Registration Nos: 2-62492
811-2865
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre Effective Amendment No. [ ]
Post Effective Amendment No. 44 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ X ]
ACT OF 1940
Amendment No. 42 [ X ]
COLONIAL TRUST IV
-----------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
-------------------------------------------------
(Address of Principal Executive Office)
(617) 426-3750
--------------
(Registrant's Telephone Number, Including Area Code)
Name and Address of Agent for Copy to:
- ----------------------------- --------
Service:
- --------
Arthur O. Stern, Esquire John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts
02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b).
[ x ] on October 28, 1996 pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has registered an indefinite number of its shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. On January 26, 1996, the Registrant
filed a Rule 24f-2 Notice in respect of its six other series for their fiscal
year ended November 30, 1995. On August 26, 1996 the Registrant, on behalf of
its Colonial Municipal Money Market Fund (formerly known as Colonial Tax-Exempt
Money Market Fund) series filed a Rule 24f-2 Notice in respect of the series'
fiscal year ended June 30, 1996.
MASTER FUND/FEEDER FUND REPRESENTATION
This Registration Statement includes the Prospectus and Statement of
Additional Information for the Colonial Municipal Money Market Fund, which uses
a master fund/feeder fund structure. In accordance with SEC requirements, the
master fund has executed this Registration Statement.
COLONIAL TRUST IV
-----------------
Cross Reference Sheet
---------------------
Colonial Municipal Money Market Fund
------------------------------------
Item Number of Form N-1A Location or Caption in Prospectus
- ------------------------ ---------------------------------
Part A
- ------
1. Cover Page
2. Summary of Expenses
3. The Fund's Financial History
4. The Fund's Investment Objective;
Organization and History; How the
Fund Pursues its Objective and
Certain Risk Factors
5. Cover Page; How the Fund and the
Portfolio are Managed;
Organization and History; The
Fund's Investment Objective, Back
Cover
6. Organization and History;
Distributions and Taxes; How to
Buy Shares
7. Cover Page; Summary of Expenses;
How to Buy Shares; How the Fund
Values its Shares; 12b-1 Plans;
Back Cover
8. Summary of Expenses; How to Sell
Shares; How to Exchange Shares;
Telephone Transactions
9. Not Applicable
October 28, 1996
COLONIAL
MUNICIPAL
MONEY MARKET FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) and your full-service
financial adviser want you to understand both
the risks and benefits of mutual fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Colonial Municipal Money Market Fund (Fund), a non-diversified portfolio of
Colonial Trust IV (Trust), an open-end management investment company, seeks
maximum current income exempt from Federal income tax by investing principally
in a diversified portfolio of "short-term" Municipal Securities.
Prior to its conversion to a master fund/feeder fund structure on September 28,
1995, the Fund invested directly in individual securities and was managed by the
Administrator. Unlike a traditional mutual fund which invests directly in
individual securities, the Fund currently seeks to achieve its objective by
investing all of its assets in SR&F Municipal Money Market Portfolio
(Portfolio), a municipal money market master fund that has the same investment
objective as the Fund. The Portfolio is a series of the SR&F Base Trust, an
open-end diversified management investment company which was organized as a
trust under the laws of The Commonwealth of Massachusetts on August 23, 1993.
Except for certain separate expenses, the Fund's investment experience will
correspond directly to that of the Portfolio. The Portfolio is managed by Stein
Roe & Farnham Incorporated (Adviser), successor to an investment advisory
business that was founded in 1932.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the October 28, 1996 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Administrator at 1-800-248-2828. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
TM-XX-XX
An investment in the Fund is not insured or guaranteed by the U.S. Government.
There can be no assurance that the $1.00 net asset value per share will be
maintained.
The Fund offers two classes of shares. Class A shares are offered at net asset
value; Class B shares are offered at net asset value and, in addition, are
subject to an annual distribution fee and a declining contingent deferred sales
charge on redemptions made within six years after purchase. Class B shares
automatically convert to Class A shares after approximately eight years. See
"How to Buy Shares".
Class B shares of the Fund are only for temporary investment while, for example,
considering investments in Class B shares of other Colonial funds. Unlike shares
of most money market funds, investments in the Fund's Class B shares are subject
to contingent deferred sales charges, a distribution fee and a service fee.
Contents Page
Summary of Expenses
The Fund's Financial History
Two-Tiered Structure Structure
The Fund's Investment Objective
How the Fund Pursues its Objective
and Certain Risk Factors
How the Fund Measures its Performance
How the Fund and the Portfolio are Managed Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
History
Appendix
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund.
Shareholder Transaction Expenses (1)(2)
Class A Class B
Maximum Contingent Deferred
Sales Charge (as a % of offering price)(3) 0.00% 5.00%(4)
(1) For accounts less than $1,000 an annual fee of $10
may be deducted. See "How to Sell Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the 0.75% distribution fee applicable to
Class B shares, long-term Class B shareholders may pay more in aggregate
sales charges than the maximum sales charge permitted by the National
Association of Securities Dealers, Inc. However, because the Fund's
Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for a
class without a conversion feature.
Annual Operating Expenses (as a % of average net assets)
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
12b-1 fees 0.00 1.00
Other expenses (after expense
reimbursement and fee waiver) 0.75 0.75
-------- --------
Administration fee (after fee waiver) 0.00% 0.00%
Total operating expenses 0.75%(5) 1.75%(5)
======== ========
</TABLE>
(5) The Administrator has voluntarily agreed to waive
or bear certain Fund expenses until further notice
to the Fund. Absent such agreement, the
"Administration fee" would have been 0.25% for each
Class, "Other expenses" would have been 1.26 %
for each Class and "Total expenses" would have been
1.51 % for Class A shares and 2.51 % for Class B.
For fiscal year 1996, total operating expenses as a percent of net
assets were 1.59% for Class A shares and 2.59% for Class B shares which
do not reflect the current operating expenses of the Fund.
The preceding tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. Annual Operating
Expenses include the expenses of the Portfolio as well as the Fund. Annual
Operating Expenses have been restated to reflect current fees. See "How the Fund
and the Portfolio are Managed" and "12b-1 Plans" for more complete descriptions
of the Fund's and the Portfolio's various costs and expenses.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of the Fund for the
periods specified, assuming a 5% annual return and, unless otherwise noted,
redemption at period end. The 5% return and expenses used in this Example should
not be considered indicative of actual or expected Fund performance or expenses,
both of which will vary.
<TABLE>
<CAPTION>
Class A Class B
Period: (6) (7)
<S> <C> <C> <C>
1 year $ 8 $ 68 $ 18
3 years 24 85 55
5 years 42 115 95
10 years 93 180 (8) 180 (8)
</TABLE>
(6) Assumes redemption at period end.
(7) Assumes no redemption.
(8) Class B shares convert to Class A shares after approximately 8 years;
therefore, years 9 and 10 reflect Class A share expenses.
Without voluntary fee reduction, the amounts would be $15, $48, $83 and $181 for
Class A shares for 1, 3, 5 and 10 years, respectively; $75, $108, $154 and $260
for Class B shares assuming redemptions for 1, 3, 5 and 10 years, respectively;
and $25, $78, $134 and $260 for Class B shares assuming no redemptions for 1, 3,
5 and 10 years, respectively .
THE FUND'S FINANCIAL HISTORY (a)
The following schedule of financial highlights for a share outstanding
throughout each period, has been audited by Price Waterhouse LLP, independent
accountants. Their unqualified report is included in the Fund's 1996 Annual
Report and is incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------------------
Year Ended Period Ended Year ended November 30
June 30 June 30
---------- ---------- --------------------------------------------------------------------
1996(c) 1995(d) 1994 1993 1992 1991 1990 1989 1988 1987(e)
---------- ----------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
period ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(b) 0.030 (f) 0.018 0.020 0.017 0.024 0.042 0.055 0.059 0.050 0.022
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.030) (0.018) (0.020) (0.017) (0.024) (0.042) (0.055) (0.059) (0.050) (0.022)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return(g)(h) 3.04% 1.80% (i) 2.00% 1.73% 2.44% 4.26% 5.64% 6.11% 5.12% 2.19% (i)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.75% (f) 0.75% (j) 0.60% 0.75% 0.75% 0.75% 0.75% 0.66% 0.39% ---
Fees and expenses waived or
or borne by the Administrator 0.84% (f) 0.36% (j) 0.59% 0.50% 0.61% 0.53% 0.38% 0.31% 0.49% 1.08% (j)
Net investment income 3.00% (f) 3.05% (j) 2.05% 1.69% 2.42% 4.23% 5.50% 5.96% 4.95% 5.37% (j)
Net assets at end of period (000) $19,676 $24,675 $28,808 $18,618 $34,956 $28,355 $37,158 $40,639 $53,758 $52,190
(a) Prior to September 28, 1995, the Fund was managed by the Administrator
and invested directly in individual securities. On September 15, 1995,
shareholders of the Fund approved a conversion of the Fund to a master
fund/feeder fund structure at a special meeting of shareholders called
for that purpose. The financial history presented in this section for
Class A and Class B shares is that of the Fund. However, the investment
performance disclosed in the Statement of Additional Information and in
any sales or advertising materials for the Fund is that of the Stein Roe
Municipal Money Market Fund, adjusted to reflect applicable sales loads
of the Fund. The investment adviser of the Stein Roe Municipal Money
Market Fund before its conversion to a feeder fund of the Portfolio on
September 28, 1995 was the Adviser. Also, the investment objective,
policies and restrictions of the Portfolio are generally the same as
those of the Stein Roe Municipal Money Market Fund prior to September
28, 1995.
(b) Net of fees and expenses waived or
borne by the Adviser/Administrator
which amounted to $0.008 $0.002 $0.006 $0.005 $0.006 $0.005 $0.004 $0.003 $0.005 $0.005
(c) Effective September 28, 1995, SR&F became the investment adviser of the
Fund.
(d) The Fund changed its fiscal year end from November 30 to June 30 on
June 16, 1995.
(e) The Fund commenced investment operations on June 16, 1987.
(f) The per share amounts and ratios reflect income and expenses
assuming inclusion of the Fund's proportionate share of the income and
expenses of SR&F Municipal Money Market Portfolio.
(g) Total return at net asset value assuming all distributions reinvested
and no contingent deferred sales charge.
(h) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses total return would have been reduced.
(i) Not annualized.
(j) Annualized.
</TABLE>
THE FUND'S FINANCIAL HISTORY(a) (continued)
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
Year ended Period ended
June 30 June 30 Year Ended November 30
------------------ ------------------ ----------------------------------
1996 (b) 1995 (c) 1994 1993 1992(d)
------------------ ------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $1.000 $1.000 $1.000 $1.000 $1.000
------- ------- ------- ------- ------
INCOME FROM INVESTMENT
Net investment income(a) 0.020 (f) 0.012 0.010 0.009 0.007
------ ------ ------ ----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.020) (0.012) (0.010) (0.009) (0.007)
------- ------- ------- ------- -------
Net asset value - End of period $1.000 $1.000 $1.000 $1.000 $1.000
======= ======= ======= ======= ======
Total return(f)(g) 2.02% 1.20% (h) 1.01% 0.93% 0.68% (h)
----- ----- ----- ----- -----
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.75% (e) 1.75% (i) 1.60% 1.75% 1.75% (i)
Fees and expenses waived
or borne by the Adviser/Administrator 0.84% (e) 0.36% (i) 0.59% 0.50% 0.79% (i)
Net investment income 2.00% (e) 2.05% (i) 1.05% 0.69% 1.42% (i)
Net assets at end of period $1,235 $3,111 $3,867 $908 $135
(a) Prior to September 28, 1995, the Fund was managed by the Administrator
and invested directly in individual securities. On September 15, 1995,
shareholders of the Fund approved a conversion of the Fund to a master
fund/feeder fund structure at a special meeting of shareholders called
for that purpose. The financial history presented in this section for
Class A and Class B shares is that of the Fund. However, the investment
performance disclosed in the Statement of Additional Information and in
any sales or advertising materials for the Fund is that of the Stein Roe
Municipal Money Market Fund, adjusted to reflect applicable sales loads
of the Fund. The investment adviser of the Stein Roe Municipal Money
Market Fund before its conversion to a feeder fund of the Portfolio on
September 28, 1995 was the Adviser. Also, the investment objective,
policies and restrictions of the Portfolio are generally the same as
those of the Stein Roe Municipal Money Market Fund prior to September
28, 1995.
(b) Net of fees and expenses waived or
borne by the Adviser/ Administrator
which amounted to 0.008 $0.002 $0.006 $0.005 $0.003
(c) Effective September 28, 1995, SR&F became the investment adviser of
the Fund.
(d) The Fund changed its fiscal year end from November 30 to June 30 on
June 16, 1995.
(e) Class B shares were initially offered on May 5, 1992. Per share
amounts reflect activity from that date.
(f) The per share amounts and ratios reflect income and
expenses assuming inclusion of the Fund's proportionate
share of the income and expenses of SR&F Municipal Money
Market Portfolio.
(g) Total return at net asset value assuming all distributions reinvested
and no contingent deferred sales charge.
(h) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses total return would have been reduced.
(i) Not annualized.
(j) Annualized.
</TABLE>
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-248-2828.
TWO-TIERED STRUCTURE
Unlike other mutual funds which invest directly in individual securities, the
Fund is an open-end management investment company that seeks to achieve its
investment objective by investing all of its assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund and
which invests directly in portfolio securities. See "The Fund's Investment
Objective," "How the Fund Pursues its Objective and Certain Risk Factors" and
"How the Fund and the Portfolio are Mmanaged" for information concerning the
Portfolio's and the Fund's investment objectives, policies, management and
expenses. The following describes certain of the effects and risks of this
structure.
The Fund's and the Portfolio's investment objectives may be changed without
shareholder approval. Fund shareholders will be notified, however, at least 30
days prior to any material change in the Fund's or the Portfolio's investment
objective. Class B shareholders may incur a contingent deferred sales charge if
they redeem shares in response to a change in investment objective.
Matters submitted by the Portfolio to its investors for a vote will be passed
along by the Fund to its shareholders, and the Fund will vote its entire
interest in the Portfolio in proportion to the votes actually received from Fund
shareholders. As of the date of this Prospectus, the Stein Roe Municipal Money
Market Fund (Stein Roe Fund) is also an investor in the Portfolio. In the
future, other funds or institutional investors may also invest in the Portfolio.
The Stein Roe Fund currently has, and in the future other investors may have,
sufficient voting interests in the Portfolio to control matters relating to the
operation of the Portfolio. You may obtain additional information about other
investors in the Portfolio by writing or calling the Administrator at
1-800-248-2828.
The Stein Roe Fund invests, and other feeder funds or institutions may invest,
in the Portfolio on substantially the same terms and conditions as the Fund.
Each investor in the Portfolio will bear its proportionate share of the
Portfolio's expenses. However, the Stein Roe Fund and other mutual fund
investors in the Portfolio will not be required to issue their shares at the
same public offering price as the Fund and may have direct expenses that are
higher or lower than those of the Fund. These differences may result in such
other funds' generating investment returns higher or lower than those of the
Fund. Large scale redemptions by such other investors in the Portfolio could
result in untimely liquidation of the Portfolio's security holdings, loss of
investment flexibility and an increase in the operating expenses of the
Portfolio as a percentage of its assets.
The Fund will continue to invest in the Portfolio as long as the Trust's Board
of Trustees determines it is in the best interest of Fund shareholders to do so.
In the event that the Portfolio's investment objective or policies were changed
so as to be inconsistent with the Fund's investment objective or policies, the
Board of Trustees of the Trust would consider what action might be taken,
including changes to the Fund's investment objective or policies, withdrawal of
the Fund's assets from the Portfolio and investment of such assets in another
pooled investment entity or the retention of an investment adviser to manage the
Fund's investments. Certain of these actions would require Fund shareholder
approval. Withdrawal of the Fund's assets from the Portfolio could result in a
distribution by the Portfolio to the Fund of portfolio securities in kind (as
opposed to a cash distribution), and the Fund could incur brokerage fees or
other transaction costs and could realize distributable taxable gains in
converting such securities to cash. Such a distribution in kind could also
result in a less diversified portfolio of investments for the Fund.
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks maximum current income exempt from Federal income tax by
investing principally in a diversified portfolio of "short-term" Municipal
Securities.
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund seeks to achieve its investment objective by investing all its assets
in the Portfolio, which has the same investment objective and policies as the
Fund. In pursuing its investment objective, the Portfolio attempts to maintain
relative stability of principal and liquidity. The Portfolio invests principally
in a diversified portfolio of short-term Municipal Securities. "Short-term"
means a remaining maturity of no more than thirteen months (or a comparable
period). See the Statement of Additional Information for more information.
It is a fundamental policy that normally at least 80% of the Portfolio's
investments will produce income that is exempt from Federal income tax, except
for periods in which the Adviser believes require a temporary defensive position
for the protection of shareholders.
As a fundamental policy, the Portfolio invests in Municipal Securities that, at
the time of purchase, are: (i) variable rate demand securities whose demand
feature is rated within the two highest ratings assigned by Moody's Investors
Service, Inc. (Moody's), VMIG1 or VMIG2; (ii) notes rated within the two highest
short-term municipal ratings assigned by Moody's, MIG1 or MIG2, or within the
highest rating assigned by Standard & Poor's Corporation (S&P), SP-1+; (iii)
municipal commercial paper (short-term promissory notes) rated Prime-1 by
Moody's, or A-1+ or A-1 by S&P; (iv) municipal bonds, including industrial
development bonds, rated within the two highest ratings assigned to municipal
bonds by S&P, AAA or AA, or by Moody's, Aaa or Aa; (v) securities not rated as
described in (i) through (iv) but determined by the Board of Trustees of the
Portfolio to be at least equal in quality to one or more of the foregoing
ratings, although other types of obligations of the same issuer might not be
within the foregoing ratings; (vi) securities backed by the full faith and
credit of the U.S. government; or (vii) securities as to which the payment of
principal and interest is collateralized by securities issued or guaranteed by
the U.S. government or by its agencies or instrumentalities (U.S. government
securities) deposited in an escrow for the benefit of holders of the securities.
In accordance with SEC Rule 2a-7 under the Investment Company Act of 1940, each
security in which the Portfolio invests will be U.S. dollar denominated and (i)
rated (or be issued by an issuer that is rated with respect to its short-term
debt) within the two highest rating categories for short-term debt by at least
two nationally recognized statistical rating organizations (NRSROs) or, if rated
by only one NRSRO, rated within the two highest rating categories by that NRSRO,
or, if unrated, determined by or under the direction of the Board of Trustees of
the Portfolio to be of comparable quality, and (ii) determined by or under the
direction of the Portfolio's Board of Trustees to present minimal credit risks.
Municipal Securities. Municipal Securities are debt obligations issued by or on
behalf of the governments of states, territories or possessions of the United
States, the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is generally exempt from the regular
Federal income tax.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. "General obligation" bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. "Revenue" bonds are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue bonds, the credit
quality of which is normally directly related to the credit standing of the
industrial user involved. Municipal Securities may bear either fixed or variable
rates of interest. Variable rate securities bear rates of interest that are
adjusted periodically according to formulae intended to minimize fluctuation in
values of such instruments.
Within the principal classifications of Municipal Securities, there are various
types of instruments, including municipal bonds, municipal notes, municipal
leases, custodial receipts and participation certificates. Municipal notes
include tax, revenue and bond anticipation notes of short maturity, generally
less than three years, which are issued to obtain temporary funds for various
public purposes. Municipal lease securities, and participation certificates
therein, evidence certain types of interests in lease or installment purchase
contract obligations of a municipal authority or other entity. Custodial
receipts represent ownership in future interest or principal payments (or both)
on certain Municipal Securities and are underwritten by securities dealers or
banks. Some Municipal Securities may not be backed by the faith, credit and
taxing power of the issuer and may be subject to "non-appropriation" clauses
which provide that the municipal authority is not obligated to make lease or
other contractual payments, unless specific annual appropriations are made by
the municipality. The Portfolio may invest more than 5% of its net assets in
municipal bonds and notes, but does not expect to invest more than 5% of its net
assets in the other Municipal Securities described in this paragraph The Board
of Trustees of the Portfolio is responsible for determining the credit quality
of unrated municipal leases on an ongoing basis, including an assessment of the
likelihood that such leases will not be canceled.
The Portfolio may also purchase Municipal Securities that are insured as to the
timely payment of interest and principal. Such insured Municipal Securities may
already be insured when purchased by the Portfolio or the Portfolio may purchase
insurance in order to turn an uninsured Municipal Security into an insured
Municipal Security.
Some Municipal Securities are backed by (i) the full faith and credit of the
U.S. government, (ii) agencies or instrumentalities of the U.S. government,
or (iii) U.S. government securities.
Except with respect to Municipal Securities with a demand feature acquired by
the Portfolio, if, after purchase by the Portfolio, an issue of Municipal
Securities ceases to meet the required rating standards, if any, the Portfolio
is not required to sell such security, but the Adviser would consider such an
event in deciding whether it should retain the security in its portfolio.
In the case of Municipal Securities with a demand feature acquired by the
Portfolio, if the quality of such a security falls below the minimum level
applicable at the time of acquisition, the Portfolio must dispose of the
security, unless the Portfolio's Board of Trustees determines that it is in the
best interest of the Portfolio and its shareholders to retain the security.
Other Investment Practices. The Portfolio may also engage to a limited extent in
the following investment practices, each of which may involve certain special
risks:
When-Issued and Delayed-Delivery Securities. The Portfolio's assets may include
securities purchased on a when-issued or delayed-delivery basis. Although the
payment and interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their value may have
changed. The Portfolio makes such commitments only with the intention of
actually acquiring the securities, but may sell the securities before settlement
date if the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of the security
purchased declines before settlement date.
Stand-By Commitments. To facilitate portfolio liquidity, the Portfolio may
obtain stand-by commitments when it purchases Municipal Securities. A stand-by
commitment gives the holder the right to sell the underlying security to the
seller at an agreed upon price on certain dates within a specified period.
Participation Interests. The Portfolio may also purchase participation interests
or certificates of participation in all or part of specific holdings of
Municipal Securities, including municipal obligations. Some participation
interests, certificates of participation and municipal lease obligations are
illiquid and, as such, will be subject to the Portfolio's 10% limit on
investments in illiquid securities.
Tender Option Bonds. The Portfolio may purchase 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. The Portfolio does
not intend to invest more than 10% of net assets in tender option bonds.
Borrowing of Money. The Portfolio may borrow money up to 33 1/3% of its total
assets, determined at current value at the time of such borrowing, from banks as
a temporary measure for extraordinary or emergency purposes but not to increase
portfolio income. The Portfolio may engage in reverse repurchase agreements
which may be viewed as the borrowing of money by the Portfolio. The Portfolio
will not purchase additional securities at a time when borrowings, less proceeds
receivable from sale of portfolio securities, exceed 5% of its total assets.
Under a lending program, the Portfolio and each of the other Stein Roe funds may
borrow money from and lend money to the other Stein Roe funds primarily to allow
the borrowing fund to meet shareholder redemptions. Borrowings and loans each
may not exceed 33 1/3% of the Portfolio's total assets.
The Portfolio may borrow cash from another Stein Roe fund only if the terms were
at least as favorable as the terms on which it could borrow from a bank, and
would lend money only if the rate earned was at least as favorable as the rate
it could earn on a repurchase agreement or other short-term investment. In
addition to banks and the other Stein Roe funds the Portfolio may borrow from
any other lenders from which it may borrow under applicable law, although there
are no current plans to do so.
With respect to borrowing, there is a risk that the Portfolio could have a loan
recalled by the lending Stein Roe fund on one day's notice. In these
circumstances, the Portfolio might have to borrow from a bank at a higher
interest cost if money to borrow were not available from another Stein Roe fund.
With respect to loans, there is a risk that the Portfolio could experience a
delay in obtaining repayment and, unlike with a repurchase agreement, the
Portfolio would not necessarily have received collateral for its loan. A delay
in obtaining prompt payment could cause the Portfolio to miss an investment
opportunity or to incur costs to borrow money to replace the loaned funds.
Risk Factors. All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Portfolio seeks to reduce
risk by investing in a diversified portfolio, this does not eliminate all risk.
The risks inherent in the Portfolio depend primarily upon the maturity and
quality of the obligations in which it invests as well as on market conditions.
A decline in prevailing levels of interest rates generally increases the value
of the Portfolio's securities, while an increase in rates usually reduces the
value of those securities. There can be no assurance that the Portfolio will
achieve its objective, nor can the Portfolio assure that payments of interest
and principal on portfolio securities will be made when due.
Generally, high-quality short-term obligations offer lower yields and less
fluctuation in value than long-term quality obligations. Consequently, the
Portfolio is designed for investors who seek little or no fluctuation in
portfolio value.
Although the Portfolio currently limits its investments in Municipal Securities
to those on which interest is exempt from the regular Federal income tax, it may
invest up to 100% of its total assets in Municipal Securities the interest on
which is subject to the Federal alternative minimum tax.
The Portfolio may invest 25% or more of its assets in Municipal Securities that
are related in such a way that an economic, business, or political development
affecting one such security could also affect the other securities. For example,
Municipal Securities the interest upon which is paid from revenues of
similar-type projects, such as hospitals, utilities or housing, would be so
related. The Portfolio may invest 25% or more of its assets in industrial
development bonds (subject to the concentration restrictions described in the
Statement of Additional Information). It is a fundamental policy that the assets
of the Portfolio that are not invested in Municipal Securities may be held in
cash or invested in short-term taxable investments. Because the Portfolio
invests in securities backed by banks or other financial institutions, changes
in the credit quality of these institutions could cause losses to the Fund and
affect its net asset value.
Other. The Portfolio and, therefore, the Fund may not always achieve its
investment objective. The Fund's and the Portfolio's investment objectives and
non-fundamental policies may be changed without shareholder approval. The Fund
will notify investors at least 30 days prior to any material change in the
Fund's investment objective. If there is a change in the investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their current financial position and needs. Class B shareholders may
incur a contingent deferred sales charge if shares are redeemed in response to a
change in investment objective. The Fund's and the Portfolio's fundamental
investment policies listed in the Statement of Additional Information cannot be
changed without the approval of a majority of the Fund's and the Portfolio's
outstanding voting securities, respectively. Additional information concerning
certain of the securities and investment techniques described above is contained
in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in advertisements and sales literature. 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 and the contingent deferred sales charge applicable to the time
period quoted on Class B shares. Other total returns differ from average annual
total return only in that they may relate to different time periods, may
represent aggregate rather than average annual total returns, and may not
reflect the contingent deferred sales charge.
Each Class's yield and tax-equivalent yield are calculated in accordance with
the Securities and Exchange Commission's formula for money market funds. 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.
Unlike bank deposits or other investments which pay a fixed yield for a stated
period of time, each Class's yield changes in response to fluctuations in
interest rates and Fund expenses. Therefore, past Fund performance does not
predict future performance. Yields on other investments may be calculated
differently. When comparing investments, investors should consider the quality
and maturity of the portfolio securities involved.
HOW THE FUND AND THE PORTFOLIO ARE MANAGED
The Trust's Trustees formulate the Fund's general policies and oversee the
Fund's affairs. The Fund has not retained the services of an investment adviser
because the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio is managed by the Adviser.
Subject to the supervision of the Portfolio's Trustees, the Adviser makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments. The
Adviser is an indirect subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), which in turn is an indirect subsidiary of Liberty Mutual Insurance
Company (Liberty Mutual). Liberty Mutual is an underwriter of workers'
compensation insurance and a property and casualty insurer in the U.S. See
"Management of the Colonial Funds" and "Management of the Base Trust" in the
Statement of Additional Information for information concerning the Trustees and
officers of the Trust and the Portfolio.
The Adviser places all orders for the purchase and sale of securities for the
Portfolio. In doing so, the Adviser seeks to obtain the best combination of
price and execution, which involves a number of judgmental factors. When the
Adviser believes that more than one broker-dealer is capable of providing the
best combination of price and execution in a particular portfolio transaction,
the Adviser may select a broker-dealer that furnishes it with research products
or services.
For its management services, the Adviser receives from the Portfolio a monthly
fee at an annual rate of 0.25% of the Portfolio's average daily net assets. The
Adviser also provides pricing and bookkeeping services to the Portfolio for a
fee of $25,000 plus 0.0025% annually of average daily net assets over $50
million. SteinRoe Services Inc., a wholly-owned indirect subsidiary of Liberty
Mutual, serves as the transfer agent to the Portfolio for a monthly fee of $500.
The Administrator provides the Fund with certain administrative services and
generally oversees the operation of the Fund. The Fund pays the Administrator a
monthly fee at the annual rate of 0.25% of the Fund's average daily net assets
for these services. The Administrator also provides pricing and bookkeeping
services to the Fund for a monthly fee at the annual rate of $18,000 plus
0.0233% annually of average daily net assets over $50 million. Colonial
Investment Services, Inc. (Distributor) serves as the Fund's distributor.
Colonial Investors Service Center, Inc. (Transfer Agent) serves as the Fund's
shareholder services and transfer agent for a fee of 0.20% annually of average
daily net assets plus certain out-of-pocket expenses. The Administrator, the
Distributor and the Transfer Agent are all indirect subsidiaries of Liberty
Financial.
Each of the foregoing fees is subject to any fee waiver or expense
reimbursement to which the Adviser or the Administrator may agree.
