COLONIAL TRUST IV, 485BPOS, 1997-07-31

COLONIAL TRUST IV
485BPOS, 1997-07-31

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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. 46 [ X ]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]

Amendment No. 44 [ 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 Service: Copy to:
- -------------------------------------- --------
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 August 1, 1997 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 28, 1997, the Registrant
filed a Rule 24f-2 Notice in respect to its series which had fiscal years ending
on November 30, 1996. 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.

<PAGE>

COLONIAL TRUST IV

Cross Reference Sheet

Colonial Tax-Exempt Fund

Colonial Tax-Exempt Insured Fund

Colonial Intermediate Tax-Exempt Fund

Item Number of Form N1A Location or Caption in Prospectus
- ----------------------- ---------------------------------

Part A
- ------

1. Cover Page

2. Summary of Expenses

3. The Funds' Financial History

4. The Funds' Investment Objectives; Organization and
History; How the Funds Pursue their Objectives and
Certain Risk Factors

5. Cover Page; How the Funds are Managed; Organization
and History; The Funds' Investment Objectives; 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 Funds Value their Shares; 12b-1 Plan; Back
Cover

8. Summary of Expenses; How to Sell Shares; How to
Exchange Shares; Telephone Transactions

9. Not Applicable

<PAGE>

March 31, 1997; Revised August 1, 1997 TE-01/916D-0897

COLONIAL TAX-EXEMPT FUND

COLONIAL TAX-EXEMPT INSURED FUND

COLONIAL INTERMEDIATE
TAX-EXEMPT FUND

PROSPECTUS

BEFORE YOU INVEST

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

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

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

Each of Colonial Tax-Exempt Fund (the Tax-Exempt Fund), Colonial Tax-Exempt
Insured Fund (the Insured Fund) and Colonial Intermediate Tax-Exempt Fund (the
Intermediate Fund) (each a Fund and collectively, the Funds) is a diversified
portfolio of Colonial Trust IV (Trust), an open-end management investment
company. The Tax-Exempt Fund and the Insured Fund each seek as high a level of
after-tax total return as is consistent with prudent risk, by pursuing current
income exempt from federal income tax and opportunities for long-term
appreciation from a portfolio primarily invested in investment-grade municipal
bonds (the Tax-Exempt Fund) and insured municipal bonds (the Insured Fund). The
Intermediate Fund seeks as high a level of after-tax total return as is
consistent with moderate volatility, by pursuing current income exempt from
federal income tax and opportunities for appreciation from a portfolio primarily
invested in investment grade, intermediate-term municipal bonds. See "How the
Funds Pursue Their Objectives and Certain Risk Factors" for a detailed
discussion of the nature and limitations of portfolio insurance for the Insured
Fund.

Each Fund is managed by the Adviser, an investment adviser since 1931. This
Prospectus explains concisely what you should know before investing in each of
the Funds. Read it carefully and retain it for future reference. More detailed
information about the Funds is in the March 31, 1997; Revised August 1, 1997
Statement of Additional Information which, has been filed with the Securities
and Exchange Commission and is obtainable free of charge by calling the Adviser
at 1-800-426-3750. The Statement of Additional Information is incorporated by
reference in (which means it is considered to be a part of) this Prospectus.

Each Fund offers three classes of shares. Class A shares are offered at net
asset value plus a sales charge imposed at the time of purchase; Class B shares
are offered at net asset value and are subject to an annual distribution fee and
a declining contingent deferred sales charge on redemptions made within six
years (the Tax-Exempt Fund and the Insured Fund) or four years (the Intermediate
Fund) after purchase; and Class C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year after purchase. Class B shares automatically
convert to Class A shares after approximately eight years. See "How to Buy
Shares."

