The Oregon
Tax-Free Fund and the Income Fund did not pay any brokerage commissions during
the period ended April 30, 1998. Of the commissions paid during the period ended
April 30, 1998, the Special Fund paid $________, the Small Cap Fund paid
$___________, the Equity Fund paid $_________, the Asset Allocation Fund paid
$________ and the Real Estate Investment Fund paid $_________ in commissions to
brokers that provided both research and execution services or third party
research products.
Directors, Trustees and Fees
The following Trustees, Directors and officers of the Funds served through
October 7, 1998 and are listed below, together with information about their
principal business occupations during the last five years. Information about the
Trust's current Trustees and officers appears in Part 2 of this SAI.
RICHARD S. HUSON,* 58, was a Trustee or Director and President of each of the
Funds. Mr. Huson is a chartered financial analyst. Mr. Huson was a director and
Secretary of the Crabbe Huson Group, Inc., the Funds' Adviser (the "Adviser").
Mr. Huson has, since 1980, served in various positions with the Adviser
including roles such as Vice President/Secretary and portfolio manager. His
business address is 121 S.W. Morrison, Suite 1400, Portland, Oregon 97204.
JAMES E. CRABBE,* 52, was a Trustee or Director and Vice President of each of
the Funds. He is a director and President of the Adviser. Mr. Crabbe has, since
1980, served in various positions with the Adviser, and is currently its
President, Chief Investment Officer and a portfolio manager. His business
address is 121 SW Morrison, Suite 1400, Portland, Oregon 97204.
GARY L. CAPPS, 61, was a Trustee or Director of each of the Funds. Mr. Capps was
the owner and Chief Executive Officer of ten radio stations in Oregon, Idaho and
Washington from 1964 until 1986. He has been a director of Bank of the Cascades
in Bend, Oregon since 1980, and has served as Chairman since 1983. His business
address is 63085 N. Hwy 97, Bend, Oregon 97701.
CHERYL BURGERMEISTER,* 46, was Treasurer of the Funds. Ms. Burgermeister has
been employed by the Adviser for the past nine years, and has been the chief
financial officer of the Adviser since 1989. Ms. Burgermeister's business
address is 121 SW Morrison, Suite 1400, Portland, Oregon 97204. Ms.
Burgermeister is Treasurer of CHSI.
LOUIS SCHERZER, 77, was a Trustee or Director of each of the Funds. Mr. Scherzer
is an officer of Scherzer Partners, Inc., a real estate development and
management firm located at 5440 SW Westgate Drive, Suite 222, Portland, Oregon
97221. Mr. Scherzer has been an independent real estate developer and manager
for more than 10 years.
BOB L. SMITH, 60, was a Trustee or Director of each of the Funds. Mr. Smith has
been President of VIP's Industries since 1968, and has been a Director of
Western Security Bank since 1980, a Director of KeyCorp since 1988 and a
Director of Blue Cross/Blue Shield of Oregon since 1984. His business address is
280 Liberty Street S.E., Salem, Oregon 97301.
CRAIG P. STUVLAND,* 42, was a Trustee or Director and Secretary of each of the
Funds. Mr. Stuvland has been employed by the Adviser since June, 1987; he is
currently an Executive Vice President and a Director. Mr. Stuvland's business
address is 121 S.W. Morrison, Suite 1400, Portland, Oregon 97204. Mr. Stuvland
is President and a director of CHSI.
RICHARD P. WOLLENBERG, 82, was a Trustee or Director of each of the Funds. Mr.
Wollenberg has been Chairman and Chief Executive Officer of Longview Fibre
Company since 1978, and a Trustee of Reed College since 1962. His business
address is Longview Fibre Company, P.O. Box 606, Longview, Washington 98632.
WILLIAM WENDELL WYATT, JR., 47, was a Trustee or Director of each of the Funds.
Mr. Wyatt has been Chief of Staff, Office of the Governor, State of Oregon,
since April, 1995. From 1987 to 1995, he was President of the Oregon Business
Council. His business address is 254 State Capitol, Salem, Oregon 97310-0370.
*The persons indicated were "interested persons" of the Fund, as defined in the
Investment Company Act of 1940 (the "1940 Act") as amended. They received no
trustees' or directors' fees or salaries from any of the Funds.
The following table sets forth compensation received by the former disinterested
directors of the Funds during the fiscal year ended October 31, 1997. No officer
of any of the Funds received compensation in excess of $60,000 from an
individual Fund.
<TABLE>
<CAPTION>
Total Compensation From Fund
Aggregate Compensation from Complex Paid to Each
Name of Person, Position Fund, per Director Trustee/Director (1)
<S> <C> <C> <C>
Smith, Scherzer, Wyatt,
Directors Special Fund $ 4,873 $11,719
Real Estate Fund 429
Equity Fund 3,213
Asset Allocation Fund 1,684
Oregon Tax-Free Fund 517
Income Fund 147
U.S. Government Income Fund 160
U.S. Government Money Market Fund 604
Small Cap Fund* 92
Wollenberg, Capps,
Directors Special Fund 4,818 11,619
Real Estate Fund 128
Equity Fund 3,184
Asset Allocation Fund 1,675
Oregon Tax-Free Fund 515
Income Fund 147
U.S. Government Income Fund 159
U.S. Government Money Market Fund 601
Small Cap Fund* 92
</TABLE>
* The Small Cap fund commenced operations February 16, 1996.
(1) At October 31, 1997, there were nine Funds in the Fund Complex.
The Funds also reimbursed trustees/directors' expenses for attending shareholder
and director meetings for directors who are not officers, directors, or
employees of the Adviser or CHSI.
Effective October 7, 1998, the following individuals began service as Trustees
for the Funds(a):
<TABLE>
<CAPTION>
Estimated Total Compensation From Trust and Fund
Aggregate Complex Paid To The Trustees For The
Trustee Compensation (b) Calendar Year Ended December 31, 1997(c)
- ------- Special Asset Allocation Small Cap Income Oregon Tax- Equity Real Estate
Fund Fund Fund Fund Free Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Birnbaum $ $ $ $ $ $ $ $ 93,949
Tom Bleasdale 106,432(d)
Lora S. Collins 93,949
James E. Grinnell 94,698(e)
Richard W. Lowry 94,698
William E. Mayer 89,949
James L. Moody, Jr. 98,447(f)
John J. Neuhauser 94,948
Robert L. Sullivan 99,945
</TABLE>
(a) The Funds do not currently offer pension or retirement plan benefits to
Trustees.
(b) Compensation is estimated based upon future payments to be made and upon
estimated relative Fund net assets.
(c) At December 31, 1997, the Libertyl Funds complex consisted of 39 open-end
and 5 closed-end management investment company portfolios.
(d) Includes $57,454 payable in later years as deferred compensation.
(e) Includes $6,273 payable in later years as deferred compensation.
(f) Total compensation of $98,447 will be payable in later years as deferred
compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(formerly known as The Charles Allmon Trust, Inc.) (together, Liberty Funds) for
service during the calendar year ended December 31, 1997:
Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1997 (g)
Robert J. Birnbaum $26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800
(g) The Liberty Funds are advised by Liberty Asset Management Company
(LAMCO). LAMCO is an indirect wholly-owned subsidiary of Liberty
Financial Companies, Inc.(an intermediate parent of the Adviser and the
Administrator).
Ownership of the Fund
The following information is as of September 30, 1998:
12b-1 Plan, CDSC and Conversion of Shares
The Funds offer multiple classes of shares, including Class A, Class B, Class C
and Class I. The Funds may in the future offer other classes of shares. The
Trustees have approved 12b-1 plans (Plans) pursuant to Rule 12b-1 under the Act
for each of the Class A, Class B and Class C shares of the Funds. Under the
Plans, each Fund pays LFII monthly a service fee at an annual rate of 0.25% of
net assets attributed to the ClassA, Class B and Class C shares and a
distribution fee at an annual rate of 0.75% of average daily net assets
attributed to Class B and Class C shares. LFII may use the entire amount of such
fees to defray the cost of commissions and service fees paid to financial
service firms (FSFs) and for certain other purposes. Since the distribution and
service fees are payable regardless of LFII's expenses, LFII may realize a
profit from the fees.
The Plans authorize any other payments by a Fund to LFDI and its affiliates
(including the Adviser) to the extent that such payments might be construed to
be indirectly financing the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of assets resulting in a more advantageous expense ratio and increased
investment flexibility which could benefit shareholders of each class of the
Funds. 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 Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the 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 CDSC. Class B shares are offered at net asset value subject to a
CDSC if redeemed within six years after purchase. Class C shares are offered at
net asset value and are subject to a 1.00% CDSC on redemptions within one year
after purchase. Class I shares are offered at net asset value. The CDSCs are
described in the Prospectus.
No CDSC will be imposed on distributions or on amounts which represent an
increase in the value of the shareholder's account resulting from 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.
During the fiscal year ended October 31, 1997, the Funds paid the following
amounts under the Funds' Plans:
<TABLE>
<CAPTION>
Printing/Mailing Broker/Deale Salesperson
Fund Total Advertising Prospectus Payments Payments Other*
<S> <C> <C> <C> <C> <C> <C>
Special Fund $924,527(1) $135,155 $70,201 $576,608 $11,039 $131,523
Small Cap Fund $ 61,209 $ 9,540 $ 7,693 $ 36,198 $ 7 $ 7,772
Real Estate Fund $113,986(2) $ 20,430 $ 8,282 $ 74,162 $ 230 $ 10,882
Equity Fund $964,533 $122,918 $66,733 $629,896 $18,798 $126,188
Asset Allocation Fund $271,922(3) $ 35,566 $21,645 $178,405 $ 208 $ 36,097
Oregon Tax-Free Fund $ 44,316 $ 8,197 $ 6,415 $ 21,092 $ 647 $ 7,965
Income Fund $ 7,200 $ 1,203 $ 600 $ 4,205 $ -0- $ 1,192
During the period ended April 30, 1998, the Funds paid the following amounts
under the Funds' Plans:
<CAPTION>
Printing/Mailing Broker/Deale Salesperson
Fund Total Advertising Prospectus Payments Payments Other*
<S> <C> <C> <C> <C> <C> <C>
Special Fund $
Small Cap Fund $
Real Estate Fund $
Equity Fund $
Asset Allocation Fund $
Oregon Tax-Free Fund $
Income Fund $
</TABLE>
(1) Of this amount, the Special Fund paid $636,830, and the balance was paid by
the Adviser.
(2) Of this amount, the Real Estate Fund paid $77,911, and the balance was paid
by the Adviser.
(3) Of this amount, the Asset Allocation Fund paid $264,915, and the balance
was paid by the Adviser.
* This category consists of miscellaneous expenses incurred in promoting the
Funds' shares, including salary expenses, NASD Fees and miscellaneous
office expenses.
INVESTMENT PERFORMANCE
As of October 31, 1997, no Class B or Class C shares were issued. Class A shares
were formerly designated as the "Primary Class" and Class I shares were formerly
designated as the "Institutional Class".
The Fund's yields for the months ended April 30, 1998 and October 31, 1997 were:
Class A Shares Class I Shares
Special Fund
Real Estate Fund
Equity Fund
Asset Allocation Fund
Oregon Tax-Free Fund
Income Fund
Small Cap Fund
Class A Shares
1 Year 5 Years 10 Years
Special Fund
Equity Fund
Asset Allocation Fund
Oregon Tax-Free Fund
Income Fund
Small Cap Fund
Real Estate Fund
<PAGE>
Class I Shares
1 Year Since Inception
Equity Fund
Asset Allocation fund
The Funds' Class A distribution rates at October 31, 1997, which are based on
distributions and the maximum offering price at the end of the month, were%, %,
%, %, % % and % for each of the Funds and Class I distribution rates were %, %,
and % for the Funds, respectively. See Part 2 of this SAI "Performance Measures"
for how calculations are made.
The Funds' Class A distribution rates at April 30, 1998, which are based on
distributions and the maximum offering price at the end of the month, were%, %,
%, %, % % and % for each of the Funds and Class I distribution rates were %, %,
and % for the Funds, respectively. See Part 2 of this SAI "Performance Measures"
for how calculations are made.
CUSTODIAN
State Street Bank & Trust Company is the custodian for the Funds. The custodian
is responsible for safeguarding and controlling the Funds' cash and securities,
receiving and delivering securities and collecting the each Fund's interest and
dividends.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP acts as the Funds' independent auditors. In such capacity,
KPMG Peat Marwick LLP performs the annual audit of each Fund's financial
statements and assists in the preparation of tax returns.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Fund" or
"funds" include each series of Colonial Trust I, Colonial Trust II, Colonial
Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and Colonial
Trust VII. In certain cases, the discussion applies to some but not all of the
funds, and you should refer to your Fund's Prospectus and to Part 1 of this SAI
to determine whether the matter is applicable to your Fund. You will also be
referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Debt Securities
Lower rated debt securities are those rated lower than Baa by Moody's, BBB by
S&P, or comparable unrated debt securities. Relative to debt securities of
higher quality,
1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and
potential for default for lower rated debt securities;
2. the secondary market for lower rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
3. the Adviser's credit analysis of lower rated debt securities may have a
greater impact on the fund's achievement of its investment objective and
4. lower rated debt securities may be less sensitive to interest rate
changes, but are more sensitive to adverse economic developments.
In addition, certain lower rated debt securities may not pay interest in cash on
a current basis.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxation" below.
Zero Coupon Securities (Zeros)
The fund may invest in zero coupon securities which are securities issued at a
significant discount from face value and pay interest only at maturity rather
than at intervals during the life of the security and in certificates
representing undivided interests in the interest or principal of mortgage-backed
securities (interest only/principal only), which tend to be more volatile than
other types of securities. The Fund will accrue and distribute income from
stripped securities and certificates on a current basis and may have to sell
securities to generate cash for distributions.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which pay interest at a series of
different rates (including 0%) in accordance with a stated schedule for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities may be subject to additional volatility risk than
fixed rate debt securities.