See "Summary of Expenses" above.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund and
the Portfolio are valued as of the close of the New York Stock Exchange
(Exchange) each day the Exchange is open. The net asset value of the Portfolio
will not be determined on days when the Exchange is closed unless, in the
judgment of the Portfolio's Board of Trustees, the net asset value of the
Portfolio should be determined on any such day, in which case the determination
will be made at 3:00 p.m., Chicago time. Portfolio securities are valued using
the "amortized cost" method (when such cost approximates current market value
pursuant to procedures adopted by the Portfolio's Trustees), which does not
consider the effect of fluctuating interest rates on the value of assets. The
Portfolio allocates net asset value, income and expenses to the Fund based on
its percentage of ownership. The Fund and the Portfolio intend to maintain a per
share net asset value of $1.00, but this cannot be assured.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to its shareholders virtually all net
income and any net realized gains at least annually.
The Fund generally declares distributions daily and pays them monthly.
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. If an investment
is made by federal funds wire, dividends start accruing on the next business
day. 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. To change your election call the Transfer Agent
for information.
If the Fund makes taxable distributions they will generally be taxable whether
you receive distributions in cash or in additional Fund shares, you must report
them as taxable income unless you are a tax-exempt institution. Although the
Fund's distributions of interest from tax-exempt bonds will not be subject to
regular federal income tax, a portion of such interest may be included in
computing a shareholder's federal alternative minimum tax liability. In
addition, shareholders will generally be subject to state and local income taxes
on distributions they receive from the Fund. Furthermore, capital gains
distributions by the Fund will generally be subject to federal, state and local
income taxes. The Fund may at times purchase tax-exempt securities at a discount
from the price at which they were originally issued, especially during periods
of rising interest rates. For federal income tax purposes, some or all of the
market discount will be included in the Fund's ordinary income and will be
taxable to you as such when it is distributed to you. Social security benefits
may be taxed as a result of receiving tax-exempt income. Each January,
information on the amount and nature of distributions for the prior year is sent
to shareholders.
HOW TO BUY SHARES
Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50. Certificates will not be issued for the Fund. The Fund may refuse any
purchase order for its shares. See the Statement of Additional Information for
more information.
Class A Shares. Class A shares are offered at net asset value.
The Distributor pays no commission on sales of Class A shares.
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 or service fee), a 0.25% annual service 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 redemption occurs:
Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission
of 4.00% on Class B share purchases.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account 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). As all
Fund shares are offered at net asset value, no special purchase plans or methods
are established for the Fund, except as described in the preceding sentence
respecting Class B redemptions resulting in account value falling below its Base
Amount. See the Statement of Additional Information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Class B shares of the Fund are only for temporary
investment while considering investments in Class B shares of other Colonial
funds. Purchases of $250,000 or more must be for Class A shares. Consult your
financial service firm.
Financial service firms receive compensation only on sales of Class B shares.
The Distributor may pay additional compensation to financial service firms which
have made or may make significant sales of Class B shares. See the Statement of
Additional information for more information.
In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000 unless the account value has dropped
below $1,000 solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before the fee is
deducted.
Shareholder Services. A variety of shareholder services are available. For more
information about these services or your account call 1-800-345-6611. Some
services are described in the attached account application.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates which were
issued prior to the Fund's conversion to a master fund/feeder fund structure 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 of shares by
corporations, agents, fiduciaries, surviving joint owners and individual
retirement account holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms.
Financial service firms must receive requests prior to the time the Fund values
its shares to receive that day's price, are responsible for furnishing all
necessary documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among the same class of shares of most
Colonial funds. 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 1-800-248-2828 to
receive a prospectus and an exchange authorization form. Call 1-800-422-3737 to
exchange shares by telephone. An exchange is a taxable capital transaction. The
exchange service may be changed, suspended or eliminated on 60 days' written
notice.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.
Purchasers of $1 million or more of Class A shares of other Colonial funds who
exchange their shares for Class A shares of the Fund and redeem those Fund
shares within 18 months after the original investment are subject to a 1.00%
contingent deferred sales charge.
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.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. Proceeds and confirmations of
telephone transactions will be mailed or sent to the address of record.
Telephone redemptions are not available on accounts with an address change in
the preceding 60 days. The Administrator, the Transfer Agent and the Fund will
not be liable when following telephone instructions reasonably believed to be
genuine and a shareholder may suffer a loss from unauthorized transactions. The
Transfer Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and may be liable for losses related to
unauthorized transactions in the event reasonable procedures are not employed.
All telephone transactions are recorded. Shareholders and/or their financial
advisers are required to provide their name, address and account number.
Financial advisers are also required to provide their broker number.
Shareholders and/or their financial advisers wishing to redeem or exchange
shares by telephone may experience difficulty in reaching the Fund at its
toll-free telephone number during periods of drastic economic or market changes.
In that event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under "How to
Sell Shares." The Administrator, the Transfer Agent and the Fund reserve the
right to change, modify or terminate the telephone redemption or exchange
services at any time upon prior written notice to shareholders. Shareholders
and/or their financial advisers are not obligated to transact by telephone.
12B-1 PLANS
Under the Class B 12b-1 Plan, the Fund pays the Distributor a monthly service
fee at an annual rate of 0.25% of the net assets attributed to its Class B
shares and a distribution fee at an annual rate of 0.75% of the average net
assets attributed to its Class B shares attributed to its Class B shares.
Because the Class B shares bear the additional fees, their dividends will be
lower than the dividends of Class A shares. Class B shares automatically convert
to Class A shares, approximately eight years after the Class B shares were
purchased. The multiple class structure could be terminated should certain
Internal Revenue Service rulings be rescinded. See the Statement of Additional
Information for more information. The Distributor uses the fees to defray the
cost of commissions and service fees paid to financial service firms which have
sold Fund shares, and to defray other expenses such as sales literature,
prospectus printing and distribution, shareholder servicing costs and
compensation to wholesalers. Should the fees exceed the Distributor's expenses
in any year, the Distributor would realize a profit. The Plan also authorizes
other payments to the Distributor and its affiliates (including the
Administrator and the Adviser) which may be construed to be indirect financing
of Fund share sales.
ORGANIZATION AND HISTORY
The Fund is the successor to Colonial Tax-Exempt Money Market Trust, which was
organized in 1987 as a Massachusetts business trust. The Fund represents the
entire interest in a separate portfolio of the Trust. The Trust is not required
to hold annual shareholder meetings, but special meetings may be called for
certain purposes. ShareholdersYou receive one vote for each Fund share. Shares
of the Trust vote together except when required by law to vote separately by
fund or by class. Shareholders owning in the aggregate ten percent of Trust
shares may call meetings to consider removal of Trustees. Under certain
circumstances, the Trust will provide information to assist shareholders in
calling such a meeting. See the Statement of Additional Information for more
information.
APPENDIX
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from
AAA only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to repay principal and interest than for bonds in the A category.
BB, B, CCC and CC bonds are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the major
rating categories.
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 its Municipal Bond ratings set forth above.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups which Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements; their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes these
bonds.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
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 being when
facilities are completed, or (d) payments to which some other limiting
conditions attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of its 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.
Investment Adviser
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Custodian of Fund
UMB, n.a.
928 Grand Avenue
Kansas City, MO 64106
Custodian of Portfolio
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Accountants of Fund
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Independent Auditors of Portfolio
Ernst & Young LLP
233 South Wacker Drive
Chicago, IL 60606
Legal Counsel of Fund
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
October 28, 1996
COLONIAL
MUNICIPAL MONEY MARKET FUND
PROSPECTUS
Colonial Municipal Money Market Fund seeks maximum current income exempt from
Federal income tax by investing principally in a diversified portfolio of
"short-term" Municipal Securities. The Fund currently seeks to achieve its
objective by investing all of its assets in the SR&F Municipal Money Market
Portfolio, a municipal money market master fund which has the same investment
objective as the Fund.
For more detailed information about the Fund, call the Administrator at
1-800-248-2828 for the October 28, 1996 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, ENDORSED OR
INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
[COLONIAL FLAG LOGO]
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 7.
To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S. citizen status.
__Joint Tenant: Print all names, the Social Security # for the first person,
and his/her U.S. citizen status.
__Uniform Gift to Minors: Names of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? ___Yes ___No
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or D shares. If no distribution
option is selected, distributions will be reinvested in additional Fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.
Fund Fund Fund
________________ ___________________ _____________________
$_______________ $__________________ $____________________
Amount Amount Amount
Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (Adjustable Rate
U.S. Government Fund only)
___ D Shares (less than $500,000, available on certain funds; see prospectus)
Method of Payment
Choose one
___Check payable to the Fund
___Bank wired on ____/____/____
(Date) Wire/Trade confirmation #__________________
Ways to Receive Your Distributions
Choose one
___Reinvest dividends and capital gains
___Dividends and capital gains in cash
___Dividends in cash; reinvest capital gains
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection Complete Bank Information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House (ACH).
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that his/her actions are
authorized.
I have received and read each appropriate Fund prospectus and understand that
its terms are incorporated by reference into this application. I understand
that this application is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales charge. It is agreed
that the Fund, all Colonial Companies and their officers, directors, agents,
and employees will not be liable for any loss, liability, damage, or expense
for relying upon this application or any instruction believed genuine.
I certify, under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is correct.
You must cross out Item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.
2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholdings.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following features. Complete only
the section(s) that apply to the features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks from your account in
any amount you select, with certain limitations. Your redemption checks can
be sent to you at the address of record for your account, to your bank
account, or to another person you choose. The value of the shares in your
account must be at least $5,000 and you must reinvest all of your
distributions. Checks will be processed on the 10th calendar day of the month
or the following business day. If you receive your SWP payment via electronic
funds transfer (EFT), you may request it to be processed any day of the month.
Withdrawals in excess of 12% annually of your current account value will not be
accepted. Redemptions made in addition to SWP payments may be subject to a
contingent deferred sales charge for Class B or Class D shares. Please consult
your financial or tax adviser before electing this option.
Funds for Withdrawal:
___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day, if indicating EFT,month).
___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day,if indicating EFT,month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via EFT. Please complete the Bank Information section below.
All EFT transactions will be made two business days after the processing date.
Your bank must be a member of the Automated Clearing House system.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
B. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.
1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or EFT. Telephone redemptions over $1,000 will be sent via federal fund wire,
usually on the next business day ($7.50 will be deducted). Redemptions of
$1,000 or less will be sent by check to your designated bank.
3. On-Demand EFT Redemption
__I would like the On-Demand EFT Redemption Privilege. Proceeds paid via EFT
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from your fund account
by telephone and send your money to your bank account. If you are adding this
service to an existing account, complete the Bank Information section below
and have all shareholder signatures guaranteed.
Colonial's and the Fund's liability is limited when following telephone
instructions; a shareholder may suffer a loss from an unauthorized transaction
reasonably believed by Colonial to have been authorized.
Bank Information (For Sections A and B Above)
I authorize deposits to the following bank account:
____________________________________________________________
Bank name City Bank account number
____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)
X__________________________________
Signature of account owner(s)
X__________________________________
Signature of account owner(s) Place signature guarantee here.
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing distributions from one fund into
another Colonial fund. These investments will be made in the same share class
and without sales charges. Accounts must be identically registered. I have
carefully read the prospectus for the fund(s) listed below.
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial fund in
which you have a balance of at least $5,000 exchanged into the same share
class of up to four other identically registered Colonial accounts, on a
monthly basis. The minimum amount for each exchange is $100. Please complete
the section below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
1____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
2____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
C. Fundamatic/On-Demand EFT Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial fund account by electronic funds transfer on
any specified day of the month. You will receive the applicable price two
business days after the receipt of your request. Your bank needs to be a
member of the Automated Clearing House System. Please attach a blank check
marked "VOID." Also, complete the section below.
1____________________________________
Fund name
_________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
2___________________________________
Fund name
________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
__On-Demand Purchase (will be automatically established if you choose
Fundamatic)
__Fundamatic Frequency
__Monthly or __Quarterly
Check one:
__EFT- Choose any day of the month_____________________
__Paper Draft-Choose either the:
__5th day of the month
__20th day of the month
Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. Do Not Detach. Make sure all depositors on the bank account sign to
the far right. Please attach a blank check marked "VOID" here. See reverse
for bank instructions.
I authorize Colonial to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial fund. Colonial and my bank are not
liable for any loss arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and Colonial may reverse
the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to Reduce Your Sales Charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial funds, you may be eligible for a reduced sales charge. The combined
value of your accounts must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from another Colonial fund.
The sales charge for your purchase will be based on the sum of the purchase(s)
added to the value of all shares in other Colonial funds at the previous
day's public offering price.
__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
_____________________________________
Name on account
_____________________________________
Account number
_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.
7-------------Financial Service Firm---------------------
To be completed by a Representative of your financial service firm.
This application is submitted in accordance with our selling agreement with
Colonial Investment Services, Inc. (CISI), the Fund's prospectus, and this
application. We will notify CISI, Inc., of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
8----------Request for a Combined Quarterly Statement Mailing-----------
Colonial can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my accounts. Please
indicate accounts to be linked.______________________
Fundamatic (See Reverse Side)
Applications must be received before the start date for processing.
This program's deposit privilege can be revoked by Colonial without prior
notice if any check is not paid upon presentation. Colonial has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service Center, Inc. to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of Colonial Investors
Service Center, Inc., Colonial Investment Services, Inc., hereby indemnifies
and holds you harmless from any loss (including reasonable expenses) you may
suffer from honoring such draw, except any losses due to your payment of any
draw against insufficient funds.
SH-938B-0396
Checkwriting Signature Card
(Class A & Class C Shares Only)
Colonial Mutual Funds
Signature Card for the Bank of Boston ("Bank").
- -----------------------------------------------
Name of Fund
- -----------------------------------------------
Fund account number
Indicate the number of signatures required
- -----------------------------------------------
Account Name:
You must sign below exactly as your account is registered.
X
- -----------------------------------------------
Signature
X
- -----------------------------------------------
Signature
By signing this card, you are subject to the conditions printed on the reverse
side. If adding this privilege to an existing account, your signatures must be
guaranteed.
Checkwriting Privilege
By electing the checkwriting privilege and signing the signature card, I
acknowledge that I am subject to the rules and regulations of the Bank of
Boston ("Bank") as currently existing and as they may be amended from time
to time. I designate the Bank as my representative to present checks drawn
on my Fund account to the Fund or its Agent and deposit the proceeds in this
checking account. I understand that the shares for which share certificates
have been issued or requested cannot be redeemed in this manner.
If the account is registered in joint tenancy, all persons must sign this card,
and each person guarantees the genuineness of all other parties' signatures. I
understand that if only one person signs a check, that all other tenants have
authorized that signature.
Minimum and Maximum
I understand that checks may not be in amounts less than $500 nor more than
$100,000, and that the Fund reserves the right to change these limits in its
sole discretion. I agree that neither the Fund nor its Agent is responsible
for any loss, expense, or cost arising from these redemptions. Also, if I have
recently made additional investments, I understand that redemption proceeds
will not be available until the check used to purchase the investment
(including a certified or cashier's check) has been cleared by the bank on
which it is drawn, which could take up to 15 days or more.
D-138A-0795
<PAGE>
Part A of Post-Effective Amendment No. 42 filed with the Commission on March 22,
1996 (Colonial Tax-Exempt Fund, Colonial Tax-Exempt Insured Fund, Colonial High
Yield Municipal Fund, Colonial Intermediate Tax-Exempt Fund, Colonial Short-Term
Tax-Exempt Fund and Colonial Utilities Fund), is incorporated herein in its
entirety by reference.
<PAGE>
COLONIAL TRUST IV
-----------------
Cross Reference Sheet
---------------------
Colonial Municipal Money Market Fund
------------------------------------
Location or Caption in Statement
Item Number of Form N-1A of Additional Information
- ------------------------ -------------------------
Part B
- ------
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies;
Miscellaneous Investment
Practices; Portfolio Turnover
14. Fund Charges and Expenses;
Management of the Colonial Funds
15. Fund Charges and Expenses
16. Fund Charges and Expenses;
Management of the Colonial Funds
17. Fund Charges and Expenses;
Management of the Colonial Funds
18. Shareholder Meetings
19. How to Buy Shares; Determination
of Net Asset Value; Suspension of
Redemptions; Special Purchase
Programs/Investor Services;
Programs for Reducing or
Eliminating Sales Charge; How to
Sell Shares; How to Exchange Shares
20. Taxes
21. Fund Charges and Expenses;
Management of the Colonial Funds
22. Fund Charges and Expenses;
Investment Performance;
Performance Measures
23. Independent Accountants
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
Statement of Additional Information
October 28, 1996
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Municipal Money Market Fund (Fund). This SAI is not a prospectus and is
authorized for distribution only when accompanied or preceded by the Prospectus
of the Fund dated October 28, 1996. This SAI should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus from Colonial
Investment Services, Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Fund Charges and Expenses
Investment Performance
Custodian of the Fund
Independent Accountants of the Fund
Management of the Base Trust
Information Concerning the Portfolio
Part 2
Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sales Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II
TM-XX-1096
<PAGE>
PART 1
COLONIAL MUNICIPAL MONEY MARKET FUND
Statement of Additional Information
October 28, 1996
DEFINITIONS
"Trust" Colonial Trust IV
"Fund" Colonial Municipal Money Market Fund
"Administrator" Colonial Management Associates, Inc., the Fund's
administrator and the investment manager to each of
the Colonial funds except for the Fund, Colonial
Newport Japan Fund and Colonial Newport Tiger Cub
Fund, each a series of Colonial Trust II, Colonial
Global Utilities Fund, a series of Colonial Trust III,
and Colonial Newport Tiger Fund, a series of Colonial
Trust VII
"CISI" Colonial Investment Services, Inc., the distributor
of the Fund and each of the
open-end mutual funds in the Colonial funds complex
"CISC" Colonial Investors Service Center, Inc., shareholder
services and transfer agent to the Fund and each of
the open-end mutual funds in the Colonial funds
complex
"Base Trust" SR&F Base Trust, a Massachusetts trust, of which the
SR&F Municipal Money Market
Portfolio is a series
"Portfolio" SR&F Municipal Money Market Portfolio, a series of
the Base Trust
"Adviser" Stein Roe & Farnham Incorporated, the Portfolio's
investment adviser
INVESTMENT OBJECTIVE AND POLICIES
As described in the Fund's Prospectus, the Fund currently seeks to achieve its
objective by investing all its assets in the Portfolio. Part 1 of this SAI
includes additional information concerning the Fund and the Portfolio,
including, among other things, a description of the Fund's and the Portfolio's
fundamental investment policies. Except where otherwise indicated, references to
the Fund in connection with descriptions of investment policies and practices
shall include the Portfolio. Part 2 contains additional information about the
following securities and investment techniques that are described and referred
to in the Prospectus and that may be utilized by the Portfolio:
Short-term Trading
Tender Option Bonds
Repurchase Agreements
Reverse Repurchase Agreements
Money Market Instruments
Forward Commitments
Participation Interests
Stand-by Commitments
Except as described below under "Fundamental Investment Policies," the Fund's
and the Portfolio's investment policies are not fundamental, and the Fund's or
the Portfolio's Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund or the Portfolio, or (2)
67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies can not be changed without such a
vote.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act's
diversification requirement, an issuer is the entity whose revenues support the
security.
As fundamental policies, neither the Fund nor the Portfolio may:
1. Invest in a security if, with respect to 75% of the Portfolio's
assets, as a result of such investment, more than 5% of its total
assets (taken at market value at the time of such investment) would
be invested in the securities of any one issuer (for this purpose,
the issuer(s) of a security being deemed to be only the entity or
entities whose assets or revenues are subject to the principal and
interest obligations of the security), except (1) in the case of a
guarantor of securities (including an issuer of a letter of credit),
the value of the guarantee (or letter of credit) may be excluded
from this computation if the aggregate value of securities owned by
the Fund or the Portfolio and guaranteed by such guarantor (plus
any other investments of the Fund or the Portfolio in securities
issued by the guarantor) does not exceed 10% of the Fund's or the
Portfolio's total assets, (2) this restriction does not apply to
U.S. government securities or repurchase agreements for such
securities and (3) the Fund may invest all or substantially all of
its assets in another registered investment company having the same
investment objective and substantially similar investment
policies(1);
2. Purchase any securities on margin, except for use of short-term
credit necessary for clearance of purchases and sales of portfolio
securities (this restriction does not apply to securities purchased
on a when-issued or delayed-delivery basis or to reverse repurchase
agreements);
3. Make loans, although the Portfolio may (a) participate in an
interfund lending program with other Stein Roe Funds provided that
no such loan may be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of the Portfolio's total
assets; (b) purchase money market instruments and enter into
repurchase agreements; and (c) acquire publicly-distributed or
privately placed debt securities;
4. Borrow, except that it may (a) borrow for non-leveraging, temporary
or emergency purposes, and (b) engage in reverse repurchase
agreements and make other borrowings, provided that the combination
of (a) and (b) shall not exceed 33 1/3% of the value of its total
assets (including the amount borrowed) less liabilities (other than
borrowings) or such other percentage permitted by law; the Portfolio
and the Fund may borrow from banks, other Stein Roe Funds, and other
persons to the extent permitted by applicable law;
5. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund
or the Portfolio, except as may be necessary in connection with
borrowings permitted in (4) above;
6. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of non-governmental
issuers whose principal business activities are in the same
industry;
7. Purchase portfolio securities for the Fund or the Portfolio from,
or sell portfolio securities to, any of the officers, directors or
trustees of the Trust, the Base Trust or the Portfolio's investment
adviser;
8. Purchase or sell commodities or commodities contracts or oil, gas
or mineral programs;
9. Purchase any securities other than those described in the
Prospectus;
10. Issue any senior securities except to the extent permitted under the
Investment Company Act of 1940;
11. Purchase or sell real estate (other than Municipal Securities or
money market securities secured by real estate or interests therein
or such securities issued by companies which invest in real estate
or interests therein); and
12. Act as an underwriter of securities, except that the Fund or the
Portfolio may participate as part of a group in bidding, or bid
alone, for the purchase of Municipal Securities directly from an
issuer for the Fund's or the Portfolio's own portfolio.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, neither the Fund nor the Portfolio may:
1. Own more than 10% of the outstanding voting securities of an issuer,
except that the Fund may invest all or
substantially all of its assets in another registered investment
company having the same investment objective and substantially
similar investment policies;
2. Invest in companies for the purpose of exercising control or
management, except that all or substantially all of the assets of
the Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies;
3. Make investments in the securities of other investment companies,
except in connection with a merger, consolidation, or
reorganization, except that the Fund may invest all or substantially
all of its assets in another registered investment company having
the same investment objective and substantially similar investment
policies;
4. Invest more than 5% of its total assets (taken at market value at
the time of a particular investment) in securities of issuers (other
than issuers of federal agency obligations or securities issued or
guaranteed by any foreign country or asset-backed securities) that,
together with any predecessors or unconditional guarantors, have
been in continuous operation for less than three years ("unseasoned
issuers"); except that the Fund may invest all or substantially all
of its assets in another registered investment company having the
same investment objective and substantially similar investment
policies;
5. Purchase or retain securities of an issuer if 5% of the securities
of such issuer are owned by those officers, trustees or directors of
the Fund, the Portfolio or the Adviser, who each own individually
more than 1/2 of 1% of such securities;
6. Invest more than 10% of its net assets (taken at market value at the
time of each purchase) in illiquid securities, including repurchase
agreements maturing in more than seven days;
7. Sell securities short unless (1) the Fund or the Portfolio owns or
has the right to obtain securities equivalent in kind and amount to
those sold short at no added cost or (2) the securities sold are
"when-issued" or "when-distributed" securities which the Fund or th
Portfolio expects to receive in a recapitalization, reorganization
or other exchange for securities the Fund or the Portfolio
contemporaneously owns or has the right to obtain, and provided that
the Fund or the Portfolio may purchase stand-by commitments and
securities subject to a demand feature entitling the Portfolio to
require sellers of securities to the Fund or the Portfolio to
repurchase them upon demand by the Fund or the Portfolio;
8. Purchase shares of other open-end investment companies, except in
connection with a merger, consolidation, acquisition, or
reorganization;
9. Invest more than 5% of its net assets (valued at time of investment)
in warrants, nor more than 2% of its net assets in warrants which
are not listed on the New York Stock Exchange or American Stock
Exchange; and
10. Invest more than 15% of its total assets (taken at market value at
the time of a particular investment) in restricted securities(2)
and securities of unseasoned issuers.
FUND CHARGES AND EXPENSES
Aggregate Fund expenses include the Fund's proportionate share of the expenses
of the Portfolio, which are borne indirectly by the Fund, and the Fund's direct
expenses. The Portfolio's expenses include (i) a management fee paid to the
Adviser at an annual rate of 0.25% of the Portfolio's average daily net assets,
(ii) a pricing and bookkeeping fee of $25,000 plus 0.0025% annually of average
daily net assets over $50 million, (iii) a monthly transfer agent fee of $500
and (iv) custody, legal and audit fees and other miscellaneous expenses. The
Fund's direct expenses include (i) an administrative fee paid to the
Administrator at the annual rate of 0.25% of average daily net assets, (ii) a
transfer agency and shareholder services fee paid to CISC at the annual rate of
0.20% of average daily net assets plus CISC's out-of-pocket expenses, (iii) the
Rule 12b-1 fees paid to CISI described below, (iv) a pricing and bookkeeping fee
paid to the Administrator in the amount of $18,000 per year plus 0.0233% of
average daily net assets in excess of $50 million and (v) custody, legal and
audit fees and other miscellaneous expenses.
Recent Fees paid by the Fund to the Administrator (a), CISI and CISC
(in thousands)
<TABLE>
<CAPTION>
Year ended Period ended Year ended November 30
----------------------
June 30, 1996 June 30, 1995(b) 1994 1993
------------- ---------------- ---- ----
<S> <C> <C> <C> <C>
Administration fee $ 42 N/A N/A N/A
Management fee 34 $88 $131 $129
Bookkeeping fee 20 16 27 27
Shareholder service and transfer agent fee 53 43 59 60
Amount of above fees waived (196) (63) (153) (129)
12b-1 fees:
Service fee (Class B) 6 4 4 1
Distribution fee (Class B) 18 13 14 2
</TABLE>
(a) Prior to September 28, 1995, the Administrator was the Adviser of the Fund.
(b) The Fund changed its fiscal year end from November 30 to June 30 on June 16,
1995.
Brokerage Commissions
The Fund did not pay brokerage commissions during the period ended June 30,
1995, and the fiscal years ended June 30, 1996 and November 30, 1994, and 1993.
(See footnote (b) above).
Trustees, Fees
For the fiscal year ended June 30, 1996 and the calendar year ended December 31,
1995, the Trustees received the following compensation for serving as Trustees:
<TABLE>
<CAPTION>
Aggregate Total Compensation From
Compensation Trust and Fund Complex
From Fund For The Paid to the Trustees For
Fiscal Year Ended The Calendar Year Ended
Trustee June 30, 1996 December 31, 1995(c)
- ------- ------------- --------------------
<S> <C> <C>
Robert J. Birnbaum(d) $ 910 $ 71,250
Tom Bleasdale 993(e) 98,000(f)
Lora S. Collins 908 91,000
James E. Grinnell(d) 920 71,250
William D. Ireland, Jr. 1,130 113,000
Richard W. Lowry(d) 918 71,250
William E. Mayer 902 91,000
James L. Moody, Jr. 1,031(g) 94,500(h)
John J. Neuhauser 909 91,000
George L. Shinn 1,027 102,500
Robert L. Sullivan 1,012 101,000
Sinclair Weeks, Jr. 1,138 112,000
</TABLE>
(c) At December 31, 1995, the Colonial funds complex consisted of 33
open-end and 5 closed-end management investment company portfolios.
(d) Elected to the Colonial funds complex on April 21, 1995.
(e) Includes $482 payable in later years as deferred compensation.
(f) Includes $49,000 payable in later years as deferred compensation.
(g) Total compensation of $1,031 will be payable in later years as deferred
compensation.
(h) Total compensation of $94,500 for the calendar year ended December 31,
1995, will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly
known as The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service
during the calendar year ended December 31, 1995, and of Liberty Financial Trust
(now known as Colonial Trust VII) and LFC Utilities Trust (together, Liberty
Funds II) for the period January 1, 1995 through March 26, 1995(j);
Total Compensation From Total Compensation
Liberty Funds II For The From Liberty Funds I For
Period January 1, 1995 The Calendar Year Ended
Trustee Through March 26, 1995 December 31, 1995(j)
- ------- ---------------------- --------------------
Robert J. Birnbaum $2,900 $16,675
James E. Grinnell 2,900 22,900
Richard W. Lowry 2,900 26,250(k)
(i) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized as a new portfolio of Colonial Trust
III. Prior to their election as Trustees of the Colonial Funds, Messrs.
Birnbaum, Grinnell and Lowry served as Trustees of Liberty Funds II;
they continue to serve as Trustees or Directors of Liberty Funds I.
(j) At December 31, 1995, the Liberty Funds I were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial
(an intermediate parent of the Adviser).
(k) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Newport
Pacific Management, Inc. and the Adviser, each an affiliate of the
Administrator.
Ownership of the Fund
At September 30, 1996, the Trustees and officers of the Trust as a group owned
less than 1% of the then outstanding shares of the Fund.
At September 30, 1996, the following shareholders owned more than 5% of the
Fund's outstanding Class A and Class B shares:
Class A
John A. McNeice, Jr.
47 Green Street
Canton, MA 02021-1023 6.86%
Nayana N. Shah
1 Danton Lane South
Lattingtown, NY 15560 7.93%
Class B
Alan Baker Co.