Contents Page

Summary of Expenses
The Funds' Financial History
The Funds' Investment Objectives
How the Funds Pursue Their Objectives
and Certain Risk Factors
How the Funds Measure Their Performance
How the Funds are Managed
How the Funds Value Their Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plan
Organization and History
Appendix

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<PAGE>

SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of each Fund's shares. See "How the
Funds are Managed" and "12b-1 Plan" for more complete descriptions of the Funds'
various costs and expenses.

Shareholder Transaction Expenses(1)(2)

<TABLE>
<CAPTION>
The Tax-Exempt Fund
The Insured Fund The Intermediate Fund
------------------- ---------------------
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price)(3) 4.75% 0.00%(5) 0.00%(5) 3.25% 0.00%(5) 0.00%(5)
Maximum Contingent Deferred Sales Charge (as a % of
offering price)(3) 1.00%(4) 5.00% 1.00% 1.00%(4) 4.00% 1.00%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."
(2) Redemption proceeds exceeding $1,000 sent via federal funds wire will
be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase. See
"How to Buy Shares."

(5) Because of the distribution fee applicable to Class B and Class C
shares, long-term Class B and Class C shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted
by the National Association of Securities Dealers, Inc. However,
because the Funds' 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>
The Tax-Exempt Fund The Insured Fund
------------------- ----------------
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Management fee 0.52% 0.52% 0.52% 0.55% 0.55% 0.55%
12b-1 fees 0.25 1.00 0.85(8) 0.25 1.00 0.70(8)
Other expenses 0.22 0.22 0.22 0.25 0.25 0.25
---- ---- ---- ---- ---- ----
Total operating expenses 0.99% 1.74% 1.59% 1.05% 1.80% 1.50%
==== ==== ===== ==== ==== =====

The Intermediate Fund
---------------------
Class A Class B Class C
Management fee 0.00%(6) 0.00%(6) 0.00%(6)
12b-1 fees 0.20 0.85 0.40(8)
Other expenses 0.40(7) 0.40(7) 0.40(7)
---- ---- -------
Total operating expenses 0.60%(7)(9) 1.25%(7)(9) 0.80%(7)(9)
==== ==== ===========
</TABLE>

(6) After fee waiver.
(7) After expense waiver.

(8) The Distributor has voluntarily agreed to waive a portion of the Class
C share Rule 12b-1 distribution fee so that it will not exceed 0.60%
(the Tax-Exempt Fund), 0.45% (the Insured Fund) and 0.20% (the
Intermediate Fund), annually. The Distributor may terminate the fee
waiver at any time without shareholder approval. See "12b-1 Plan."
Absent such fee waiver, the "12b-1 fees" would have been 1.00%, 1.00%
and 0.85% and "Total operating expenses" would have been 1.74%, 1.80%
and 1.25% for the Class C shares of the Tax-Exempt Fund, the Insured
Fund and the Intermediate Fund, respectively.
(9) Effective August 1, 1995, the Adviser had voluntarily reimbursed the
Fund to the extent total Fund expenses (exclusive of 12b-1 fees,
brokerage commissions, interest, taxes and extraordinary expenses, if
any) exceed 0.40% annually of the Fund's average net assets. This
agreement may be revoked at any time. Absent such agreement, the
"Management fee" would have been 0.55%, "Other expenses" would have
been 0.57% for each Class of shares, and "Total operating expenses"
would have been 1.32% for Class A shares and 1.97% for Class B shares
and Class C shares.

2
<PAGE>

Example

The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of each 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>
The Tax-Exempt Fund The Insured Fund
------------------- ----------------
Period: Class A Class B Class C Class A Class B Class C
(10) (11) (10) (11) (10) (11) (10) (11)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 57 $68 $ 18 $ 26 $ 16 $58 $ 68 $ 18 $ 25 $ 15
3 years 78 85 55 50(14) 50(14) 79 87 57 47(14) 47(14)
5 years 100 114 94 87 87 103 117 97 82 82
10 years 163 185(12) 185(12) 189 189 170 192(12) 192(12) 179 179