Tender Option Bonds
A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Adviser will consider on an ongoing basis the creditworthiness of the issuer of
the underlying municipal securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal securities and for other
reasons.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities. These securities are generally high yield securities and
in addition to the other risks associated with investing in high yield
securities, are subject to the risks that the interest payments which consist of
additional securities are also subject to the risks of high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory note issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
<PAGE>
Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where such purchases are made
through dealers, the fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the fund of an advantageous
yield or price. Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the Adviser deems it appropriate to do so. The
fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
<PAGE>
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to enter into OTC options transactions only with primary dealers in U.S.
government securities and, in the case of OTC options written by the fund, only
pursuant to agreements that will assure that the fund will at all times have the
right to repurchase the option written by it from the dealer at a specified
formula price. The fund will treat the amount by which such formula price
exceeds the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the fund not to enter into any
OTC option transaction if, as a result, more than 15% (10% in some cases, refer
to your fund's Prospectus) of the fund's net assets would be invested in (i)
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the fund, (ii) OTC options purchased by the fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Adviser to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the Securities and
Exchange Commission's requirements, cash or liquid securities, equal in value to
the amount of the fund's obligation under the contract (less any applicable
margin deposits and any assets that constitute "cover" for such obligation),
will be segregated with the fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the Securities and Exchange
Commission's requirements, cash or liquid securities equal in value to the
commodity value (less any applicable margin deposits) have been deposited in a
segregated account of the fund's custodian. The fund may purchase and write call
and put options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. The
fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser`s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of interest rate and U.S. Treasury security futures
contracts and options. The funds investing in tax-exempt securities issued by a
governmental entity may purchase and sell futures contracts and related options
on interest rate and U.S. Treasury securities when, in the opinion of the
Adviser, price movements in these security futures and related options will
correlate closely with price movements in the tax-exempt securities which are
the subject of the hedge. Interest rate and U.S. Treasury securities futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of security called for in the contract at a specified date and price.
Options on interest rate and U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
futures contract at the specified option exercise price at any time during the
period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in interest rate and U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of index futures by the fund for hedging purposes is also subject
to the Adviser's ability to predict correctly movements in the direction of the
market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging." When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
<PAGE>
Municipal Lease Obligations
Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax adviser for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.
Alternative Minimum Tax. Distributions derived from interest which is exempt
from regular federal income tax may subject corporate shareholders to or
increase their liability under the corporate alternative minimum tax (AMT). A
portion of such distributions may constitute a tax preference item for
individual shareholders and may subject them to or increase their liability
under the AMT.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT. The dividends received
deduction for eligible dividends is subject to a holding period requirement
modified pursuant to the Taxpayer Relief Act of 1997 (the "1997 Act").
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Fund Distributions. Distributions from the fund (other than exempt-interest
dividends, as discussed below) will be taxable to shareholders as ordinary
income to the extent derived from the fund's investment income and net
short-term gains. Pursuant to the 1997 Act, two different tax rates apply to net
capital gains (that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year). One rate (generally 28%) generally applies to net gains on capital
assets held for more than one year but not more than 18 months (28% rate gains)
and a second, preferred rate (generally 20%) applies to the balance of such net
capital gains (adjusted net capital gains). Distributions of net capital gains
will be treated in the hands of shareholders as 28% rate gains to the extent
designated by the fund as deriving from net gains from assets held for more than
one year but not more than 18 months, and the balance will be designated as
adjusted net capital gains. Distributions of 28% rate gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held the shares in the fund. Distributions will be taxed as
described above whether received in cash or in fund shares.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term capital gains will in
general be taxable to shareholders as long-term capital gains regardless of the
length of time fund shares are held. Pursuant to the Taxpayer Relief Act of
1997, long-term capital gains are subject to a maximum tax rate of either 28% or
20% depending on the fund's holding period in the portfolio assets generating
the gains.
A tax-exempt fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the fund's ordinary income which
will be taxable when distributed. Any market discount recognized on a tax-exempt
bond purchased after April 30, 1993 with a term at time of issue of one year or
more is taxable as ordinary income. A market discount bond is a bond acquired in
the secondary market at a price below its "stated redemption price" (in the case
of a bond with original issue discount, its"revised issue price").
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. The sale, exchange or redemption of fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares will be treated as 28% rate gain if the shares have been held for more
than 12 months but not more than 18 months, and as adjusted net capital gains if
the shares have been held for more than 18 months. Otherwise the gain on the
sale, exchange or redemption of fund shares will be treated as short-term
capital gain. In general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held more than 12
months, and otherwise as short-term loss.. However, any loss realized upon a
taxable disposition of shares held for six months or less will be treated as
long-term, rather than short-term, capital loss to the extent of any long-term
capital gain distributions received by the shareholder with respect to those
shares. All or a portion of any loss realized upon a taxable disposition of
shares will be disallowed if other shares are purchased within 30 days before or
after the disposition. In such a case, the basis of the newly purchased shares
will be adjusted to reflect the disallowed loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. Government securities).
Hedging Transactions. If the fund engages in hedging transactions, including
hedging transactions in options, futures contracts, and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's securities, or
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders. The fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
fund.
Securities Issued at a Discount. The fund's investment in securities issued at a
discount and certain other obligations will (and investments in securities
purchased at a discount may) require the fund to accrue and distribute income
not yet received. In such cases, the fund may be required to sell assets
(including when it is not advantageous to do so) to generate the cash necessary
to distribute as dividends to its shareholders all of its income and gains and
therefore to eliminate any tax liability at the fund level.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the fund may make
an election permitting its shareholders to take a deduction or credit for
federal tax purposes for their portion of certain qualified foreign taxes paid
by the fund. The Adviser will consider the value of the benefit to a typical
shareholder, the cost to the fund of compliance with the election, and
incidental costs to shareholders in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit will be subject to
certain limitations imposed by the Code (including a holding period requirement
imposed pursuant to the 1997 Act), as a result of which a shareholder may not
get a full credit for the amount of foreign taxes so paid by the fund.
Shareholders who do not itemize on their federal income tax returns may claim a
credit (but no deduction) for such foreign taxes.
Investment by the fund in certain "passive foreign investment companies" could
subject the fund to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to fund shareholders. However, the fund may be able to elect to
treat a passive foreign investment company as a "qualified electing fund," in
which case the fund will be required to include its share of the company's
income and net capital gain annually, regardless of whether it receives any
distribution from the company. Alternatively, the fund may make an election to
mark the gains (and to a limited extent losses) in such holdings "to the market"
as though it had sold and repurchased its holdings in those passive foreign
investment companies on the last day of the fund's taxable year. Such gains and
losses are treated as ordinary income and loss. The qualified electing fund and
mark-to-market elections may have the effect of accelerating the recognition of
income (without the receipt of cash) and increase the amount required to be
distributed for the fund to avoid taxation. Making either of these elections
therefore may require a fund to liquidate other investments (including when it
is not advantageous to do so) to meet its distribution requirement, which also
may accelerate the recognition of gain and affect a fund's total return.
MANAGEMENT OF THE FUNDS (in this section, and the following sections entitled
"Trustees and Officers," "The Management Agreement," "Administration Agreement,"
"The Pricing and Bookkeeping Agreement," "Portfolio Transactions," "Investment
decisions," and "Brokerage and research services," the "Adviser" refers to
Colonial Management Associates, Inc.) The Adviser is the investment adviser to
each of the funds (except for The Crabbe Huson Special Fund, Crabbe Huson Small
Cap Fund, Crabbe Huson Real Estate Investment Fund, Crabbe Huson Equity Fund,
Crabbe Huson Asset Allocation Fund, Crabbe Huson Oregon Tax-Free Fund and Crabbe
Huson Income Fund, Colonial Money Market Fund, Colonial Municipal Money Market
Fund, Colonial Global Utilities Fund, Newport Tiger Fund, Newport Tiger Cub
Fund, Newport Japan Opportunities Fund and Newport Greater China Fund - see Part
I of each Fund's respective SAI for a description of the investment adviser).
The Adviser is a subsidiary of The Colonial Group, Inc. (TCG), One Financial
Center, Boston, MA 02111. TCG is a direct majority-owned subsidiary of Liberty
Financial Companies, Inc. (Liberty Financial), which in turn is a direct
subsidiary of majority-owned LFC Holdings, Inc., which in turn is a direct
subsidiary of Liberty Mutual Equity Corporation, which in turn is a wholly-owned
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is an underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S. Liberty Financial's address is 600 Atlantic Avenue, Boston,
MA 02210. Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117.
Trustees and Officers (this section applies to all of the funds)
<TABLE>
<CAPTION>
Name and Address Age Position with Fund Principal Occupation During Past Five Years
- ---------------- --- ------------------ --------------------------------------------
<S> <C> <C> <C>
Robert J. Birnbaum 70 Trustee Consultant(formerly Special Counsel, Dechert Price &
313 Bedford Road Rhoads from September, 1988 to December, 1993, President,
Ridgewood, NJ 07450 New York Stock Exchange from May, 1985 to June, 1988,
President, American Stock Exchange, Inc. from 1977 to
May, 1985).
Tom Bleasdale 67 Trustee Retired (formerly Chairman of the Board and Chief
11 Cariage Way Executive Officer, Shore Bank & Trust Company from
Danvers, MA 01923 1992-1993), is a Director of The Empire Company since
June, 1995.
Lora S. Collins 62 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road Frankel from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 68 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
Richard W. Lowry 61 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 57 Trustee Partner, Development Capital, LLC (formerly Dean, College
500 Park Avenue, 5th Floor of Business and Management, University of Maryland from
New York, NY 10022 October, 1992 to November, 1996, Dean, Simon Graduate
School of Business, University of Rochester from October, 1991
to July, 1992).
James L. Moody, Jr. 66 Trustee Retired (formerly Chairman of the Board, Hannaford Bros.
16 Running Tide Road Co. from May, 1984 to May, 1997, and Chief Executive
Cape Elizabeth, ME 04107 Officer, Hannaford Bros. Co. from May, 1973 to May, 1992).
John J. Neuhauser 54 Trustee Dean, Boston College School of Management since
140 Commonwealth Avenue September, 1977.
Chestnut Hill, MA 02167
Robert L. Sullivan 70 Trustee Retired Partner, KPMG Peat Marwick LLP
7121 Natelli Woods Lane
Bethesda, MD 20817
Stephen E. Gibson President President of funds since June, 1998, is Chairman and
Chief Executive Officer of the Adviser and The Colonial
Group, Inc.
J. Kevin Connaughton 33 Controller and Controller and Chief Accounting Officer of funds since
Chief Accounting February, 1998, is Vice President of the Adviser since
Officer February, 1998 (formerly Senior Tax Manager, Coopers &
Lybrand, LLP from April, 1996 to January, 1998; Vice
President, 440 Financial Group/First Data Investor Services
Group from March ,1994 to April, 1996; Vice President, The
Boston Company (subsidiary of Mellon Bank) from December, 1993
to March, 1994; Assistant Vice President and Tax Manager,
Mellon Bank from March, 1992 to December, 1993).
Timothy J. Jacoby 45 Treasurer and Treasurer and Chief Financial Officer of funds since
Chief Financial October, 1996 (formerly Controller and Chief Accounting
Officer Officer from October, 1997 to February, 1998), is
Senior Vice President of the Adviser since September, 1996
(formerly Senior Vice President, Fidelity Accounting and Custody
Services from September, 1993 to September, 1996 and Assistant
Treasurer to the Fidelity Group of Funds from August, 1990 to
September, 1993).
Nancy L. Conlin 44 Secretary Secretary of the funds since April, 1998 (formerly
Assistant Secretary from July, 1994 to April, 1998), is
Director, Senior Vice President, General Counsel, Clerk
and Secretary of the Adviser since April, 1998
(formerly Vice President, Counsel, Assistant Secretary
and Assistant Clerk from July, 1994 to April, 1998),
Vice President - Legal, General Counsel and Clerk of
TCG since April, 1998 (formerly Assistant Clerk from
July, 1994 to April, 1998)
Davey S. Scoon 51 Vice President Vice President of the funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995).
</TABLE>
* A Trustee who is an "interested person" (as defined in the Investment Company
Act of 1940) of the fund or the Adviser.
The business address of the officers of each Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all funds for which each Trustee will receive
an annual retainer of $45,000 and attendance fees of $8,000 for each regular
joint meeting and $1,000 for each special joint meeting. Committee chairs
receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the funds based on each fund's relative net
assets and one-third of the fees are divided equally among the funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 39 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 open-end management investment
company portfolios. Trustees and officers of the Trust, who are also officers of
the Adviser or its affiliates, will benefit from the advisory fees, sales
commissions and agency fees paid or allowed by the Trust. More than 30,000
financial advisers have recommended the funds to over 800,000 clients worldwide,
representing more than $16.3 billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to Colonial Money Market
Fund, Colonial Municipal Money Market Fund, Colonial Global Utilities Fund,
Newport Tiger Fund, Newport Japan Opportunities Fund, Newport Tiger Cub Fund or
Newport Greater China Fund)
Under a Management Agreement (Agreement), the Adviser has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each fund pays a monthly fee based on the average of the daily closing value of
the total net assets of each fund for such month. Under the Agreement, any
liability of the Adviser to the Trust, a fund and/or its shareholders is limited
to situations involving the Adviser's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders. LFDI pays the cost of printing and distributing all other
Prospectuses.
Administration Agreement (this section applies only to Colonial Money Market
Fund, Colonial Municipal Money Market Fund, Colonial Global Utilities Fund,
Newport Tiger Fund, Newport Japan Opportunities Fund, Newport Tiger Cub Fund and
Newport Greater China Fund and their respective Trusts).
Under an Administration Agreement with each Fund named above, the Adviser, in
its capacity as the Administrator to each Fund, has contracted to perform the
following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
Directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents
required for compliance by each Fund with applicable laws
and regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders;
(e) coordinating and overseeing the activities of each Fund's
other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Colonial Money Market Fund and Colonial Municipal Money Market
Fund, the Administration Agreement for these funds provides for the following
services in addition to the services referenced above:
(g) monitoring compliance by the Fund with Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act") and
reporting to the Trustees from time to time with respect
thereto; and
(h) monitoring the investments and operations of the following
Portfolios: SR&F Municipal Money Market Portfolio
(Municipal Money Market Portfolio) in which Colonial
Municipal Money Market Fund is invested; SR&F Cash
Reserves Portfolio in which Colonial Money Market Fund is
invested;
and the LFC Utilities Trust (LFC Portfolio) in which
Colonial Global Utilities Fund is invested and reporting
to the Trustees from time to time with respect thereto.