160 Sylvester Road
San Francisco, CA 94080-6014 7.92%
Julianne F. Cole
P. O. Box 160
Arcadia, LA 71001 12.34%
Charles R. Matties & Laura B. Matties JT TEN
84 Overbrook Road
West Hartford, CT 06107 6.04%
Henry G. Taliaferro
1015 Trenton
West Monroe, LA 71291 14.04%
Verna P. Williams
7116 Fort Hunt Road
Alexandria, VA 22307 5.09%
At September 30, 1996, there were 683 Class A and 47 Class B shareholders of
record of the Fund.
Sales Charges (in thousands)
<TABLE>
<CAPTION>
Class B Shares
-------------------------------------------------- ---------------------------
Year Period
ended ended
June 30, June 30, Year ended November 30
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Aggregate contingent deferred sales
charges (CDSCs) on Fund
redemptions retained by CISI $14 $21 $28 $10
</TABLE>
12b-1 Plans, CDSCs and Conversion of Shares
The Fund offers two classes of shares - Class A and Class B. The Fund may in the
future offer other classes of shares. The Trustees have approved 12b-1 Plans
(Plans) pursuant to Rule 12b-1 under the Act. Under the Class B Plan, the Fund
pays CISI monthly a service fee at an annual rate of 0.25% of the net assets
attributed to its Class B shares and a distribution fee at an annual rate of
0.75% of the average daily net assets attributed to its Class B shares. CISI may
use the entire amount of such fees to defray the costs of commissions and
service fees paid to financial service firms (FSFs) and for certain other
purposes. Since the distribution and service fees are payable regardless of the
amount of CISI's expenses, CISI may realize a profit from the fees. The Class A
Plan has no fee but like the Class B Plan authorizes any other payments by the
Fund to CISI and its affiliates (including the Administrator and the Adviser) to
the extent that such payments might be construed to be indirect financing of the
distribution of Fund shares.
The Trustees of the Trust believe the Plans could be a significant factor in the
growth and retention of Fund assets resulting in a more advantageous expense
ratio and increased investment flexibility which could benefit Fund
shareholders. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the Trustees
of the Trust, including a majority of the Trustees who are not interested
persons of the Trust and have no direct or indirect financial interest in the
operation of the Plans or in any agreements related to the Plans (independent
Trustees), cast in person at a meeting called for the purpose of voting on the
Plans. The Plans may not be amended to increase the fee materially without
approval by vote of a majority of the outstanding voting securities of the
relevant class of shares and all material amendments of the Plans must be
approved by the Trustees in the manner provided in the foregoing sentence. The
Plans may be terminated at any time by vote of a majority of the independent
Trustees or by vote of a majority of the outstanding voting securities of the
relevant class of shares. The continuance of the Plans will only be effective if
the selection and nomination of the Trustees who are non-interested Trustees is
effected by such non-interested Trustees.
Class A shares are offered at net asset value. Class B shares are offered at net
asset value subject to a CDSC if redeemed within six years after purchase. The
CDSC is described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or
on amounts representing capital appreciation. In determining the applicability
and rate of any CDSC, it will be assumed that a redemption is made first of
shares representing capital appreciation, next of shares representing
reinvestment of distributions and finally of other shares held by the
shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution or service fee.
Sales-related expenses (in thousands) of CISI relating to the Fund were as
follows:
<TABLE>
<CAPTION>
Year ended June 30, 1996 Period ended June 30, 1995
Class A Shares Class B Shares Class A Shares Class B Shares
<S> <C> <C> <C> <C>
Fees to FSF $0 $10 $0 $9
Cost of sales material relating to the
Fund(including printing and mailing
expenses) $10 (1) $1 (1)
Allocated travel, entertainment and
other promotional expenses (including
advertising) $0 $0 $0 $0
</TABLE>
(l) Rounds to less than one.
INVESTMENT PERFORMANCE
The Portfolio did not commence investment operations until September 28, 1995.
The investment performance disclosed for the Portfolio is that of SteinRoe
Municipal Money Market Fund (SteinRoe Fund), which has been advised by the
Adviser since it commenced investment operations on March 11, 1983, as a series
of the SteinRoe Municipal Trust. The Portfolio's investment objective, policies
and restrictions are generally the same as those of the SteinRoe Fund which
converted to a master fund/feeder fund structure on September 28, 1995, and is
now a feeder fund in the Portfolio.
The Fund's yields for the seven days ended June 30, 1996 were:
Class A Class B
Current Yield 2.773% 1.769%
Effective Yield 2.811% 1.784%
Tax-Equivalent Current Yield 4.590% 2.930%
Tax-Equivalent Effective Yield 4.650% 2.950%
The Fund's average annual total returns at June 30, 1996 were:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Class A: 3.12% 2.64% 3.73%
Class B with applicable CDSC: (0.85%) (5.00% CDSC) 2.12% (2.00% CDSC) 3.65%
Class B without CDSC: (0.74%) 2.49% 3.65%
</TABLE>
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN OF THE FUND
UMB, n.a. is the Fund's custodian. The custodian is responsible for maintaining
the Fund's open account.
INDEPENDENT ACCOUNTANTS OF THE FUND
Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commissionfilings. The
financial statements of the Fund incorporated by reference in this SAI have been
so incorporated, and the financial highlights included in the Prospectus have
been so included, in reliance upon the report of Price Waterhouse LLP given on
the authority of said firm as experts in accounting and auditing.
The financial statements and Report of Independent Accountants appearing on
pages 15 through 25 in the June 30, 1996 Annual Report of the Fund are
incorporated in this SAI by reference.
MANAGEMENT OF THE BASE TRUST
Trustees and Officers of the Base Trust
Gary A. Anetsberger(m), (Age 40), SeniorVice President, is Senior Vice
President of the Adviser since April 1996, Chief Financial Officer of the
Mutual Funds division of the Adviser (formerly Vice President of the
Adviser January, 1991 to April, 1996).
Timothy K. Armour(m)(n), (Age 48), President and Trustee, is President of the
Mutual Funds division of the Adviser and Director of the Adviser since June,
1992 (formerly Senior Vice President and Director of Marketing of Citibank
Illinois from February, 1989 to June, 1992).
Jilaine Hummel Bauer(m), (Age 41), Executive Vice President and Secretary,
is General Counsel and Secretary since November 1995, Senior Vice President
since April, 1992 of the Adviser (formerly Vice President
of the Adviser, January, 1988 to March, 1992).
Kenneth L. Block(m), (Age 76) Trustee, is Chairman Emeritus of A. T. Kearney,
Inc. (international management consultants) since February, 1986, 11 Woodley
Road, Winnetka, Illinois 60093.
William W. Boyd(m), (Age 69) Trustee, is Chairman and Director of Sterling
Plumbing Group, Inc. (manufacturer of plumbing projects) since 1992 (formerly
President and Chief Executive Officer of Sterling Plumbing Group, Inc., over
five years), 2900 Golf Road, Rolling Meadows, Illinois 60008.
Lindsay Cook(m)(n), (Age 44) Trustee, is Senior Vice President of Liberty
Financial (over five years), 600 Atlantic Avenue, Boston, Massachusetts 02210.
Douglas A. Hacker(m),(Age 41) Trustee, is Senior Vice President and Chief
Financial Officer, United Airlines since July, 1994 (formerly Senior Vice
President - Finance, United Airlines, February, 1993 to July, 1994;
Vice President - Corporate & Fleet Planning, American Airlines 1991 to
1993), P.O. Box 66100, Chicago, Illinois 60666.
Francis W. Morley(m), (Age 76) Trustee, is Chairman of Employer Plan
Administrators and Consultants Co. (designer, administrator, and communicator of
employee benefits plans), over five years, 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606.
Charles R. Nelson(m), (Age 54) Trustee, is Van Voorhis Professor of Political
Economy of the University of Washington, Seattle,Washington 981953 over
five years.
Nicolette D. Parrish(m), (Age 46) Vice President and Assistant Secretary,
is Senior Compliance Administrator and Assistant Secretary of the Adviser,
since November, 1995 (formerly Senior Legal Assistant, over five years).
Cynthia A. Prah(m), (Age 34), Vice President, is Manager of Shareholder
Transaction Processing for the Adviser.
Sharon R. Robertson(m), (Age 34) Controller, is Accounting Manager for the
Adviser's mutual funds division, since 1987.
Janet B. Rysz(m), (Age 41) Assistant Secretary, is Senior Compliance
Administrator of the Adviser, since January, 1988.
Thomas C. Theobald(m), (Age 59), Trustee, is Managing Partner of William
Blair Capital Partners (private equity fund since 1994 (formerly Chief Executive
Officer and Chairman of the Board of Directors of Continental Bank Corporation
from 1987 to 1994), Suite 3300, 222 West Adams Street, Chicago, Illinois 60606.
Gordon R. Worley(m), (Age 77), Trustee, has been a Private Investor since June,
1983, 1407 Clinton Place, River Forest, Illinois 60305.
Hans P. Ziegler(m), (Age 55) Executive Vice President, is Chief Executive
Officer of the Adviser since May, 1994 (formerly President of the Investment
Counsel division of the Adviser from July, 1993 to June, 1994, and President
and Chief Executive Officer, Pitcairn Financial Management Group, from 1989
to 1993).
Margaret O. Zwick(m), (Age 30), Treasurer, is Compliance Manager of the
Adviser's Mutual Fund division since August, 1995 (former offices held with
Adviser: Compliance Accountant,January, 1995 to July, 1995; Section Manager,
January, 1994 to January, 1995; Supervisor, February, 1990 to December, 1993
and Fund Accountant, July, 1988 to February, 1990).
(m) The address of each Trustee and Officer is One South Wacker Drive,
Chicago, IL 60606, unless otherwise noted.
(n) Trustee who is an "interested person" of the Portfolio and of the
Adviser, as defined in the Investment Company Act of 1940.
The Management Agreement
Under the Management Agreement, the Adviser has agreed to make day to day
investment decisions for the Portfolio, arrange for the execution of portfolio
transactions and generally manage the Portfolio's investments. The Adviser has
also agreed to perform administrative services to the Portfolio, including
without limitation, providing all executive and other facilities required to
render investment management and administrative services. For these services and
facilities, the Portfolio pays a monthly fee based on the average daily net
assets of the Portfolio for such month.
INFORMATION CONCERNING THE PORTFOLIO
Portfolio's Investment Adviser
Under its Management Agreement with the Portfolio, the Adviser provides the
Portfolio with discretionary investment services. Specifically, the Adviser is
responsible for supervising and directing the investments of the Portfolio in
accordance with the Portfolio's investment objective, policies and restrictions
as provided in the Fund's Prospectus and this Statement of Additional
Information. The Management Agreement provides for the payment by the Portfolio
to the Adviser of the management fee described above under "Fund Charges and
Expenses."
The Adviser is a wholly-owned subsidiary of Liberty Financial, which in turn is
an indirect majority-owned subsidiary of Liberty Mutual Insurance Company
(Liberty Mutual). Liberty Mutual is an underwriter of worker's compensation
insurance and a property and casualty insurer in the U.S. Liberty Mutual's
address is 175 Berkeley Street, Boston, Massachusetts 02117.
The Adviser is the successor to an investment advisory business that was founded
in 1932. The Adviser acts as investment adviser to wealthy individuals,
trustees, pension and profit sharing plans, charitable organizations and other
institutional investors. As of June 30, 1996, the Adviser managed over $24.7
billion in net assets: including over $7.4 billion in equities and over $17.3
billion in fixed-income securities (including $1.2 billion in municipal
securities). The $24.7 billion in managed assets included over $7.0 billion held
by open-end mutual funds managed by the Adviser (approximately 16% of the mutual
fund assets were held by clients of the Adviser). These mutual funds were owned
by over 189,000 shareholders. The $7.0 billion in mutual fund assets included
over $660 million in over 38,000 IRA accounts. In managing those assets, the
Adviser utilizes a proprietary computer-based information system that maintains
and regularly updates information for approximately 6,500 companies. The Adviser
also monitors over 1,400 issues via a proprietary credit analysis system. At
June 30, 1996, the Adviser employed approximately 16 research analysts and 32
account managers. The average investment-related experience of these individuals
is 20 years.
The directors of the Adviser are Kenneth R. Leibler, Timothy K. Armour, C.
Allen Merritt, and Hans P. Ziegler. Mr. Leibler is President and Chief Executive
Officer of Liberty Financial; Mr. Armour is President of the Adviser's Mutual
Funds division; Mr. Merritt is Senior Vice President and Treasurer of Liberty
Financial; and Mr. Ziegler is Chief Executive Officer of the Adviser.
The business address of Messrs. Leibler and Merritt is Federal Reserve Plaza,
600 Atlantic Avenue, Boston, Massachusetts 02210; that of Messrs. Armour and
Ziegler is One South Wacker Drive, Chicago, Illinois 60606.
Under the Management Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolio or the Fund
in connection with the matters to which such Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard of its obligations and
duties under the Agreement.
Portfolio Transactions
The Adviser places the orders for the purchase and sale of the Portfolio's
portfolio securities. Portfolio securities are purchased both in underwritings
and in the over-the-counter market. Included in the price paid to an underwriter
of a portfolio security is the spread between the price paid by the underwriter
to the issuer and the price paid by the purchaser. Purchases and sales of
portfolio securities in the over-the-counter market usually are transacted with
a broker or dealer on a net basis, without any brokerage commission being paid
by the Portfolio, but do reflect the spread between the bid and asked prices.
The Adviser may also transact purchases of portfolio securities directly with
the issuers. The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price and execution.
The best net price, giving effect to transaction charges and other costs,
normally is an important factor in this decision, but a number of other
judgmental factors may also enter into the decision. These include: the
Adviser's knowledge of negotiated transaction costs; the nature of the security
being traded; the size of the transaction; the desired timing of the trade; the
activity existing and expected in the market for the particular security;
confidentiality; the execution, clearance and settlement capabilities of the
broker or dealer selected and others which are considered; the Adviser's
knowledge of the financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the value of these
factors, the Portfolio may pay a price in excess of that which another broker or
dealer may have charged for effecting the same transaction or receive a price
lower than that which another broker-dealer may have paid. Evaluations of the
reasonableness of portfolio transactions, based on the foregoing factors, are
made on an ongoing basis by the Adviser's staff while effecting portfolio
transactions and reports are made annually to the Board of Trustees of the
Portfolio.
With respect to issues of securities involving brokerage commissions, when more
than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Portfolio, the Adviser often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, the Adviser uses an internal allocation procedure
to identify those brokers or dealers who provide it with research products or
services and the amount of research products or services they provide, and
endeavors to direct sufficient commissions generated by its clients' accounts in
the aggregate, including the Portfolio, to such brokers or dealers to ensure the
continued receipt of research products or services that the Adviser feels are
useful. In certain instances, the Adviser receives from brokers and dealers
products or services which are used both as investment research and for
administrative, marketing or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative proportions of such
products or services which may be considered as investment research. The portion
of the costs of such products or services attributable to research usage may be
defrayed by the Adviser (without prior agreement or understanding, as noted
above) through brokerage commissions generated by transactions of clients
(including the Portfolio), while the portions of the costs attributable to
non-research usage of such products or services is paid by the Adviser in cash.
No person acting on behalf of the Portfolio is authorized, in recognition of the
value of research products or services, to pay a price in excess of that which
another broker or dealer might have charged for effecting the same transaction.
Research products or services furnished by brokers and dealers may be used in
servicing any or all of the clients of the Adviser and not all such research
products or services are used in connection with the management of the
Portfolio.
The Board of Trustees of the Base Trust has reviewed the legal aspects and the
practicability of attempting to recapture underwriting discounts or selling
concessions included in prices paid by the Portfolio for purchases of Municipal
Securities in underwritten offerings. The Portfolio attempts to recapture
selling concessions on purchases during underwritten offerings; however, the
Adviser will not be able to negotiate discounts from the fixed offering price
for those issues for which there is a strong demand, and will not allow the
failure to obtain a discount to prejudice its ability to purchase an issue. The
Trustees of the SR&F Base Trust periodically review efforts to recapture
concessions and whether it is in the best interests of the Portfolio to continue
to attempt to recapture underwriting discounts or selling concessions.
Amortized Costs for Money Market Funds
In connection with the Portfolio's use of amortized cost and the maintenance of
its per share net asset value of $1.00, the Base Trust has agreed, with respect
to the Portfolio: (i) to seek to maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining relative stability of
principal and not in excess of 90 days; (ii) not to purchase a portfolio
instrument with a remaining maturity of greater than thirteen months (for this
purpose, the Portfolio considers that an instrument has a maturity of thirteen
months or less if it is a "short-term" obligation); and (iii) to limit its
purchase of portfolio instruments to those instruments that are denominated in
U.S. dollars which the Portfolio's Board of Trustees determines present minimal
credit risks and that are of eligible quality as determined by any major rating
service as defined under SEC Rule 2a-7 or, in the case of any instrument that is
not rated, of comparable quality as determined by the Portfolio's Board of
Trustees.
The Portfolio has also agreed to establish procedures reasonably designed to
stabilize its price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of its portfolio holdings
by the Portfolio's Board of Trustees, at such intervals as the Portfolio deems
appropriate, to determine whether its net asset value calculated by using
available market quotations or market equivalents deviates from $1.00 per share
based on amortized cost. Calculations are made to compare the value of its
investments value at amortized cost with market value. Market values are
obtained by using actual quotations provided by market makers, estimates of
market value, values from yield data obtained from reputable sources for the
instruments, values obtained from the Adviser's matrix, or values obtained from
an independent pricing service. Any such service might value the Portfolio's
investments based on methods which include consideration of: yields or prices of
Municipal Securities of comparable quality, coupon, maturity and type;
indications as to values from dealers and general market conditions. The service
may also employ electronic data processing techniques, a matrix system, or both
to determine valuations.
In connection with the Portfolio's use of the amortized cost method of portfolio
valuation to maintain its net asset value at $1.00 per share, the Portfolio
might incur or anticipate an unusual expense, loss, depreciation, gain or
appreciation that would affect its net asset value per share or income for a
particular period. The extent of any deviation between the net asset value based
upon available market quotations or market equivalents and $1.00 per share based
on amortized cost will be examined by the Portfolio's Board of Trustees as it
deems appropriate. If such deviation exceeds 1/2 of 1%, the Portfolio's Board of
Trustees will promptly consider what action, if any, should be initiated. In the
event the Portfolio's Board of Trustees determines that a deviation exists that
may result in material dilution or other unfair results to investors or existing
shareholders, it will take such action as it considers appropriate to eliminate
or reduce to the extent reasonably practicable such dilution or unfair results.
Actions which the Portfolio's Board of Trustees might take include: selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; increasing, reducing, or suspending
dividends or distributions from capital or capital gains; or redeeming shares in
kind. The Portfolio's Board of Trustees might also establish a net asset value
per share by using market values, as a result of which the net asset value might
deviate form $1.00 per share.
Custodian of the Portfolio
State Street Bank and Trust Company (Bank) is the custodian for the securities
and cash of the Portfolio, but it does not participate in the investment
decisions of the Portfolio. The Portfolio has authorized the Bank to deposit
certain portfolio securities in central depository systems as allowed by federal
law. The Bank's main office is at 225 Franklin Street, Boston, Massachusetts
02110.
Independent Auditors of the Portfolio
The independent auditors for the Portfolio are Ernst & Young LLP, 233 South
Wacker Drive, Chicago, IL 60606. Ernst & Young LLP audit and report on the
annual financial statements of the Portfolio, review certain regulatory reports
and the Portfolio's Federal income tax returns, and perform such other
professional accounting, auditing, tax and advisory services as the Portfolio
may engage them to do so.
The Portfolio's financial statements and Report of Independent Auditors
appearing on pages 4 through 14 of the Fund's June 30,1996 Annual Report, are
incorporated into this SAI by reference.
Cross-Indemnification Agreement
The Trust, on behalf of the Fund, and the Base Trust, on behalf of the
Portfolio, have entered into a cross-indemnification agreement relating to
liability in connection with the information relating to the Base Trust and the
Portfolio contained in the Trust's Registration Statement of which this SAI is a
part.
- --------
(1) Notwithstanding the foregoing, and in accordance with Rule 2a-7
under the Investment Company Act of 1940 (Rule), the Fund or the
Portfolio will not, immediately after the acquisition of any
security (other than a government security or certain other
securities as permitted under the Rule) invest more than 5% of its
assets in the securities of any one issuer; provided, however, that
the Fund or the Portfolio may invest up to 25% of its total assets
in First Tier Securities (as that term is defined in the Rule) of a
single issuer for a period of up to three business days after the
purchase thereof.
(2) As long as it is required to do so by the Ohio Division of
Securities, the Trust and the Base Trust will consider a
security eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 to be a restricted security.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated securities. Relative to comparable securities of higher
quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default;
b. the secondary market may at times become less liquid or respond to
adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
c. existing legislation limits and future legislation may further
limit (i) investment by certain institutions or (ii) tax
deductibility of the interest by the issuer, which may adversely
affect value; and
d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate
cash for distributions.
2. the fund's achievement of its investment objective is more
dependent on the Adviser's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes, but
are more sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (but not depreciation) on its holdings of PFICs as of the end of
its fiscal year.
Zero Coupon Securities (Zeros)
The fund may invest in debt securities which do not pay interest, but instead
are issued at a deep discount from par. The value of the security increases over
time to reflect the interest accrued. The value of these securities may
fluctuate more than similar securities which are issued at par and pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the fund and
distributed to its shareholders. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which do not pay interest for a stated
period of time and then pay interest at a series of different rates for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities are subject to the volatility risk of zero coupon
bonds for the period when no interest is paid.
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 at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory notes issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to enter into OTC options transactions only with primary dealers in U.S.
Government Securities and, in the case of OTC options written by the fund, only
pursuant to agreements that will assure that the fund will at all times have the
right to repurchase the option written by it from the dealer at a specified
formula price. The fund will treat the amount by which such formula price
exceeds the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the fund not to enter into any
OTC option transaction if, as a result, more than 15% (10% in some cases, refer
to your fund's Prospectus) of the fund's net assets would be invested in (i)
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the fund, (ii) OTC options purchased by the fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Adviser to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the Securities and
Exchange Commission's requirements, cash, cash equivalents or high-grade debt
securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government Securities. This
amount is known as "initial margin". The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin", to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
equivalents equal in value to the commodity value (less any applicable margin
deposits) have been deposited in a segregated account of the fund's custodian.
The fund may purchase and write call and put options on futures contracts it may
buy or sell and enter into closing transactions with respect to such options to
terminate existing positions. The fund may use such options on futures contracts
in lieu of writing options directly on the underlying securities or purchasing
and selling the underlying futures contracts. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser`s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of U.S. Treasury security futures contracts and options.
The funds investing in tax-exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on U.S. Treasury
securities when, in the opinion of the Adviser, price movements in Treasury
security futures and related options will correlate closely with price movements
in the tax-exempt securities which are the subject of the hedge. U.S. Treasury
securities futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury futures contract at the specified option exercise
price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in U.S. Treasury security futures contracts and
related options will not correlate closely with price movements in markets for
tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of index futures by the fund for hedging purposes is also subject
to the Adviser's ability to predict correctly movements in the direction of the
market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging". When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash, cash equivalents or high-grade
debt securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
The 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.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the 1933 Act. That Rule
permits certain qualified institutional buyers, such as the fund, to trade in
privately placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of Trustees, will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the fund's investment restriction on illiquid securities. A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the trading
markets for the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the fund's holdings of
illiquid securities would be reviewed to determine what, if any, steps are
required to assure that the fund does not invest more than its investment
restriction on illiquid securities allows. Investing in Rule 144A securities
could have the effect of increasing the amount of the fund's assets invested in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities.
TAXES
All discussions of taxation at the shareholder level relate to federal taxes
only. Consult your tax adviser for state and local tax considerations and for
information about special tax considerations that may apply to shareholders that
are not natural persons.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate alternative minimum tax (AMT).
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. In general, any gain or loss realized upon a taxable
disposition of shares by a shareholder will be treated as long-term capital gain
or loss if the shares have been held for more than twelve months, and otherwise
as short-term capital gain or loss assuming such shares are held as a capital
asset. However, any loss realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares will be disallowed if other shares are
purchased within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities or foreign currencies or other income (including but
not limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months; (c) diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S. Government securities,
and other securities limited generally with respect to any one issuer to not
more than 5% of the total assets of the fund and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any issuer (other than U.S.
Government securities).
Futures Contracts. Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on the closing out of a futures contract will result in a capital gain or
loss for tax purposes. In addition, certain futures contracts held by the fund
(so-called "Section 1256 contracts") will be required to be "marked-to-market"
(deemed sold) for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales or on
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
However, if a futures contract is part of a "mixed straddle" (i.e., a straddle
comprised in part of Section 1256 contracts), a fund may be able to make an
election which will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of such gains or
losses. In any event, the straddle provisions described below will be applicable
to such mixed straddles.
Special Tax Rules Applicable to "Straddles". The straddle provisions of the Code
may affect the taxation of the fund's options and futures transactions and
transactions in securities to which they relate. A "straddle" is made up of two
or more offsetting positions in "personal property," including debt securities,
related options and futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities, and foreign
currencies and related options and futures.
The straddle rules may operate to defer losses realized or deemed realized on
the disposition of a position in a straddle, may suspend or terminate the fund's
holding period in such positions, and may convert short-term losses to long-term
losses in certain circumstances.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in securities of foreign corporate issuers, the fund may make an
election permitting its shareholders to take a deduction or credit for federal
tax purposes for their portion of certain foreign taxes paid by the fund. The
Adviser will consider the value of the benefit to a typical shareholder, the
cost to the fund of compliance with the election, and incidental costs to
shareholders in deciding whether to make the election. A shareholder's ability
to claim such a foreign tax credit will be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not get a full
credit for the amount of foreign taxes so paid by the fund. Shareholders who do
not itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Certain securities are considered to be Passive Foreign Investment Companies
(PFICS) under the Code, and the fund is liable for any PFIC-related taxes.
MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
"Investment decisions," and "Brokerage and research services," the "Adviser"
refers to Colonial Management Associates, Inc.)
The Adviser is the investment adviser to each of the Colonial funds (except
for Colonial Municipal Money Market Fund, Colonial Global Utilities Fund,
Colonial Newport Tiger Fund, Colonial Newport Tiger Cub Fund and Colonial
Newport Japan Fund - see Part I of each Fund's respective SAI for a description
of the investment adviser). The Adviser is a subsidiary of The Colonial
Group, Inc. (TCG), One Financial Center, Boston, MA 02111. TCG is a direct
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial), which
in turn is a direct subsidiary of LFC Holdings, Inc., which in turn is a direct
subsidiary of Liberty Mutual Equity Corporation, which in turn is a wholly-owned
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty
Mutual is an underwriter of workers' compensation insurance and a property
and casualty insurer in the U.S. Liberty Financial's address is 600 Atlantic
Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley Street,
Boston, MA 02117.
<TABLE>
Trustees and Officers (this section applies to all of the Colonial funds)
<CAPTION>
Name and Address Age Position with Fund Principal Occupation During Past Five Years
- ---------------- --- ------------------ -------------------------------------------
<S> <C> <C> <C>
Robert J. Birnbaum(1) (2) 68 Trustee Retired since 1994 (formerly Special Counsel, Dechert
313 Bedford Road Price & Rhoads from September, 1988 to December, 1993)
Ridgewood, NJ 07450
Tom Bleasdale 65 Trustee Retired since 1993 (formerly Chairman of the Board and
1508 Ferncroft Tower Chief Executive Officer, Shore Bank & Trust Company from
Danvers, MA 01923 1992-1993), is a Director of The Empire Company since
June, 1995 (3)
Lora S. Collins 60 Trustee Attorney with Kramer, Levin, Naftalis, Nessen, Kamin &
919 Third Avenue Frankel since September, 1986 (3)
New York, NY 10022
James E. Grinnell (1) (2) 66 Trustee Private Investor since November, 1988
22 Harbor Avenue
Marblehead, MA 01945
William D. Ireland, Jr. 72 Trustee Retired since 1990, is a Trustee of certain charitable
103 Springline Drive and non-charitable organizations since February, 1990 (3)
Vero Beach, FL 32963
Richard W. Lowry (1) (2) 60 Trustee Private Investor since August, 1987
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 55 Trustee Dean, College of Business and Management, University of
College Park, MD 20742 Maryland since October, 1992 (formerly Dean, Simon
Graduate School of Business, University of Rochester from
October, 1991 to July, 1992) (3)
James L. Moody, Jr. 64 Trustee Chairman of the Board, Hannaford Bros., Co. since May,
1984 (formerly Chief Executive Officer, Hannaford Bros.