</TABLE>
<TABLE>
<CAPTION>
The Intermediate Fund(13)
-------------------------
Period: Class A Class B Class C
(10) (11) (10) (11)
<S> <C> <C> <C> <C> <C>
1 year $ 38 $ 53 $ 13 $18 $ 8
3 years 51 60 40 26(14) 26(14)
5 years 65 69 69 44 44
10 years 105 133(12) 133(12) 99 99
</TABLE>

(10) Assumes redemption at period end.
(11) Assumes no redemption.
(12) Class B shares automatically convert to Class A shares after
approximately 8 years; therefore, years 9 and 10 reflect Class A
share expenses.
(13) Without voluntary fee and expense reduction, the amounts would be
$46, $73, $102 and $186 for Class A shares for 1, 3, 5 and 10 years,
respectively; $60, $82, $106 and $213 for Class B shares assuming
redemptions for 1, 3, 5, and 10 years, respectively; $25, $48, $83
and $181 for Class C shares assuming redemptions for 1,3, 5 and 10
years, respectively, $20, $62, $106 and $213 for Class B shares
assuming no redemptions for 1, 3, 5 and 10 years, respectively, and
$15, $48, $83 and $181 for Class C shares assuming no redemptions
for 1,3,5 and 10 years, respectively. Class B shares automatically
convert to Class A shares after approximately 8 years; therefore,
years 9 and 10 reflect Class A share expenses.
(14) Class C shares do not incur a contingent deferred sales charge after
one year.

If the Distributor had not agreed to waive a portion of the Class C share
distribution fee, amounts for Class C shares in the Example would be as follows:

<TABLE>
<CAPTION>
The Tax-Exempt Fund The Insured Fund The Intermediate Fund
------------------- ---------------- ---------------------
Period: Class C Class C Class C
(15) (16) (15) (16) (15) (16)
<S> <C> <C> <C> <C> <C> <C>
1 year $ 28 $ 18 $ 28 $ 18 $ 32 $ 22
3 years 55 55 57 57 66 66
5 years 94 94 97 97 114 114
10 years 205 205 212 212 245 245
</TABLE>

(15) Assumes redemption at period end.
(16) Assumes no redemption.

3
<PAGE>

- --------------------------------------------------------------------------------
THE FUNDS' FINANCIAL HISTORY
- --------------------------------------------------------------------------------

The following financial highlights for a share outstanding throughout each
period through the year ended November 30, 1996 have been audited by Price
Waterhouse LLP, independent accountants. Their unqualified report is included in
each Fund's 1996 Annual Report and is incorporated by reference into the
Statement of Additional Information. The financial highlights for the period
ended May 31, 1997 are unaudited. Each Fund adopted its current investment
objective on May 31, 1995. The data presented for periods prior to May 31, 1995
represent operations under earlier investment objectives and policies. No Class
C shares were outstanding during the periods shown.

COLONIAL TAX-EXEMPT FUND

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
(Unaudited)
Six months
ended
May 31 Year ended November 30
----------- ------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $13.550 $13.720 $12.180 $13.920 $13.480 $13.190
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.372 0.756 0.771 0.795 0.842 0.913
Net realized and unrealized gain (loss) (0.217) (0.171) 1.535 (1.744) 0.451 0.277
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.155 0.585 2.306 (0.949) 1.293 1.190
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.375) (0.755) (0.766) (0.791) (0.853) (0.900)
From net realized gains -- -- -- -- -- --
From capital paid in -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total from Distributions Declared to Shareholders -- (0.755) (0.766) (0.791) (0.853) (0.900)
------- ------- ------- ------- ------- -------
Net asset value - End of period $13.330 $13.550 $13.720 $12.180 $13.920 $13.480
======= ======= ======= ======= ======= =======
Total return (b) 1.18%(e) 4.47% 19.35% (7.08)% 9.80% 9.29%
===== ===== ====== ======= ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 0.97%(c)(f) 0.99%(c) 1.01%(c) 1.01% 1.02% 1.05%
Net investment income 5.48%(c)(f) 5.61%(c) 5.82%(c) 6.00% 6.06% 6.81%
Portfolio turnover 23% 40% 41% 56% 28% 14%
Net assets at end of period (in millions) $2,605 $2,818 $3,111 $2,858 $3,357 $2,899
- ---------------------------------
</TABLE>