The Adviser is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each fund pursuant to a
Pricing and Bookkeeping Agreement. The Adviser, in its capacity as the
Administrator to each of Colonial Money Market Fund, Colonial Municipal Money
Market Fund and Colonial Global Utilities Fund, is paid an annual fee of
$18,000, plus 0.0233% of average daily net assets in excess of $50 million. For
each of the other funds (except for Newport Tiger Fund, Newport Japan
Opportunities Fund, Newport Tiger Cub Fund and Newport Greater China Fund), the
Adviser is paid monthly a fee of $2,250 by each fund, plus a monthly percentage
fee based on net assets of the fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Newport Tiger Fund,
Newport Japan Opportunities Fund, Newport Tiger Cub Fund and Newport Greater
China Fund for an annual fee of $27,000, plus 0.035% of each Fund's average
daily net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Money Market Fund, Colonial
Municipal Money Market Fund, and Colonial Global Utilities Fund. For each of
these funds, see Part 1 of its respective SAI. The Adviser of The Crabbe Huson
Special Fund, Crabbe Huson Small Cap Fund, Crabbe Huson Real Estate Investment
Fund, Crabbe Huson Equity Fund, Crabbe Huson Asset Allocation Fund, Crabbe Huson
Oregon Tax-Free Fund and Crabbe Huson Income Fund, Newport Tiger Fund, Newport
Japan Opportunities Fund, Newport Tiger Cub Fund and Newport Greater China Fund
follows the same procedures as those set forth under "Brokerage and research
services."
Investment decisions. The Adviser acts as investment adviser to each of the
funds (except for The Crabbe Huson Special Fund, Crabbe Huson Small Cap Fund,
Crabbe Huson Real Estate Investment Fund, Crabbe Huson Equity Fund, Crabbe Huson
Asset Allocation Fund, Crabbe Huson Oregon Tax-Free Fund and Crabbe Huson Income
Fund, Colonial Money Market Fund, Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Newport Tiger Fund, Newport Japan Opportunities Fund,
Newport Tiger Cub Fund and Newport Greater China Fund, each of which is
administered by the Adviser. The Adviser's affiliate, CASI, advises other
institutional, corporate, fiduciary and individual clients for which CASI
performs various services. Various officers and Trustees of the Trust also serve
as officers or Trustees of other funds and the other corporate or fiduciary
clients of the Adviser. The funds and clients advised by the Adviser or the
funds administered by the Adviser sometimes invest in securities in which the
Fund also invests and sometimes engage in covered option writing programs and
enter into transactions utilizing stock index options and stock index and
financial futures and related options ("other instruments"). If the Fund, such
other funds and such other clients desire to buy or sell the same portfolio
securities, options or other instruments at about the same time, the purchases
and sales are normally made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each. Although in
some cases these practices could have a detrimental effect on the price or
volume of the securities, options or other instruments as far as the Fund is
concerned, in most cases it is believed that these practices should produce
better executions. It is the opinion of the Trustees that the desirability of
retaining the Adviser as investment adviser to the funds outweighs the
disadvantages, if any, which might result from these practices.
The portfolio managers of Colonial International Fund for Growth, a series of
Colonial Trust III, will use the trading facilities of Stein Roe & Farnham
Incorporated, an affiliate of the Adviser, to place all orders for the purchase
and sale of this fund's portfolio securities, futures contracts and foreign
currencies.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the funds as a factor in
the selection of broker-dealers to execute securities transactions for a fund.
The Adviser places the transactions of the funds with broker-dealers selected by
the Adviser and, if applicable, negotiates commissions. Broker-dealers may
receive brokerage commissions on portfolio transactions, including the purchase
and writing of options, the effecting of closing purchase and sale transactions,
and the purchase and sale of underlying securities upon the exercise of options
and the purchase or sale of other instruments. The funds from time to time also
execute portfolio transactions with such broker-dealers acting as principals.
The funds do not intend to deal exclusively with any particular broker-dealer or
group of broker-dealers.
It is the Adviser's policy generally to seek best execution, which is to place
the funds' transactions where the funds can obtain the most favorable
combination of price and execution services in particular transactions or
provided on a continuing basis by a broker-dealer, and to deal directly with a
principal market maker in connection with over-the-counter transactions, except
when it is believed that best execution is obtainable elsewhere. In evaluating
the execution services of, including the overall reasonableness of brokerage
commissions paid to, a broker-dealer, consideration is given to, among other
things, the firm's general execution and operational capabilities, and to its
reliability, integrity and financial condition.
Securities transactions of the funds may be executed by broker-dealers who also
provide research services (as defined below) to the Adviser and the funds. The
Adviser may use all, some or none of such research services in providing
investment advisory services to each of its investment company and other
clients, including the fund. To the extent that such services are used by the
Adviser, they tend to reduce the Adviser's expenses. In the Adviser's opinion,
it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Adviser to cause the funds to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction, including the sale
of an option or a closing purchase transaction, for the funds in excess of the
amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends and portfolio strategy and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The Adviser must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Adviser's
overall responsibilities to the funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by funds that write options and
to pay such clearing agent commissions of a fixed amount per share (currently
1.25 cents) on the sale of the underlying security upon the exercise of an
option written by a fund.
The Adviser may use the services of AlphaTrade Inc. (ATI), its registered
broker-dealer subsidiary, when buying or selling equity securities for a Fund's
portfolio, pursuant to procedures adopted by the Trustees and Investment Company
Act Rule 17e-1. Under the Rule, the Adviser must ensure that commissions a Fund
pays ATI on portfolio transactions are reasonable and fair compared to
commissions received by other broker-dealers in connection with comparable
transactions involving similar securities being bought or sold at about the same
time. The Adviser will report quarterly to the Trustees on all securities
transactions placed through ATI so that the Trustees may consider whether such
trades complied with these procedures and the Rule. ATI employs electronic
trading methods by which it seeks to obtain best price and execution for the
Fund, and will use a clearing broker to settle trades.
Principal Underwriter
LFDI is the principal underwriter of the Trust's shares. LFDI has no obligation
to buy the funds' shares, and purchases the funds' shares only upon receipt of
orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
fund plus reimbursement for certain out-of-pocket expenses. See "Fund Charges
and Expenses" in Part 1 of this SAI for information on fees received by CISC.
The agreement continues indefinitely but may be terminated by 90 days' notice by
the Fund to CISC or generally by 6 months' notice by CISC to the Fund. The
agreement limits the liability of CISC to the Fund for loss or damage incurred
by the Fund to situations involving a failure of CISC to use reasonable care or
to act in good faith in performing its duties under the agreement. It also
provides that the Fund will indemnify CISC against, among other things, loss or
damage incurred by CISC on account of any claim, demand, action or suit made on
or against CISC not resulting from CISC's bad faith or negligence and arising
out of, or in connection with, its duties under the agreement.
DETERMINATION OF NET ASSET VALUE
Each fund determines net asset value (NAV) per share for each Class as of the
close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern
time, 3:00 p.m. Central time) each day the Exchange is open. Currently, the
Exchange is closed Saturdays, Sundays and the following observed holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with
portfolio securities which are primarily listed on foreign exchanges may
experience trading and changes in NAV on days on which such Fund does not
determine NAV due to differences in closing policies among exchanges. This may
significantly affect the NAV of the Fund's redeemable securities on days when an
investor cannot redeem such securities. The net asset value of the Municipal
Money Market Portfolio will not be determined on days when the Exchange is
closed unless, in the judgment of the Municipal Money Market Portfolio's Board
of Trustees, the net asset value of the Municipal Money Market Portfolio should
be determined on any such day, in which case the determination will be made at
3:00 p.m., Chicago time. Debt securities generally are valued by a pricing
service which determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where the Adviser deems it
appropriate to do so, an over-the-counter or exchange bid quotation is used.
Securities listed on an exchange or on NASDAQ are valued at the last sale price.
Listed securities for which there were no sales during the day and unlisted
securities are valued at the last quoted bid price. Options are valued at the
last sale price or in the absence of a sale, the mean between the last quoted
bid and offering prices. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost pursuant to procedures adopted by the
Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Portfolio
positions for which there are no such valuations and other assets are valued at
fair value as determined by the Adviser in good faith under the direction of the
Trust's Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
(The following two paragraphs are applicable only to Newport Tiger Fund, Newport
Japan Opportunities Fund, Newport Tiger Cub Fund and Newport Greater China Fund
- - "Adviser" in these two paragraphs refers to each fund's Adviser, Newport Fund
Management, Inc.)
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently does not apply to
Colonial Money Market funds, - see "Amortized Cost for Money Market Funds" under
"Other Information Concerning the Portfolio" in Part 1 of the SAI of Colonial
Money Market Fund and Colonial Municipal Money Market Fund for information
relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting to the market value method (in which
case the NAV per share may differ from $1.00). All investments will be
determined pursuant to procedures approved by the Trust's Trustees to present
minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Money Market Fund for a specimen price sheet showing the computation of
maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFDI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFDI retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFDI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFDI for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with LFDI.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, I, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most funds advised
by Colonial, The Crabbe Huson Group, Inc., Newport Fund Management, Inc. and
Stein Roe & Farnham Incorporated may be purchased through the Fundamatic
Program. Preauthorized monthly bank drafts or electronic funds transfer for a
fixed amount of at least $50 are used to purchase a fund's shares at the public
offering price next determined after LFDI receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the next business day
thereafter). If your Fundamatic purchase is by electronic funds transfer, you
may request the Fundamatic purchase for any day. Further information and
application forms are available from FSFs or from LFDI.
Automated Dollar Cost Averaging (Classes A, B and C). The Automated Dollar Cost
Averaging program allows you to exchange $100 or more on a monthly basis from
any mutual fund advised by Colonial, The Crabbe Huson Group, Inc., Newport Fund
Management, Inc. and Stein Roe & Farnham Incorporated in which you have a
current balance of at least $5,000 into the same class of shares of up to four
other funds. Complete the Automated Dollar Cost Averaging section of the
Application. The designated amount will be exchanged on the third Tuesday of
each month. There is no charge for exchanges made pursuant to the Automated
Dollar Cost Averaging program. Exchanges will continue so long as your fund
balance is sufficient to complete the transfers. Your normal rights and
privileges as a shareholder remain in full force and effect. Thus you can buy
any fund, exchange between the same Class of shares of funds by written
instruction or by telephone exchange if you have so elected and withdraw amounts
from any fund, subject to the imposition of any applicable CDSC.
Any additional payments or exchanges into your fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
LFDI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. LFDI offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. BankBoston, N.A. is the
Trustee of LFDI prototype plans and charges a $10 annual fee. Detailed
information concerning these Retirement Plans and copies of the Retirement Plans
are available from LFDI.
Participants in non-LFDI prototype Retirement Plans (other than IRAs) also are
charged a $10 annual fee unless the plan maintains an omnibus account with CISC.
Participants in LFDI prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to CISC. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFDI IRA Rollover account
in any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Cash Connection. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another fund. An ADD account must be in the same name as the shareholder's
existing open account with the particular fund. Call CISC for more information
at 1-800-422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Newport Tiger Fund
who already own Class T shares). Reduced sales charges on Class A and T shares
can be effected by combining a current purchase with prior purchases of Class A,
B, C, I, T and Z shares of the funds advised by Colonial Management Associates,
Inc., The Crabbe Huson Group, Inc., Newport Fund Management, Inc. and Stein Roe
& Farnham Incorporated. The applicable sales charge is based on the combined
total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all funds' Class A shares held by the
shareholder (except shares of any money market fund, unless such
shares were acquired by exchange from Class A shares of another fund
other than a money market fund and Class B, C, I, T and Z shares).
LFDI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A fund may terminate or
amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, I, T and Z shares
held by the shareholder on the date of the Statement in funds (except shares of
any money market fund, unless such shares were acquired by exchange from Class A
shares of another non-money market fund). The value is determined at the public
offering price on the date of the Statement. Purchases made through reinvestment
of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFDI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFDI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800-345-6611.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. LFDI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, C , I or T
shares may, upon request, reinstate within one year a portion or all of the
proceeds of such sale in shares of the same Class of any fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to certain Funds). Class A shares of certain funds
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, LFDI and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with LFDI; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Newport Tiger Fund who already own Class T
shares) of certain funds may be purchased at reduced or no sales charge pursuant
to sponsored arrangements, which include programs under which an organization
makes recommendations to, or permits group solicitation of, its employees,
members or participants in connection with the purchase of shares of the fund on
an individual basis. The amount of the sales charge reduction will reflect the
anticipated reduction in sales expense associated with sponsored arrangements.
The reduction in sales expense, and therefore the reduction in sales charge,
will vary depending on factors such as the size and stability of the
organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The funds reserve the right to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Newport Tiger Fund who already own Class T shares) of certain
funds may also be purchased at reduced or no sales charge by clients of dealers,
brokers or registered investment advisers that have entered into agreements with
LFDI pursuant to which the funds are included as investment options in programs
involving fee-based compensation arrangements, and by participants in certain
retirement plans.
Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to certain Funds) (Classes A, B and C) CDSCs may be
waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii)
the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers
to Minors Act (UTMA) or other custodial account. If, upon the occurrence of
one of the foregoing, the account is transferred to an account registered
in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after the
death. If the Class B shares are not redeemed within one year of the death,
they will remain subject to the applicable CDSC, when redeemed from the
transferee's account. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP established
with CISC, to the extent the redemptions do not exceed, on an annual basis,
12% of the account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a period at
least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement does not apply
if the SWP is set up at the time the account is established, and
distributions are being reinvested. See below under "Investor Services -
Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will
be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following normal
retirement (as stated in the Plan document). CDSCs also will be waived on
SWP redemptions made to make required minimum distributions from qualified
retirement plans that have invested in funds distributed by LFDI for at
least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will delay
sending proceeds for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any fund designated by the
shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election, of the shareholder's investment. Withdrawals from Class B
and Class C shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class C
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn in excess of 12% annually. If a shareholder wishes to
participate in a SWP, the shareholder must elect to have all of the
shareholder's income dividends and other fund distributions payable in shares of
the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All fund shareholders and/or their FSFs (except for
Newport Tiger Cub Fund, Newport Japan Opportunities Fund and Newport Greater
China Fund) are automatically eligible to redeem up to $50,000 of the fund's
shares by calling 1-800-422-3737 toll-free any business day between 9:00 a.m.
and the close of trading of the Exchange (normally 4:00 p.m. Eastern time).
Transactions received after 4:00 p.m. Eastern time will receive the next
business day's closing price. Telephone redemption privileges for larger amounts
and for Newport Tiger Cub Fund, Newport Japan Opportunities Fund and Newport
Greater China Fund may be elected on the Application. CISC will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address and account number. FSFs will also be
required to provide their broker number. All telephone transactions are
recorded. A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to
execute the telephone authorization form or to use the telephone to execute
transactions.
Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of certain
Funds) (Available only on the Class A shares of certain funds) Shares may be
redeemed by check if a shareholder has previously completed an Application and
Signature Card. CISC will provide checks to be drawn on BankBoston (the "Bank").