Co. from May, 1973 to May, 1992) (3)
John J. Neuhauser 52 Trustee Dean, Boston College School of Management since 1978 (3)
140 Commonwealth Avenue
Chestnut Hill, MA 02167
George L. Shinn 73 Trustee Financial Consultant since 1989 (formerly Chairman, Chief
The First Boston Corp. Executive Officer and Consultant, The First Boston
Tower Forty Nine Corporation from 1983 to July, 1991) (3)
12 East 49th Street
New York, NY 10017
Robert L. Sullivan 68 Trustee Self-employed Management Consultant since January, 1989
7121 Natelli Woods Lane (3)
Bethesda, MD 20817
Sinclair Weeks, Jr. 72 Trustee Chairman of the Board, Reed & Barton Corporation since
Bay Colony Corporate Ctr. 1987 (3)
Suite 4550
1000 Winter Street
Waltham, MA 02154
Harold W. Cogger 59 President President of Colonial funds since March, 1996 (formerly
(formerly Vice Vice President from July, 1993 to March, 1996); is
President) President since July, 1993, Chief Executive Officer
since March, 1995 and Director since March, 1984
of the Adviser (formerly Executive Vice President of the
Adviser from October,1989 to July, 1993);President since
October, 1994, Chief Executive Officer since March, 1995
and Director since October, 1981 of TCG; Executive Vice
President and Director, Liberty Financial (3)
Peter L. Lydecker 42 Chief Financial Chief Financial Officer, Chief Accounting Officer and
Officer, Chief Controller of Colonial funds since June, 1993 (formerly
Accounting Assistant Controller from March, 1985 to June, 1993);
Officer and is Vice President of the Adviser since June, 1993
Controller (formerly Assistant Vice President of the Adviser from
(formerly August, 1988 to June, 1993) (3)
Assistant
Controller)
Davey S. Scoon 49 Vice President Vice President of Colonial funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995) (3)
Arthur O. Stern 56 Secretary Secretary of Colonial funds since 1985, is Director
since 1985, Executive Vice President since July, 1993,
General Counsel, Clerk and Secretary since March, 1985
of the Adviser; Executive Vice President, Legal since
March, 1995 and Clerk since March, 1985 of TCG
(formerly Executive Vice President, Compliance from
March, 1995 to March, 1996 and Vice President - Legal
of TCG from March, 1985 to March, 1995) (3)
</TABLE>
(1) Elected to the Colonial Funds complex on April 21, 1995.
(2) On April 3, 1995, and in connection with the merger of TCG with a
subsidiary of Liberty Financial which occurred on March 27, 1995,
Liberty Financial Trust (LFT) changed its name to Colonial Trust VII.
Prior to the merger, each of Messrs. Birnbaum, Grinnell, and Lowry was
a Trustee of LFT. Mr. Birnbaum has been a Trustee of LFT since
November, 1994. Each of Messrs. Grinnell and Lowry has been a Trustee
of LFT since August, 1991. Each of Messrs. Grinnell and Lowry continue
to serve as Trustees under the new name, Colonial Trust VII, along with
each of the other Colonial Trustees named above. The Colonial Trustees
were elected as Trustees of Colonial Trust VII effective April 3, 1995.
(3) Elected as a Trustee or officer of the LFC Utilities Trust, the master
fund in Colonial Global Utilities Fund, a series of Colonial Trust III
(LFC Portfolio) on March 27, 1995 in connection with the merger of TCG
with a subsidiary of Liberty Financial.
* Trustees who are "interested persons" (as defined in the Investment
Company Act of 1940) of the fund or the Adviser.
The address of the officers of each Colonial Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint meeting. Committee
chairs receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the Colonial funds based on each fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 33 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 open-end management investment
company portfolios (collectively, Colonial funds). Trustees and officers of the
Trust, who are also officers of the Adviser or its affiliates, will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $16.3. billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund or Colonial Newport Tiger Cub Fund)
Under a Management Agreement (Agreement), the Adviser has contracted to
furnish each fund with investment research and recommendations or fund
management, respectively, and accounting and administrative personnel and
services, and with office space, equipment and other facilities. For these
services and facilities, each Colonial fund pays a monthly fee based on the
average of the daily closing value of the total net assets of each fund for such
month.
The Adviser's compensation under the Agreement is subject to reduction in any
fiscal year to the extent that the total expenses of each fund for such year
(subject to applicable exclusions) exceed the most restrictive applicable
expense limitation prescribed by any state statute or regulatory authority in
which the Trust's shares are qualified for sale. The most restrictive expense
limitation applicable to a Colonial fund is 2.5% of the first $30 million of the
Trust's average net assets for such year, 2% of the next $70 million and 1.5% of
any excess over $100 million.
Under the Agreement, any liability of the Adviser to the fund and its
shareholders is limited to situations involving the Adviser's own willful
misfeasance, bad faith, gross negligence or reckless disregard of duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of typesetting for its Prospectuses and the cost of printing
and mailing any Prospectuses sent to shareholders. CISI pays the cost of
printing and distributing all other Prospectuses.
The Agreement provides that the Adviser shall not be subject to any liability to
the Trust or to any shareholder of the Trust for any act or omission in the
course of or connected with rendering services to the Trust in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund and their
respective Trusts).
Under an Administration Agreement with each Fund, the Adviser, in its capacity
as the Administrator to each Fund, has contracted to perform the following
administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
Directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents
required for compliance by each Fund with applicable laws
and regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders;
(e) coordinating and overseeing the activities of each Fund's
other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to the Colonial Municipal Money Market Fund, the Administration
Agreement for this Fund provides for the following services in addition to the
services referenced above:
(g) monitoring compliance by the Fund with Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act") and
reporting to the Trustees from time to time with respect
thereto; and
(h) monitoring the investments and operations of the SR&F
Municipal Money Market Portfolio (Municipal Money Market
Portfolio) in which Colonial Municipal Money Market Fund
is invested and the LFC Portfolio and reporting to the
Trustees from time to time with respect thereto.
The Administration Agreement has a one year term. The Adviser is paid a monthly
fee at the annual rate of average daily net assets set forth in Part 1 of this
Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping
Agreement has a one-year term. The Adviser, in its capacity as the Administrator
to each of Colonial Municipal Money Market Fund and Colonial Global Utilities
Fund, is paid an annual fee of $18,000, plus 0.0233% of average daily net assets
in excess of $50 million. For each of the other Colonial funds (except for
Colonial Newport Tiger Fund, Colonial Newport Japan Fund and Colonial Newport
Tiger Cub Fund), the Adviser is paid monthly a fee of $2,250 by each fund, plus
a monthly percentage fee based on net assets of the fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund for an
annual fee of $27,000, plus 0.035% of Colonial Newport Tiger Fund's average
daily net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund,
Colonial U.S. Fund for Growth and Colonial Global Utilities Fund. For
each of these funds, see Part 1 of its respective SAI. The Adviser of Colonial
Newport Tiger Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub
Fund follows the same procedures as those set forth under "Brokerage and
research services."
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Colonial Newport Tiger Fund, Colonial Newport Japan
Fund and Colonial Newport Tiger Cub Fund, each of which is administered by
the Adviser, and Colonial U.S. Fund for Growth for which investment decisions
have been delegated by the Adviser to State Street Bank and Trust Company, the
fund's sub-adviser). The Adviser's affiliate, CASI, advises other
institutional, corporate, fiduciary and individual clients for which CASI
performs various services. Various officers and Trustees of the Trust also serve
as officers or Trustees of other Colonial funds and the other corporate or
fiduciary clients of the Adviser. The Colonial funds and clients advised by the
Adviser or the funds administered by the Adviser sometimes invest in securities
in which the Fund also invests and sometimes engage in covered option writing
programs and enter into transactions utilizing stock index options and stock
index and financial futures and related options ("other instruments"). If the
Fund, such other Colonial funds and such other clients desire to buy or sell the
same portfolio securities, options or other instruments at about the same time,
the purchases and sales are normally made as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold by each.
Although in some cases these practices could have a detrimental effect on the
price or volume of the securities, options or other instruments as far as the
Fund is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the Trustees that the
desirability of retaining the Adviser as investment adviser to the Colonial
funds outweighs the disadvantages, if any, which might result from these
practices.
The portfolio managers of Colonial International Fund for Growth, a series of
Colonial Trust III, will use the trading facilities of Stein Roe & Farnham
Incorporated, an affiliate of the Adviser, to place all orders for the purchase
and sale of this fund's portfolio securities, futures contracts and foreign
currencies.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Colonial funds as a
factor in the selection of broker-dealers to execute securities transactions for
a Colonial fund.
The Adviser places the transactions of the Colonial funds with broker-dealers
selected by the Adviser and, if applicable, negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including the purchase and writing of options, the effecting of closing purchase
and sale transactions, and the purchase and sale of underlying securities upon
the exercise of options and the purchase or sale of other instruments. The
Colonial funds from time to time also execute portfolio transactions with such
broker-dealers acting as principals. The Colonial funds do not intend to deal
exclusively with any particular broker-dealer or group of broker-dealers.
Except as described below in connection with commissions paid to a clearing
agent on sales of securities, it is the Adviser's policy always to seek best
execution, which is to place the Colonial funds' transactions where the Colonial
funds can obtain the most favorable combination of price and execution services
in particular transactions or provided on a continuing basis by a broker-dealer,
and to deal directly with a principal market maker in connection with
over-the-counter transactions, except when it is believed that best execution is
obtainable elsewhere. In evaluating the execution services of, including the
overall reasonableness of brokerage commissions paid to, a broker-dealer,
consideration is given to, among other things, the firm's general execution and
operational capabilities, and to its reliability, integrity and financial
condition.
Subject to such practice of always seeking best execution, securities
transactions of the Colonial funds may be executed by broker-dealers who also
provide research services (as defined below) to the Adviser and the Colonial
funds. The Adviser may use all, some or none of such research services in
providing investment advisory services to each of its investment company and
other clients, including the fund. To the extent that such services are used by
the Adviser, they tend to reduce the Adviser's expenses. In the Adviser's
opinion, it is impossible to assign an exact dollar value for such services.
Subject to such policies as the Trustees may determine, the Adviser may cause
the Colonial funds to pay a broker-dealer which provides brokerage and research
services to the Adviser an amount of commission for effecting a securities
transaction, including the sale of an option or a closing purchase transaction,
for the Colonial funds in excess of the amount of commission which another
broker-dealer would have charged for effecting that transaction. As provided in
Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research
services" include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends
and portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The Adviser must determine in good faith that such greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of that
particular transaction or the Adviser's overall responsibilities to the Colonial
funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by Colonial funds that write
options and to pay such clearing agent commissions of a fixed amount per share
(currently 1.25 cents) on the sale of the underlying security upon the exercise
of an option written by a fund. The Trustees may further authorize the Adviser
to depart from the present policy of always seeking best execution and to pay
higher brokerage commissions from time to time for other brokerage and research
services as described above in the future if developments in the securities
markets indicate that such would be in the interests of the shareholders of the
Colonial funds.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds' shares only
upon receipt of orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund or Colonial funds to CISC or generally by 6 months' notice by
CISC to the Fund or Colonial funds. The agreement limits the liability of CISC
to the Fund or Colonial funds for loss or damage incurred by the Fund or
Colonial funds to situations involving a failure of CISC to use reasonable care
or to act in good faith in performing its duties under the agreement. It also
provides that the Fund or Colonial funds will indemnify CISC against, among
other things, loss or damage incurred by CISC on account of any claim, demand,
action or suit made on or against CISC not resulting from CISC's bad faith or
negligence and arising out of, or in connection with, its duties under the
agreement.
DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m.
Eastern time, 3:00 p.m. Chicago time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. Funds with portfolio securities which are primarily
listed on foreign exchanges may experience trading and changes in NAV on days on
which such Fund does not determine NAV due to differences in closing policies
among exchanges. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. The net asset
value of the Municipal Money Market Portfolio will not be determined on days
when the Exchange is closed unless, in the judgment of the Municipal Money
Market Portfolio's Board of Trustees, the net asset value of the Municipal Money
Market Portfolio should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time. Debt securities generally
are valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or where the
Adviser deems it appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on NASDAQ are valued at
the last sale price. Listed securities for which there were no sales during the
day and unlisted securities are valued at the last quoted bid price. Options are
valued at the last sale price or in the absence of a sale, the mean between the
last quoted bid and offering prices. Short-term obligations with a maturity of
60 days or less are valued at amortized cost pursuant to procedures adopted by
the Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Portfolio
positions for which there are no such valuations and other assets are valued at
fair value as determined in good faith under the direction of the Trust's
Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each Colonial fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
(The following two paragraphs are applicable only to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund -
"Adviser" in these two paragraphs refers to each fund's Adviser which is Newport
Fund Management, Inc.)
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II - see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action to: realize gains or losses; shorten the
portfolio's maturity; withhold distributions; redeem shares in kind; or convert
to the market value method (in which case the NAV per share may differ from
$1.00). All investments will be determined pursuant to procedures approved by
the Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Government Money Market Fund for a specimen price sheet showing the
computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CISI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CISI retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). CISI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse CISI for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with CISI.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, D, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your Fundamatic
purchase is by electronic funds transfer, you may request the Fundamatic
purchase for any day. Further information and application forms are available
from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B and D). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same Class of shares of funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.
Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
CISI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. The First National Bank of
Boston is the Trustee of CISI prototype plans and charges a $10 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from CISI.
Participants in non-Colonial prototype Retirement Plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
CISC. Participants in Colonial prototype Plans (other than IRAs) who liquidate
the total value of their account will also be charged a $15 close-out processing
fee payable to CISC. The fee is in addition to any applicable CDSC. The fee will
not apply if the participant uses the proceeds to open a Colonial IRA Rollover
account in any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Colonial Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing open account with the particular fund. Call CISC for more
information at 1-800- 422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, D, T and Z shares of the Colonial funds. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all Colonial funds' Class A shares held by the
shareholder (except shares of any Colonial money market fund, unless
such shares were acquired by exchange from Class A shares of another
Colonial fund other than a money market fund and Class B, C, D, T
and Z shares).
CISI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C D, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CISI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CISI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800-345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a statement of intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
Statement of Intent
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. CISI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, D or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to the Colonial Funds). Class A shares of certain
funds may be sold at NAV to the following individuals whether currently employed
or retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, CISI and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with CISI; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements.
Net Asset Value Exchange Privilege (in this section, the "Adviser" refers to
Colonial Management Associates, Inc. in its capacity as the Adviser or
Administrator to the Colonial Funds). Class A shares of certain funds may also
be purchased at reduced or no sales charge by investors moving from another
mutual fund complex or a discretionary account and by participants in certain
retirement plans. In lieu of the commissions described in the Prospectus, the
Adviser will pay the FSF a quarterly service fee which is the service fee
established for each applicable Colonial fund.
Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to the Colonial Funds) (Classes A, B, and D) CDSCs may
be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year
following the death of (i) the sole shareholder on an individual
account, (ii) a joint tenant where the surviving joint tenant is
the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts
to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or
other custodial account. If, upon the occurrence of one of the
foregoing, the account is transferred to an account registered in
the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after
the death. If the Class B shares are not redeemed within one
year of the death, they will remain subject to the applicable CDSC,
when redeemed from the transferee's account. If the account is
transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly, quarterly or
semi-annual SWP established with the Adviser, to the extent the
redemptions do not exceed, on an annual basis, 12% of the account's
value, so long as at the time of the first SWP redemption the
account had had distributions reinvested for a period at least
equal to the period of the SWP (e.g., if it is a quarterly
SWP, distributions must have been reinvested at least for the three
month period prior to the first SWP redemption); otherwise CDSCs
will be charged on SWP redemptions until this requirement is met;
this requirement does not apply if the SWP is set up at the time
the account is established, and distributions are being reinvested.
See below under "Investors Services" - Systematic Withdrawal Plan.
3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as
defined in Section 72(m)(7) of the Internal Revenue Code). To be
eligible for such waiver, (i) the disability must arise after the
purchase of shares and (ii) the disabled shareholder must have been
under age 65 at the time of the initial determination of
disability. If the account is transferred to a new registration and
then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring
upon dissolution of a revocable living or grantor trust following
the death of the sole trustee where (i) the grantor of the trust is
the sole trustee and the sole life beneficiary, (ii) death occurs
following the purchase and (iii) the trust document provides for
dissolution of the trust upon the trustee's death. If the account
is transferred to a new registration (including that of a successor
trustee), the applicable CDSC will be charged upon any subsequent
redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return
the applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions
required to make distributions from qualified retirement plans
following (i) normal retirement (as stated in the Plan document) or
(ii) separation from service. CDSCs also will be waived on SWP
redemptions made to make required minimum distributions from
qualified retirement plans that have invested in Colonial funds for
at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's Account Balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any Colonial fund designated by
the shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election of the shareholder's investment. Withdrawals from Class B and
Class D shares of the fund under a SWP will be treated as redemptions of shares
purchased through the reinvestment of fund distributions, or, to the extent such
shares in the shareholder's account are insufficient to cover Plan payments, as
redemptions from the earliest purchased shares of such fund in the shareholder's
account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even
if, after giving effect to the redemption, the shareholder's Account Balance is
less than the shareholder's base amount. Qualified plan participants who are
required by Internal Revenue Code regulation to withdraw more than 12%, on an
annual basis, of the value of their Class B and Class D share account may do so
but will be subject to a CDSC ranging from 1% to 5% of the amount withdrawn. If
a shareholder wishes to participate in a SWP, the shareholder must elect to have
all of the shareholder's income dividends and other fund distributions payable
in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's Account Balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All Colonial funds shareholders and/or their financial
advisers (except for Colonial Newport Tiger Cub Fund and Colonial Newport Japan
Fund) are automatically eligible to redeem up to $50,000 of the fund's shares by
calling 1-800-422-3737 toll free any business day between 9:00 a.m. and the
close of trading of the Exchange (normally 4:00 p.m. Eastern time). Transactions
received after 4:00 p.m. Eastern time will receive the next business day's
closing price. Telephone redemption privileges for larger amounts and for the
Colonial Newport Tiger Cub Fund and the Colonial Newport Japan Fund may be
elected on the Application. CISC will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Telephone redemptions
are not available on accounts with an address change in the preceding 30 days
and proceeds and confirmations will only be mailed or sent to the address of
record unless the redemption proceeds are being sent to a pre-designated bank
account. Shareholders and/or their financial advisers will be required to
provide their name, address and account number. Financial advisers will also be
required to provide their broker number. All telephone transactions are
recorded. A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to
execute the telephone authorization form or to use the telephone to execute
transactions.
Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of the Colonial
Funds) (Available only on the Class A and Class C shares of certain Colonial
funds) Shares may be redeemed by check if a shareholder completed an Application
and Signature Card. The Adviser will provide checks to be drawn on The First
National Bank of Boston (the "Bank"). These checks may be made payable to the
order of any person in the amount of not less than $500 nor more than $100,000.
The shareholder will continue to earn dividends on shares until a check is
presented to the Bank for payment. At such time a sufficient number of full and
fractional shares will be redeemed at the next determined net asset value to
cover the amount of the check. Certificate shares may not be redeemed in this
manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
invested in your account.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Municipal Money Market Fund will be
earned starting with the day after that fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. Class T and Z shares may be
exchanged for Class A shares of the other Colonial funds. The prospectus of each
Colonial fund describes its investment objective and policies, and shareholders
should obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange. Shares of certain Colonial funds are not
available to residents of all states. Consult CISC before requesting an
exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes and shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available from the Colonial
Literature Department by calling 1-800-248-2828.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or CISC. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other Colonial open-end funds generally may exchange their
shares at NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Colonial fund may not suspend shareholders' right of redemption or postpone
payment for more than seven days unless the Exchange is closed for other than
customary weekends or holidays, or if permitted by the rules of the SEC during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the fund or the
Trust's Trustees. The Declaration provides for indemnification out of fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for
the purpose of obtaining the signatures necessary to demand a shareholders'
meeting to consider removal of a Trustee, request information regarding the
Trust's shareholders, the Trust will provide appropriate materials (at the
expense of the requesting shareholders). Except as otherwise disclosed in the
Prospectus and this SAI, the Trustees shall continue to hold office and may
appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns differ from
standardized average annual total returns only in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or in that the sales charge or CDSC is not deducted.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non money market. The yield for each class of shares is determined by (i)
calculating the income (as defined by the SEC for purposes of advertising yield)
during the base period and subtracting actual expenses for the period (net of
any reimbursements), and (ii) dividing the result by the product of the average
daily number of shares of the Colonial fund entitled to dividends for the period
and the maximum offering price of the fund on the last day of the period, (iii)
then annualizing the result assuming semi-annual compounding. Tax-equivalent
yield is calculated by taking that portion of the yield which is exempt from
income tax and determining the equivalent taxable yield which would produce the
same after tax yield for any given federal and state tax rate, and adding to
that the portion of the yield which is fully taxable. Adjusted yield is
calculated in the same manner as yield except that expenses voluntarily borne or
waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares is calculated
by annualizing the most current period's distributions and dividing by the
maximum offering price on the last day of the period. Generally, the fund's
distribution rate reflects total amounts actually paid to shareholders, while
yield reflects the current earning power of the fund's portfolio securities (net
of the fund's expenses). The fund's yield for any period may be more or less
than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Adviser to be reputable, and publications in
the press pertaining to a fund's performance or to the Adviser or its
affiliates, including comparisons with competitors and matters of national and
global economic and financial interest. Examples include Forbes, Business Week,
Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe,
Barron's National Business & Financial Weekly, Financial Planning, Changing
Times, Reuters Information Services, Wiesenberger Mutual Funds Investment
Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia
Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index and Disclosure Incorporated.
All data are based on past performance and do not predict future results.
<PAGE>
APPENDIX I
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from AAA
only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to repay principal and interest than for bonds in the A category.
BB, B, CCC, and CC bonds are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the major
rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
<PAGE>
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups that Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes these
bonds.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
<PAGE>
APPENDIX II
1995
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Donoghue Tax-Free Funds 3.39
Donoghue U.S. Treasury Funds 5.19
Dow Jones Industrials 36.95
Morgan Stanley Capital International EAFE Index 11.22
Morgan Stanley Capital International EAFE GDP Index 11.16
Libor Six-month Libor N/A
Lipper Adjustable Rate Mortgage 4.73
Lipper California Municipal Bond Funds 18.32
Lipper Connecticut Municipal Bond Funds 16.58
Lipper Closed End Bond Funds 20.83
Lipper Florida Municipal Bond Funds 17.84
Lipper General Bond Fund 20.83
Lipper General Municipal Bonds 16.84
Lipper General Short-Term Tax-Exempt Bonds 7.43
Lipper Global Funds 16.05
Lipper Growth Funds 30.79
Lipper Growth & Income Funds 30.82
Lipper High Current Yield Bond Funds 16.44
Lipper High Yield Municipal Bond Debt 15.98
Lipper Fixed Income Funds 15.19
Lipper Insured Municipal Bond Average 17.59
Lipper Intermediate Muni Bonds 12.89
Lipper Intermediate (5-10) U.S. Government Funds 15.75
Lipper Massachusetts Municipal Bond Funds 16.82
Lipper Michigan Municipal Bond Funds 16.89
Lipper Mid Cap Funds 32.04
Lipper Minnesota Municipal Bond Funds 15.39
Lipper U.S. Government Money Market Funds 5.26
Lipper Natural Resources 18.80
Lipper New York Municipal Bond Funds 16.73
Lipper North Carolina Municipal Bond Funds 17.51
Lipper Ohio Municipal Bond Funds 16.81
Lipper Small Company Growth Funds 31.55
Lipper U.S. Government Funds 17.34
Lipper Pacific Region Funds-Ex-Japan 1.95
Shearson Lehman Composite Government Index 18.33
Shearson Lehman Government/Corporate Index 19.25
Shearson Lehman Long-term Government Index 30.90
S&P 500 S&P 37.54
S&P Utility Index S&P 42.39
S&P Barra Growth 38.13
S&P Barra Value 37.00
S&P Midcap 400 28.56
First Boston High Yield Index 17.38
Swiss Bank 10 Year U.S. Government (Corporate Bond) 22.24
Swiss Bank 10 Year United Kingdom (Corporate Bond) 16.19
Swiss Bank 10 Year France (Corporate Bond) 26.72
Swiss Bank 10 Year Germany (Corporate Bond) 25.74
Swiss Bank 10 Year Japan (Corporate Bond) 17.83
Swiss Bank 10 Year Canada (Corporate Bond) 25.04
Swiss Bank 10 Year Australia (Corporate Bond) 19.42
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 23.83
Morgan Stanley Capital International 10 Year Belgium (Equity) 20.67
Morgan Stanley Capital International 10 Year Austria (Equity) 10.85
Morgan Stanley Capital International 10 Year France (Equity) 15.30
Morgan Stanley Capital International 10 Year Netherlands (Equity) 19.33
Morgan Stanley Capital International 10 Year Japan (Equity) 12.82
Morgan Stanley Capital International 10 Year Switzerland (Equity) 17.06
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 15.02
Morgan Stanley Capital International 10 Year Germany (Equity) 10.66
Morgan Stanley Capital International 10 Year Italy (Equity) 7.78
Morgan Stanley Capital International 10 Year Sweden (Equity) 19.43
Morgan Stanley Capital International 10 Year United States (Equity) 14.82
Morgan Stanley Capital International 10 Year Australia (Equity) 15.13
Morgan Stanley Capital International 10 Year Norway (Equity) 10.72
Morgan Stanley Capital International 10 Year Spain (Equity) 17.91
Morgan Stanley Capital International World GDP Index 18.14
-----
Morgan Stanley Capital International Pacific Region Funds Ex-Japan 12.95
Inflation Consumer Price Index N/A
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Federal Reserve Six-Month Treasury Bill N/A
Federal Reserve One-Year Constant-Maturity Treasury Rate N/A
Federal Reserve Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell & Co. Russell 2000 28.45
Frank Russell & Co. Russell 1000 Value 38.35
Frank Russell & Co. Russell 1000 Growth 37.19
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>
*in U.S. currency
STEIN ROE & FARNHAM MUNICIPAL MONEY MARKET
PORTFOLIO
INVESTMENT PORTFOLIO
JUNE 30, 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL SECURITIES - (104.5%) PAR VALUE
---------------------------------------------------------------------------------
<S> <C> <C>
ALABAMA (6.1%)
* Alabama I.D.A. Solid Waste Disposal Revenues
(Pine City Fiber Company L.O.C. Barclays
Bank Plc) V.R.D.B. 3.500% $ 5,750 $ 5,750
* Cullman Industrial Development Board
(National Bedding Co. L.O.C. Bank of America)
V.R.D.B. 3.650% 3,000 3,000
---------------
8,750
---------------
---------------------------------------------------------------------------------
ARIZONA (2.4%)
* Coconino P.C.R.(Tuscon Power
L.O.C. Canadian Imperial Bank
of Commerce) V.R.D.B. 3.500% 2,200 2,200
* Maricopa County I.D.A. Series D
(L.O.C. Bank One, Arizona) V.R.D.B. 3.500% 1,200 1,200
---------------
3,400
---------------
---------------------------------------------------------------------------------
ARKANSAS (2.5%)
* Clark County Solid Waste Disposal Revenue
(Reynolds Metals Co. L.O.C. Trust Company Bank)
V.R.D.B. 3.550% 3,000 3,000
Paragould Sales Tax Revenue (AMBAC Insured)
4.750% 7/01/97 550 553
---------------
3,553
---------------
---------------------------------------------------------------------------------
CALIFORNIA (10.1%)
* California Housing Financial Agency Revenue
(Bayerland L.O.C. First Trust, San
Francisco) 3.500% Mandatory Put 2/01/97 1,500 1,500
California School Cash Reserve Program
Authority Pool Series A 4.750% 7/02/97 2,000 2,017
California Statewide Community Development
Authority T.R.A.N. 4.750% 6/30/97 1,000 1,007
Coast California Local Education Agencies Pooled
T.R.A.N.:
Series 1995 A 5.000% 8/14/96 5,000 5,003
Series 1996A 4.750% 6/30/97 1,090 1,097
Los Angeles School District T.R.A.N.:
4.500% 7/03/96 Series 95-96 2,750 2,750
4.500% 6/30/97 Series 96-97 1,000 1,007
---------------
14,381
---------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1996
---------------------------------------------------------------------------------
<S> <C> <C>
DISTRICT OF COLUMBIA (0.8%)
District of Columbia Revenue Series 1985
(American University L.O.C. National
Westminister Bank) V.R.D.B. 3.150% $ 1,100 $ 1,100
---------------------------------------------------------------------------------
FLORIDA (3.5%)
* Collier County Housing Financial Authority
(Saxon Manor Isles L.O.C. PNC Bank of
Kentucky) V.R.D.B. 3.400% 2,000 2,000
St. Lucie County P.C.R. (Florida
Power and Light)
3.450% Mandatory Put 7/23/96 2,000 2,000
3.600% Mandatory Put 11/8/96 1,000 1,000
---------------
5,000
---------------
---------------------------------------------------------------------------------
GEORGIA (2.7%)
* Development Authority of Gwinnett County I.D.R.
(Price Companies, Inc. L.O.C. NationsBank)
V.R.D.B. 3.500%
3,000 3,000
Hapeville Development Revenue I.D.R. (Hapeville
Hotel Ltd. L.O.C. Deutsche Bank Corp.)
V.R.D.B 3.600% 900 900
---------------
3,900
---------------
---------------------------------------------------------------------------------
IDAHO (1.4%)
Idaho T.A.N. Series 1996 4.500% 6/30/97 2,000 2,011
---------------------------------------------------------------------------------
ILLINOIS (7.8%) City of Chicago G.O.:
3.650% Mandatory Put 10/31/96 (L.O.C.
Morgan Guaranty) 1,000 1,000
3.100% Mandatory Put 2/04/97 (L.O.C.
Hessen Bank) 2,000 2,000
* Illinois Development Finance Authority
Sewage Facilities Revenue (Nutrasweet Co.