<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
Year ended November 30
-------------------------------------------------------------
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $12.890 $13.020 $12.970 $12.760 $13.880
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.955 0.986 1.001 1.007 1.083
Net realized and unrealized gain (loss) 0.305 (0.120) 0.045 0.235 (1.159)
------- ------- ------- ------- -------
Total from Investment Operations 1.260 0.866 1.046 1.242 (0.076)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.955) (0.996) (0.996) (1.032) (1.015)
From net realized gains -- -- -- -- (0.029)
From capital paid in (0.005)(a) -- -- -- --
------- ------- ------- ------- -------
Total from Distributions Declared to Shareholders (0.960) (0.996) (0.996) (1.032) (1.044)
------- ------- ------- ------- -------
Net asset value - End of period $13.190 $12.890 $13.020 $12.970 $12.760
======= ======= ======= ======= =======
Total return (b) 10.12% 6.95% 8.33% 10.03% (0.55)%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.03% 1.05% 1.03% 1.06% 1.08%
Net investment income 7.29% 7.64% 7.67% 7.77% 7.79%(d)
Portfolio turnover 10% 10% 9% 22% 20%
Net assets at end of period (in millions) $2,486 $1,886 $1,547 $1,389 $1,278
- ---------------------------------
</TABLE>

(a) Because of differences between book and tax basis accounting, there was no
return of capital for federal income tax purposes.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) Ratio excludes reduction of provision for accumulated earnings tax.

(e) Not annualized.
(f) Annualized.

<PAGE>

- --------------------------------------------------------------------------------
THE FUNDS' FINANCIAL HISTORY (CONT'D)
- --------------------------------------------------------------------------------
COLONIAL TAX-EXEMPT FUND
<TABLE>
<CAPTION>

Class B
--------------------------------------------------------------------------------
(Unaudited)
Six months
ended
May 31 Year ended November 30
------------ --------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $13.550 $13.720 $12.180 $13.920 $13.480 $13.230
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.322 0.656 0.673 0.695 0.740 0.462
Net realized and unrealized gain (loss) (0.217) (0.171) 1.535 (1.744) 0.451 0.248
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.105 0.485 2.208 (1.049) 1.191 0.710
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.325) (0.655) (0.668) (0.691) (0.751) (0.460)
------- ------- ------- ------- ------- -------
Net asset value - End of period $13.330 $13.550 $13.720 $12.180 $13.920 $13.480
======= ======= ======= ======= ======= =======
Total return(b) 0.80%(d) 3.70% 18.47% (7.78)% 9.00% 9.29%(d)
===== ===== ====== ======= ===== ====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.72%(c)(e) 1.74%(c) 1.76%(c) 1.76% 1.77% 1.80(e)
Net investment income 4.73%(c)(e) 4.86%(c) 5.07%(c) 5.25% 5.31% 6.06(e)
Portfolio turnover 23% 40% 41% 56% 28% 14%
Net assets at end of period (in millions) $394 $427 $469 $440 $430 $137
- -----------------------------
</TABLE>
(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) Not annualized.
(e) Annualized.