These checks may be made payable to the order of any person in the amount of not
less than $500 nor more than $100,000. The shareholder will continue to earn
dividends on shares until a check is presented to the Bank for payment. At such
time a sufficient number of full and fractional shares will be redeemed at the
next determined net asset value to cover the amount of the check. Certificate
shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a fund's net asset
value, a fund may make the payment or a portion of the payment with portfolio
securities held by that fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. Shareholders may reinvest all or
a portion of a recent cash distribution without a sales charge. A shareholder
request must be received within 30 calendar days of the distribution. A
shareholder may exercise this privilege only once. No charge is currently made
for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Money Market Fund and Colonial
Municipal Money Market Fund will be earned starting with the day after that fund
receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered 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 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 funds are not available to residents of all states.
Consult CISC before requesting an exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another 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 funds are available from the LFDI Literature
Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or CISC. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A fund may not suspend shareholders' right of redemption or postpone payment for
more than seven days unless the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is restricted or during any emergency which makes
it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the fund or the
Trust's Trustees. The Declaration provides for indemnification out of fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus of
each fund, the fund will not hold annual shareholders' meetings. The Trustees
may fill any vacancies in the Board of Trustees except that the Trustees may not
fill a vacancy if, immediately after filling such vacancy, less than two-thirds
of the Trustees then in office would have been elected to such office by the
shareholders. In addition, at such times as less than a majority of the Trustees
then in office have been elected to such office by the shareholders, the
Trustees must call a meeting of shareholders. Trustees may be removed from
office by a written consent signed by a majority of the outstanding shares of
the Trust or by a vote of the holders of a majority of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon written
request of the holders of not less than 10% of the outstanding shares of the
Trust. Upon written request by the holders of 1% of the outstanding shares of
the Trust stating that such shareholders of the Trust, for the purpose of
obtaining the signatures necessary to demand a shareholders' meeting to consider
removal of a Trustee, request information regarding the Trust's shareholders,
the Trust will provide appropriate materials (at the expense of the requesting
shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the
Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non-money market. The yield for each class of shares of a fund is determined by
(i) calculating the income (as defined by the SEC for purposes of advertising
yield) during the base period and subtracting actual expenses for the period
(net of any reimbursements), and (ii) dividing the result by the product of the
average daily number of shares of the fund that were entitled to dividends
during the period and the maximum offering price of the fund on the last day of
the period, (iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares of a fund is
calculated by annualizing the most current period's distributions and dividing
by the maximum offering price on the last day of the period. Generally, the
fund's distribution rate reflects total amounts actually paid to shareholders,
while yield reflects the current earning power of the fund's portfolio
securities (net of the fund's expenses). The fund's yield for any period may be
more or less than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as are listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Adviser to be reputable, and publications in
the press pertaining to a fund's performance or to the Adviser or its
affiliates, including comparisons with competitors and matters of national and
global economic and financial interest. Examples include Forbes, Business Week,
Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe,
Barron's National Business & Financial Weekly, Financial Planning, Changing
Times, Reuters Information Services, Wiesenberger Mutual Funds Investment
Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia
Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index and Disclosure Incorporated.
All data are based on past performance and do not predict future results.
General. From time to time, the Fund may discuss, or quote its current portfolio
manager as well as other investment personnel, including such persons' views on:
the economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund, including the New
ValueTM investment strategy that expands upon the principles of traditional
value investing; the Fund's portfolio holdings; the investment research and
analysis process; the formulation and evaluation of investment recommendations;
and the assessment and evaluation of credit, interest rate, market and economic
risks and similar or related matters.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts, and use charts and graphs to illustrate the past performance of
various indices such as those mentioned in Appendix II and illustrations using
hypothetical rates of return to illustrate the effects of compounding and
tax-deferral. The Fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar costs averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low.
From time to time, the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; general investment techniques (e.g.,
asset allocation and disciplined saving and investing); business succession;
issues with respect to insurance (e.g., disability and life insurance and
Medicare supplemental insurance); issues regarding financial and health care
management for elderly family members; and similar or related matters.
<PAGE>
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICES
Investment Grade Bond Ratings
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in the
`AAA' and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
securities and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
securities with higher ratings.
Conditional
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
Speculative-Grade Bond Ratings
BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, and D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.
DUFF & PHELPS CREDIT RATING CO.
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA - High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A - Protection factors are average but adequate. However, risk factors
are more available and greater in periods of economic stress.
BBB+, BBB, BBB - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC - Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
1997
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Donoghue Tax-Free Funds 4.93
Donoghue U.S. Treasury Funds 4.65
Dow Jones & Company Industrial Index 24.87
Morgan Stanley Capital International EAFE Index 1.78
Morgan Stanley Capital International EAFE GDP Index 5.77
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 5.82
Lipper California Municipal Bond Funds 9.15
Lipper Connecticut Municipal Bond Funds 8.53
Lipper Closed End Bond Funds 12.01
Lipper Florida Municipal Bond Funds 8.53
Lipper General Municipal Bonds 9.11
Lipper Global Funds 13.04
Lipper Growth Funds 25.30
Lipper Growth & Income Funds 27.14
Lipper High Current Yield Bond Funds 12.96
Lipper High Yield Municipal Bond Debt 10.11
Lipper Fixed Income Funds 8.67
Lipper Insured Municipal Bond Average 8.39
Lipper Intermediate Muni Bonds 7.16
Lipper Intermediate (5-10) U.S. Government Funds 8.08
Lipper Massachusetts Municipal Bond Funds 8.64
Lipper Michigan Municipal Bond Funds 8.50
Lipper Mid Cap Funds 19.76
Lipper Minnesota Municipal Bond Funds 8.15
Lipper U.S. Government Money Market Funds 4.90
Lipper New York Municipal Bond Funds 8.99
Lipper North Carolina Municipal Bond Funds 8.84
Lipper Ohio Municipal Bond Funds 8.16
Lipper Small Cap Funds 20.75
Lipper General U.S. Government Funds 8.84
Lipper Pacific Region Funds-Ex-Japan (35.52)
Lipper International Funds 5.44
Lipper Balanced Funds 19.00
Lipper Tax-Exempt Money Market 3.08
Lipper Multi-Sector 8.77
Lipper Corporate Debt BBB 10.08
Lipper High Yield Municipal - Closed Ends 9.66
Lipper High Current Yield - Closed Ends 14.31
Lipper General Municipal Debt - Closed Ends 10.26
Lipper Intermediate Investment Grade Debt 8.57
Lipper Utilities 26.01
Lipper Japan (14.07)
Lipper China (22.92)
Shearson Lehman Composite Government Index 9.59
Shearson Lehman Government/Corporate Index 9.76
Shearson Lehman Long-term Government Index 9.58
Shearson Lehman Municipal Bond Index 9.19
Shearson Lehman U.S. Government 1-3 6.65
S&P S&P 500 Index 33.35
S&P Utility Index 24.65
S&P Barra Growth 36.38
S&P Barra Value 29.99
S&P Midcap 400 19.00
First Boston High Yield Index 12.63
<PAGE>
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Swiss Bank 10 Year U.S. Government (Corporate Bond) 11.20
Swiss Bank 10 Year United Kingdom (Corporate Bond) 12.54
Swiss Bank 10 Year France (Corporate Bond) (4.79)
Swiss Bank 10 Year Germany (Corporate Bond) (6.13)
Swiss Bank 10 Year Japan (Corporate Bond) (3.39)
Swiss Bank 10 Year Canada (Corporate Bond) 7.79
Swiss Bank 10 Year Australia (Corporate Bond) (3.93)
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 19.18
Morgan Stanley Capital International 10 Year Belgium (Equity) 14.43
Morgan Stanley Capital International 10 Year Austria (Equity) 7.58
Morgan Stanley Capital International 10 Year France (Equity) 13.27
Morgan Stanley Capital International 10 Year Netherlands (Equity) 18.61
Morgan Stanley Capital International 10 Year Japan (Equity) (2.90)
Morgan Stanley Capital International 10 Year Switzerland (Equity) 18.53
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 13.95
Morgan Stanley Capital International 10 Year Germany (Equity) 13.75
Morgan Stanley Capital International 10 Year Italy (Equity) 6.15
Morgan Stanley Capital International 10 Year Sweden (Equity) 17.62
Morgan Stanley Capital International 10 Year United States (Equity) 17.39
Morgan Stanley Capital International 10 Year Australia (Equity) 9.25
Morgan Stanley Capital International 10 Year Norway (Equity) 13.29
Morgan Stanley Capital International 10 Year Spain (Equity) 10.58
Morgan Stanley Capital International World GDP Index 13.35
Morgan Stanley Capital International Pacific Region Funds Ex-Japan (31.00)
Bureau of Labor Statistics Consumer Price Index (Inflation) 1.70
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Salomon Six-Month Treasury Bill 5.41
Salomon One-Year Constant-Maturity Treasury Rate N/A
Salomon Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell Company Russell 2000(R)Index 22.36
Frank Russell Company Russell 1000(R)Value Index 35.18
Frank Russell Company Russell 1000(R)Growth Index 30.49
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>
The Russell 2000(R) Index, the Russell 1000(R) Value Index and the Russell
1000(R) Growth Index are each a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
*in U.S. currency
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Summary of Expenses (for The Crabbe Huson Special Fund, Crabbe
Huson Asset Allocation Fund, Crabbe Huson Income Fund, Crabbe
Huson Small Cap Fund, Crabbe Huson Equity Fund, Crabbe Huson
Real Estate Investment Fund, Crabbe Huson Oregon Tax-Free Fund)
The Fund's Financial History (for The Crabbe Huson Special Fund,
Crabbe Huson Asset Allocation Fund, Crabbe Huson Income Fund,
Crabbe Huson Small Cap Fund, Crabbe Huson Equity Fund, Crabbe
Huson Real Estate Investment Fund, Crabbe Huson Oregon Tax-Free
Fund)
Included in Part B are the financial statements contained in the Annual
and Semi-Annual Reports for the Registrant's series, dated October 31, 1997
and April 30, 1998, respectively (which were previously filed electronically
pursuant to Section 30(b)(2) of the Investment Company Act of 1940):
Fund Accession Number
Annual Report to Shareholders:
The Crabbe Huson Special Fund (TCHSF) 0001047469-98-001184
Crabbe Huson Small Cap Fund (CHSCF) 0001047469-98-001184
Crabbe Huson Equity Fund (CHEF) 0001047469-98-001184
Crabbe Huson Income Fund (CHIF) 0001047469-98-001184
Crabbe Huson Real Estate Investment Fund (CHREIF) 0001047469-98-001184
Crabbe Huson Oregon Tax-Free Fund (CHOTFF) 0001047469-98-001184
Crabbe Huson Asset Allocation Fund (CHAAF) 0001047469-98-001184
Semi-Annual Report to Shareholders:
The Crabbe Huson Special Fund 0001047469-98-025156
Crabbe Huson Small Cap Fund 0001047469-98-025156
Crabbe Huson Equity Fund 0001047469-98-025156
Crabbe Huson Income Fund 0001047469-98-025156
Crabbe Huson Real Estate Investment Fund 0001047469-98-025156
Crabbe Huson Oregon Tax-Free Fund 0001047469-98-025156
Crabbe Huson Asset Allocation Fund 0001047469-98-025156
The Financial Statements contained in each series' Annual Report and
Semi-Annual Report are as follows:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Independent Auditors Report (Annual Report to Shareholders only)
(b) Exhibits:
1 Amendment No. 3 to the Agreement and Declaration of Trust (3)
2 By-Laws (3)
3 Not Applicable
4 Form of Specimen of share certificate (incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 25 to
the Registration Statement of Colonial Trust II, Registration
Nos. 2-66976 and 811-3009, filed with the Commission on March
20, 1996.)
5(a) Form of Management Agreement (TCHSF, CHSCF, CHREIF, CHEF,
CHAAF)
5(b) Form of Management Agreement (CHIF)
5(c) Form of Management Agreement (CHOTFF)
6(a) Form of Distributor's Contract with Liberty Funds Distributor,
Inc.
6(b) Form of Selling Agreement with Liberty Funds Distributor, Inc.
(incorporated herein by reference to Exhibit 6(b) to
Post-Effective Amendment No. 10 to the Registration Statement
of Colonial Trust VI, Registration Nos. 33-45117 and 811-6529,
filed with the Commission on September 27, 1996)
6(c) Form of Bank and Bank Affiliated Selling Agreement
(incorporated herein by reference to Exhibit 6(c) to
Post-Effective Amendment No. 10 to the Registration Statement
of Colonial Trust VI, Registration Nos. 33-45117 and 811-6529,
filed with the Commission on September 27, 1996)
6(d) Form of Asset Retention Agreement (incorporated herein by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10
to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on September 27, 1996)
7 Not Applicable
8 Form of Custody Agreement with State Street Bank and Trust
Company
9(a) Amended and Restated Shareholders' Servicing and Transfer
Agent Agreement as amended with Colonial Investors Service
Center, Inc.(incorporated herein by reference to Exhibit 9.(a)
to Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on September 27, 1996)
9(b) Form of Amendment to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement
9(c) Form of Amendment to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended
9(d) Pricing and Bookkeeping Agreement with Colonial Management
Associates, Inc. (incorporated herein by reference to Exhibit
9(b) to Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on September 27, 1996)
9(e) Form of Amendment to Appendix I of Pricing and Bookkeeping
Agreeement
9(f) Form of Agreement and Plan of Reorganization (5)(TCHSF)
9(g) Form of Agreement and Plan of Reorganization (5)(CHAAF)
9(h) Form of Agreement and Plan of Reorganization (5)(CHIF)
9(i) Form of Agreement and Plan of Reorganization (5)(CHEF)
9(j) Form of Agreement and Plan of Reorganization (5)(CHOTFF)
9(k) Form of Agreement and Plan of Reorganization (5)(CHSCF)
9(l) Form of Agreement and Plan of Reorganization (5)(CHREIF)
9(m) Credit Agreement (incorporated by reference to Exhibit 9.(f)
of Post-Effective Amendment No.19 to the Registration
Statement of Colonial Trust V, Registration Nos. 33-12109 and
811-5030, filed with the Commission on May 20, 1996)
9(n) Amendment No. 1 to the Credit Agreement (4)
9(o) Amendment No. 2 to the Credit Agreement (4)
9(p) Amendment No. 3 to the Credit Agreement (4)
10 Opinion and Consent of Counsel (3)
11 Consent of Independent Auditors
12 Not Applicable
13 Not Applicable
14(a) Form of Colonial Mutual Funds Money Purchase Pension and
Profit Sharing Plan Document and Employee Communications
Kit (4)
14(b) Form of Colonial Mutual Funds Money Purchase Pension and
Profit Sharing Plan Establishment Booklet (4)
14(c) Form of Colonial IRA Application, Forms, Custodial Agreement
and Disclosure Statement and Distribution Form (4)
14(d) IRA Application and Fact Kit (4)
14(e) Form of Colonial Mutual Funds Simplified Employee Pension
Plan and Salary Reduction Simplified Employee Pension Plan
Application and Fact Kit (4)
14(f) Form of Colonial Mutual Funds 401(k) Plan Document, Trust
Agreement and IRS Opinion Letter (incorporated herein by
reference to Exhibit 14.(v) to Post-Effective Amendment No. 27
to the Registration Statement of Colonial Trust II,
Registration Nos. 2-66976 and 811-3009, filed with the
Commission on November 18, 1996)
14(g) Form of Colonial Mutual Funds 401(k) Plan Establishment
Booklet and Employee Communications Kit (incorporated herein
by reference to Exhibit 14.(vi) to Post-Effective Amendment
No. 27 to the Registration Statement of Colonial Trust II,
Registration Nos. 2-66976 and 811-3009, filed with the
Commission on November 18, 1996)
14(h) Form of Colonial 401(k) Beneficiary Designation and
Participant Enrollment Forms (4)
14(i) Form of Liberty Simple IRA Plan (incorporated herein by
reference to Exhibit 14.(i) to Post-Effective Amendment No. 45
to the Registration Statement of Colonial Trust I,
Registration Nos. 2-41251 and 811-2214, filed with the
Commission on February, 1998)
14(j) Form of Liberty Roth IRA (incorporated herein by reference to
Exhibit 14.(j) to Post-Effective Amendment No. 45 to the
Registration Statement of Colonial Trust I, Registration Nos.