Project gtd. by Monsanto Co.) V.R.D.B. 3.400% 3,200 3,200
Illinois Health Facilities Authority Revenue
(University of Chicago Hospital)
Optional Put 8/6/96 3,000 3,000
* Illinois Student Assistance Student Loan Revenue
Series 1996 A (L.O.C. Bank of America)
V.R.D.B. 3.600% 2,000 2,000
---------------
11,200
---------------
---------------------------------------------------------------------------------
INDIANA (5.2%)
Fort Wayne Hospital Authority Revenue (Parkview
Memorial Hospital L.O.C. Fuji Bank, Ltd.) V.R.D.B.:
3.350% Series B 1,000 1,000
3.350% Series C 1,000 1,000
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1996
----------------------------------------------------------------------------------
MUNICIPAL SECURITIES - CONT. PAR VALUE
----------------------------------------------------------------------------------
<S> <C> <C>
INDIANA - CONT.
* Franklin Economic Development Revenue
Refunding (L.O.C. Federal Home Loan Bank,
Indianapolis) V.R.D.B. 3.500% $ 2,965 $ 2,965
Gary Enviromental Improvement Revenue (U.S.
Steel L.O.C. Bank of Nova Scotia)
V.R.D.B. 3.700%
500 500
* LaPorte County Economic Development Revenue
(Woodland Project L.O.C. Federal Home Loan
Bank, Indianapolis) V.R.D.B. 3.500%
2,000 2,000
---------------
7,465
---------------
---------------------------------------------------------------------------------
IOWA (0.7%)
Iowa School Corporations Warrant Certificates
Series 1996-97 B (Capital Guaranty Insured)
4.250% 1/30/97 1,000 1,005
---------------------------------------------------------------------------------
KANSAS (0.1%)
Kansas City I.D.R. (PQ Corp. L.O.C.
Credit Suisse Bank) V.R.D.B. 3.700% 200 200
---------------------------------------------------------------------------------
KENTUCKY (6.3%)
* Covington I.D.R. Series 1991 (White Castle
Distributing L.O.C. Bank One, Columbus)
V.R.D.B. 3.550% 3,980 3,980
* Pulaski County Solid Waste Development
(Eastern Kentucky Power gtd. by National
Rural Utilities Cooperative Finance Corp.)
3.200% Opitional put 8/15/96 3,000 3,000
* Shelby County Industrial Building Revenue
(Roll Form Corp. L.O.C. Bank One of Kentucky)
V.R.D.B. 3.550% 2,000 2,000
---------------
8,980
---------------
---------------------------------------------------------------------------------
LOUISIANA (2.2%)
Louisiana G.O. Series 1996 A
(FGIC Insured) 3.550% 8/01/96 1,000 1,000
Lousiana Recovery District Sales Tax Revenue
(MBIA Insured) 7.625% 7/01/96 1,000 1,000
* Parish of St. Charles P.C.R. Series 1991
(Shell Oil Co.) V.R.D.B. 3.800% 1,200 1,200
---------------
3,200
---------------
---------------------------------------------------------------------------------
MARYLAND (3.2%)
* Ann Arundel County E.D.R. (Baltimore
Gas and Electric Company):
3.400% Mandatory Put 7/18/96 3,000 3,000
3.700% Mandatory Put 9/10/96 1,000 1,000
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1996
----------------------------------------------------------------------------------
<S> <C> <C>
3.700% Mandatory Put 10/18/96 $ 500 $ 500
---------------
4,500
---------------
----------------------------------------------------------------------------------
MICHIGAN (2.1%)
Michigan Job Development Authority P.C.R.
Series 1985 (Mazda Motor Manufacturing
USA Corp. L.O.C. Sumitomo Bank, Ltd.)
V.R.D.B. 3.550% 3,000 3,000
----------------------------------------------------------------------------------
MINNESOTA (1.1%)
* Minnesota Housing Finance Authority Single
Family Mortgage Series N 3.600% Mandatory
Put 12/12/96 1,600 1,600
----------------------------------------------------------------------------------
MISSOURI (3.8%)
* Jefferson County (GHF Holdings L.O.C.
Bank One, Indianapolis) V.R.D.B. 3.550% 4,410 4,410
St. Louis T.R.A.N.
4.750% 6/30/97 1,000 1,008
---------------
5,418
---------------
----------------------------------------------------------------------------------
NEW HAMPSHIRE (3.5%)
* New Hampshire I.D.R. (New England
Power Co.):
3.350% Mandatory Put 8/07/96 2,000 2,000
3.600% Mandatory Put 8/09/96 3,000 3,000
---------------
5,000
---------------
----------------------------------------------------------------------------------
NEW JERSEY (1.4%)
Essex County T.A.N.S. (L.O.C. Chemical Bank)
4.000% 8/19/96 2,000 2,002
----------------------------------------------------------------------------------
NEW MEXICO (0.7%)
* Santa Fe Single Family Mortgage Revenue 4.000%
Mandatory Put 11/15/96 1,000 1,000
----------------------------------------------------------------------------------
NORTH DAKOTA (0.7%)
* Mercer County Solid Waste Disposal Series
1993 V (gtd. by National Rural Utilities
Cooperative Finance Corp.) 3.650%
Optional Put 12/01/96 1,000 1,000
----------------------------------------------------------------------------------
OHIO (1.4%)
Cuyahoga Hospital Revenue (MBIA Insured)
6.500% 1/15/97 1,520 1,543
Ohio Enviromental Improvement Revenue
(U.S. Steel L.O.C. Pittsburgh National Bank)
V.R.D.B. 4.000% 400 400
---------------
1,943
---------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1996
----------------------------------------------------------------------------------
MUNICIPAL SECURITIES - CONT. PAR VALUE
----------------------------------------------------------------------------------
<S> <C> <C>
OREGON (0.1%)
* Port St. Helen P.C.R. Series 1990A
(Portland General Electric Co. L.O.C. Swiss
Bank) V.R.D.B. 3.800% $ 200 $ 200
----------------------------------------------------------------------------------
PENNSYLVANIA (1.7%)
* Pennsylvania Housing Financial Authority Single
Family Mortgage Series 1991-31-A 6.300% 4/01/97 750 761
Schuykill County I.D.A. (Westwood Energy
Properties Limited Partnership L.O.C. Fuji Bank
Ltd.) V.R.D.B. 3.850% 200 200
Westview Water Bonds (FGIC Insured)
3.600% 11/15/96 1,410 1,410
---------------
2,371
---------------
----------------------------------------------------------------------------------
SOUTH CAROLINA (2.4%)
Columbia Water and Sewer Revenue
(MBIA Insured) (Escrowed in U.S. Treasury
Securities) (pre-refunded to 10/01/96) 7.375% 505 515
* South Carolina Economic Development Authority
(Specialty Equipment Companies L.O.C.
Barclays Bank Plc) V.R.D.B. 3.550% 3,000 3,000
---------------
3,515
---------------
----------------------------------------------------------------------------------
TENNESSEE (4.0%)
Blount County Hospital Revenue Refunding
Series 1996 A (MBIA Insured) 3.900% 7/01/96 1,775 1,775
* McMinn County Industrial Development Board
I.D.R. (L.O.C. NBD Bank) V.R.D.B. 3.550% 4,000 4,000
---------------
5,775
---------------
----------------------------------------------------------------------------------
TEXAS (10.9%)
* Harris County Industrial Development Corp. I.D.R.
(Precision General Project L.O.C. Morgan
Guaranty) V.R.D.B. 3.550% 2,060 2,060
Houston Independent School District
Tax Notes 4.000% 7/15/96 1,355 1,355
* North Texas Higher Education Authority Texas
Student Loan Revenue Refunding Series A
(L.O.C. Student Loan Marketing Association)
V.R.D.B. 3.400% 1,100 1,100
* Port Corpus Christi Sewer and Water (Citgo
Inc. L.O.C. Banque Nationale of Paris)
V.R.D.B. 3.800% 300 300
* Robertson County Industrial Development Corp.
I.D.R. Series 1995 (L.O.C. Harris Bank)
V.R.D.B. 3.400% 1,900 1,900
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/June 30, 1996
----------------------------------------------------------------------------------
<S> <C> <C>
TEXAS - CONT.
* San Antonio Airport Lease Special Project
Revenue Series 1992 (Hedrick Beechcraft,
Inc. gtd. by Raytheon Co.) V.R.D.B. 3.350% $ 3,900 $ 3,900
Texas T.R.A.N. 4.750% 8/30/96 5,000 5,007
---------------
15,622
---------------
----------------------------------------------------------------------------------
VERMONT (0.4%)
* Vermont I.D.R. (Rye Gate Project L.O.C.
ABN AMRO) V.R.D.B. 3.500% 500 500
----------------------------------------------------------------------------------
WASHINGTON (2.3%)
Washington G.O. (Escrowed
in U.S. Treasury Securities)
(pre-refunded to 9/01/96) 7.600%
500 503
* Yakima County Public Corp I.D.R. (L.O.C.
Bayerische Vereinsbank AG)
V.R.D.B. 3.500% 2,700 2,700
---------------
3,203
---------------
----------------------------------------------------------------------------------
WISCONSIN (12.4%)
* Carlton P.C.R. Series 1988 (Wisconsin
Power and Light) V.R.D.B. 3.650% 6,500 6,500
* Fond Du Lac I.D.R. (Brenner Tank Inc. L.O.C.
Bank One, Milwaukee) V.R.D.B. 3.550% 3,825 3,825
* Holland I.D.R. (White Clover Daily Inc. L.O.C.
Bank One, Milwaukee) V.R.D.B. 3.550% 2,925 2,925
* Kenosha I.D.R. (Monarch Plastics Inc. L.O.C.
Bank One, Milwaukee) V.R.D.B. 3.550% 2,430 2,430
* Oak Creek I.D.R. Series 1995 (McAdams Graphics
L.O.C. Bank One, Milwaukee) V.R.D.B. 3.550% 2,000 2,000
---------------
17,680
---------------
---------------------------------------------------------------------------------
WYOMING (0.6%)
* Lincoln County P.C.R. (Exxon Corp.)
V.R.D.B. 3.700% 800 800
Sublette County P.C.R. (Exxon Corp.)
V.R.D.B. 3.550% 100 100
---------------
900
---------------
TOTAL MUNICIPAL SECURITIES (104.5%)
(Amortized Cost $149,374) 149,374
---------------
OTHER ASSETS & LIABILITIES, NET- (-4.5%) (6,446)
----------------------------------------------------------------------------------
NET ASSETS (100.0%) $ 142,928
---------------
</TABLE>
* These securities are subject to Alternative Minimum Tax. At June
30, 1996 these securities represented 68.9 percent of net assets.
See notes to financial statements.
9
<PAGE>
STEIN ROE & FARNHAM MUNICIPAL MONEY MARKET
PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996
<TABLE>
<S> <C> <C>
(in thousands)
ASSETS
Investments at value (cost $149,374) $ 149,374
Cash $ 9
Receivable for:
Interest 1,283
Investments sold 1,000 2,292
------------ -----------
Total Assets 151,666
LIABILITIES
Payable for Investments purchased 8,702
Other liabilities 36
------------
Total Liabilities 8,738
-----------
NET ASSETS applicable to investors' beneficial interest $ 142,928
-----------
</TABLE>
STATEMENT OF OPERATIONS
PERIOD ENDED JUNE 30, 1996 (a)
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest income $ 4,402
EXPENSES
Management fee $ 290
Custodian fees 8
Accounting fees 21
Audit & legal fees 23
Trustees fee 6 348
------------ -----------
Net Investment Income $ 4,054
------------ -----------
</TABLE>
(a) The Portfolio commenced operations September 28, 1995.
See notes to financial statements.
10
<PAGE>
STEIN ROE & FARNHAM MUNICIPAL MONEY MARKET
PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period
ended
(in thousands) June 30 (a)
-------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS 1996
Operations:
Net investment income $ 4,054
Transactions in investors' beneficial interest
Contributions 241,616
Withdrawals (102,742)
-------------
Net transactions in investors' beneficial interest 138,874
-------------
Total Increase 142,928
NET ASSETS
Beginning of period ----
End of period $ 142,928
-------------
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period ended
June 30 (a)
-------------
1996
<S> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30% (b)
Net investment income 3.50% (b)
</TABLE>
(a) The Portfolio commenced operations September 28, 1995.
(b) Annualized
See notes to financial statements.
11
<PAGE>
STEIN ROE & FARNHAM MUNICIPAL MONEY MARKET
PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 (IN THOUSANDS)
NOTE 1. ORGANIZATION OF THE SR&F MUNICIPAL MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------
The SR&F Municipal Money Market Portfolio (the "Portfolio") is a separate series
of the SR&F Base Trust, a Massachusetts common trust organized under an
Agreement and Declaration of Trust dated August 23, 1993. The Declaration of
Trust permits the Trustees to issue non-transferable interests in the Portfolio.
The Portfolio commenced operations on September 28, 1995. At commencement, the
Stein Roe Municipal Money Market Fund contributed $131,563 in securities and
other assets and the Colonial Municipal Money Market Fund contributed $24,119 in
securities and other assets which represented ownership of 84.5 percent and 15.5
percent, respectively.
The Portfolio allocates net asset value, income and expenses based on the
respective percentage ownership of each investor on a daily basis. At June 30,
1996 Stein Roe Municipal Money Market Fund and Colonial Municipal Money Market
Fund owned 85 percent and 15 percent, respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
The following are the significant accounting policies of the Portfolio. The
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
SECURITY VALUATIONS:
All securities are valued as of June 28, 1996, the last
business day of the period. Municipal securities of the Portfolio are valued at
amortized cost, which approximates market value. This method involves valuing an
instrument at cost on the purchase date and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument and does not
take into account unrealized securities gains or losses.
12
<PAGE>
Notes to Financial Statements/June 30, 1996
- -----------------------------------------------------------------------------
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - CONT.
- -------------------------------------------------------------------------------
SECURITY VALUATIONS - CONT.
Internal Revenue Service Code. Accordingly, no provisions for federal income
taxes is considered necessary.
OTHER INFORMATION:
Realized gains and losses from sales of securities are determined on the
specific identified cost basis. Securities purchased on a when-issued or delayed
delivery basis may be settled a month or more after the transaction date. These
securities are subject to market fluctuation during this period. The Portfolio
did not have any when-issued or delayed delivery purchase commitments as of June
30, 1996. A maturity date is not shown for municipal securities bearing variable
or floating interest rates that are adjusted periodically to minimize
fluctuations in the value of such securities.
All amounts, except per-share amounts, are shown in thousands.
NOTE 3. PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
The Portfolio invests in municipal securities including, but not limited to,
general obligation bonds, revenue bonds and escrowed bonds (which are bonds that
have been refinanced, the proceeds of which have been invested in U.S.
Government obligations and set aside to pay off the original issue at the first
call date or maturity.) The Portfolio's investments include certain municipal
securities that are insured by private insurers who guarantee the payment of
interest and principal in the event of default.
The Portfolio's investments included certain short-term securities that are
backed by bank letters of credit used to provide liquidity to the issuer and/or
additional security in the event of default by the issuer. At June 30, 1996,
53.1% of the portfolio was backed by bank letters of credit. See Portfolio's
schedule of investments for additional information on portfolio composition.
NOTE 4. TRUSTEES' FEES AND TRANSACTIONS WITH AFFILIATES
- -------------------------------------------------------------------------------
The management fee for the Portfolio is computed at an annual rate of 0.25 of 1
percent of average daily net assets.
The Adviser also provides certain accounting services. For the period ended June
30, 1996, the Portfolio incurred charges of $21 for these services.
Certain officers and Trustees of the Trust are also officers of the Adviser. The
compensation of Trustees not affiliated with the Adviser for the Portfolio for
the period ended June 30, 1996, was $6. No remuneration was paid to any other
trustee or officer of the Trust.
NOTE 5. SHORT-TERM DEBT
- -------------------------------------------------------------------------------
To facilitate portfolio liquidity, the Portfolio maintains borrowing
arrangements under which they can borrow against portfolio securities. There
were no borrowings for the Portfolio during the period ended June 30, 1996.
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF THE SR&F BASE TRUST
We have audited the accompanying balance sheet, including the schedule of
investments, of SR&F Municipal Money Market Portfolio as of June 30, 1996, the
related statement of operations, and the change in net assets, and financial
highlights for the period from September 28, 1995 to June 30, 1996. These
financial statements and financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
SR&F Municipal Money Market Portfolio at June 30, 1996, and the results of its
operations, the changes in its net assets, and its financial highlights for the
period from September 28, 1995 to June 30, 1996, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
August 8, 1996
14
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1996
<TABLE>
<S> <C> <C>
(in thousands except for per share amounts)
ASSETS
Investment in SR&F Municipal Money Market
Portfolio $ 21,467
Receivable for:
Fund shares sold $ 13
Expense reimbursement due
from Adviser 11
Other 10 34
-----------------
Total Assets 21,501
LIABILITIES
Payable for:
Fund shares repurchased 528
Distributions 49
Accrued:
Deferred Trustees fees 1
Other 12
---------
Total Liabilities 590
--------
NET ASSETS $ 20,911
--------
Net asset value:
Class A ($19,676/19,678) $ 1.00
--------
Class B ($1,235/1,235) $ 1.00(a)
--------
COMPOSITION OF NET ASSETS
Capital paid in $ 20,912
Accumulated net realized loss (1)
--------
$ 20,911
--------
</TABLE>
(a) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
15
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest income $ 238
Interest income from
SR&F Municipal Money Market Portfolio 639
Expenses allocated from
SR&F Municipal Money Market Portfolio (50)
--------
827
EXPENSES
Adviser fee $ 34
Administration fee 42
Service fee - Class B 6
Distribution fee - Class B 18
Transfer agent 53
Bookkeeping fee 20
Trustees fee 12
Audit fee 25
Legal fee 65
Registration fee 48
Reports to shareholders 7
Other 16
---------
346
Fees and expenses waived or borne
by the Adviser/Administrator (196) 150
---------- -------
Net Investment Income $ 677
--------
</TABLE>
See notes to financial statements.
16
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Period Year
ended ended ended
(in thousands) June 30 June 30 November 30
------------- ------------ -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN 1996 1995 (a) 1994
NET ASSETS
Operations:
Net investment income $ 677 $ 518 $ 518
------------- ------------ -------------
Distributions:
From net investment income -
Class A (628) (485) (493)
From net investment income -
Class B (49) (35) (23)
------------- ------------ -------------
---- (2) 2
Fund Share Transactions:
Receipts for shares sold - Class A 58,417 32,426 69,633
Value of distributions
reinvested - Class A 550 386 371
Cost of shares
repurchased - Class A (63,966) (36,942) (59,816)
------------- ------------ -------------
(4,999) (4,130) 10,188
------------- ------------ -------------
Receipts for shares sold - Class B 3,838 4,502 9,572
Value of distributions
reinvested - Class B 36 26 15
Cost of shares
repurchased - Class B (5,750) (5,285) (6,628)
------------- ------------ -------------
(1,876) (757) 2,959
------------- ------------ -------------
Net Increase (Decrease) from Fund
Share Transactions (6,875) (4,887) 13,147
------------- ------------ -------------
Total Increase (Decrease) (6,875) (4,889) 13,149
NET ASSETS
Beginning of period 27,786 32,675 19,526
------------- ------------ -------------
End of period (net of undistributed
net investment income of none,
none and $2, respectively) $ 20,911 $ 27,786 $ 32,675
------------- ------------ -------------
NUMBER OF FUND SHARES
Sold - Class A 58,417 32,426 69,633
Issued for distributions
reinvested - Class A 550 385 371
Repurchased - Class A (63,966) (36,942) (59,817)
------------- ------------ -------------
(4,999) (4,131) 10,187
------------- ------------ -------------
Sold - Class B 3,839 4,502 9,572
Issued for distributions
reinvested - Class B 36 26 15
Repurchased - Class B (5,750) (5,285) (6,628)
------------- ------------ -------------
(1,875) (757) 2,959
------------- ------------ -------------
</TABLE>
(a) The Fund changed its fiscal year end from November 30 to June 30 in 1995.
See notes to financial statements.
17
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION: Colonial Municipal Money Market Fund (the Fund), formerly Colonial
Tax-Exempt Money Market Fund, a series of Colonial Trust IV, is a
non-diversified portfolio of a Massachusetts business trust registered under the
Investment Company Act of 1940, as amended, as a open-end, management investment
company. The Fund invests all of its investable assets in interests in the Stein
Roe & Farnham (SR&F) Municipal Money Market Portfolio (the Portfolio), a
Massachusetts common trust, having the same investment objective as the Fund.
The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (15% at June 30,
1996). The performance of the Fund is directly affected by the performance of
the Portfolio.
The financial statements of the Portfolio, including the portfolio of
investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The Fund may issue an
unlimited number of shares and offers Class A and Class B shares. Class B shares
are identical to Class A shares except for an annual service and distribution
fee and a contingent deferred sales charge. Class B shares will convert to Class
A shares when they have been outstanding approximately eight years.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
SECURITY VALUATION AND TRANSACTIONS: Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B service and distribution fee), realized and
unrealized gains (losses), are allocated to each class proportionately on a
daily basis for purposes of determining the net asset value of each class.
Class B per share data and ratios are calculated by adjusting the net investment
income per share data and ratios for the Fund for the entire period by the
service fee and distribution fee applicable to Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable income, no
federal income tax has been accrued.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- -------------------------------------------------------------------------------
MANAGEMENT FEE: Through September 27, 1995, Colonial Management Associates,
Inc., was the investment Adviser of the Fund furnishing accounting and other
services and office facilities for a monthly fee equal to 0.50% annually of the
Fund's average net assets. Through September 27, 1995, management fees paid
amounted to $33,610.
ADMINISTRATOR: Effective September 28, 1995, Colonial Management Associates,
Inc. (the Administrator) became the Administrator of the Fund and furnishes
accounting and other services and office facilities for a monthly fee equal to
0.25% annually of the Fund's average net assets.
BOOKKEEPING FEE: Effective September 28, 1995, the Administrator provides
bookkeeping and pricing services for $18,000 per year plus 0.0233% of the Fund's
average net assets over $50 million. Through September 27, 1995, the Adviser
provided bookkeeping and pricing services for $27,000 per year plus 0.035% of
the Fund's average net assets over $50 million. Through September 27, 1995,
bookkeeping fees paid amounted to $6,675.
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Administrator, provides shareholder services for a monthly fee
equal to 0.20% annually of the Fund's average net assets and receives a
reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Administrator, is the
Fund's principal underwriter. During the year ended June 30, 1996, the Fund has
been advised that the Distributor received contingent deferred sales charges
(CDSC) of $13,788 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a service fee to
the Distributor equal to 0.25% annually of Class B's net assets as of the 20th
of each month. The plan also requires the payment of a distribution fee to the
Distributor equal to 0.75% annually of the average net assets attributable to
Class B shares only.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS: The Administrator has agreed, until further notice, to waive
fees and bear certain Fund expenses to the extent that total expenses (inclusive
of the Fund's proportionate share of the Portfolio's expenses and exclusive of
service and distribution fees, commissions, taxes, and extraordinary expenses,
if any) exceed 0.75% annually of the Fund's average net assets.
19
<PAGE>
Notes to Financial Statements/June 30, 1996
- -------------------------------------------------------------------------------
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Administrator.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- -------------------------------------------------------------------------------
During the period July 1, 1995 through September 27, 1995, purchases and sales
(including maturities) of short-term investments aggregated to $11,205,000 and
$38,765,000, respectively.
NOTE 4. OTHER RELATED PARTY TRANSACTIONS
- -------------------------------------------------------------------------------
At June 30, 1996 the Fund had three shareholders who each owned greater than 5%
of the Fund's shares outstanding.
NOTE 5. RESULTS OF SPECIAL SHAREHOLDERS MEETING (UNAUDITED)
- -------------------------------------------------------------------------------
On September 15, 1995, a special meeting of shareholders was held and the
conversion of the Fund to the master fund/feeder fund structure with new
fundamental and non- fundamental investment policies was approved. The
conversion was effective September 28, 1995. Out of the shares of beneficial
interest outstanding on June 30, 1995, 11,886,162 voted for the conversion of
the Fund to the master fund/feeder fund structure with new fundamental and
non-fundamental investment policies, 403,477 voted against and 2,973,428
abstained. Of the shares of beneficial interest outstanding that abstained,
610,277 represented broker non-votes.
On June 18, 1996, a special Meeting of shareholders of the Fund was held to
elect nine Trustees of the SR&F Base Trust and to modify the fundamental
investment restrictions of both the SR&F Base Trust and the Fund regarding the
borrowing and lending of money under the interfund lending program. On April 17,
1996, the record date for the Meeting, the Fund had outstanding 24,428,448
shares of beneficial interest. The votes cast at the Meeting were as follows:
To elect nine Trustees of the SR&F Base Trust:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
Timothy K. Armour 11,922,780 0 255,721 602,994
Kenneth L. Block 11,664,909 0 513,592 602,994
William W. Boyd 11,922,781 0 255,721 602,994
Lindsay Cook 11,906,438 0 272,064 602,994
Douglas A. Hacker 11,649,719 0 528,782 602,994
Francis W. Morley 11,663,756 0 514,745 602,994
Charles R. Nelson 11,907,590 0 270,911 602,994
Thomas C. Theobald 11,904,361 0 284,141 602,994
Gordan R. Worley 11,664,909 0 513,592 602,994
</TABLE>
20
<PAGE>
Notes to Financial Statements/June 30, 1996
- -------------------------------------------------------------------------------
NOTE 5. RESULTS OF SHAREHOLDERS MEETING - CONT. (UNAUDITED)
- -------------------------------------------------------------------------------
To approve the modification of the SR&F Municipal Money Market Portfolio's
(Portfolio) fundamental investment restriction on borrowing to enable it to
borrow money under an interfund lending program:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C>
10,718,032 863,598 596,869 602,994
</TABLE>
To approve the modification of the Fund's fundamental investment restriction on
borrowing to enable it to borrow money under an interfund lending program:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C>
10,713,216 863,749 601,535 602,994
</TABLE>
To approve the modification of the Portfolio's fundamental investment
restriction on lending to enable it to lend money under an interfund lending
program:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C>
10,728,978 852,653 596,869 602,994
</TABLE>
To approve the modification of the Fund's fundamental investment restriction on
lending to enable it to lend money under an interfund lending program:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C>
11,001,308 580,323 596,869 602,994
</TABLE>
21
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended Period ended
June 30 (b) June 30(c)
-------------------------- -------------------------
1996 1995
Class A Class B Class A Class B
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ---------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.030 (d) 0.020 (d) 0.018 0.012
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.030) (0.020) (0.018) (0.012)
----------- ---------- ----------- ----------
Net asset value -
End of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ---------- ----------- ----------
Total return (e)(f) 3.04% 2.02% 1.80% (g) 1.20% (g)
----------- ---------- ----------- ----------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.75% (d) 1.75% (d) 0.75% (h) 1.75% (h)
Fees and expenses waived or
borne by the Adviser/
Administrator 0.84% (d) 0.84% (d) 0.36% (h) 0.36% (h)
Net investment income 3.00% (d) 2.00% (d) 3.05% (h) 2.05% (h)
Net assets at end
of period (000) $ 19,676 $ 1,235 $ 24,675 $ 3,111
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(a) Net of fees and expenses waived or borne by the Adviser/Administrator
which amounted to $ 0.008 $ 0.008 $ 0.002 $ 0.002
</TABLE>
(b) Effective September 28, 1995, SR&F became the investment Adviser of the
Fund.
(c) The Fund changed its fiscal year end from November 30 to June 30 in
1995.
(d) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of SR&F Municipal Money Market Portfolio.
(e) Total return at net asset value assuming all distributions reinvested
and no contingent deferred sales charge.
(f) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses total return would have been reduced.
(g) Not annualized.
(h) Annualized.
22
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
Year ended November 30
- ---------------------------------------------------------------
1994 1993
Class A Class B Class A Class B
- ------------- ------------ ------------ ------------
<S> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------- ------------ ------------ ------------
0.020 0.010 0.017 0.009
(0.020) (0.010) (0.017) (0.009)
- ------------- ------------ ------------ ------------
$ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------- ------------ ------------ ------------
2.00% 1.01% 1.73% 0.93%
- ------------- ------------ ------------ ------------
0.60% 1.60% 0.75% 1.75%
0.59% 0.59% 0.50% 0.50%
2.05% 1.05% 1.69% 0.69%
$ 28,808 $ 3,867 $ 18,618 $ 908
$ 0.006 $ 0.006 $ 0.005 $ 0.005
</TABLE>
23
<PAGE>
COLONIAL MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS - CONTINUED
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended November 30
--------------------------------------------------------
1992 1991
Class A Class B (b) Class A
--------------- -------------- ---------------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 1.000 $ 1.000 $ 1.000
--------------- -------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.024 0.007 0.042
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.024) (0.007) (0.042)
--------------- -------------- ---------------
Net asset value -
End of period $ 1.000 $ 1.000 $ 1.000
--------------- -------------- ---------------
Total return (c)(d) 2.44% 0.68%(e) 4.26%
--------------- -------------- ---------------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.75% 1.75%(f) 0.75%
Fees and expenses waived
or borne by the Adviser 0.61% 0.79%(f) 0.53%
Net investment income 2.42% 1.42%(f) 4.23%
Net assets at end
of period (000) $ 34,956 $ 135 $ 28,355
</TABLE>
<TABLE>
<S> <C> <C> <C>
(a) Net of fees and expenses waived or borne
by the Adviser
which amounted to $ 0.006 $ 0.003 $ 0.005
</TABLE>
(b) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(c) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses total return
would have been reduced.
(e) Not annualized.
(f) Annualized.
- --------------------------------------------------------------------------------
Federal income tax information (unaudited)
All of the distributions will be treated as exempt income for federal
income tax purposes.