5
<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL TAX-EXEMPT INSURED FUND

<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------
(Unaudited)
Six months
ended
May 31 Year ended November 30
---------- ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.330 $8.380 $7.450 $8.420 $8.080 $7.880
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.198 0.403 0.418 0.439 0.456 0.480
Net realized and unrealized
gain (loss) (0.138) (0.045) 0.935 (0.977) 0.338 0.200
------ ------ ------ ------ ------ ------
Total from Investment Operations 0.060 0.358 1.353 (0.538) 0.794 0.680
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.200) (0.408) (0.423) (0.432) (0.454) (0.480)
------ ------ ------ ------ ------ ------
From net realized gain -- -- -- -- -- --
Total Distributions Declared to
Shareholders -- (0.408) (0.423) (0.432) (0.454) (0.480)
------ ------ ------ ------ ------ ------
Net asset value - End of period $8.190 $8.330 $8.380 $7.450 $8.420 $8.080
====== ====== ====== ====== ====== ======
Total return (a) 0.75%(c) 4.48% 18.55% (6.61)% 10.00% 8.85%
===== ===== ====== ======= ====== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08%(b)(d) 1.05%(b) 1.05%(b) 1.05% 1.07% 1.10%
Net investment income 4.85%(b)(d) 4.92%(b) 5.20%(b) 5.44% 5.44% 5.97%
Portfolio turnover 17%(c) 25% 31% 36% 12% 7%
Net assets at end of period (000) $189,410 $206,713 $240,894 $198,909 $241,610 $217,782

-----------------------------------------------------------------
Year ended November 30
-----------------------------------------------------------------
1991 1990 1989 1988 1987
------ ------ ------ ------ ------

Net asset value - Beginning of period $7.660 $7.680 $7.460 $7.260 $8.120
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.496 0.506 0.508 0.510 0.501
Net realized and unrealized
gain (loss) 0.222 (0.016) 0.222 0.201 (0.767)
------ ------ ------ ------ ------
Total from Investment Operations 0.718 0.490 0.730 0.711 (0.266)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.498) (0.510) (0.510) (0.511) (0.498)
------ ------ ------ ------ ------
From net realized gain -- -- -- -- (0.096)
Total Distributions Declared to
Shareholders (0.498) (0.510) (0.510) (0.511) (0.594)
------ ------ ------ ------ ------
Net asset value - End of period $7.880 $7.660 $7.680 $7.460 $7.260
====== ====== ====== ====== ======
Total return (a) 9.66% 6.65% 10.07% 10.05% (3.35)%
===== ===== ====== ====== =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08% 1.10% 1.12% 1.12% 1.14%
Net investment income 6.35% 6.66% 6.70% 6.85% 6.63%
Portfolio turnover 8% 15% 38% 78% 129%
Net assets at end of period (000) $189,483 $142,525 $124,119 $104,074 $105,944
</TABLE>

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

6
<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL TAX-EXEMPT INSURED FUND

<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------------------------
(Unaudited)
Six months
ended
May 31 Year ended November 30
----------- ------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.330 $8.380 $7.450 $8.420 $8.080 $7.910
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.168 0.342 0.359 0.378 0.395 0.240
Net realized and unrealized
gain (loss) 0.138 (0.045) 0.935 (0.977) 0.338 0.170
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.030 0.297 1.294 (0.599) 0.733 0.410
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.170) (0.347) (0.364) (0.371) (0.393) (0.240)
------- ------- ------- ------- ------- -------
Net asset value - End of period $8.190 $8.330 $8.380 $7.450 $8.420 $8.080
======= ======= ======= ======= ======= =======
Total return (b) 0.38%(d) 3.70% 17.68% (7.31)% 9.20% 5.23%(d)
===== ===== ====== ======= ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83%(c)(e) 1.80%(c) 1.80%(c) 1.80% 1.82% 1.85%(e)
Net investment income 4.10%(c)(e) 4.17%(c) 4.45%(c) 4.69% 4.69% 5.22%(e)
Portfolio turnover 17%(d) 25% 31% 36% 12% 7%
Net assets at end of period (000) $40,817 $44,621 $50,016 $45,801 $46,035 $16,519
- ---------------------------------
</TABLE>

(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) Not annualized.
(e) Annualized.