2-41251 and 811-2214, filed with the Commission on February,
1998)
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 (Class A)(TCHSF)(5)
16(b) Calculation of Performance Information (Class A)(CHAAF)(5)
16(c) Calculation of Performance Information (Class A)(CHIF)(5)
16(d) Calculation of Performance Information (Class A)(CHEF)(5)
16(e) Calculation of Performance Information (Class A)(CHOTFF)(5)
16(f) Calculation of Performance Information (Class A)(CHSCF)(5)
16(g) Calculation of Performance Information (Class A)(CHREIF)(5)
16(h) Calculation of Performance Information (Class I)(CHSCF)(5)
16(i) Calculation of Performance Information (Class I)(CHAAF)(5)
16(k) Calculation of Performance Information (Class I)(CHEF)(5)
16(l) Calculation of Yield (TCHSF)(5)
16(m) Calculation of Yield (CHAAF)(5)
16(n) Calculation of Yield (CHIF)(5)
16(o) Calculation of Yield (CHEF)(5)
16(p) Calculation of Yield (CHOTFF)(5)
16(q) Calculation of Yield (CHSCF)(5)
16(r) Calculation of Yield (CHREIF)(5)
As of October 31, 1997:
17(a) Financial Data Schedule (Class A)(CHSCF)
17(b) Financial Data Schedule (Class I)(CHSCF)
17(c) Financial Data Schedule (Class A)(CHOTFF)
17(d) Financial Data Schedule (Class A)(CHAAF)
17(e) Financial Data Schedule (Class I)(CHAAF)
17(f) Financial Data Schedule (Class A)(CHEF)
17(g) Financial Data Schedule (Class I)(CHEF)
17(h) Financial Data Schedule (Class A)(CHIF)
17(i) Financial Data Schedule (Class A)(CHREIF)
17(j) Financial Data Schedule (Class A)(TCHSF)
As of April 30, 1998:
17(k) Financial Data Schedule (Class A)(CHSCF)
17(l) Financial Data Schedule (Class I)(CHSCF)
17(m) Financial Data Schedule (Class A)(CHOTFF)
17(n) Financial Data Schedule (Class A)(CHAAF)
17(o) Financial Data Schedule (Class I)(CHAAF)
17(p) Financial Data Schedule (Class A)(CHEF)
17(q) Financial Data Schedule (Class I)(CHEF)
17(r) Financial Data Schedule (Class A)(CHIF)
17(s) Financial Data Schedule (Class A)(CHREIF)
17(t) Financial Data Schedule (Class A)(TCHSF)
<PAGE>
18(a) Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale,
Lora S. Collins, James E. Grinnell, Richard W. Lowry,
William E. Mayer, James L. Moody, Jr., John J. Neuhauser and
Robert L. Sullivan (4)
18(b) Plan pursuant to Rule 18f-3(d) under the Investment Company
Act of 1940
- ---------------
(1) Incorporated by reference to Post-Effective Amendment No. 94
to Form N-1A filed on or about July 28, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 96
to Form N-1A filed on or about February 28, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 97
to Form N-1A filed on or about February 13, 1997.
(4) Incorporated by reference to Post-Effective Amendment No. 99
to Form N-1A filed on or about December 19, 1997.
(5) To be filed in a subsequent Amendment.
<PAGE>
Item 25. Persons Controlled by or under Common Group Control with
Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of July 24, 1997
-------------- ----------------------
Shares of Beneficial Interest 0 - Class A record holders
0 - Class B record holders
0 - Class C record holders
(TCHSF)
Shares of Beneficial Interest 0 - Class A record holders
0 - Class B record holders
0 - Class C record holders
0 - Class I record holders
(CHSCF)
Shares of Beneficial Interest 0 - Class A record holders
0 - Class B record holders
0 - Class C record holders
0 - Class I record holders
(CHIF)
Shares of Beneficial Interest 0 - Class A record holders
0 - Class B record holders
0 - Class C record holders
0 - Class I record holders
(CHAAF)
Shares of Beneficial Interest 0 - Class A record holders
0 - Class B record holders
0 - Class C record holders
0 - Class I record holders
(CHEF)
Shares of Beneficial Interest 0 - Class A record holders
0 - Class B record holders
0 - Class C record holders
(CHREIF)
Shares of Beneficial Interest 0 - Class A record holders
0 - Class B record holders
0 - Class C record holders
(CHORTFF)
<PAGE>
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 business and other connections of the officers, directors of the
Registrant's investment advisor, The Crabbe Huson Group, Inc., are listed on
the Form ADV of The Crabbe Huson Group, Inc. as currently on file with the
Commission (File No. 801-15154), the text of which is incorporated herein by
reference. The following sections of such Form ADV are incorporated herein
by reference: (a) Items 1 and 2 of Part 2, and (b) Section 6, Business
Background of each Schedule D.
<PAGE>
Item 29. PRINCIPAL UNDERWRITER
(a) Liberty Funds Distributor, Inc. (LFDI), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFDI acts in such capacity for each series of Colonial
Trust I, Colonial Trust II, Colonial Trust III, Colonial Trust IV,
Colonial Trust V, Colonial Trust VI and Colonial Trust VII, Stein Roe
Advisor Trust, Stein Roe Income Trust, Stein Roe Municipal Trust,
Stein Roe Investment Trust and Stein Roe Trust.
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------
Anderson, Judith V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Ballou, Rick Sr. V.P. None
Balzano, Christine R. V.P. None
Bartlett, John Managing Director None
Blumenfeld, Alex V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Butch, Tom Sr. V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Claiborne, V.P. None
Douglas
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Dir; Clerk Secretary
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. None
Devaney, James Sr. V.P. None
DiMaio, Steve V.P. None
Downey, Christopher V.P. None
Emerson, Kim P. Sr. V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Managing Director None
Feldman, David Managing Director None
Fifield, Robert V.P. None
Gauger, Richard V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Harris, Carla V.P. None
Hodgkins, Joseph Sr. V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Karagiannis, Managing Director None
Marilyn
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Libutti, Chris V.P. None
Marcel, Anne V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morner, Patrick V.P. None
Morse, Jonathan V.P. None
O'Shea, Kevin Managing Director None
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Predmore, Tracy V.P. None
Quirk, Frank V.P. None
Raftery-Arpino, Linda V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Sandberg, Travis V.P. None
Scarlott, Rebecca V.P. None
Schulman, David Sr. V.P. None
Scoon, Davey Director V.P.
Scott, Michael W. Sr. V.P. None
Sideropoulos, Lou V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Tambone, James CEO None
Tasiopoulos, Lou President None
Tuttle, Brian V.P. None
VanEtten, Keith H. Sr. V.P. None
Villanova, Paul Sr. V.P. None
Wallace, John V.P. None
Walter, Heidi V.P. None
Wess, Valerie Sr. V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
Item 30. Location of Accounts and Records
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)
Liberty Funds Distributor, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (d)
Rule 31a-2 (c)
State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts 02110
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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. 101 to its Registration Statement under the Securities Act of 1933
and the Post-Effective Amendment No. 42 under the Investment Company Act of
1940, to be signed in this City of Boston, and The Commonwealth of Massachusetts
on this 24th day of July, 1998.
COLONIAL TRUST III
By: STEPHEN E. GIBSON
--------------------
Stephen E. Gibson
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 as officers and Trustees of Colonial Trust III, and
on the date indicated.
SIGNATURES TITLE DATE
STEPHEN E. GIBSON President (chief July 24, 1998
- -------------------- executive officer)
Stephen E. Gibson
J. KEVIN CONNAUGHTON Controller and Chief July 24, 1998
- --------------------- Accounting Officer
J. Kevin Connaughton
TIMOTHY J. JACOBY Treasurer and Chief July 24, 1998
- -------------------- Financial Officer
Timothy J. Jacoby
<PAGE>
ROBERT J. BIRNBAUM*
- --------------------- Trustee
Robert J. Birnbaum
TOM BLEASDALE*
- --------------------- Trustee
Tom Bleasdale
LORA S. COLLINS*
- --------------------- Trustee
Lora S. Collins
JAMES E. GRINNELL*
- --------------------- Trustee
James E. Grinnell
RICHARD W. LOWRY*
- --------------------- Trustee
Richard W. Lowry
WILLIAM E. MAYER*
- --------------------- Trustee
William E. Mayer
JAMES L. MOODY, JR. *
- --------------------- Trustee *WILLIAM J. BALLOU
James L. Moody, Jr. ------------------
William J. Ballou
Attorney-in-fact
July 24, 1998
JOHN J. NEUHAUSER*
- --------------------- Trustee
John J. Neuhauser
ROBERT L. SULLIVAN*
- --------------------- Trustee
Robert L. Sullivan
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Reference
5(a) Form of Management Agreement (TCHSF, CHSCF, CHREIF, CHEF,
CHAAF)
5(b) Form of Management Agreement (CHIF)
5(c) Form of Management Agreement (CHOTFF)
6(a) Form of Distributor's Contract with Liberty Funds Distributor,
Inc.
8 Form of Custody Agreement with State Street Bank and Trust
Company
9(b) Form of Amendment to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement
9(c) Form of Amendment to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended
9(e) Form of Amendment to Appendix I of Pricing and Bookkeeping
Agreeement
11 Consent of Independent Auditors
As of October 31, 1997:
17(a) Financial Data Schedule (Class A)(CHSCF)
17(b) Financial Data Schedule (Class I)(CHSCF)
17(c) Financial Data Schedule (Class A)(CHOTFF)
17(d) Financial Data Schedule (Class A)(CHAAF)
17(e) Financial Data Schedule (Class I)(CHAAF)
17(f) Financial Data Schedule (Class A)(CHEF)
17(g) Financial Data Schedule (Class I)(CHEF)
17(h) Financial Data Schedule (Class A)(CHIF)
17(i) Financial Data Schedule (Class A)(CHREIF)
17(j) Financial Data Schedule (Class A)(TCHSF)
As of April 30, 1998:
17(k) Financial Data Schedule (Class A)(CHSCF)
17(l) Financial Data Schedule (Class I)(CHSCF)
17(m) Financial Data Schedule (Class A)(CHOTFF)
17(n) Financial Data Schedule (Class A)(CHAAF)
17(o) Financial Data Schedule (Class I)(CHAAF)
17(p) Financial Data Schedule (Class A)(CHEF)
17(q) Financial Data Schedule (Class I)(CHEF)
17(r) Financial Data Schedule (Class A)(CHIF)
17(s) Financial Data Schedule (Class A)(CHREIF)
17(t) Financial Data Schedule (Class A)(TCHSF)
18(b) Plan pursuant to Rule 18f-3(d) under the Investment Company
Act of 1940
FORM OF
MANAGEMENT AGREEMENT
AGREEMENT dated as of ____________, between COLONIAL TRUST III, a Massachusetts
business trust (Trust), with respect to FUND (Fund), and THE CRABBE HUSON GROUP,
INC., a ____________ corporation (Adviser).
In consideration of the promises and covenants herein, the parties agree as
follows:
1. The Adviser will manage the investment of the assets of the Fund in
accordance with its prospectus and statement of additional information
and will perform the other services herein set forth, subject to the
supervision of the Board of Trustees of the Trust. The Adviser may
delegate its investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the Adviser shall:
(a) evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable; (b)
purchase and sell securities and other investments for the Fund in
accordance with the procedures described in its prospectus and statement
of additional information; and (c) report results to the Board of
Trustees of the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b) executive and
other personnel for managing the affairs of the Fund (including
preparing financial information of the Fund and reports and tax returns
required to be filed with public authorities, but exclusive of those
related to custodial, transfer, dividend and plan agency services,
determination of net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder (1940 Act)); and (c) compensation of Trustees who are
directors, officers, partners or employees of the Adviser or its
affiliated persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to others so long
as its services hereunder are not impaired thereby.
5. The Fund shall pay the Adviser bi-monthly a fee at the following annual
rates of the average daily net assets of the Fund:
Net Asset Value Annual Rate
First $100 million 1.05%
Next $400 million 0.90%
Amounts over $500 million 0.65%
6. If the operating expenses of the Fund for any fiscal year exceed the
most restrictive applicable expense limitation for any state in which
shares are sold, the Adviser's fee shall be reduced by the excess but
not to less than zero. Operating expenses shall not include brokerage,
interest, taxes, deferred organization expenses, Rule 12b-1 distribution
fees, service fees and extraordinary expenses, if any. The Adviser may
waive its compensation (and bear expenses of the Fund) to the extent
that expenses of the Fund exceed any expense limitation the Adviser
declares to be effective.