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES OF COLONIAL TRUST IV AND THE SHAREHOLDERS OF
COLONIAL MUNICIPAL MONEY MARKET FUND
In our opinion, the accompanying statement of assets and liabilities, and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Colonial Municipal Money Market Fund (the "Fund") (a series of
Colonial Trust IV) at June 30, 1996, the results of its operations, the changes
in its net assets and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles. These financial
statements and the financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at June 30, 1996,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 21, 1996
25
<PAGE>
Part B of Post-Effective Amendment No. 42 filed with the Commission on March 22,
1996 (Colonial Tax-Exempt Fund, Colonial Tax-Exempt Insured Fund, Colonial High
Yield Municipal Fund, Colonial Intermediate Tax-Exempt Fund, Colonial Short-Term
Tax-Exempt Fund and Colonial Utilities Fund), is incorporated herein in its
entirety by reference.
<PAGE>
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
----------------------------------
(a) Financial Statements:
Included in Part A
Summary of Expenses (for Colonial High Yield Municipal Fund, Colonial
Tax-Exempt Insured Fund, Colonial Tax-Exempt Fund, Colonial Short-Term
Tax-Exempt Fund, Colonial Intermediate Tax-Exempt Fund and Colonial
Utilities Fund incorporated by reference to Part A of Post-Effective
Amendment No. 42 filed with the Commission on March 22, 1996)
Summary of Expenses (for Colonial Municipal Money Market Fund)
The Fund's Financial History (for Colonial High Yield Municipal Fund,
Colonial Tax-Exempt Insured Fund, Colonial Tax-Exempt Fund, Colonial
Short-Term Tax-Exempt Fund, Colonial Intermediate Tax-Exempt Fund
and Colonial Utilities Fund incorporated by reference to Part A of
Post-Effective Amendment No. 42 filed with the Commission on March
22, 1996)
The Fund's Financial History (for Colonial Municipal Money Market Fund)
Included in Part B
Colonial Tax-Exempt Fund (CTEF)(incorporated by reference to Part B of
------------------------
Post-Effective Amendment No. 42 filed with the Commission on March 22,
1996)
Investment portfolio, November 30, 1995
Statement of assets and liabilities, November 30, 1995
Statement of operations, Year ended November 30, 1995
Statement of changes in net assets, Years ended
November 30, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Tax-Exempt Insured Fund (CTEIF) (incorporated by reference to
----------------------------------------
Part B of Post-Effective Amendment No. 42 filed with the Commission on
March 22, 1996)
Investment portfolio, November 30, 1995
Statement of assets and liabilities, November 30, 1995
Statement of operations, Year ended November 30, 1995
Statement of changes in net assets, Years ended November 30, 1995
and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Municipal Money Market Fund (CMMMF)
--------------------------------------------
Statement of assets and liabilities, June 30, 1996
Statement of operations, Year ended June 30, 1996
Statement of changes in net assets, Year ended June 30, 1996,
Period ended June 30, 1995, Year ended November 30, 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
The following is included in Part B of this
-------------------------------------------
Post-Effective Amendment No. 44
-------------------------------
Stein Roe & Farnham Municipal Money Market Portfolio Investment
Portfolio, June 30, 1996
Stein Roe & Farnham Municipal Money Market Portfolio Statement of
Assets and Liabilities, June 30, 1996
Stein Roe & Farnham Municipal Money Market Portfolio Statement of
Operations, Period ended June 30, 1996
Stein Roe & Farnham Municipal Money Market Portfolio Statement of
Changes in Net Assets, Period ended June 30, 1996
Stein Roe & Farnham Municipal Money Market Portfolio Financial
Highlights, Period ended June 30, 1996
Stein Roe & Farnham Municipal Money Market Portfolio Notes to
Financial Statements, June 30, 1996
Independent Auditors' Report
Colonial Utilities Fund (CUF) (incorporated by reference to Part B of
-----------------------------
Post-Effective Amendment No. 42 filed with the Commission on March 22,
1996)
Investment portfolio, November 30, 1995
Statement of assets and liabilities, November 30, 1995
Statement of operations, Year ended November 30, 1995
Statement of changes in net assets, Years ended November 30,
1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial High Yield Municipal Fund (CHYMF) (incorporated by reference
------------------------------------------
to Part B of Post-Effective Amendment No. 42 filed with the Commission
on March 22, 1996)
Investment portfolio, November 30, 1995
Statement of assets and liabilities, November 30, 1995
Statement of operations, Year ended November 30, 1995
Statement of changes in net assets, Years ended
November 30, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Intermediate Tax-Exempt Fund(CITEF) (incorporated by
--------------------------------------------
reference to Part B of Post-Effective Amendment No. 42 filed with the
Commission on March 22, 1996)
Investment portfolio, November 30, 1995
Statement of assets and liabilities, November 30, 1995
Statement of operations, Year ended November 30, 1995
Statement of changes in net assets, Years ended
November 30, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
Colonial Short-Term Tax-Exempt Fund (CSTTEF)
--------------------------------------------
(incorporated by reference to Part B of
Post-Effective Amendment No. 42 filed with the Commission on March
22, 1996)
Investment portfolio, November 30, 1995
Statement of assets and liabilities, November 30, 1995
Statement of operations, Year ended November 30, 1995
Statement of changes in net assets, Years ended
November 30, 1995 and 1994
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
(b) Exhibits:(each exhibit is applicable to all
series of the Trust unless otherwise
referenced)
1. Amendment No. 4 to the Agreement and
Declaration of Trust (c)
2. (a) Amended By-Laws (2/16/96) (e)
3. Not Applicable
4. Form of Specimen of Share Certificate -
filed as Exhibit 4. in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement of Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this
Registration Statement
5. (a) Management Agreement (CTEF, CTEIF, CHYMF) (e)
(a)(1) Amendment No. 2 to Management Agreement
(CTEF, CTEIF, CHYMF) (e)
(a)(2) Management Agreement (CUF) (e)
(a)(3) Management Agreement (CITEF) (e)
(a)(4) Management Agreement (CSTTEF) (e)
(b) Pricing and Bookkeeping Agreement (CTEF,
CTEIF, CITEF, CSTTEF, CHYMF, CUF) - filed as
Exhibit 8. in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement of Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this
Registration Statement
(b)(1) Pricing and Bookkeeping Agreement (CMMMF)
6. (a) Distributor's Contract with Colonial
Investment Services, Inc. - filed in Exhibit
6(a) in Part C, Item 24(b) of Post-Effective
Amendment No. 10 to the Registration
Statement on Form N-1A of Colonial Trust VI
(File Nos. 33-45117 and 811-6529) and is
hereby incorporated by reference and made a
part of this Registration Statement
(b) Form of Selling Agreement - filed as Exhibit
6(b) in Part C, Item 24(b) of Post-Effective
Amendment No. 10 to the Registration
Statement on Form N-1A of Colonial Trust VI
(File Nos. 33-45117 & 811-6529) and is
hereby incorporated by reference and made a
part of this Registration Statement
(c) Form of Bank and Bank Affiliated Selling
Agreement - filed as Exhibit 6(c) in Part C,
Item 24(b) of Post-Effective Amendment No.
10 to the Registration Statement on Form
N-1A of Colonial Trust VI (File Nos.
33-45117 & 811-6529) and is hereby
incorporated by reference and made a part of
this Registration Statement
(d) Form of Asset Retention Agreement - filed as
Exhibit 6(d) in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this
Registration Statement
7. Not Applicable
8. (a) Custodian Agreement with United Missouri Bank
(CTEF, CMMMF, CTEIF, CHYMF, CSTTEF, CITEF)
(b) Custody Agreement with Boston Safe Deposit and
Trust Company - filed as Exhibit 8. in Part C,
Item 24(b) of Post-Effective Amendment No. 10
to the Registration Statement on Form N-1A of
Colonial Trust IV (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement (CUF)
(c) Amendment to Custody Agreement with Boston
Safe Deposit and Trust Company -filed as
Exhibit 8.(a) in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
9. (a) Amended and Restated Shareholders' Servicing
and Transfer Agent Agreement as amended -
filed as Exhibit 9(b) to Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of
Colonial Trust VII (File Nos. 33-41559 &
811-6347) and is hereby incorporated by
reference and made a part of this Registration
Statement
(b) Agreement and Plan of Reorganization (CMMMF,
CUF)
(c) Form of Administration Agreement between
Colonial Trust IV, on behalf of CMMMF, and
Colonial Management Associates, Inc. (d)
(d) Form of Indemnification Agreement between Colonial Trust IV,
on behalf of CMMMF, and SR&F Base Trust, on behalf of SR&F
Municipal Money Portfolio(d)
(e) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940 - filed as
Exhibit 9.(c) in Part C, Item 24(b) of
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 and
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
(f) Credit Agreement - filed as Exhibit 9.(d) in
Part C, Item 24(b) of Post-Effective Amendment
No. 19 to the Registration Statement on Form
N-1A of Colonial Trust V (File Nos. 33-12109 &
811-5030) and is hereby incorporated by
reference and made a part of this Registration
Statement
10. Opinion and Consent of Counsel (CTEF) (a)
(a) Opinion and Consent of Messrs. Ropes & Gray -
filed as Exhibit 10 in Part C, Item 24(b) of
Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of CUF
(File Nos. 2-71242 & 811-3148) and is hereby
incorporated by reference and made a part of
this Registration Statement (CUF)
(b) Opinion and Consent of Counsel filed as
Exhibit 10. in Part C, Item 24(b) of
Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of CMMMF
(File Nos. 33-13922 & 811-5138) and is hereby
incorporated by reference and made a part of
this Registration Statement (CMMMF)
11.(a) Consent of Independent Accountants (CTEF,
CTEIF, CUF, CHYMF) (e)
(a)(i) Consent of Independent Accountants (CMMMF)
(a)(ii) Consent of Independent Accountants (CITEF,
CSTTEF) (e)
(a)(iii) Consent of Independent Auditors (SR&F
Municipal Money Market Portfolio, master fund
of CMMMF)
(b) Commodity Futures Trading Commission No-Action
Letter dated 11/1/84 (b)
12. Not Applicable
13. Not Applicable
14.(a) Form of Colonial Group of Mutual Funds Money
Purchase Pension and Profit Sharing Plan
Document and Trust Agreement - filed as
Exhibit 14(a) in Part C, Item 24(b) of
Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
(b) Form of Colonial Group of Mutual Funds Money
Purchase Pension and Profit Sharing
Establishment Book - filed as Exhibit 14(b) in
Part C, Item 24(b) of Post-Effective Amendment
No. 5 to the Registration Statement on Form
N-1A of Colonial Trust VI (File Nos. 33-45117
& 811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
(c) Form of Colonial Group Funds Individual
Retirement Account and Application - filed as
Exhibit 14(c) in Part C, Item 24(b) of
Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
(d) Form of Colonial Mutual Funds Simplified
Employee Plan and Salary Reduction Simplified
Employee Plan - filed as Exhibit 14(d) in Part
C, Item 24(b) of Post-Effective Amendment No.
5 to the Registration Statement on Form N-1A
of Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
(e) Form of Colonial of Mutual Funds 401(k) Plan
Document and Trust Agreement - filed as
Exhibit 14(e) in Part C, Item 24(b) of
Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A of
Colonial Trust VI (File Nos. 33-45117 &
811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
(f) Form of Colonial Mutual Funds 401(k) Plan
Establishment Booklet - filed as Exhibit 14(f)
in Part C, Item 24(b) of Post-Effective
Amendment No. 5 to the Registration Statement
on Form N-1A of Colonial Trust VI (File Nos.
33-45117 & 811-6529) and is hereby
incorporated by reference and made a part of
this Registration Statement
(g) Form of Colonial Mutual Funds 401(k) Employee
Reports Booklet - filed as Exhibit 14(g) in
Part C, Item 24(b) of Post-Effective Amendment
No. 5 to the Registration Statement on Form
N-1A of Colonial Trust VI (File Nos. 33-45117
& 811-6529) and is hereby incorporated by
reference and made a part of this Registration
Statement
15. Distribution Plan adopted pursuant to Section
12b-1 of the Investment Company Act of 1940,
incorporated by reference to the Distributor's
Contract
16.(a)(1)Calculation of Performance Information (CTEF)(e)
(a)(2)Calculation of Yield (CTEF) (e)
(b)(1)Calculation of Performance Information (CTEIF) (e)
(b)(2)Calculation of Yield (CTEIF) (e)
(c)(1)Calculation of Performance Information (CUF (e)
(c)(2)Calculation of Yield (CUF) (e)
(d)(1)Calculation of Performance Information (CMMMF)
(d)(2)Calculation of Yield (CMMMF)
(e)(1)Calculation of Performance Information (CHYMF) (e)
(e)(2)Calculation of Yield (CHYMF) (e)
(f)(1)Calculation of PerformanceInformation (CITEF) (e)
(f)(2)Calculation of Yield (CITEF) (e)
(g)(1)Calculation of PerformanceInformation (CSTTEF) (e)
(g)(2)Calculation of Yield (CSTTEF) (e)
17.(a) Financial Data Schedule (Class A) (CTEF) (e)
(b) Financial Data Schedule (Class B) (CTEF) (e)
(c) Financial Data Schedule (Class A)(CTEIF) (e)
(d) Financial Data Schedule (Class B)(CTEIF) (e)
(e) Financial Data Schedule (Class A)(CUF) (e)
(f) Financial Data Schedule (Class B)(CUF) (e)
(g) Financial Data Schedule (Class A) (CMMMF)
(h) Financial Data Schedule (Class B) (CMMMF)
(i) Financial Data Schedule (Class A)(CHYMF) (e)
(j) Financial Data Schedule (Class B)(CHYMF) (e)
(k) Financial Data Schedule (Class A)(CITEF) (e)
(l) Financial Data Schedule (Class B)(CITEF) (e)
(m) Financial Data Schedule (Class A)(CSTTEF) (e)
18. Power of Attorney for: Robert J. Birnbaum,
Tom Bleasdale, Lora S. Collins, James E.
Grinnell, William D. Ireland, Jr., Richard
W. Lowry, William E. Mayer, James L. Moody,
Jr., John J. Neuhauser, George L. Shinn,
Robert L. Sullivan and Sinclair Weeks, Jr.
(e)
- ---------------------------------
(a) Incorporated by reference to Post-Effective
Amendment No. 2 filed on or about 10/20/78.
(b) Incorporated by reference to Post-Effective
Amendment No. 12 filed on or about 11/30/84.
(c) Incorporated by reference to Post-Effective
Amendment No. 30 filed on or about 12/17/91.
(d) Incorporated by reference to Post-Effective
Amendment No. 40 filed on or about 7/27/95.
(e) Incorporated by reference to Post-Effective
Amendment No. 42 filed on 3/22/96.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None
Item 26. Number of Holders of Securities
-------------------------------
(1) (2)
---
Title of Class Number of Record Holders as of
- -------------- ------------------------------
9/30/96
-------
Shares of beneficial interest 74,578 Class A record holders(CTEF)
12,212 Class B record holders
Shares of beneficial interest 5,464 Class A record holders(CTEIF)
1,099 Class B record holders
Shares of beneficial interest 20,772 Class A record holders (CUF)
44,950 Class B record holders
Shares of beneficial interest 683 Class A record holders (CMMMF)
47 Class B record holders
Shares of beneficial interest 799 Class A record holders (CHYMF)
3,704 Class B record holders
Shares of beneficial interest 106 Class A record holders (CSTTEF)
Shares of beneficial interest 350 Class A record holders (CITEF)
374 Class B record holders
Item 27. Indemnification
---------------
See Article VIII of Amendment No. 4 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.
See the form of Indemnification Agreement entered into by Registrant,
on behalf of CMMMF, and the SR&F Base Trust (Base Trust), on behalf of
SR&F Municipal Money Portfolio (Portfolio), relating to liability in
connection with information relating to the Base Trust and the
Portfolio contained in Part B of this Registration Statement and filed
as Exhibit 9.(d) hereto.
The Registrant's adviser or administrator, Colonial Management
Associates, Inc. (Colonial), has an ICI Mutual Insurance Company
Directors and Officers/Errors and Omissions Liability insurance policy.
The policy provides indemnification to the Registrant's trustees and
officers.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The following sets forth business and other connections of each
Director and officer of Colonial Management Associates, Inc. (see next
page).
ITEM 28.
- --------
Registrant's investment adviser, Colonial Management Associates, Inc., is
registered as an investment adviser under the Investment Advisers Act of 1940
(1940 Act). Colonial Advisory Services, Inc. (CASI), an affiliate of Colonial
Management Associates, Inc., is also registered as an investment adviser under
the 1940 Act. As of the end of its fiscal year, December 31, 1995, CASI had
one institutional, corporate or other account under management or supervision,
the market value of which was approximately $31.4 million. As of the end of
its fiscal year, December 31, 1995, Colonial Management Associates, Inc. was
the investment adviser and/or administrator to 38 mutual funds in the Colonial
Group of Funds, the market value of which investment companies was
approximately $16,439.3 million. Colonial Investment Services, Inc., a
subsidiary of Colonial Management Associates, Inc., is the principal
underwriter and the national distributor of all of the funds in the Colonial
Group of Funds, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 7/1/96. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Andersen, Peter V.P.
Archer, Joseph A. V.P.
Berliant, Allan V.P.
Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal
Boatman, Bonny E. Dir.;
Sr.V.P.;
IPC Mbr.
Campbell, Kimberly V.P.
Carnabucci,
Dominick V.P.
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.;Pres.; The Colonial Group, Inc. Dir.; Pres.;
Chairman; CEO; Chrm.
CEO;IPC Mbr. Colonial Trusts I through VII Pres.
Exe. Cmte. Colonial High Income
Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Colonial Advisory Services, Dir. Chrm.,
Inc. CEO & Pres.
Colonial Investors Service
Center, Inc. Dir.
Collins, Anne V.P.
Conlin, Nancy V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Colonial Investment Services,
Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Cordes, Susan V.P.
Daniszewski, V.P. Colonial Investment Services,
Joseph J. Inc. V.P.
DiSilva, Linda V.P.
Ericson, Carl C. Dir; Sr. Colonial Intermediate High
V.P. Income Fund V.P.
Colonial Advisory Services,
Inc. V.P.
Evans, C. Frazier Dir.; Colonial Investment Services,
Sr.V.P. Inc. Sr. V.P.
Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. V.P.
Feloney, Joseph L. V.P. Colonial Investment Services, A.V.P.
Inc.
Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. V.P.
Franklin, Sr. V.P.
Fred J.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Gibson, Stephen Dir.; The Colonial Group, Inc. Exec. V.P.
E. Exec. V.P.
Harasimowicz, V.P. Colonial Investment Services,
Stephen Inc. V.P.
Harris, David V.P. Stein Roe Global Capital Mngmt Principal
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. V.P.
Jacoby, Timothy J. Sr. V.P.
Johnson, Gordon V.P.
Koonce, Michael H. V.P.; Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec.; Municipal Trust Asst. Sec.
Asst. Colonial InterMarket Income
Clerk & Trust I Asst. Sec.
Counsel Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Colonial Investors Service
Center, Inc. Asst. Clerk
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services,
Inc. Asst. Clerk
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lilienfeld, V.P.
Jonathan
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VII Controller
Asst. Colonial High Income
Treasurer Municipal Trust Controller
Colonial InterMarket Income
Trust I Controller
Colonial Intermediate High
Income Fund Controller
Colonial Investment Grade
Municipal Trust Controller
Colonial Municipal Income
Trust Controller
MacKinnon, Dir.;
Donald S. Sr.V.P.
McGregor, Dir.; Colonial Investment Services, Pres.; CEO;
Jeffrey L. Sr.V.P. Inc. Dir.
Newman, Maureen V.P.
O'Neill, Charles A. Sr.V.P.; Colonial Investment Services,
Dir. Inc. Exec. V.P.
Peters, Helen F. Dir.; Colonial Advisory Services,
Sr.V.P.; Inc. Sr. V.P.
IPC Mbr.
Rao, Gita V.P.
Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Sr. V.P.
Dir.
Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Exec. Comm. Municipal Trust V.P.
Mbr. Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Seibel, Sandra L. V.P.
Shore, Janet V.P.
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk
Sec.; Colonial High Income
Clrk. & Municipal Trust Secretary
Gnrl. Colonial InterMarket Income
Counsel; Trust I Secretary
IPC Mbr. Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Colonial Trusts I through VII Secretary
Colonial Investors Service
Center, Inc. Clerk
The Colonial Group, Inc. Exec. V.P.;
Clerk; General
Counsel
Colonial Investment Services, Dir., Chrmn.
Inc. Counsel; Clrk.
Stevens, Richard V.P.
Waas, Robert S. V.P.
Wallace, John V.P.- Corp. Colonial Advisory Services,
Finance and Inc. Controller
Controller
- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.
The following sets forth business and other connections of each
Director and officer of Stein Roe & Farnham Incorporated (only with
respect to Colonial Municipal Money Market Fund which invests all of
its assets in the SR&F Municipal Money Market Portfolio (Portfolio),
which is managed by Stein Roe & Farnham Incorporated).
Stein Roe & Farnham Incorporated (Manager), the investment manager of the
Portfolio, is a wholly owned subsidiary of SteinRoe Services Inc. (SSI), which
in turn is a wholly owned subsidiary of Liberty Financial Companies, Inc.
(LFCI), which in turn is a subsidiary of Liberty Mutual Equity Corporation,
which in turn is a subsidiary of Liberty Mutual Insurance Company (LMIC). The
Manager acts as investment adviser to individuals, trustees, pension and
profit-sharing plans, charitable organizations, and other investors. In addition
to the Portfolio, it also acts as investment adviser to other investment
companies having different investment policies.
During the past two years, neither the Manager nor any of its
directors or officers, except for Kenneth R. Leibler, C. Allen
Merritt, Jr., Bruno Bertocci, and David P. Harris, have been
engaged in any business, profession, vocation, or employment of a
substantial nature either on their own account or in the capacity
of director, officer, partner or trustee, other than as an
officer or associate of the Manager. Mr. Leibler is President
and Chief Executive Officer of LFCI; Mr. Merritt is Senior Vice
President and Treasurer of LFCI; Messrs. Bertocci and Harris were
global equity portfolio managers with Rockerfeller & Co. prior to
May, 1995, and are dually employed by Colonial Management
Associates, Inc. as Vice Presidents and portfolio managers.
Certain directors and officers of the Manager also serve and have during the
past two years served in various capacities as officers, directors or trustees
of SSI, the SR&F Base Trust or investment companies managed by the Manager, as
shown below. (The listed entities are all located at One South Wacker Drive,
Chicago, IL 60606; the address of SteinRoe Variable Investment Trust and LFC
Utilities is Federal Reserve Plaza, 600 Atlantic Avenue, Boston, MA 02110).
Position Formerly
Current Position Held Within Past
---------------- Two Years
---------
SteinRoe Services Inc.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President;Secretary
Kenneth J. Kozanda Vice President;Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Hans P. Ziegler Director; President; Vice Chairman
Chairman
SR&F Base Trust
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Ann H. Benjamin Vice President
Michael T. Kennedy Vice President
Lynn C. Maddox Vice President
Jane M. Naeseth Vice President
Thomas R. Sorbo Vice President
Hans P. Ziegler Executive Vice President
Anthony G. Zulger, Jr. Trustee
Stein Roe Income Trust
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
Michael T. Kennedy Vice President
Stephen P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
Anthony G. Zulfer, Jr. Trustee Emeritus Trustee
<PAGE>
Stein Roe Investment
Trust
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Alfred F. Kugel Trustee
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Stein Roe Municipal
Trust
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice Vice President
President; Secretary
Stein Roe Municipal
Trust
Thomas W. Butch Vice President
Joanne T. Costopoulos Vice President
Philip J. Crosley Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
M. Jane McCart Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Anthony G. Zulfer, Jr. Trustee
Stein Roe Trust and
Stein Roe Adviser Trust
Gary A. Anetsberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
David P. Harris Vice President
Philip D. Hausken Vice President
Harvey B. Hirschhorn Vice President
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
Stein Roe Institutional
Trust
Gary A. Anetsberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
Philip J. Crosley Vice President
Philip D. Hausken Vice President
Michael T. Kennedy Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice
President
SteinRoe Variable
Investment Trust
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC Utilities Trust
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Item 29 Principal Underwriter
- ------- ---------------------
(a) Colonial Investment Services, Inc. a subsidiary of Colonial
Management Associates, Inc., Registrant's principal
underwriter, also acts in the same capacity to
Colonial Trust I, Colonial Trust II, Colonial Trust III, Colonial
Trust IV, Colonial Trust V and Colonial Trust VII; and
sponsor for Colony Growth Plans (public offering of which were
discontinued June 14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
Business Address* with Principal Offices with
Underwriter Registrant
- ------------------ ------------------- --------------
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Barsokas, David Regional V.P. None
Cairns, David Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Sr. V.P. None
Donovan, John Regional V.P. None
Eckelman, Bryan Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia G. V.P. None
Evans, C. Frazier Sr. V.P. None
Feldman, David Regional V.P. None
Feloney, Joseph L. V.P. None
Flaherty, Michael Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Goldberg, Matthew Regional V.P. None
Hannon, Lisa Regional V.P. None
Harasimowicz, V.P. None
Stephen
Hayes, Mary V.P. None
Elizabeth
Hodgkins, Joseph Regional V.P. None
Karagiannis, Sr. V.P. None
Marilyn
Kavolius, Mark Regional V.P. None
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Lloyd, Judith H. Sr. V.P. None
McGregor, Jeffrey L. Director, CEO, None
President, COO
Meriwether, Jan V.P.
Moberly, Ann R. Sr. V.P. None
Murphy, Robert F. Sr. V.P. None
O'Neill, Charles A. Exec. V.P. None
Palmer, Laura V.P. None
Potter, Cheryl Regional V.P. None
Reed, Christopher B. Regional V.P. None
Scott, Michael W. Sr. V.P. None
Sorrells, Sr. V.P. None
Elizabeth
Stern, Arthur O. Clerk and Secretary
Counsel, Dir.,
Chairman
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
Wallace, John V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
Item 30. Location of Accounts and Records
---------------------------------
Registrant's accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder
are in the physical possession of the following:
Registrant
Rule 31a-1(b),(4)
Rule 31a-2(a),(1)
Colonial Management Associates, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1(b), (1), (2), (3), (5), (6), (7), (8),
(9), (10), (11), (12)
Rule 31a-1(d),(f)
Rule 31a-2(a),(1),(2),(c),(e)
Colonial Investment Services, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1(d)
Rule 31a-2(c)
UMB, n.a. (formerly United Missouri Bank, n.a.)
(CHYMF, CTEF, CTEIF, CMMMF, CITEF, CSTTEF)
928 Grand Avenue, Kansas City, Missouri 64106
Rule 31a-1(b),(2),(3)
Rule 31a-2(a),(2)
Boston Safe Deposit and Trust Company (CUF)
One Boston Place, Boston, Massachusetts 02108
Rule 31a-1(b),(2),(3)
Rule 31a-2(a),(2)
<PAGE>
Colonial Investors Service Center, Inc.
P.O. Box 1722, Boston, Massachusetts 02105-1722
Rule 31a-1(b),(2)
Rule 31a-2(a),(2)
Item 31. Management Services
--------------------
See Item 5(c), Part A and Item 16(d), Part B.
Item 32. Undertakings
-------------
(a) [deleted]
(b) The Registrant hereby undertakes to promptly
call a meeting of shareholders for the purpose
of voting upon the question of removal of any
trustee or trustees when requested in writing to
do so by the record holders of not less than 10
per cent of the Registrant's outstanding shares
and to assist its shareholders in the
communicating with other shareholders in
accordance with the requirements of Section
16(c) of the Investment Company Act of 1940.
(c) [deleted]
(d) [deleted]
(e) [deleted]
<PAGE>
************
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Colonial
Trust IV (Trust) is on file with the Secretary of State of the Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement is 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, Colonial Trust IV, has duly
caused this Post-Effective Amendment No. 44 to its Registration Statement under
the Securities Act of 1933 and Amendment No. 42 to its Registration Statement
under the Investment Company Act of 1940, to be signed in this City of Boston in
The Commonwealth of Massachusetts on this 15th day of October, 1996.
COLONIAL TRUST IV
By: /s/ HAROLD W. COGGER
Harold W. Cogger, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in their
capacities and on the date indicated.
SIGNATURES TITLE DATE
/s/ HAROLD W. COGGER President October 15, 1996
/s/ PETER L. LYDECKER Chief Financial October 15, 1996
Officer, Chief
Accounting
Officer and
Controller
<PAGE>
/s/ ROBERT J. BIRNBAUM * Trustee
/s/ TOM BLEASDALE * Trustee
/s/ LORA S. COLLINS * Trustee
/s/ JAMES E. GRINNELL * Trustee
/s/ WILLIAM D. IRELAND, JR. * Trustee /s/ * MICHAEL H.KOONCE
Attorney-in-fact
/s/ RICHARD W. LOWRY * Trustee For each Trustee
October 15, 1996
/s/ WILLIAM E. MAYER * Trustee
/s/ JAMES L. MOODY, JR. * Trustee
/s/ JOHN J. NEUHAUSER * Trustee
/s/ GEORGE L. SHINN * Trustee
/s/ ROBERT L. SULLIVAN * Trustee
/s/ SINCLAIR WEEKS, JR. * Trustee
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the SR&F Base Trust certifies that Colonial
Trust IV meets all the requirements for effectiveness of the Registration
Statement pursuant to Rule 485(b) and has duly caused this Post-Effective
Amendment No. 44 to the Registration Statement on Form N-1A of Colonial Trust
IV, insofar as it relates to Colonial Municipal Money Market Fund of said Trust
under the Securities Act of 1933 and Amendment No. 42 to its Registration
Statement under the Investment Company Act of 1940, to be signed in the City of
Chicago and the State of Illinois on this 15th day of October, 1996.