7
<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL INTERMEDIATE TAX-EXEMPT FUND

<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
(Unaudited)
Six months
ended Year ended Period Ended
May 31 November 30 November 30
----------- ----------------------------------------- ------------
1997 1996 1995 1994 1993(b)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.880 $7.850 $7.210 $7.810 $7.500
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.196 0.375 0.387 0.366 0.305
Net realized and unrealized
gain (loss) (0.105) 0.022 0.641 (0.596) 0.302
------- ------- ------- ------- -------
Total from Investment Operations 0.091 0.397 1.028 (0.230) 0.607
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.091) (0.367) (0.388) (0.370) (0.297)
------- ------- ------- ------- -------
Net asset value - End of period $7.780 $7.880 $7.850 $7.210 $7.810
======= ======= ======= ======= =======
Total return (c)(d) 1.18%(e) 5.23% 14.56% (3.05)% 8.18%(e)
===== ===== ====== ======= =====
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60%(f)(g) 0.60%(f) 0.36%(f) 0.20% 0.20%(g)
Fees and expenses waived or
borne by the Adviser 0.77%(f)(g) 0.72%(f) 0.96%(f) 1.07% 1.33%(g)
Net investment income 4.90%(f)(g) 4.75%(f) 5.03%(f) 4.85% 4.53%(g)
Portfolio turnover 12%(e) 20% 69% 26% 5%(g)
Net assets at end of period (000) $10,129 $12,479 $13,317 $16,791 $14,700

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

(a) Net of fees and expenses waived or borne
by the Adviser which amounted to $0.031 $0.057 $0.074 $0.080 $0.090
</TABLE>

(b) The Fund commenced investment operations on February 1, 1993.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or 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) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized.

8
<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL INTERMEDIATE TAX-EXEMPT FUND

<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------------
(Unaudited)
Six months
ended Year ended Period Ended
May 31 November 30 November 30
----------- ------------------------------------------ ------------
1997 1996 1995 1994 1993(b)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.880 $7.850 $7.210 $7.810 $7.500
------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.171 0.324 0.338 0.317 0.263
Net realized and unrealized
gain (loss) (0.105) 0.022 0.641 (0.596) 0.302
------- ------- ------- ------- ------
Total from Investment Operations 0.066 0.346 0.979 (0.279) 0.565
------- ------- ------- ------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.166) (0.316) (0.339) (0.321) (0.255)
------- ------- ------- ------- ------
Net asset value - End of period $7.780 $7.880 $7.850 $7.210 $7.810
======= ======= ======= ======= ======
Total return (c)(d) 0.85%(e) 4.55% 13.82% (3.68)% 7.61%(e)
===== ===== ====== ======= =====
RATIOS TO AVERAGE NET ASSETS
Expenses 1.25%(f)(g) 1.25%(f) 1.01%(f) 0.85% 0.85%(g)
Fees and expenses waived or
borne by the Adviser 0.77%(f)(g) 0.72%(f) 0.96%(f) 1.07% 1.33%(g)
Net investment income 4.25%(f)(g) 4.10%(f) 4.38%(f) 4.20% 3.88%(g)
Portfolio turnover 12%(e) 20% 69% 26% 5%(g)
Net assets at end of period (000) $11,458 $13,080 $14,820 $14,138 $9,396

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

(a) Net of fees and expenses waived or borne
by the Adviser which amounted to $0.031 $0.057 $0.074 $0.080 $0.090
</TABLE>

Further performance information is contained in each Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

9
<PAGE>

THE FUNDS' INVESTMENT OBJECTIVES

The Tax-Exempt Fund and the Insured Fund each seeks as high a level of after-tax
total return as is consistent with prudent risk, by pursuing current income
exempt from federal income tax and opportunities for long-term appreciation from
a portfolio primarily invested in investment-grade municipal bonds (the
Tax-Exempt Fund) and insured municipal bonds (the Insured Fund). The
Intermediate Fund seeks as high a level of after-tax total return as is
consistent with moderate volatility, by pursuing current income exempt from
federal income tax and opportunities for appreciation from a portfolio primarily
invested in investment grade, intermediate-term municipal bonds. In this
Prospectus, "tax-exempt bonds" means debt securities, the interest on which is,
in the issuer's counsel's opinion, exempt from federal income taxes.