7. This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, shall continue until two years from its
date of execution and from year to year thereafter so long as approved
annually in accordance with the 1940 Act; (b) may be terminated without
penalty on sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by
the Adviser on sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940 Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the
outstanding shares", "affiliated person" and "assignment" shall have
their respective meanings defined in the 1940 Act and exemptions and
interpretations issued by the Securities and Exchange Commission under
the 1940 Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Adviser, or reckless disregard of its obligations and
duties hereunder, the Adviser shall not be subject to any liability to
the Trust or the Fund, to any shareholder of the Trust or the Fund or to
any other person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST III on behalf of
FUND
By: __________________________
Title: Controller
THE CRABBE HUSON GROUP, INC.
By: __________________________
Title:
A copy of the document establishing the Trust is filed with the Secretary of The
Commonwealth of Massachusetts. This Agreement is executed by officers not as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.
FORM OF
MANAGEMENT AGREEMENT
AGREEMENT dated as of ____________, between COLONIAL TRUST III, a Massachusetts
business trust (Trust), with respect to FUND (Fund), and THE CRABBE HUSON GROUP,
INC., a ____________ corporation (Adviser).
In consideration of the promises and covenants herein, the parties agree as
follows:
1. The Adviser will manage the investment of the assets of the Fund in
accordance with its prospectus and statement of additional information
and will perform the other services herein set forth, subject to the
supervision of the Board of Trustees of the Trust. The Adviser may
delegate its investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the Adviser shall:
(a) evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable; (b)
purchase and sell securities and other investments for the Fund in
accordance with the procedures described in its prospectus and statement
of additional information; and (c) report results to the Board of
Trustees of the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b) executive and
other personnel for managing the affairs of the Fund (including
preparing financial information of the Fund and reports and tax returns
required to be filed with public authorities, but exclusive of those
related to custodial, transfer, dividend and plan agency services,
determination of net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder (1940 Act)); and (c) compensation of Trustees who are
directors, officers, partners or employees of the Adviser or its
affiliated persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to others so long
as its services hereunder are not impaired thereby.
5. The Fund shall pay the Adviser bi-monthly a fee at the following annual
rates of the average daily net assets of the Fund:
Net Asset Value Annual Rate
First $100 million 0.80%
Next $400 million 0.65%
Amounts over $500 million 0.55%
6. If the operating expenses of the Fund for any fiscal year exceed the
most restrictive applicable expense limitation for any state in which
shares are sold, the Adviser's fee shall be reduced by the excess but
not to less than zero. Operating expenses shall not include brokerage,
interest, taxes, deferred organization expenses, Rule 12b-1 distribution
fees, service fees and extraordinary expenses, if any. The Adviser may
waive its compensation (and bear expenses of the Fund) to the extent
that expenses of the Fund exceed any expense limitation the Adviser
declares to be effective.
7. This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, shall continue until two years from its
date of execution and from year to year thereafter so long as approved
annually in accordance with the 1940 Act; (b) may be terminated without
penalty on sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by
the Adviser on sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940 Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the
outstanding shares", "affiliated person" and "assignment" shall have
their respective meanings defined in the 1940 Act and exemptions and
interpretations issued by the Securities and Exchange Commission under
the 1940 Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Adviser, or reckless disregard of its obligations and
duties hereunder, the Adviser shall not be subject to any liability to
the Trust or the Fund, to any shareholder of the Trust or the Fund or to
any other person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST III on behalf of
FUND
By: __________________________
Title: Controller
THE CRABBE HUSON GROUP, INC.
By: __________________________
Title:
A copy of the document establishing the Trust is filed with the Secretary of The
Commonwealth of Massachusetts. This Agreement is executed by officers not as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.
FORM OF
MANAGEMENT AGREEMENT
AGREEMENT dated as of ____________, between COLONIAL TRUST III, a Massachusetts
business trust (Trust), with respect to CRABBE HUSON OREGON TAX-FREE FUND
(Fund), and THE CRABBE HUSON GROUP, INC., a ____________ corporation (Adviser).
In consideration of the promises and covenants herein, the parties agree as
follows:
1. The Adviser will manage the investment of the assets of the Fund in
accordance with its prospectus and statement of additional information
and will perform the other services herein set forth, subject to the
supervision of the Board of Trustees of the Trust. The Adviser may
delegate its investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the Adviser shall:
(a) evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable; (b)
purchase and sell securities and other investments for the Fund in
accordance with the procedures described in its prospectus and statement
of additional information; and (c) report results to the Board of
Trustees of the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b) executive and
other personnel for managing the affairs of the Fund (including
preparing financial information of the Fund and reports and tax returns
required to be filed with public authorities, but exclusive of those
related to custodial, transfer, dividend and plan agency services,
determination of net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder (1940 Act)); and (c) compensation of Trustees who are
directors, officers, partners or employees of the Adviser or its
affiliated persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to others so long
as its services hereunder are not impaired thereby.
5. The Fund shall pay the Adviser bi-monthly a fee at the following annual
rates of the average daily net assets of the Fund:
Net Asset Value Annual Rate
First $100 million 0.55%
Next $400 million 0.50%
Amounts over $500 million 0.45%
6. If the operating expenses of the Fund for any fiscal year exceed the
most restrictive applicable expense limitation for any state in which
shares are sold, the Adviser's fee shall be reduced by the excess but
not to less than zero. Operating expenses shall not include brokerage,
interest, taxes, deferred organization expenses, Rule 12b-1 distribution
fees, service fees and extraordinary expenses, if any. The Adviser may
waive its compensation (and bear expenses of the Fund) to the extent
that expenses of the Fund exceed any expense limitation the Adviser
declares to be effective.
7. This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, shall continue until two years from its
date of execution and from year to year thereafter so long as approved
annually in accordance with the 1940 Act; (b) may be terminated without
penalty on sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by
the Adviser on sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940 Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the
outstanding shares", "affiliated person" and "assignment" shall have
their respective meanings defined in the 1940 Act and exemptions and
interpretations issued by the Securities and Exchange Commission under
the 1940 Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Adviser, or reckless disregard of its obligations and
duties hereunder, the Adviser shall not be subject to any liability to
the Trust or the Fund, to any shareholder of the Trust or the Fund or to
any other person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST III on behalf of
CRABBE HUSON OREGON TAX-FREE FUND
By: __________________________
Title: Controller
THE CRABBE HUSON GROUP, INC.
By: __________________________
Title:
A copy of the document establishing the Trust is filed with the Secretary of The
Commonwealth of Massachusetts. This Agreement is executed by officers not as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.
FORM OF
DISTRIBUTOR'S CONTRACT
Each Massachusetts Business Trust (Trust) designated in Appendix 2 from
time to time, acting severally, and Liberty Funds Distributor, Inc. (LFDI), a
Massachusetts corporation, agree effective October , 1998:
1. APPOINTMENT OF LFDI. The Trust may offer an unlimited number of
separate investment series (Funds), each of which may have multiple classes of
shares (Shares). The Trust appoints LFDI as the principal underwriter and
distributor of Shares of Funds designated in Appendix 2 (which appointment shall
be exclusive except as provided in Section 2(b) below). The Contract will apply
to each Fund as set forth on Appendix 2 as it may be amended from time to time
with the latest effective date and signed.
2. SALE OF SHARES.
a. LFDI's Right to Purchase Shares From the Fund. LFDI, acting as
principal for its own account and not as agent for the Trust, shall
have the right to purchase Shares and shall sell Shares in accordance
with a Fund's prospectus on a "best efforts" basis. LFDI shall purchase
Shares at a price equal to the net asset value only as needed to fill
orders. LFDI will receive all sales charges. LFDI will notify the Trust
at the end of each business day of the Shares of each Fund to be
purchased.
b. Appointment of Agent for Certain Sales of Shares at Net Asset Value.
The Trust may at any time designate its shareholder servicing, transfer
and dividend disbursing agent as its agent to accept orders for (i)
Class A Shares of the Funds at net asset value or (ii) Class I Shares
or (iii) Class Z Shares in either case from individuals or entities
that are entitled to purchase such shares as provided in the Trust's
prospectus, and to issue Shares directly to such purchasers.
c. Refusal to Sell Shares; Direct Issue of Shares. The Trust may at any
time (i) refuse to sell Shares hereunder or (ii) issue Shares directly
to shareholders as a stock split or dividend.
3. REDEMPTION OF SHARES. The Trust will redeem in accordance with a Fund's
prospectus all Shares tendered by LFDI pursuant to shareholder redemption
requests. LFDI will notify the Trust at the end of each business day of the
Shares of each Fund tendered.
4. COMPLIANCE. LFDI will comply with applicable provisions of the
prospectus of a Fund and with applicable laws and rules relating to the sale of
Shares and indemnifies the Trust for any damage or expense from unlawful acts by
LFDI and persons acting under its direction or authority.
5. EXPENSES. The Trust will pay all expenses associated with:
a. the registration and qualification of Shares for sale;
b. shareholder meetings and proxy solicitation;
c. Share certificates;
d. communications to shareholders; and
e. taxes payable upon the issuance of Shares to LFDI.
LFDI will pay all expenses associated with advertising and sales literature
including those of printing and distributing prospectuses and shareholder
reports, proxy materials and other shareholder communications used as sales
literature.
6. 12b-1 PLAN. Except as indicated in Appendix 1 which may be revised from
time to time, dated and signed, this Section 6 constitutes each Fund's
distribution plan (Plan) adopted pursuant to Rule 12b-1 (Rule) under the
Investment Company Act of 1940 (Act).
A. The Fund* shall pay LFDI monthly a service fee at the annual
rate of 0.25% of the net assets of its Class A, B and C Shares on the
20th of each month and a distribution fee at the annual rate of 0.75%
of the average daily net assets of its Class B and C Shares. Each of
the Funds identified on Appendix 1 as having a Class E share 12b-1 Plan
shall pay LFDI monthly a service fee at the annual rate of 0.25% of the
net assets of its Class E Shares on the 20th of each month and a
distribution fee at the annual rate of 0.10% of the average daily net
assets of its Class E Shares. Each of the Funds identified on Appendix
1 as having a Class F share 12b-1 Plan shall pay LFDI monthly a service
fee at the annual rate of 0.25% of the net assets of its Class F Shares
on the 20th of each month and a distribution fee at the annual rate of
0.75% of the average daily net assets of its Class F Shares. Each of
the Funds identified on Appendix 1 as having a Class G share 12b-1 Plan
shall pay LFDI monthly a service fee at the annual rate of 0.25% of the
net assets of its Class G Shares on the 20th of each month and a
distribution fee at the annual rate of 0.10% of the average daily net
assets of its Class G Shares outstanding less than five years from the
date of purchase and 0.25% of the average daily net assets of its Class
G Shares outstanding for five years or more. Each of the Funds
identified on Appendix 1 as having a Class H share 12b-1 Plan shall pay
LFDI monthly a service fee at the annual rate of 0.25% of the net
assets of its Class H Shares on the 20th of each month and a
distribution fee at the annual rate of 0.75% of the average daily net
assets of its Class H Shares. LFDI may use the service and distribution
fees received from the Fund as reimbursement for commissions and
service fees paid to financial service firms which sold Fund Shares and
to defray other LFDI distribution and shareholder servicing expenses,
including its expenses set forth in Paragraph 5, and may retain as
compensation for its services hereunder the amount, if any, by which
such fees exceed such expenses. LFDI shall provide to the Trust's
Trustees, and the Trustees shall review, at least quarterly, reports
setting forth all Plan expenditures, and the purposes for those
expenditures. Amounts payable under this paragraph are subject to any
limitations on such amounts prescribed by applicable laws or rules.
B. Payments by the Trust to LFDI and its affiliates (including
Colonial Management Associates, Inc.) other than any prescribed by
Section 6A which may be indirect financing of distribution costs are
authorized by this Plan.
C. The Plan shall continue in effect with respect to a Class of
Shares only so long as specifically approved for that Class at least
annually as provided in the Rule. The Plan may not be amended to
increase materially the service fee or distribution fee with respect to
a Class of Shares without such shareholder approval as is required by
the Rule and any applicable orders of the Securities and Exchange
Commission, and all material amendments of the Plan must be approved in
the manner described in the Rule. The Plan may be terminated with
respect to a Class of Shares at any time as provided in the Rule
without payment of any penalty. The continuance of the Plan shall be
effective only if the selection and nomination of the Trust's Trustees
who are not interested persons (as defined under the Act) of the Trust
is effected by such non-interested Trustees as required by the Rule.
7. CONTINUATION, AMENDMENT OR TERMINATION. This Contract (a) supersedes
and replaces any contract or agreement relating to the subject matter hereof in
effect prior to the date hereof, (b) shall continue in effect only so long as
specifically approved at least annually by the Trustees or shareholders of the
Trust and (c) may be amended at any time by written agreement of the parties,
each in accordance with the Act. This Contract (a) shall terminate immediately
upon the effective date of any later dated agreement relating to the subject
matter hereof, and (b) may be terminated upon 60 days notice without penalty by
a vote of the Trustees or by LFDI or otherwise in accordance with the Act and
will terminate immediately in the event of assignment (as defined under the
Act). Upon termination the obligations of the parties under this Contract shall
cease except for unfulfilled obligations and liabilities arising prior to
termination. All notices shall be in writing and delivered to the office of the
other party.
<PAGE>
8. AGREEMENT AND DECLARATION OF TRUST. A copy of the document establishing
the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This
Contract is executed by officers not as individuals and is not binding upon any
of the Trustees, officers or shareholders of the Trust individually but only
upon the assets of the Fund.
Agreed:
EACH TRUST DESIGNATED IN APPENDIX 2 LIBERTY FUNDS DISTRIBUTOR, INC.
By: By:
, Secretary For Each Trust , Managing Director
<PAGE>
APPENDIX 1
THE FOLLOWING IS APPLICABLE TO THE DESIGNATED FUND'S 12b-1 PLAN:
1. For Colonial Money Market Fund and Colonial Municipal Money Market Fund,
the first sentence of Section 6A is replaced with: "The Fund shall pay
LFDI monthly a service fee at an annual rate of 0.25% of the net assets of
its Class B and C Shares on the 20th of each month and a distribution fee
at an annual rate of 0.75% of the average daily net assets of its Class B
and C Shares."