SR&F BASE TRUST
By: /s/ TIMOTHY K. ARMOUR
---------------------
Timothy K. Armour, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement on Form N-1A of Colonial
Trust IV has been signed below by the following trustees and officers of SR&F
Base Trust in their capacities and on the date indicated.
SIGNATURES TITLE DATE
/s/ TIMOTHY K. ARMOUR President October 15, 1996
-----------------------
Timothy K. Armour (Principal
Executive Officer
and Trustee)
/s/ GARY A. ANETSBERGER Senior Vice October 15, 1996
- -----------------------
Gary A. Anetsberger President
and Chief Financial
Officer (Principal
Financial Officer)
/s/ SHARON R. ROBERTSON Controller October 15, 1996
- -------------------------
Sharon R. Robertson (Principal
Accounting Officer)
<PAGE>
/s/ KENNETH L. BLOCK Trustee October 15, 1996
/s/ WILLIAM W. BOYD Trustee October 15, 1996
/s/ LINDSAY COOK Trustee October 15, 1996
/s/ DOUGLAS A. HACKER Trustee October 15, 1996
/s/ FRANCIS W. MORLEY Trustee October 15, 1996
/s/ CHARLES R. NELSON Trustee October 15, 1996
/s/ THOMAS C. THEOBALD Trustee October 15, 1996
/s/ GORDON R. WORLEY Trustee October 15, 1996
<PAGE>
EXHIBIT INDEX
5.(b)(1) Pricing and Bookkeeping Agreement (CMMMF)
8.(a) Custodian Agreement with United Missouri Bank (CTEF,
CMMMF, CTEIF, CHYMF, CSTTEF, CITEF)
9.(b) Agreement and Plan of Reorganization (CMMMF, CUF)
11.(a)(i) Consent of Independent Accountants (CMMMF)
11.(a)(iii) Consent of Independent Auditors (SR&F Municipal
Money Market Portfolio, master fund of CMMMF)
16.(d)(1) Calculation of Performance Information (CMMMF)
16.(d)(2) Calculation of Yield (CMMMF)
17.(g) Financial Data Schedule (Class A) (CMMMF)
17.(h) Financial Data Schedule (Class B) (CMMMF)
PRICING AND BOOKKEEPING AGREEMENT
AGREEMENT dated as of September 28, 1995, between each Massachusetts
Business Trust (Trust) designated in Appendix I from time to time, and Colonial
Management Associates, Inc. (Colonial), a Massachusetts corporation. This
Agreement replaces all Service Contracts relating to the performance of similar
services between Colonial and each Trust's predecessor in interest. The Trust
and Colonial agree as follows:
1. Appointment. The Trust may offer an unlimited number of series (Funds),
each of which may have multiple classes of shares (Shares). This Agreement will
apply to each Fund on the Effective Date set forth in Appendix I as amended from
time to time.
2. Services. Colonial shall (i) determine and timely communicate to persons
designated by the Trust the Fund's net asset values and offering prices per
Share; and (ii) maintain and preserve in a secure manner the accounting records
of the Fund. All records shall be the property of the Fund. Colonial will
provide disaster planning to minimize possible service interruption.
3. Audit, Use and Inspection. Colonial shall make available on its premises
during regular business hours all records of a Fund for reasonable audit, use
and inspection by the Trust, its agents and any regulatory agency having
authority over the Fund.
4. Compensation. The Trust will pay Colonial for each Fund a monthly fee of
$1,500, plus a percentage fee on assets equal to the following: 0% for the first
$50 million of Fund assets; a monthly fee of 1/12 of 0.0233% on the next $950
million; 1/12 of 0.0167% on the next $1 billion; 1/12 of 0.0100% of the next $1
billion; and 1/12 of 0.0007% on the excess over $3 billion of the average weekly
net assets of the Fund for such month.
5. Compliance. Colonial shall comply with applicable provisions relating
to pricing and bookkeeping of the prospectus and statement of additional
information of a Fund and applicable laws and rules in the provision of services
under this Agreement.
6. Limitation of Liability. In the absence of willful misfeasance, bad faith
or gross negligence on the part of Colonial, or reckless disregard of its
obligations and duties hereunder, Colonial shall not be subject to any liability
to the Trust or Fund, to any shareholder of the Trust or the Fund or to any
other person, firm or organization, for any act or omission in the course of, or
connected with, rendering services hereunder.
7. Amendments. The Trust shall submit to Colonial a reasonable time in
advance of filing with the Securities and Exchange Commission copies of any
changes in its Registration Statements. If a change in documents or procedures
materially increases the cost to Colonial of performing its obligations,
Colonial shall be entitled to receive reasonable additional compensation.
8. Duration and Termination, etc. This Agreement may be changed only by
writing executed by each party. This Agreement: (a) shall continue in effect
from year to year so long as approved annually by vote of a majority of the
Trustees who are not affiliated with Colonial; (b) may be terminated at any time
without penalty by sixty days' written notice to either party; and (c) may be
terminated at any time for cause by either party if such cause remains
unremedied for a reasonable period not to exceed ninety days after receipt of
written specification of such cause. Paragraph 6 of this Agreement shall survive
termination. If the Trust designates a successor to any of Colonial's
obligations, Colonial shall, at the expense and direction of the Trust, transfer
to the successor all Trust records maintained by Colonial.
9. Miscellaneous. This Agreement shall be governed by the laws of The
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above.
EACH TRUST DESIGNATED IN APPENDIX I
By: PETER L. LYDECKER, Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: ARTHUR O. STERN, Executive Vice President
A copy of the document establishing the Trust is filed with the Secretary of The
Commonwealth of Massachusetts. This Agreement is executed by officers not as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.
<PAGE>
APPENDIX I
Trust Series Effective Date
- ----- ------ --------------
Colonial Trust IV Colonial Municipal Money Market Fund September 28, 1995
By: ______________________________
Peter L. Lydecker, Controller
By: __________________________________________
Arthur O. Stern, Executive Vice President
Colonial Management Associates, Inc.
Dated: September 28, 1995
S:\FUNDS\GENERAL\CONTRACT\PRICMMMF.DOC
MUTUAL FUND
CUSTODY AGREEMENT
Dated February 1, 1993
Between
UNITED MISSOURI BANK, n.a.
and
COLONIAL TRUST IV, on behalf of its
COLONIAL SHORT TERM TAX EXEMPT
FUND and COLONIAL INTERMEDIATE
TAX EXEMPT FUND
and
COLONIAL TRUST V, on behalf of its
COLONIAL FLORIDA TAX EXEMPT FUND
Table of Contents
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 3
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 5
(d) Exchange of Securities 5
(e) Purchases of Assets 5
(f) Sales of Assets 6
(g) Options 6
(h) Futures Contracts 7
(i) Segregated Accounts 8
(j) Depositary 8
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 8
(1) Interest Bearing Deposits 9
(m) Foreign Exchange Transactions Other than as Principal 9
(n) Pledges or Loans of Securities 10
(o) Stock Dividends, Rights, Etc. 10
(p) Routine Dealings 10
(q) Overdrafts 10
(r) Collections 11
(s) Dividends, Distributions and Redemptions 12
(t) Proceeds from Shares Sold 12
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 12
(v) Books and Records 12
(w) Opinion of Fund's Independent Certified Public
Accountants 13
(x) Reports by Independent Certified Public Accountants 13
(y) Bills and Others Disbursements 13
5. Subcustodians 13
(a) Domestic Subcustodians 13
(b) Foreign Subcustodians 14
(c) Interim Subcustodians 15
(d) Special Subcustodians 15
(e) Supervision of Subcustodians 15
(g) Certification Regarding Foreign Subcustodians 16
6. Standard of Care 16
(a) General Standard of Care 16
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, War, Sovereign Risk, Etc. 16
(c) Mitigation by Custodian 17
(d) Liability for Past Records 17
(e) Advice of Counsel 17
(f) Advice of the Fund and Others 17
(g) Instructions Appearing to be Genuine 17
(h) Exceptions from Liability 18
7. Liability of the Custodian for Actions of Others 18
(a) Domestic Subcustodians 18
(b) Liability for Acts and Omissions of Foreign
Subcustodians 18
(c) Interim Subcustodians, Special Subcustodians,
Securities Systems, Securities Depositories and
Clearing Agencies 18
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 19
(e) Reimbursement of Expenses 19
8. Indemnification 19
(a) Indemnification by Fund 19
(b) Indemnification by Custodian 19
9. Compensation 20
10. Termination and Assignment 20
11. Notices 20
12. Miscellaneous 20
CUSTODY AGREEMENT
This agreement made as of this lst day of February, 1993, between United
Missouri Bank, N.A., a national banking association with its principal place of
business located at Kansas City, Missouri (hereinafter "Custodian"), and each of
the Massachusetts business trusts on behalf of each of the mutual funds listed
on the cover page hereof, together with such additional mutual funds as shall be
made a party to this Agreement by the execution of a separate signature page
hereto, each of which said trusts and mutual funds are located in Boston,
Massachusetts. This document evidences a separate Agreement between the
Custodian and each such trust on behalf of each such mutual fund (hereinafter
"Fund").
WITNESSETH:
WHEREAS, each Fund desires to appoint Custodian as its custodian for the
custody of Assets (as hereinafter defined) owned by each such Fund, which Assets
are to be held in such accounts as each such Fund may establish from time to
time; and
WHEREAS, Custodian is willing to accept such appointment on the
terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF CUSTODIAN.
----------------------------
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
---------------
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
scrip, warrants, interim certificates and all negotiable or nonnegotiable paper
commonly known as securities and other instruments or obligations.
(b) "Assets" shall mean Securities and monies held by the Custodian
for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a
written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by any two Authorized Persons; (ii) a telephonic or other oral
communication from an Authorized Person; or (iii) a communication effected
directly between an electromechanical or electronic device or system (including,
without limitation, computers) on behalf of a Fund. Instructions in the form of
oral communications shall be confirmed by two Authorized Persons on behalf of
the appropriate Fund by tested telex or in writing in the manner set forth in
clause (i) above, but the lack of such confirmation shall in no way affect any
action taken by the Custodian in reliance -upon such oral Instructions prior to
the Custodian's receipt of such confirmation, provided that the Custodian
reasonably believed such oral Instructions to have been given by an Authorized
Person. Each Fund and the Custodian are hereby authorized to record any and all
telephonic or other oral Instructions communicated to the Custodian.
(2) "Special Instructions", as used herein, shall mean Instructions that
have been signed by one Authorized Person, and that have been countersigned or
confirmed in writing by the Treasurer of the appropriate Fund or any other
person designated by the Treasurer of such Fund in writing as having authority
to countersign or confirm Special Instructions.
(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(4) Where appropriate, Instructions and Special Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
-----------------------------------
Each of the parties to this Agreement represents that its execution does not
violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has delivered or will deliver to the Custodian, copies of a
Resolution of its Board of Directors or Trustees and all amendments or
supplements thereto, properly certified or authenticated, and a certificate of
the Treasurer, the Secretary or any Assistant Secretary of Colonial Management
Associates, Inc. ("Colonial") designating certain officers or employees of each
such Fund or of Colonial who will have continuing authority to certify to the
Custodian: (a) the names, titles, signatures and scope of authority of all
persons authorized to give Instructions or any other notice, request, direction,
instruction, certificate or instrument on behalf of each such Fund, and (b) the
names, titles and signatures of those persons authorized to countersign or
confirm Special Instructions on behalf of each such Fund (in both cases
collectively, the "Authorized Persons" and individually, an "Authorized
Person"). Such Resolutions and certificates may be accepted and relied upon by
the Custodian as conclusive evidence of the facts set forth therein and shall be
considered to be in full force and effect until delivery to the Custodian of a
similar Resolution or certificate to the contrary. Upon delivery of a
certificate which deletes or does not include the name(s) of a person previously
authorized to give Instructions or to countersign or confirm Special
Instructions, such persons shall no longer be considered an Authorized Person
authorized to give Instructions or to countersign or confirm Special
Instructions. Unless the certificate specifically requires that the approval of
anyone else will first have been obtained, the Custodian will be under no
obligation to inquire into the right of the person giving such Instructions or
Special Instructions to do so. Notwithstanding any of the foregoing, no
Instructions or Special Instructions received by the Custodian from a Fund will
be deemed to authorize or permit any director, trustee, officer, employee, or
agent of such Fund or of Colonial to withdraw any of the Assets of such Fund
upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
------------------------------------------------------------
Except for Assets held by any Subcustodian appointed pursuant to Sections
5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the
powers and duties hereinafter set forth in this Section 4. For purposes of this
Section 4 all references to powers and duties of the "Custodian" shall also
refer to any Domestic Subcustodian appointed pursuant to Section 5(a).
(a) Safekeeping.
----------------
The Custodian will keep safely the Assets of each Fund which are delivered
to it from time to time.
(b) Manner of Holding Securities.
---------------------------------
(1) The Custodian shall at all times hold Securities of a Fund either:
(i) by physical possession of the share certificates or other instruments
representing such Securities in registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter defined) in accordance with the
provisions of sub-paragraph (3) below.
(2)The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name of a
Fund or its nominee, or in the name of the Custodian or its nominee. Upon the
receipt of Instructions to such effect, the Custodian shall hold such Securities
in street certificate form, so called, with or without any indication of
fiduciary capacity. However, unless it receives Instructions to the contrary,
the Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of such Fund or only assets held by the
Custodian as a fiduciary, provided that the records of the Custodian shall
indicate at all times the Fund or other customer for which such Securities are
held in such accounts and the respective interests therein. The Custodian shall
not be liable to a Fund for any loss, damage or expense suffered or incurred by
such Fund in connection with Securities which, pursuant to Instructions, are
held in the name of such Fund or its nominee unless such loss, damage or expense
is caused by, or results from, the negligence, misfeasance or misconduct of the
Custodian.
(3)The Custodian may deposit and/or maintain domestic Securities owned
by a Fund in, and each Fund hereby approves use of: (a) The Depository Trust
Company; (b) The Participants Trust Company; and (c) any book-entry system as
provided in (i) Subpart 0 of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic securities owned by a Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
(i)The Custodian may deposit the Securities directly or through one or more
agents or Subcustodians which are also qualified to act as custodians for
investment companies.
(ii)The Custodian shall deposit and/or maintain the Securities in a
Securities System, provided that such Securities are represented in an
account ("Account") of the Custodian in the Securities System that
includes only assets held by the Custodian as a fiduciary, custodian or
otherwise for customers.
(iii)The books and records of the Custodian shall at all times identify
those Securities belonging to a Fund which are maintained in a
Securities System.
(iv) The Custodian shall pay for Securities purchased for the account of
a Fund only upon (a) receipt of advice from the Securities System
that such Securities have been transferred to the Account of the
Custodian in accordance with the rules of the Securities System, and
(b) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of such Fund. The Custodian
shall transfer Securities sold for the account of a Fund only upon
(a) receipt of advice from the Securities System that payment for
such Securities has been transferred to the Account of the
Custodian in accordance with the rules of the Securities System,
and (b) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of such Fund.
Copies of all advices from the Securities System relating to
transfers of Securities for the account of a Fund shall identify the
Fund, and shall be maintained for such Fund by the Custodian. The
Custodian shall deliver to each Fund on the next succeeding business
day daily transaction reports which shall include each day's
transactions in the Securities System for the account of such Fund.
Such transaction reports shall be delivered to such Fund or any agent
designated by such Fund pursuant to Instructions, by computer
or in such other manner as such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the
Custodian or any Subcustodian with respect to a Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund
as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of such Fund maintained with
such Securities System.
(c) Free Delivery of Assets.
----------------------------
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
---------------------------
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange Securities
held by it in temporary form for Securities in definitive form, to surrender
Securities for transfer into a name or nominee name as permitted in Section
4(b)(2), to effect an exchange of shares in a stock split or when the par value
of the stock is changed, to sell any fractional shares, and, upon receiving
payment therefor, to surrender bonds or other securities held by it at maturity
or call.
(e) Purchases of Assets.
--------------------------
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for the Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Such payment will be made only
upon receipt of Securities by the Custodian, a clearing corporation of a
national securities exchange of which the Custodian is a member, or a Securities
System in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, upon receipt of Instructions: (i) in connection
with a repurchase agreement, the Custodian may release funds to a Securities
System prior to the receipt of advice from the Securities System that the
Securities underlying such repurchase agreement have been transferred by
book-entry into the Account maintained with such Securities System by the
Custodian, provided that the Custodian's instructions to the Securities System
require that the Securities System may make payment of such funds to the other
party to the repurchase agreement only upon transfer by book-entry of the
securities underlying the repurchase agreement into such Account; and (ii) in
the case of Interest Bearing Deposits, currency deposits, and other deposits,
foreign exchange transactions, futures contracts or options, pursuant to
Sections 4(g), 4(h), 4(l), and 4(m) hereof, the Custodian may make payment
therefor before receipt of an advice of transaction.
(2) Other Assets Purchased. Upon receipt of Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the Custodian will,
with respect to a sale, deliver or cause to be delivered the Securities thus
designated as sold to the broker or other person specified in the Instructions
relating to such sale, such delivery to be made only upon receipt of payment
therefor in the form of: (a) cash, certified check, bank cashier's check, bank
credit, or bank wire transfer; (b) credit to the account of the Custodian with a
clearing corporation of a national securities exchange of which the Custodian is
a member; or (c) credit to the Account of the Custodian with a Securities
System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g)Options.
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the purchase or writing of
the option by a Fund; (b) if the transaction involves the sale of a covered call
option, deposit and maintain in a segregated account the Securities (either
physically or by book-entry in a Securities System) subject to the covered call
option written on behalf of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the Securities or Options Exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked option
(including stock index and commodity options), the Custodian, the appropriate
Fund and the broker-dealer shall enter into an agreement to comply with the
rules of the OCC or of any registered national securities exchange or similar
organizations(s). Pursuant to that agreement and such Fund's Instructions, the
Custodian shall: (a) receive and retain confirmations or other documents, if
any, evidencing the writing of the option; (b) deposit and maintain in a
segregated account, Securities (either physically or by book-entry in a
Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the Securities or Options Exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. Such Fund and the broker-dealer shall be responsible for
determining the quality and quantity of assets held in any segregated account
established in compliance with applicable margin maintenance requirements and
the performance of other terms of any option contract.
(h) Futures Contracts.
----------------------
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements.
Such Fund and such futures commission merchant shall be responsible for
determining the type and amount of Assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
------------------------
Upon receipt of Instructions, the Custodian shall establish and maintain
on its books a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred Assets of such Fund, including
Securities maintained by the Custodian in a Securities System pursuant to
Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph.
(j) Depositary Receipts.
------------------------
Upon receipt of Instructions, the Custodian, on behalf of a Fund, shall
surrender or cause to be surrendered Securities to the depositary used for such
Securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively, as "ADRs"), against
a written receipt therefor adequately describing such Securities and written
evidence satisfactory to the organization surrendering the same that the
depositary has acknowledged receipt of instructions to issue ADRs with respect
to such Securities in the name of the Custodian or a nominee of the Custodian,
for delivery in accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds Called Bonds, Etc.
---------------------------------------------------
Upon receipt of Instructions, the Custodian shall: (a) deliver warrants,
puts, calls, rights or similar securities to the issuer or trustee thereof (or
to the agent of such issuer or trustee) for the purpose of exercise or sale,
provided that the new securities, cash or other Assets, if any, acquired as a
result of such actions are to be delivered to the Custodian; and (b) deposit
securities upon invitations for tenders thereof, provided that the consideration
for such securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall promptly notify the appropriate Fund of such action in
writing by facsimile transmission or in such other manner as such Fund and
Custodian may agree in writing.
(1) Interest Bearing Deposits.
------------------------------
Upon receipt of Instructions directing the Custodian to purchase interest
bearing fixed term and call deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of a Fund, the Custodian shall
purchase such Interest Bearing Deposits in the name of such Fund with such banks
or trust companies, including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. Dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions Other than as Principal.
-----------------------------------------------------------
(1) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to Instructions. Such Fund accepts full responsibility for its use of
third party foreign exchange brokers and for execution of said foreign exchange
contracts and understands that such Fund shall be responsible for any and all
costs and interest charges which may be incurred as a result of the failure or
delay of its third party broker to deliver foreign exchange. Notwithstanding the
foregoing, the Custodian shall be responsible for the transmission of cash and
instructions to and from the currency broker or Banking Institution with which
the contract or option is made, and the safekeeping of all certificates and
other documents and agreements evidencing or relating to such foreign exchange
transaction. The Custodian shall have no duty with respect to the selection of
the currency brokers or Banking Institutions with which any such Fund deals or,
so long as the Custodian acts in accordance with Instructions, for the failure
of such brokers or Banking Institutions to comply with the terms of any contract
or option.
(2) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by such Fund with various lenders including but not limited to
United Missouri Bank, N.A.; provided, however, that the Securities shall be
released only upon payment to the Custodian of the monies borrowed, except that
in cases where additional collateral is required to secure existing borrowings,
further Securities may be released or delivered, or caused to be released or
delivered for that purpose upon receipt of Instructions. Upon receipt of
Instructions, the Custodian will pay, but only from funds available for such
purpose, any such loan upon re-delivery to it of the Securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing such
loan. In lieu of delivering collateral to a pledgee, the Custodian, on the
receipt of Instructions, shall transfer the pledged Securities to a segregated
account for the benefit of the pledgee.
(2) Upon receipt of Instructions, the Custodian will release
Securities held in custody to the borrower designated in such Instructions and
may, pursuant to such Instructions, deliver such Securities prior to the receipt
of collateral, if any, for such borrowing; provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall retain on such Fund's behalf the right to and shall collect any dividends,
interest or distribution on such loaned Securities. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
---------------------------------
The Custodian shall receive and collect all stock dividends, rights, and
other items of like nature and, upon receipt of Instructions, take action with
respect to the same as directed in such Instructions.
(p) Routine Dealings.
---------------------
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from a Fund. The
Custodian may also make payments to itself or others from the Assets for
reasonable and customary disbursements and out-of-pocket expenses incidental to
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the
appropriate Fund.
(q) Overdrafts.
---------------
Each Fund acknowledges that due to the timing of purchases and sales of
securities and the receipt and disbursement of funds, there may, from time to
time, exist overdrafts in its cash position with the Custodian. Each Fund hereby
grants to United Missouri Bank, N.A. a right of set-off in any deposits and
security positions which may be held by the Custodian hereunder (except for
Assets held in segregated sub-accounts established under the provisions of
paragraph (i) of this Section 4) to cover such overdrafts as may exist from time
to time; provided, however, that such right of set-off shall be limited to
thirty-three percent (33%) of each such Fund's total assets (or such lesser
amount as is permitted by each such Fund's investment policies and restrictions
in effect from time to time). Each Fund agrees to provide no less than thirty
(30) days advance written notification to the Custodian of any change in its
investment policies and restrictions that creates a reduction in the percentage
of each such Fund's total assets that may be pledged or subject to a right of
set-off.
(r) Collections.
----------------
The Custodian shall exercise reasonable care and diligence to (a)
collect amounts due and payable to each such Fund with respect to portfolio
securities and other Assets; (b) promptly credit to the account of each such
Fund all income and other payments relating to portfolio securities and other
Assets held by the Custodian hereunder upon Custodian's receipt of such income
or payments or as otherwise agreed in writing by the Custodian and each such
Fund; (c) promptly endorse and deliver any instruments required to effect such
collection; and (d) promptly execute ownership and other certificates and
affidavits for all federal, state, local and foreign tax purposes in connection
with receipt of income or other payments with respect to portfolio securities
and other Assets, or in connection with the transfer of such securities or other
Assets; provided, however, that with respect to portfolio securities registered
in so-called street name, or physical securities with variable interest rates,
the Custodian shall use its best efforts to collect amounts due and payable to
each such Fund. The Custodian shall promptly notify a Fund in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing if any amount payable with respect to portfolio securities or
other Assets of such Fund is not received by the Custodian when due. In the
event the Custodian has not exercised reasonable care and diligence, it shall
advance to the appropriate Fund any amounts with respect to which reasonable
care and diligence was not exercised.
With respect to the collection of amounts due and payable on foreign
securities and of foreign tax reclaims, reasonable care and diligence shall
include: the pursuit of past due items or the filing of tax reclaim
documentation within five (5) business days of the day on which the payment
became due or the day on which the payment giving rise to the tax reclaim was
made, as the case may be; maintaining detailed records of actions taken in
connection with such collections and/reclaims; setting an expected receipt date
based on collection experience and country practice; inquiring as to status at
least weekly; and individual supervisory review of items more than fifteen (15)
business days past the expected receipt date.
The Custodian shall not be responsible for the collection of amounts
due and payable with respect to portfolio securities or other Assets that are in
default.
(s) Dividends, Distributions and Redemptions.
---------------------------------------------
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall promptly release cash or
securities. In the case of cash, the Custodian shall, upon the receipt of
Instructions, transfer such funds by check or wire transfer to any account at
any bank or trust company designated by such Fund in such Instructions. In the
case of securities, the Custodian shall, upon the receipt of Special
Instructions, make such transfer to any entity or account designated by such
Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
------------------------------
The Custodian shall receive funds representing cash payments received
for Shares issued or sold from time to time by each Fund, and shall promptly
credit such funds to the account of the appropriate Fund. The Custodian shall
promptly notify the appropriate Fund of Custodian's receipt of cash in payment
for Shares issued by such Fund by facsimile transmission or in such other manner
as the Fund and the Custodian shall agree. Upon receipt of Instructions, the
Custodian shall: (a) make available to a Fund all federal funds received by the
Custodian in payment for Shares as may be set forth in such Instructions and at
a time agreed upon between the Custodian and such Fund; and (b) make federal
funds available to a Fund as of specified times agreed upon from time to time by
such Fund and such Custodian, in the amount of checks received in payment for
Shares which are deposited to the accounts of such Fund.
(u) Proxies and Notices: Compliance with the Shareholders Communication
--------------------------------------------------------------------------
Act of 1985
-----------
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of a Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act of 1985
for the specific purpose of direct communications between such issuer and the
Fund unless such Fund directs the Custodian otherwise in writing.
(v) Books and Records.
----------------------
The Custodian shall maintain such records relating to its activities
under this Agreement as are required to be maintained by Rule 31a-l under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be
open for inspection by duly authorized officers, employees or agents (including
independent public accountants) of each such Fund during normal business hours
of the Custodian.
The Custodian shall provide accountings relating to its activities under this
Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
---------------------------------------------------------------
The Custodian shall take all reasonable action as each Fund may request
to obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
--------------------------------------------------------
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
----------------------------------
Upon receipt of Instructions, the Custodian shall pay, or cause to be paid, all
bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
-----------------
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of a Fund. A Domestic Subcustodian, in
accordance with the provisions of this Agreement, may also appoint a Foreign
Subcustodian, Special Subcustodian, or Interim Subcustodian to act on behalf of
a Fund. For purposes of this Agreement, all Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians and Interim Subcustodians shall be referred
to collectively as "Subcustodians".
(a) Domestic Subcustodians.
---------------------------
The Custodian may, at any time and from time to time, appoint any bank
as defined in Section 2(a)(5) of the 1940 Act or any trust company or other
entity, any of which meet the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act for the Custodian
on behalf of a Fund as a subcustodian for purposes of holding Assets of such
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that the Custodian shall notify such Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and provided further that such Fund will notify the Custodian in
writing of approval or disapproval of the appointment of the proposed Domestic
Subcustodian; and that the Custodian's appointment of any such Domestic
Subcustodian shall not be effective without such prior written approval of such
Fund. Each such duly approved Domestic Subcustodian shall be listed on Appendix
"A" attached hereto, as it may be amended, from time to time.
(b) Foreign Subcustodians.
--------------------------
The Custodian may at any time appoint, or cause a Domestic Subcustodian to
appoint, any bank, trust company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules
and regulations thereunder to act for the Custodian on behalf of a Fund as a
subcustodian or sub-subcustodian for purposes of holding Assets of such Fund and
performing other functions of the Custodian in countries other than the United
States of America (hereinafter referred to as a "Foreign Subcustodian" in the
context of either a subcustodian or a sub-subcustodian); provided, that, prior
to the appointment or approval of any Foreign Subcustodian the Custodian shall,
or shall cause the Domestic Subcustodian to, notify such Fund, in writing, of
the identity and qualifications of the proposed Foreign Subcustodian and make a
copy of the proposed subcustodian agreement available to such Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from such Fund of the
approval of the Board of Directors or other governing body of such Fund (which
approval may be withheld in the sole discretion of such Board of Directors or
other governing body or entity) with respect to (i) the identity and
qualifications of any proposed Foreign Subcustodian, and (ii) the country or
countries in which, and the securities depositories or clearing agencies
(hereinafter "Securities Depositories and Clearing Agencies"), if any, through
which, any proposed Foreign Subcustodian is authorized to hold Securities and
other Assets of such Fund, and (iii) the form and terms of the subcustodian
agreement to be entered into with such proposed Foreign Subcustodian. Each such
duly approved Foreign Subcustodian and the countries where and the Securities
Depositories and Clearing Agencies through which they may hold Securities and
other Assets of the Fund shall be listed on Appendix "A" attached hereto, as it
may be amended, from time to time. Each Fund shall be responsible for informing
the Custodian sufficiently in advance of a proposed investment which is to be
held in a country in which no Foreign Subcustodian is authorized to act, in
order that there shall be sufficient time for the Custodian, or any Domestic
Subcustodian, to effect the appropriate arrangements with a proposed Foreign
Subcustodian, including obtaining approval as provided in this Section 5(b). In
connection with the appointment of any Foreign Subcustodian, the Custodian
shall, or shall cause the Domestic Subcustodian to, enter into a subcustodian
agreement with the Foreign Subcustodian in form and substance approved by the
appropriate Fund.
The Custodian shall not consent to the amendment of, and shall cause any
Domestic Subcustodian not to consent to the amendment of, any agreement entered
into with a Foreign Subcustodian, which materially affects a Fund's rights under
such agreement, except upon prior written approval of such Fund pursuant to
Special Instructions.
(c) Interim Subcustodians.
--------------------------
Notwithstanding the foregoing, in the event that a Fund shall invest in
an Asset to be held in a country in which no Foreign Subcustodian is authorized
to act, the Custodian shall promptly notify such Fund in writing by facsimile
transmission or in such other manner as such Fund and Custodian shall agree in
writing of the unavailability of an approved Foreign Subcustodian in such
country; and upon the receipt of Special Instructions from such Fund, the
Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve
an entity (referred to herein as an "Interim Subcustodian") designated in such
Special Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
--------------------------
Upon receipt of Special Instructions, the Custodian shall, on behalf of
a Fund, appoint one or more banks, trust companies or other entities designated
in such Special Instructions to act for the Custodian on behalf of such Fund as
a subcustodian for purposes of: (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities through the use of a
common custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix "All attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by such Fund in Special Instructions. The Custodian shall not
amend any subcustodian agreement entered into with a Special Subcustodian, or
waive any rights under such agreement, except upon prior approval pursuant to
Special Instructions.
(e) Supervision of Subcustodians.
---------------------------------
The Custodian shall (i) cause each Domestic Subcustodian and Foreign
Subcustodian to, and (ii) use its best efforts to cause each Interim
Subcustodian and Special Subcustodian to, perform all of its obligations in
accordance with the terms and conditions of the subcustodian agreement under
which such Subcustodian serves.
(f) Termination of a Subcustodian.
----------------------------------
The Custodian shall, upon receipt of Special Instructions, terminate any
Subcustodian with respect to a Fund, in accordance with the termination
provisions under the applicable subcustodian agreement.
(g) Certification Regarding Foreign Subcustodians.
--------------------------------------------------
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Subcustodian is
then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund to ensure compliance with
rules and regulations under the 1940 Act.
6. STANDARD OF CARE.
--------------------
(a) General Standard of Care.
-----------------------------
The Custodian shall exercise reasonable care and diligence in carrying
out all of its duties and obligations under this Agreement, and shall be liable
to a Fund for all losses, damages and reasonable costs and expenses (including
but not limited to reasonable attorneys fees) suffered or incurred by such Fund
resulting from the failure of the Custodian to exercise such reasonable care and
diligence; provided, however, in no event shall the Custodian be liable for
consequential damages.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
-------------------------------------------------------------------
Control, Sovereign Risk, Etc.
- -----------------------------
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder if the Custodian or any Subcustodian or Securities System,
or any subcustodian, Securities System, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and neither the
Custodian nor any other Person shall be obligated to take any action contrary
thereto); or (ii) any event beyond the control of Custodian or other Person such
as war, riots, strikes, lockouts, labor disputes, equipment or transmission
failures (other than failures caused by Custodian's failure to use reasonable
care and diligence) or natural disasters; or (iii) any "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting a
Fund's Assets; or acts of war, terrorism, insurrection or revolution; or any
other act or event beyond the Custodian's or such other Person's control.
(c) Mitigation by Custodian.
----------------------------
Upon the occurrence of any event which causes or may cause any loss,
damage or expense to a Fund, (i) the Custodian shall, (ii) the Custodian shall
cause any applicable Domestic Subcustodian to, and (iii) the Custodian shall use
its best efforts to cause any applicable Foreign Subcustodian, Special
Subcustodian or Interim Subcustodian to, use all commercially reasonable efforts
and take all reasonable steps under the circumstances to mitigate the effects of
such event and to avoid continuing harm to such Fund.
(d) Liability for Past Records.
-------------------------------
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(e) Advice of Counsel.
----------------------
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel on all matters. The Custodian and all
Domestic Subcustodians shall be without liability for any action reasonably
taken or omitted in good faith pursuant to the advice of (i) counsel for the
appropriate Fund, or (ii) at the expense of the Custodian or any Domestic
Subcustodian, such other counsel as such Fund and the Custodian or any Domestic
Subcustodian may agree upon.
(f) Advice of the Fund and Others.
----------------------------------
The Custodian and any Domestic Subcustodian may rely upon the advice of
a Fund and upon statements of the Fund's accountants and other persons
reasonably believed by it in good faith to be expert in matters upon which they
are consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions reasonably taken, in good faith, upon such statements.
(g) Instructions Appearing to be Genuine.
-----------------------------------------
The Custodian and all Domestic Subcustodians shall be fully protected
and indemnified in acting as a custodian hereunder upon any Resolutions of the
Board of Directors or Trustees, Instructions, Special Instructions, advice,
notice, request, consent, certificate, instrument or paper reasonably appearing
to it to be genuine and to have been properly executed and shall) unless
otherwise specifically provided herein, be entitled to receive as conclusive
proof of any fact or matter required to be ascertained from a Fund hereunder a
certificate signed by any officer of such Fund authorized to countersign or
confirm Special Instructions.
(h) Exceptions from Liability.
------------------------------
Without limiting the generality of any other provisions hereof, neither
the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for a Fund,
the legality of the purchase thereof or evidence of ownership required to
be received by such Fund, or the propriety of the decision to purchase or
amount paid therefor;
(ii) the legality of the sale of any securities by or for a Fund, or
the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of securities, borrowings
or similar actions with respect to a Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of a Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of such Fund, or such Fund's
currently effective Registration Statement on file with the Securities and
Exchange Commission.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
------------------------------------------------------
(a) Domestic Subcustodians and Securities Systems.
--------------------------------------------------
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian or Securities System to the same extent as if such actions or
omissions were performed by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
----------------------------------------------------------------
The Custodian shall be liable to a Fund for any loss or damage to such
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian agreement as determined
in accordance with the law which is adjudicated to govern such agreements and in
accordance with any determination of any court as to the duties of said Foreign
Subcustodian pursuant to said agreement.
(c) Interim Subcustodians, Special Subcustodians, Securities
------------------------------------------------------------
Depositories and Claring Agencies.
- ----------------------------------
The Custodian shall not be liable to a Fund for any loss, damage or expense
suffered or incurred by such Fund resulting from the actions or omissions of an
Interim Subcustodian, Special Subcustodians, or Securities Depository and
Clearing Agency unless such loss, damage or expense is caused by, or results
from, the negligence, misfeasance or misconduct of the
Custodian.
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
----------------------------------------------------
The Custodian shall not be responsible for any loss occasioned by the
acts, neglects, defaults or insolvency of any broker, bank, trust company or any
other person with whom the Custodian may deal (other than any of such entities
acting as a Subcustodian, Securities System or Securities Depository and
Clearing Agency, for whose actions the liability of the Custodian is set out
elsewhere in this Agreement) in the absence of its own negligence, willful
misconduct or bad faith.
(e) Reimbursement of Expenses.
------------------------------
Each Fund agrees to reimburse the Custodian for all reasonable
out-of-pocket expenses incurred by the Custodian in connection with the
fulfillment of its obligations under paragraph (c) of Section 6; provided
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Custodian.
8. INDEMNIFICATION.
---------------------
(a) Indemnification by Fund.
----------------------------
Subject to the limitations set forth in this Agreement, each Fund agrees
to indemnify and hold harmless the Custodian and its nominees from all loss,
damage and expense (including reasonable attorneys' fees) suffered or incurred
by the Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
Subcustodian Agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof. In addition,
each Fund agrees to indemnify any Person against liability incurred by reason of
taxes assessed to such Person resulting from the fact that securities and other
property of the indemnifying Fund are registered in the name of such Person in
accordance with the provisions of this Agreement; provided, however, that in no
event shall such indemnification be applicable to income, franchise or similar
taxes which may be imposed or assessed against any Person.
(b) Indemnification bv Custodian.
---------------------------------
Subject to the limitations set forth in this Agreement and in addition
to the obligations provided in Sections 6 and 7, the Custodian agrees to
indemnify and hold harmless each Fund and its nominees from all loss, damage and
expense (including reasonable attorneys' fees) suffered or incurred by each such
Fund or its nominee caused by or arising from the negligence, misfeasance or
misconduct of the Custodian or its nominee.
9. COMPENSATION.
----------------
Each Fund will pay to the Custodian such compensation as is agreed to in writing
by the Custodian and each such Fund from time to time.
The Custodian agrees to calculate earnings credits and/or overdraft
charges on a daily basis and to provide each Fund such calculations for approval
by each such Fund prior to applying same against the monthly billing statements.
10. TERMINATION AND ASSIGNMENT.
-------------------------------
Any Fund or the Custodian may terminate this Agreement as to any such Fund
by notice in writing, delivered or mailed, postage prepaid (certified mail,
return receipt requested) to the other not less than 90 days prior to the date
- -upon which such termination shall take effect. Upon termination of this
Agreement, the appropriate Fund shall pay to the Custodian such fees and other
amounts as may be due the Custodian hereunder. Upon termination of this
Agreement, the Custodian shall deliver, at the terminating party's expense, all
Assets held by it hereunder to the appropriate Fund or as otherwise designated
by such Fund. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any such Fund without
the respective consent of the other, duly authorized by a resolution by its
Board of Directors or Trustees.
11. NOTICES.
------------
As to each Fund, notices, requests, instructions and other writings
delivered c/o Colonial Management Associates, Inc., One Financial Center,
Boston, Massachusetts 02111, Attention: Fund Accounting, with a copy to the same
address, Attention: Legal Department, postage prepaid, or to such other address
as any such Fund may have designated to the Custodian in writing, shall be
deemed to have been properly delivered or given to each such Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928 Grand
Avenue, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's
Securities Administration Department, Post Office Box 226, Kansas City, Missouri
64141, or to such other addresses as the Custodian may have designated to each
such Fund in writing, shall be deemed to have been properly delivered or given
to the Custodian hereunder; provided, however, that procedures for the delivery
of Instructions and Special Instructions shall be governed by Section 2(e)
hereof.
12. MISCELLANEOUS.
------------------
(a) This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of such state.
(b)All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) As to each Fund, no provisions of this Agreement may be amended or
modified, in any manner except in writing, properly executed by both the
Custodian and the Fund; provided, however, Appendix "A" may be amended from time
to time as Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians,
and Securities Depositories and Clearing Agencies are approved or terminated
according to the terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
Term Section
- -----
Account 4(b)(3)(H)
ADRIS 4(j)
Assets 2
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between any Fund and the Custodian.
(j) Copies of the documents establishing each Fund are filed with the
Secretary of The Commonwealth of Massachusetts. This Agreement is executed by
the officers of each Fund not as individuals and is not binding upon any of the
Trustees, officers or shareholders of any Fund individually, but only upon the
assets of each respective Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be
executed by their duly respective authorized officers.
ATTEST: UNITED MISSOURI BANK, N.A.
MARY. E. MALLOW BY:illeg.
Title: Sr. Vice President
ATTEST:
ILLEG. COLONIAL TRUST IV, on behalf
of its COLONIAL SHORT TERM TAX
EXEMPT FUND and COLONIAL
INTERMEDIATE TAX EXEMPT FUND
MICHAEL H. KOONCE
Title: Assistant Secretary
ATTEST COLONIAL TRUST V,on behalf of
its COLONIAL FLORIDA TAX
EXEMPT FUND
ILLEG. BY MICHAEL H. KOONCE
Title: Assistant Secretary
APPENDIX A
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Brown Brothers Harriman & Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
FOREIGN SUBCUSTODIANS:
SECURITIES DEPOSITORIES AND CLEARING AGENCIES:
By: MARY E. MALLOW United Missouri Bank, N.A.
ASSISTANT SECRETARY By:ILLEG.
ADDENDUM TO CUSTODY AGREEMENT DATED FEBRUARY 1, 1993 BETWEEN UNITED MISSOURI
BANK, N.A., CUSTODIAN, AND COLONIAL TRUST IV, ON BEHALF OF ITS COLONIAL SHORT
TERM TAX EXEMPT FUND AND COLONIAL INTERMEDIATE TAX EXEMPT FUND, AND COLONIAL
TRUST V. ON BEHALF OF ITS COLONIAL FLORIDA TAX EXEMPT FUND
- ----------------------------------------------------------
WHEREAS, the foregoing Massachusetts business trusts on behalf of each of
the mutual funds listed above executed as of February 1, 1993 a Custody
Agreement with United Missouri Bank, N.A. ("Custodian"); and
WHEREAS, the Custody Agreement executed by said parties and by the
undersigned constitutes a separate Agreement between the Custodian and each such
trust on behalf of each such mutual fund ("Fund"); and
WHEREAS, the original parties to the Custody Agreement have agreed that
additional Funds may be made parties to said Agreement by the execution of a
separate signature page.
NOW THEREFORE, by their signatures below the following Massachusetts
business trusts on behalf of the following mutual funds hereby adopt the Custody
Agreement dated February 1, 1993 with United Missouri Bank, N.A. and agree to be
bound by all the terms and conditions contained therein.
ATTEST: UNITED MISSOURI BANK, N.A.
MARY E. MALLOW By ILLEG.
Title: Sr. V.P.
Date: 4/12/93
ATTEST:
COLONIAL TRUST IV, on behalf
of its COLONIAL TAX EXEMPTFUND,
COLONIAL TAX EXEMPT INSURED
FUND, COLONIAL TAX EXEMPT MONEY
MARKET FUND and COLONIAL HIGH
YIELD MUNICIPAL FUND
ILLEG. By: MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
ATTEST COLONIAL TRUST V, on behalf
of its COLONIAL CONNECTICUT TAX
EXEMPT FUND, COLONIAL
MASSACHUSETTS TAX EXEMPT
FUND,COLONIAL MINNESOTA TAX
EXEMPT FUND, COLONIAL MICHIGAN
TAX EXEMPT FUND, OHIO TAX EXEMPT
FUND, COLONIAL NEW YORK TAX
EXEMPT FUND and COLONIAL
CALIFORNIA TAX EXEMPT FUND
ILLEG. By: MICHAEL H. KOONCE
Title:
Date: 4/12/93
ATTEST:
ILLEG. COLONIAL INVESTMENT GRADE
MUNICIPAL TRUST
By: MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
COLONIAL HIGH INCOME
MUNICIPAL TRUST
ATTEST By: MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
ILLEG.
ATTEST COLONIAL MUNICIPAL INCOME
TRUST
ILLEG. By: MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
APPENDIX A
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Brown Brothers Harriman & Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
Bank of New York (Variable Rate Securities Only)
FOREIGN SUBCUSTODIANS:
SECURITIES DEPOSITORIES AND CLEARING AGENCIES:
COLONIAL TRUST IV, on behalf of its COLONIAL SHORT TERM TAX EXEMPT FUNDP
COLONIAL INTERMEDIATE TAX EXEMPT FUND, COLONIAL TAX EXEMPT FUND, COLONIAL TAX
EXEMPT INSURED FUND, COLONIAL TAX EXEMPT MONEY MARKET FUND and COLONIAL HIGH
YIELD MUNICIPAL FUND
By MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
APPENDIX A (Continued)
TRUST V, on behalf of its FLORIDA TAX EXEMPT FUND, CONNECTICUT TAX EXEMPT FUND,
MASSACHUSETTS TAX EXEMPT FUND, MINNESOTA TAX EXEMPT FUND, MICHIGAN TAX EXEMPT
FUND, OHIO TAX EXEMPT FUND, NEW YORK TAX EXEMPT FUND and CALIFORNIA TAX EXEMPT
FUND
By MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
COLONIAL INVESTMENT GRADE MUNICIPAL TRUST
By MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
COLONIAL MUNICIPAL INCOME TRUST
By MICHAEL H. KOONCE
Title: Assistant Secretary
Date: 4/12/93
UNITED MISSOURI BANK, N.A.
By: ILLEG.
Title: Senior Vice President
Date: 4/12/93
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (Agreement) made by and between each
Trust (Trust) listed in Appendix 1 and the Fund (Fund) listed opposite the name
of such Trust, as of the Agreement Date specified for such Trust and Fund in
Appendix 1.
1. Plan of Reorganization and Liquidation.
(a) The Trust shall transfer and deliver to the Fund at the closing
provided for in Section 2 (Closing) all of its then existing assets of
every kind and nature. The Fund shall at the Closing assume all of the
Trust's obligations and liabilities.
(b) At the Closing the Fund will issue to the Trust a number of shares of
the Fund equal to the number of Trust shares then outstanding. Such
Fund shares will be distributed pro rata to shareholders of the Trust
in complete liquidation. Open account share records and certificates
for shares of the Trust issued prior to the reorganization shall
represent outstanding shares of the Fund following the reorganization.
Certificates representing Fund Shares will be issued only if the
shareholder so requests and surrenders any outstanding certificates for
Trust shares.
(c) As promptly as practicable after the liquidation of the Trust, the
Trust's legal existence shall be terminated.
2. Closing and Closing Date. The Closing shall occur at 5:00 p.m. on the
closing date specified in Appendix 1, or at such later time and date as the
Fund and the Trust may mutually agree (Closing Date).
3. Conditions Precedent. The obligations of the Trust and the Fund to effect
the transactions contemplated by this Agreement shall be subject to the
satisfaction of each of the following conditions:
(a) All filings shall have been made with, and all authority and orders
shall have been received from, the Securities and Exchange Commission
(SEC) and state securities commissions as may be necessary in the
opinion of Ropes & Gray to permit the parties to carry out the
transactions contemplated by this Agreement;
(b) Each party shall have received an opinion of Ropes & Gray to the effect
that for federal income tax purposes: (i) no gain or loss will
be recognized by the Trust upon the transfer of its assets and
liabilities to the Fund; (ii)the tax basis of the assets of the Trust
in the hands of the Fund will be the same as the tax basis of such
assets in the hands of the Trust immediately prior to the transfer;
(iii) the holding period of the assets of the Trust transferred to the
Fund will include the period during which such assets were held by
the Trust;(iv) no gain or loss will be recognized by the Fund upon
the receipt of the assets of the Trust and the assumption by the Fund
of the liabilities and obligations of the Trust; (v) no gain or loss
will be recognized by the shareholders of the Trust upon
consummation of the reorganization; (vi) the basis of the shares of
the Fund credited to the shareholders of the Trust upon consummation
of the reorganization will be the same as the basis of the Trust
shares; and (vii) the holding period of shares of the Fund credited to
the shareholders of the Trust upon consummation of the reorganization
will include the holding period of the shares of the Trust,
provided that at the time of the consummation the shares of the
Trust were held as capital assets; and as to such other matters as it
may reasonably request;
(c) The reorganization contemplated by this Agreement shall have been
adopted and approved by the affirmative vote of a majority of
the outstanding shares of the Trust;
(d) The Fund shall have entered into Investment Advisory, Distributor's and
Service Contracts, an Amended and Restated Shareholders' Servicing
and Transfer Agent Agreement, and a Custodian Agreement in accordance
with the requirements of the Investment Company Act of 1940 (Act)
containing terms that are in substance the same as those contained in
the similar contracts currently in effect for the Trust, and such
contracts shall have been approved by the Trustees on behalf of the
Fund and, to the extent required by law, by the Trustees who are not "
interested persons" as defined in the Investment Company Act of 1940
and by Fund shareholders; and
(e) The Trustees who are not "interested persons" shall have selected
auditors for the Fund and such selection shall have been ratified by
Fund shareholders.
4. Waiver, Amendment or Termination. At any time before the Closing, the
Trustees of the Trust and of the trust of which the Fund is a series (Series
Trust) may (1) waive any of the conditions set forth in Section 3, (2) amend
this Agreement, or (3) terminate this Agreement, provided that, in the case of
any such waiver or amendment, the relevant Trustees shall have determined that
such action will not have a material adverse effect on the interest of the
shareholders of the Trust or the Fund.
5. Multiple Agreements. This instrument represents a separate agreement between
each Trust and the Fund listed opposite that Trust's name in Appendix 1; other
Trusts and Funds listed on Appendix 1 are not parties to the Agreement between
that Trust and that Fund.
6. Limitation of Liability of the Trustees and Shareholders. A copy of the
documents establishing the Trust and the Series Trust are on file with the
Secretary of State of The Commonwealth of Massachusetts. This Agreement is
executed by officers as officers and not as individuals and is not binding upon
any of the Trustees, officers or shareholders of the Trust, Series Trust or the
Fund individually but are binding only upon the assets of the Trust and the
Fund.
AGREED:
The Trust The Series Trust, on behalf of the Fund
By: ARTHUR O. STERN, Secretary By: ARTHUR O. STERN, Secretary
APPENDIX 1
Trust Fund Closing Date
Colonial Trust II
Colonial U.S. Government Trust Colonial U.S. Government Fund 2/14/92
Colonial Trust III
The Colonial Fund The Colonial Fund 2/14/92
Colonial Trust IV
Colonial Corporate Cash Trust I Colonial Utilities Fund 2/14/92
Colonial Tax-Exempt Money Colonial Tax-Exempt Money 2/14/92
Market Trust Market Fund
Agreement Date: January 24, 1992
By: ARTHUR O. STERN, Secretary on behalf of each Fund
By: ARTHUR O. STERN, Secretary for each Trust
AMENDMENT NO. 1 TO APPENDIX 1
Trust Fund Closing Date
Colonial Trust I
Colonial Income Trust Colonial Income Fund 5/1/92
Colonial Strategic Income Trust Colonial Strategic Income Fund 5/1/92
greement Date: April 24, 1992
By: ARTHUR O. STERN, Secretary on behalf of each Fund
By: ARTHUR O. STERN, Secretary for each Trust
AMENDMENT NO. 2 TO APPENDIX 1
Trust Fund Closing Date
Colonial Trust III
Colonial Government Securities
Plus Trust Colonial Federal Securities Fund 6/5/92
greement Date: June 5, 1992
By: ARTHUR O. STERN, Secretary on behalf of each Fund
By: ARTHUR O. STERN, Secretary for each Trust
AMENDMENT NO. 3 TO APPENDIX 1
Trust Fund Closing Date
Colonial Trust V
Colonial California Tax-Exempt Trust Colonial California Tax-Exempt Fund 8/3/92
Colonial Michigan Tax-Exempt Trust Colonial Michigan Tax-Exempt Fund 8/3/92
Colonial Minnesota Tax-Exempt Trust Colonial Minnesota Tax-Exempt Fund 8/3/92
Colonial New York Tax-Exempt Trust Colonial New York Tax-Exempt Fund 8/3/92
Colonial Ohio Tax-Exempt Trust Colonial Ohio Tax-Exempt Fund 8/3/92
Agreement Date: July 27, 1992
By: ARTHUR O. STERN, Secretary on behalf of each Fund
By: ARTHUR O. STERN, Secretary for each Trust
AMENDMENT NO. 4 TO APPENDIX 1
Trust Fund Closing Date
Colonial Trust VI
Colonial Small Stock Index Trust Colonial Small Stock Fund 11/2/92
Agreement Date: October 30, 1992
By: ARTHUR O. STERN, Secretary on behalf of each Fund
By: ARTHUR O. STERN, Secretary for each Trust
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 44
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated August 21, 1996, relating to the financial statements and financial
highlights appearing in the June 30, 1996 Annual Report to Shareholders of
Colonial Municipal Money Market Fund and our reports dated January 12, 1996,
relating to the financial statements and financial highlights appearing in the
November 30, 1995 Annual Reports to Shareholders of Colonial High Yield
Municipal Fund, Colonial Intermediate Tax-Exempt Fund, Colonial Short-Term
Tax-Exempt Fund, Colonial Tax-Exempt Fund, Colonial Tax-Exempt Insured Fund and
Colonial Utilities Fund, each a series of Colonial Trust IV, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "The Fund's Financial History" and "The
Funds' Financial History", as applicable, in the Prospectuses, which constitute
part of this Registration Statement, and "Independent Accountants" in the
Statements of Additional Information."
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 15, 1996
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption
"Independent Auditors of the Portfolio" and to the incorporation
by reference of our report dated August 8, 1996 with respect to
SR&F Municipal Money Market Portfolio in the Registration
Statement (Form N-1A) of Colonial Trust IV and in the related
prospectus of Colonial Municipal Money Market Fund, filed with
the Securities and Exchange Commission in this Post Effective
Amendment No. 44 to the Registration Statement under the
Securities Act of 1933 (Registration No. 2-62492) and in this
Amendment No. 42 to the Registration Statement under the
Investment Company Act of 1940 (Registration No. 811-2865).
ERNST & YOUNG LLP
Chicago, Illinois
October 9, 1996
PERFORMANCE CALCULATION
COLONIAL MUNICIPAL MONEY MARKET FUND - CLASS A
Year End: 6/30/96
<TABLE>
<CAPTION>
1 YEAR ENDED 6/30/96 5 YEARS ENDED 6/30/96 10 YEARS ENDED 6/30/96
<S> <C> <C> <C>
Initial Investment $1,000.00 $1,000.00 $1,000.00
Maximum Load 0.00% 0.00% 0.00%
Amount Invested $1,000.00 $1,000.00 $1,000.00
Initial NAV $1.00 $1.00 $1.00
Initial Shares 1000.000 1000.000 1000.000
Shares from Distribution 31.230 139.429 442.319
End of Period NAV $1.00 $1.00 $1.00
Total Return 3.12% 13.94% 44.23%
Average Annual
Total Return 3.12% 2.64% 3.73%
</TABLE>
PERFORMANCE CALCULATION
COLONIAL MUNICIPAL MONEY MARKET FUND - CLASS B
Year End: 6/30/96
<TABLE>
<CAPTION>
1 YEAR ENDED 6/30/96 5 YEARS ENDED 6/30/96 10 YEARS ENDED 6/30/96
Standard Non-Standard Standard Non-Standard Standard Non-Standard
--------- ----------- -------- ------------ ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Inv. $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Initial NAV $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Initial Shares 1000.000 1000.000 1000.000 1000.000 1000.000 1000.000
Shares From Dist 23.470 23.470 130.855 130.855 431.465 431.465
End of Period NA $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
CDSC 5.00% 2.00% 0.00%
Total Return -2.65% 2.35% 11.09% 13.09% 43.15% 43.15%
Average Annual
Total Return -0.85% 0.74% 2.12% 2.49% 3.65% 3.65%
</TABLE>
COLONIAL MUNICIPAL MONEY MARKET FUND - CLASS A
YIELD CALCULATION
7-DAY PERIOD ENDED 6/30/96
1) 7 day yield = (a/b)(365/7)
a = change in value of account during
period, exclusive of capital changes.......... 0.0005318
b = value of account at beginning of period....... 1.00
7 day yield......................... 2.773%
Tax-equivalent yield................ 4.59%
365/7
2) 7 day effective yield = [1 + (a/b)] b)] -1
7 day effective yield............... 2.811%
Tax-equivalent effective yield...... 4.65%
COLONIAL MUNICIPAL MONEY MARKET FUND - CLASS B
YIELD CALCULATION
7-DAY PERIOD ENDED 6/30/96
1) 7 day yield = (a/b)(365/7)
a = change in value of account during
period, exclusive of capital changes.......... 0.0003392
b = value of account at beginning of period....... 1.00
7 day yield......................... 1.769%
Tax equivalent yield 2.93%
365/7
2) 7 day effective yield = [1 + (a/b)] b)] -1
7 day effective yield............... 1.784%
Tax equivalent yield 2.95%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS A YEAR END JUN-30-1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS A YEAR END JUN-30-1996 </LEGEND>
<CIK> 0000276716 <NAME> COLONIAL TRUST IV <SERIES>
<NUMBER> 4
<NAME> COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 21467
<RECEIVABLES> 13
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 11
<TOTAL-ASSETS> 21501
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 590
<TOTAL-LIABILITIES> 590
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19677
<SHARES-COMMON-STOCK> 19678
<SHARES-COMMON-PRIOR> 24677
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 877
<OTHER-INCOME> 0
<EXPENSES-NET> 200
<NET-INVESTMENT-INCOME> 677
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 677
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 628
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58417
<NUMBER-OF-SHARES-REDEEMED> 63966
<SHARES-REINVESTED> 550
<NET-CHANGE-IN-ASSETS> (6875)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 346
<AVERAGE-NET-ASSETS> 20950
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS B YEAR END JUN-30-1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS B YEAR END JUN-30-1996 </LEGEND>
<CIK> 0000276716 <NAME> COLONIAL TRUST IV <SERIES>
<NUMBER> 4
<NAME> COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 21467
<RECEIVABLES> 13
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 11
<TOTAL-ASSETS> 21501
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 590
<TOTAL-LIABILITIES> 590
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1235
<SHARES-COMMON-STOCK> 1235
<SHARES-COMMON-PRIOR> 3110
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 877
<OTHER-INCOME> 0
<EXPENSES-NET> 200
<NET-INVESTMENT-INCOME> 677
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 677
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 49
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3839
<NUMBER-OF-SHARES-REDEEMED> 5750
<SHARES-REINVESTED> 36
<NET-CHANGE-IN-ASSETS> (6875)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 346
<AVERAGE-NET-ASSETS> 2456
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