2. For Colonial California Tax-Exempt Fund, Colonial Connecticut Tax-Exempt
Fund, Colonial Florida Tax-Exempt Fund, Colonial Massachusetts Tax-Exempt
Fund, Colonial Michigan Tax-Exempt Fund, Colonial Minnesota Tax-Exempt
Fund, Colonial New York Tax-Exempt Fund, Colonial North Carolina Tax-Exempt
Fund and Colonial Ohio Tax-Exempt Fund the first sentence of Section 6A is
replaced with: "The Fund shall pay LFDI monthly (i) a service fee at the
annual rate of (A) 0.10% of the net assets attributable to its Class A and
Class B Shares outstanding as of the 20th day of each month which were
issued prior to December 1, 1994, and (B) 0.25% of the net assets
attributable to its Class A, B and C Shares outstanding as of the 20th day
of each month which were issued on or after December 1, 1994, and (ii) a
distribution fee at an annual rate of 0.75% of the average daily net assets
of its Class B and C Shares."
3. For The Colonial Fund and Colonial Select Value Fund, the first sentence
of Section 6A is replaced with: "The Fund shall pay LFDI monthly a service
fee at an annual rate of 0.15% of the net assets on the 20th of each month
of its Class A and B Shares outstanding which were issued prior to April
1, 1989, and 0.25% of the net assets on the 20th of each month of its
Class A, B and C Shares issued thereafter, and a distribution fee at an
annual rate of 0.75% of the average daily net assets of its Class B and C
Shares."
4. For Colonial Strategic Income Fund, the first sentence of Section 6A is
replaced with: "The Fund shall pay LFDI monthly a service fee at an annual
rate of 0.15% of the net assets on the 20th of each month of its Class A
and B Shares outstanding which were issued prior to January 1, 1993, and
0.25% of the net assets on the 20th of each month of its Class A, B and C
Shares issued thereafter, and a distribution fee at an annual rate of
0.75% of the average daily net assets of its Class B and C Shares."
5. For Colonial Short Duration U.S. Government Fund and Colonial Intermediate
Tax-Exempt Fund, the first sentence of Section 6A is replaced with: "The
Fund shall pay LFDI monthly a service fee at an annual rate of 0.20% of
the net assets on the 20th of each month of its Class A, B and C Shares
and a distribution fee at an annual rate of 0.65% of the average daily net
assets of its Class B and C Shares."
6. For Colonial Strategic Balanced Fund, the following sentence is added as
the second sentence of Section 6A: " The Fund shall also pay LFDI an
annual distribution fee not exceeding 0.30% of the average net assets
attributed to its Class A Shares."
7. Newport Tiger Fund does not offer a 12b-1 plan for Class T and Class Z
Shares.
8. Colonial Small Cap Value Fund, Colonial U.S. Stock Fund, The Colonial Fund,
Newport Tiger Cub Fund and Newport Japan Opportunities Fund do not offer a
12b-1 plan for Class Z Shares.
9. The Funds with Class E, Class F, Class G and Class H share 12b-1 Plans are
as follows: Stein Roe Advisor Tax-Managed Growth Fund.
10. Crabbe Huson Small Cap Fund, Crabbe Huson Income Fund, Crabbe Huson Equity
Fund and Crabbe Huson Asset Allocation Fund do not offer a 12b-1 plan for
Class I shares.
Dated: October , 1998
By:
, Secretary For Each Trust
By:
, Managing Director
Liberty Funds Distributor,Inc.
<PAGE>
APPENDIX 2
Trust Series
Colonial Trust I
Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Stein Roe Advisor Tax-Managed Growth Fund
Colonial Trust II
Colonial Money Market Fund
Colonial Intermediate U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Newport Tiger Cub Fund
Newport Japan Opportunities Fund
Newport Greater China Fund
Colonial Trust III
Colonial Select Value Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial International Horizons Fund
Colonial Strategic Balanced Fund
Colonial Global Utilities Fund
The Crabbe Huson Special Fund
Crabbe Huson Income Fund
Crabbe Huson Equity Fund
Crabbe Huson Real Estate Investment Fund
Crabbe Huson Asset Allocation Fund
Crabbe Huson Small Cap Fund
Crabbe Huson Oregon Tax-Free Fund
Colonial Trust IV
Colonial High Yield Municipal Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial Municipal Money Market Fund
Colonial Utilities Fund
Colonial Trust V
Colonial Massachusetts Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial California Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial Trust VI
Colonial U.S. Stock Fund
Colonial Small Cap Value Fund
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Newport Asia Pacific Fund
Colonial Trust VII
Newport Tiger Fund
By:
, Secretary For Each Trust
By:
, Managing Director
Liberty Funds Distributor, Inc.
Dated: October , 1998
- --------
* Except as indicated in Appendix 1.
Form of
CUSTODIAN CONTRACT
Between
-----------------------------------
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It....................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States................2
2.1 Holding Securities...........................................2
2.2 Delivery of Securities.......................................2
2.3 Registration of Securities...................................4
2.4 Bank Accounts................................................4
2.5 Availability of Federal Funds................................5
2.6 Collection of Income.........................................5
2.7 Payment of Fund Monies.......................................5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased.........................................6
2.9 Appointment of Agents........................................7
2.10 Deposit of Fund Assets in U.S. Securities System.............7
2.11 Fund Assets Held in the Custodian's Direct
Paper System.................................................8
2.12 Segregated Account...........................................9
2.13 Ownership Certificates for Tax Purposes......................9
2.14 Proxies.....................................................10
2.15 Communications Relating to Portfolio
Securities..................................................10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...........................10
3.1 Appointment of Foreign Sub-Custodians.......................10
3.2 Assets to be Held...........................................10
3.3 Foreign Securities Systems..................................11
3.4 Holding Securities..........................................11
3.5 Agreements with Foreign Banking Institutions................11
3.6 Access of Independent Accountants of the Fund...............11
3.7 Reports by Custodian........................................11
3.8 Transactions in Foreign Custody Account.....................12
3.9 Liability of Foreign Sub-Custodians.........................12
3.10 Liability of Custodian......................................12
3.11 Reimbursement for Advances..................................12
3.12 Monitoring Responsibilities.................................13
3.13 Branches of U.S. Banks......................................13
3.14 Tax Law.....................................................14
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund................................................14
5. Proper Instructions..................................................14
6. Actions Permitted Without Express Authority..........................15
7. Evidence of Authority................................................15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income....................15
9. Records..............................................................16
10. Opinion of Fund's Independent Accountants............................16
11. Reports to Fund by Independent Public Accountants....................16
12. Compensation of Custodian............................................16
13. Responsibility of Custodian..........................................17
14. Effective Period, Termination and Amendment..........................18
15. Successor Custodian..................................................19
16. Interpretive and Additional Provisions...............................19
17. Additional Funds.....................................................20
18. Massachusetts Law to Apply...........................................20
19. Prior Contracts......................................................20
20. Reproduction of Documents............................................20
21. Shareholder Communications Election..................................20
<PAGE>
CUSTODIAN CONTRACT
This Contract between ______________, a business trust organized and
existing under the laws of The Commonwealth of Massachusetts, having its
principal place of business at _____________________ hereinafter called the
"Fund", and State Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in seven series,
_________________ (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a U.S. Securities System") and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio ; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to ___________________________________with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in writing
to provide such services, such series of Shares shall become a Portfolio
hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 1997.
ATTEST
By
ATTEST STATE STREET BANK AND TRUST COMPANY
By
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of ____________ Trust
for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
FORM OF
AMENDMENT TO SCHEDULE A
Terms used in the Schedule and not defined herein shall have the meaning
specified in the AMENDED AND RESTATED SHAREHOLDERS' SERVICING AND TRANSFER AGENT
AGREEMENT dated July 1, 1991, and as amended from time to time (the
"Agreement"). Payments under the Agreement to CSC shall be made in the first two
weeks of the month following the month in which a service is rendered or an
expense incurred. This Amendment No.__ to Schedule A shall be effective as of ,
and supersedes the original Schedule A and Amendment Nos. 1, 2, 3, 4, 5, 6, 7,
8, 9 and 10 to Schedule A.
1. Each Fund that is a series of the Trust shall pay CSC for the
services to be provided by CSC under the Agreement an amount equal to the sum of
the following:
(a) The Fund's Share of CSC Compensation
PLUS
(b) The Fund's Allocated Share of CSC Reimbursable
Out-of-Pocket Expenses.
In addition, CSC shall be entitled to retain as additional compensation for its
services all CSC revenues for Distributor Fees, fees for wire, telephone,
redemption and exchange orders, IRA trustee agent fees and account transcripts
due CSC from shareholders of any Fund and interest (net of bank charges) earned
with respect to balances in the accounts referred to in paragraph 2 of the
Agreement.
2. All determinations hereunder shall be in accordance with generally
accepted accounting principles and subject to audit by the Fund's independent
accountants.
3. Definitions
"Allocated Share" for any month means that percentage of CSC
Reimbursable Out-of-Pocket Expenses which would be allocated
to the Fund for such month in accordance with the methodology
described in Exhibit 1 hereto.
"CSC Reimbursable Out-of-Pocket Expenses" means (i)
out-of-pocket expenses incurred on behalf of the Fund by CSC
for stationery, forms, postage and similar items, (ii)
networking account fees paid to dealer firms by CSC on
shareholder accounts established or maintained pursuant to the
National Securities Clearing Corporation's networking system,
which fees are approved by the Trustees from time to time and
(iii) fees paid by CSC or its affiliates to third-party dealer
firms or transfer agents that maintain omnibus accounts with a
Fund in respect of expenses similar to those referred to in
clause (i) above, to the extent the Trustees have approved the
reimbursement by the Fund of such fees.
"Distributor Fees" means the amount due CSC pursuant to any
agreement with the Fund's principal underwriter for
processing, accounting and reporting services in connection
with the sale of shares of the Fund.
"Fund" means each of the open-end investment companies advised
by CMA that are series of the Trusts which are parties to the
Agreement.
"Fund's Share of CSC Compensation" for any month means 1/12 of
the following applicable percentage of the average daily
closing value of the total net assets of such Fund for such
month:
<TABLE>
<CAPTION>
Fund Percent
<S> <C> <C>
Equity Funds: 0.236
The Colonial Fund
Colonial Growth Shares Fund
Colonial U.S. Fund for Growth
Colonial Global Equity Fund
Colonial Global Natural Resources Fund
Colonial Small Stock Fund
Colonial International Fund for Growth
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Tax-Managed Growth Fund
Taxable Bond Funds: 0.17
Colonial U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Federal Securities Fund
Colonial Income Fund
Tax-Exempt Funds 0.13
Colonial Tax-Exempt Insured Fund
Colonial Tax-Exempt Fund
Colonial High Yield Municipal Fund
Colonial California Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Massachusetts Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Money Market Funds: 0.20
Colonial Government Money Market Fund
Colonial Municipal Money Market Fund
Others:
Colonial High Yield Securities Fund 0.25
Colonial Strategic Income Fund 0.20
Colonial Utilities Fund 0.20
Colonial Strategic Balanced Fund 0.236
Colonial Global Utilities Fund 0.20
Colonial Newport Tiger Fund 0.236
Colonial Newport Tiger Cub Fund 0.236
Colonial Newport Japan Fund 0.236
Newport Greater China Fund 0.236
The Crabbe Huson Special Fund
Crabbe Huson Small Cap
Fund Crabbe Huson Income Fund
Crabbe Huson Real Estate Investment Fund
Crabbe Huson Asset Allocation Fund
Crabbe Huson Equity Fund
Crabbe Huson Oregon Tax-Free Fund
</TABLE>
Agreed:
EACH TRUST ON BEHALF OF EACH FUND DESIGNATED
IN APPENDIX I FROM TIME TO TIME
By: __________________________________________
, Secretary
LIBERTY FUNDS SERVICES, INC.
By: ________________________________________
, President
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: ________________________________________
, Executive Vice President
<PAGE>
EXHIBIT 1
METHODOLOGY OF ALLOCATING CSC
REIMBURSABLE OUT-OF-POCKET EXPENSES
1. CSC Reimbursable Out-of-Pocket Expenses are allocated to the Colonial Funds
as follows:
A. Identifiable Based on actual services performed and invoiced to a Fund.
B. Unidentifiable Allocation will be based on three evenly weighted
factors.
- number of shareholder accounts
- number of transactions
- average assets
FORM OF
AMENDMENT TO APPENDIX I
<TABLE>
<CAPTION>
Funds Custodian
<S> <C> <C>
Colonial Trust I
Colonial High Yield Securities Fund Chase Manhattan Bank
Colonial Income Fund Chase Manhattan Bank
Colonial Strategic Income Fund Chase Manhattan Bank
Stein Roe Advisor Tax-Managed Growth Fund Chase Manhattan Bank
Colonial Trust II
Colonial Money Market Fund Chase Manhattan Bank
Colonial Intermediate U.S. Government Fund Chase Manhattan Bank
Colonial Short Duration U.S. Government Fund Chase Manhattan Bank
Newport Tiger Cub Fund Chase Manhattan Bank
Newport Japan Opportunities Fund Chase Manhattan Bank
Newport Greater China Fund Chase Manhattan Bank
Colonial Trust III
Colonial Select Value Fund Chase Manhattan Bank
The Colonial Fund Chase Manhattan Bank
Colonial Federal Securities Fund Chase Manhattan Bank
Colonial Global Equity Fund Chase Manhattan Bank
Colonial International Horizons Fund Chase Manhattan Bank
Colonial Strategic Balanced Fund Chase Manhattan Bank
Colonial Global Utilities Fund Chase Manhattan Bank
The Crabbe Huson Special Fund State Street Bank & Trust
Crabbe Huson Small Cap Fund State Street Bank & Trust
Crabbe Huson Real Estate Investment Fund State Street Bank & Trust
Crabbe Huson Equity Fund State Street Bank & Trust
Crabbe Huson Asset Allocation Fund State Street Bank & Trust
Crabbe Huson Oregon Tax-Free Fund State Street Bank & Trust
Crabbe Huson Income Fund State Street Bank & Trust
Colonial Trust IV
Colonial High Yield Municipal Fund Chase Manhattan Bank
Colonial Intermediate Tax-Exempt Fund Chase Manhattan Bank
Colonial Tax-Exempt Fund Chase Manhattan Bank
Colonial Tax-Exempt Insured Fund Chase Manhattan Bank
Colonial Municipal Money Market Fund Chase Manhattan Bank
Colonial Utilities Fund Chase Manhattan Bank
Colonial Trust V
Colonial Massachusetts Tax-Exempt Fund Chase Manhattan Bank
Colonial Connecticut Tax-Exempt Fund Chase Manhattan Bank
Colonial California Tax-Exempt Fund Chase Manhattan Bank
Colonial Michigan Tax-Exempt Fund Chase Manhattan Bank
Colonial Minnesota Tax-Exempt Fund Chase Manhattan Bank
Colonial New York Tax-Exempt Fund Chase Manhattan Bank
Colonial North Carolina Tax-Exempt Fund Chase Manhattan Bank
Colonial Ohio Tax-Exempt Fund Chase Manhattan Bank
Colonial Florida Tax-Exempt Fund Chase Manhattan Bank
Colonial Trust VI Colonial U.S. Stock Fund Chase Manhattan Bank
Colonial Small Cap Value Fund Chase Manhattan Bank
Colonial Aggressive Growth Fund Chase Manhattan Bank
Colonial Equity Income Fund Chase Manhattan Bank
Colonial International Equity Fund Chase Manhattan Bank
Newport Asia Pacific Fund Chase Manhattan Bank
Colonial Trust VII Newport Tiger Fund Chase Manhattan Bank
</TABLE>
Effective Date: October , 1998
By: ____________________________________
, Controller for Each Fund
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: ____________________________________
, Senior Vice President
LIBERTY FUNDS SERVICES, INC.
By: ____________________________________
, President
FORM OF
APPENDIX I
<TABLE>
<CAPTION>
Trust Series Effective Date
<S> <C> <C>
Colonial Trust I Colonial High Yield Securities Fund 11/1/91
Colonial Income Fund 5/1/92
Colonial Strategic Income Fund 5/1/92
Stein Roe Advisor Tax-Managed Growth Fund 12/30/96
Colonial Trust II Colonial Intermediate U.S. Government Fund 2/14/92
Colonial Short Duration U.S. Government Fund 10/1/92
Newport Tiger Cub Fund 6/3/96
Newport Japan Opportunities Fund 6/3/96
Newport Greater China Fund 5/12/97
Colonial Trust III Colonial Select Value Fund 11/1/91
The Colonial Fund 2/14/92
Colonial Federal Securities Fund 2/14/92
Colonial Global Equity Fund 2/14/92
Colonial International Horizons Fund 2/14/92
Colonial Strategic Balanced Fund 9/1/94
The Crabbe Huson Special Fund 10/ /98
Crabbe Huson Small Cap Fund 10/ /98
Crabbe Huson Real Estate Investment Fund 10/ /98
Crabbe Huson Equity Fund 10/ /98
Crabbe Huson Asset Allocation Fund 10/ /98
Crabbe Huson Oregon Tax-Free Fund 10/ /98
Crabbe Huson Income Fund 10/ /98
Colonial Trust IV Colonial High Yield Municipal Fund 6/5/92
Colonial Intermediate Tax-Exempt Fund 12/18/92
Colonial Tax-Exempt Fund 11/1/91
Colonial Tax-Exempt Insured Fund 11/1/91
Colonial Utilities Fund 2/14/92
Colonial Trust V Colonial Massachusetts Tax-Exempt Fund 11/1/91
Colonial Connecticut Tax-Exempt Fund 11/1/91
Colonial California Tax-Exempt Fund 8/3/92
Colonial Michigan Tax-Exempt Fund 8/3/92
Colonial Minnesota Tax-Exempt Fund 8/3/92
Colonial New York Tax-Exempt Fund 8/3/92
Colonial North Carolina Tax-Exempt Fund 8/6/93
Colonial Ohio Tax-Exempt Fund 8/3/92
Colonial Florida Tax-Exempt Fund 1/13/93
Colonial Trust VI Colonial U.S. Stock Fund 7/1/92
Colonial Small Cap Value Fund 11/2/92
Colonial Aggressive Growth Fund 3/31/96
Colonial Equity Income Fund 3/31/96
Colonial International Equity Fund 3/31/96
Newport Asia Pacific Fund 6/5/98
Colonial Trust VII Newport Tiger Fund 5/1/95
</TABLE>
By:
Controller
By:
Senior Vice President
Colonial Management Associates, Inc.
Dated: October , 1998
Independent Auditors' Consent
-----------------------------
The Board of Directors
The Crabbe Huson Special Fund, Inc.
The Board of Trustees
Crabbe Huson Funds
We consent to the incorporation herein by reference of our report dated December
3, 1997 relating to the financial statements and financial highlights of The
Crabbe Huson Special Fund, Inc. and The Crabbe Huson Funds (comprised of Crabbe
Huson Small Cap Fund, Crabbe Huson Real Estate Investment Fund, Crabbe Huson
Equity Fund, Crabbe Huson Asset Allocation Fund, Crabbe Huson Oregon Tax-Free
Fund, Crabbe Huson Income Fund, Crabbe Huson U.S. Government Income Fund and
Crabbe Huson U.S. Government Money Market Fund) as of October 31, 1997 and for
the periods indicated therein. We also consent to the references to our firm
under the headings "The Funds' Financial History" in the Prospectus and
"Independent Auditors" in the Statement of Additional Information.
KPMG Peat Marwick LLP
San Francisco, California
July 24, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000021847
<NAME> COLONIAL TRUST III
<SERIES>
<NUMBER> 9
<NAME> CRABBE HUSON SMALL CAP FUND, CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 104358009
<INVESTMENTS-AT-VALUE> 114179547
<RECEIVABLES> 173646
<ASSETS-OTHER> 111190
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114464383
<PAYABLE-FOR-SECURITIES> 80409
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<NAME> COLONIAL TRUST III
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<NAME> COLONIAL TRUST III
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<NAME> COLONIAL TRUST III
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<NAME> COLONIAL TRUST III
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<NAME> COLONIAL TRUST III
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COLONIAL TRUST I-VII
Plan pursuant to Rule 18f-3(d) under the Investment Company Act of 1940
Effective April 22, 1996(1)
Amended July 24, 1998
Each series ("Fund") of Colonial Trusts I-VII (the "Trusts") may from time to
time issue one or more of the following classes of shares: Class A shares, Class
B shares, Class C shares, Class E shares, Class F shares, Class G shares, Class
H shares, Class I shares, Class T shares and Class Z shares. Each class is
subject to such investment minimums and other conditions of eligibility as set
forth in the Funds' prospectuses as from time to time in effect. The differences
in expenses among these classes of shares, and the conversion and exchange
features of each class of shares, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the Declaration of
Trust and By-laws of each Trust, by action of the Board of Trustees of each
Trust.
Class A shares
Class A shares are offered at net asset value ("NAV") plus the initial sales
charges described in the Funds' prospectuses as from time to time in effect.
Initial sales charges may not exceed 6.50%, and may be reduced or waived as
permitted by Rule 22d-1 under the Investment Company Act of 1940 (the "1940
Act") and as described in the Funds' prospectuses from time to time in effect.
Purchases of $1 million to $5 million of Class A shares that are redeemed within
18 months from purchase are subject to a contingent deferred sales charge
("CDSC") of 1% of either the purchase price or the NAV of the shares redeemed,
whichever is less. Class A shares are not otherwise subject to a CDSC. The CDSC
may be reduced or waived as permitted by Rule 6c-10 under the 1940 Act and as
described in the Funds' prospectuses as from time to time in effect.
Class A shares pay service fees pursuant to plans adopted pursuant to Rule 12b-1
under the 1940 Act ("12b-1 Plans") as described in the Funds' prospectuses in
effect from time to time. Such fees may not exceed 0.25% per annum of the
average daily net assets attributable to such class. Class A shares generally do
not pay distribution fees, except that Colonial Strategic Balanced Fund pays a
distribution fee of 0.30% per annum of average daily net assets attributable to
its Class A shares.
Class A shares of any Fund may be exchanged, at the holder's option, for Class A
shares of another Fund without the payment of a sales charge, except that if
shares of any other non-money market fund are exchanged within five months after
purchase for shares of a Fund with a higher sales charge, then the difference in
sales charges must be paid on the exchange.
Class B shares
Class B shares are offered at NAV, without an initial sales charge. Class B
shares that are redeemed within the period of time after purchase (not more than
6 years) specified in each Fund's prospectus as from time to time in effect are
subject to a CDSC of up to 5% of either the purchase price or the NAV of the
shares redeemed, whichever is less; such percentage may be lower for certain
Funds and declines the longer the shares are held, all as described in the
Funds' prospectuses as from time to time in effect. Class B shares purchased
with reinvested distributions are not subject to a CDSC. The CDSC is subject to
reduction or waiver in certain circumstances, as permitted by Rule 6c-10 under
the 1940 Act and as described in the Funds' prospectuses as from time to time in
effect.
Class B shares pay distribution and service fees pursuant to 12b-1 Plans as
described in the Funds' prospectuses in effect from time to time. Such fees may
be in amounts up to but may not exceed, respectively, 0.75% and 0.25% per annum
of the average daily net assets attributable to such class.
Class B shares automatically convert to Class A shares of the same Fund eight
years after purchase, except that Class B shares purchased through the
reinvestment of dividends and other distributions on Class B shares convert
proportionally to the amount of Class B shares otherwise being converted.
Class B shares of any Fund may be exchanged, at the holder's option, for Class B
shares of another Fund, without the payment of a CDSC. The holding period for
determining the CDSC and the conversion to Class A shares will include the
holding period of the shares exchanged. If the Class B shares received in the
exchange are subsequently redeemed, the amount of the CDSC, if any, will be
determined by the schedule of the Fund in which the original investment was
made.
Class C shares
Class C shares are offered at NAV without an initial sales charge. Class C
shares that are redeemed within one year from purchase may be subject to a CDSC
of 1% of either the purchase price or the NAV of the shares redeemed, whichever
is less. Class C shares purchased with reinvested dividends or capital gain
distributions are not subject to a CDSC. The CDSC may be reduced or waived in
certain circumstances as permitted by Rule 6c-10 under the 1940 Act and as
described in the Funds' prospectuses as from time to time in effect. Class C
shares pay distribution and service fees pursuant to 12b-1 Plans, as described
in the Funds' prospectuses in effect from time to time. Such fees may be in
amounts up to but may not exceed, respectively, 0.75% and 0.25% per annum of the
average daily net assets attributable to such class.
Class C shares of any Fund may be exchanged for Class C shares of any other Fund
that offers Class C shares. The holding period for determining whether a CDSC
will be charged will include the holding period of the shares exchanged. Only
one exchange of any Fund's Class C shares may be made in any three month period.
For this purpose, an exchange into any Fund and a prior or subsequent exchange
out of the Fund constitutes "one exchange."
Class E shares
Class E shares are offered at NAV plus the initial sales charges described in
the Fund's prospectus as from time to time in effect. Initial sales charges may
not exceed 5.00%, and may be reduced or waived as permitted by Rule 22d-1 under
the 1940 Act and as described in the Fund's prospectus from time to time in
effect.
Purchases of $1 million to $5 million of Class E shares that are redeemed within
18 months from purchase are subject to the same CDSC on the same basis as Class
A shares. Class E shares are not otherwise subject to a CDSC. The CDSC may be
reduced or waived as permitted by Rule 6c-10 under the 1940 Act and as described
in the Fund's prospectus as from time to time in effect.
Class E shares pay distribution and service fees pursuant to 12b-1 Plans, as
described in the Fund's prospectus in effect from time to time. Such fees may be
in amounts up to but may not exceed, respectively, 0.10% and 0.25% per annum of
the average daily net assets attributable to such class.
Class E shares may not be exchanged for shares of any other Fund.
Class F shares
Class F shares are offered at NAV without an initial sales charge and subject to
the same declining CDSC, distribution and service fees as Class B shares. Class
F shares automatically convert to Class E shares eight years after purchase,
except that Class F shares purchased through the reinvestment of dividends and
other distributions on Class F shares convert proportionally to the amount of
Class E shares being converted.
Class F shares may not be exchanged for shares of any other Fund.
Class G shares
Class G shares are offered at NAV plus the initial sales charges described in
the Fund's prospectus as from time to time in effect. Initial sales charges may
not exceed 4.50%, and may be reduced or waived as permitted by Rule 22d-1 under
the 1940 Act and as described in the Fund's prospectus from time to time in
effect.
Purchases of $1 million to $5 million of Class G shares that are redeemed within
18 months from purchase are subject to the same CDSC on the same basis as Class
A shares. Class G shares are not otherwise subject to a CDSC. The CDSC may be
reduced or waived as permitted by Rule 6c-10 under the 1940 Act and as described
in the Fund's prospectus as from time to time in effect.
Class G shares may not be exchanged for shares of any other Fund.
Class H shares
Class H shares are offered at NAV without an initial sales charge and subject to
the same declining CDSC, distribution and service fees as Class B shares. Class
H shares automatically convert to Class G shares eight years after purchase,
except that Class H shares purchased through the reinvestment of dividends and
other distributions on Class H shares convert proportionally to the amount of
Class G shares being converted.
Class H shares pay distribution and service fees pursuant to 12b-1 Plans, as
described in the Fund's prospectus in effect from time to time. Such fees may be
in amounts up to but may not exceed, respectively, 0.25% and 0.25% per annum of
the average daily net assets attributable to such class.
Class H shares may not be exchanged for shares of any other Fund.
Class I shares
Class I shares are offered at NAV, without an initial sales charge or CDSC.
Class I shares do not pay fees under a Rule 12b-1 Plan. Class I shares of a Fund
may only be exchanged for Class I shares of another Fund.
Class T shares
Class T shares are offered at NAV plus the initial sales charges described in
the Funds' prospectuses as from time to time in effect. The sales charge may not
exceed 6.50%, and may be reduced or waived as permitted by Rule 22d-1 under the
1940 Act and as described in the Funds' prospectuses from time to time in
effect.
Purchases of $1 million or more of Class T shares that are redeemed within 18
months from purchase are subject to a CDSC of 1% of either the purchase price or
the NAV of the shares redeemed, whichever is less. Class T shares are not
otherwise subject to a CDSC. The CDSC may be reduced or waived as permitted by
Rule 6c-10 under the 1940 Act and as described in the Funds' prospectuses as
from time to time in effect.
Class T shares do not pay fees pursuant to a 12b-1 Plan. Class T shares of a
Fund may only be exchanged for Class A shares of another Fund.
Class Z shares
Class Z shares are offered at NAV, without an initial sales charge or CDSC.
Class Z shares do not pay fees under a 12b-1 Plan. Class Z shares of a Fund may
be exchanged for the Class A or Class Z shares of another Fund.
- --------
(1) Colonial Trusts I-VII (the "Trusts") have been offering multiple classes of
shares, prior to the effectiveness of this Plan, pursuant to an exemptive order
of the Securities and Exchange Commission. This Plan is intended to permit the
Trusts to offer multiple classes of shares pursuant to Rule 18f-3 under the
Investment Company Act of 1940, without any change in the arrangements and
expense allocations that have been approved by the Board of Trustees of each
Trust under such order of exemption.