HOW THE FUNDS PURSUE THEIR OBJECTIVES AND CERTAIN RISK FACTORS

The Tax-Exempt Fund. The Tax-Exempt Fund normally invests substantially all its
assets in tax-exempt bonds. The Tax-Exempt Fund may invest in bonds of any
maturity. Certain bonds do not pay interest in cash on a current basis. However,
the Tax-Exempt Fund will accrue and distribute interest on these bonds on a
current basis and may have to sell securities to generate cash for
distributions. Many bonds have call features that permit the issuer to repay the
bond before maturity. If this occurs, the Tax-Exempt Fund may only be able to
invest the proceeds at lower yields.

The value of tax-exempt bonds and other debt securities (and thus of Tax-Exempt
Fund shares) usually fluctuates inversely with changes in interest rates.

The Tax-Exempt Fund currently intends to limit its investments in (a) bonds
rated lower than Baa by Moody's Investors Services, Inc. (Moody's), bonds rated
lower than BBB by Standard & Poor's Corporation (S&P) or bonds with comparable
ratings from another national rating service (collectively, lower rated bonds)
and (b) unrated bonds of all credit qualities but excluding prerefunded bonds,
in the aggregate, to not more than 35% of the Tax-Exempt Fund's total assets.
For a description of S&P's and Moody's rating systems, see "Appendix." The
Tax-Exempt Fund currently intends to limit its investments in unrated bonds of
all credit qualities (but excluding prerefunded bonds) to 25% of total assets
(which 25% shall be included in the 35% aggregate limit for lower rated and
unrated bonds above). Compared to securities of higher quality, lower rated
bonds:

1. Are likely to have more volatile market prices 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.

2. The Tax-Exempt Fund's achievement of its investment objective is more
dependent on the Adviser's credit analysis; and

3. Lower rated bonds are less sensitive to interest rate changes but are more
sensitive to adverse economic developments.

Weighted average composition of the Tax-Exempt Fund's portfolio at June 30,
1997, was:

Rated Unrated

Investment grade 82.60% 3.20%
B-BB and equivalent 0.70 11.20
Below B 0.00 2.30
---- ----
Total 83.30% 16.70%
===== =====

10
<PAGE>

when assigning an internal rating to unrated bonds. As a result,
approximately 12% of the Fund's assets were reclassified as below investment
grade. An additional 1% of the change in investment grade assets represents a
change in the holdings of the Fund's portfolio.

This composition does not necessarily reflect the current or future portfolio.
The Tax-Exempt Fund is not required to sell a security when its rating is
reduced.

The Insured Fund. The Insured Fund normally invests at least 65% of its assets
in high quality tax-exempt bonds of any maturity that are fully insured as to
the payment of interest and principal. The balance of the Insured Fund's assets
may be invested in uninsured debt securities of any maturity that are rated BBB
or Baa or higher, but no more than 20% of the Fund's assets will be rated BBB or
Baa. The value of tax-exempt bonds and other debt securities (and thus the
Insured Fund shares) usually fluctuates inversely to changes in interest rates.
The Insured Fund may invest in securities that do not pay interest in cash on a
current basis. The Insured Fund will, however, accrue and distribute this
interest on a current basis and may have to sell securities to generate cash for
distributions. Many bonds have call features that permit the issuer to repay the
bond before maturity. If this occurs, the Insured Fund may only be able to
invest the proceeds at lower yields.

The Insured Fund will generally buy tax-exempt bonds insured under an insurance
policy obtained by the issuer or underwriter at the time of issuance. These
bonds will all be rated AAA when acquired. The Insured Fund may also buy
uninsured tax-exempt bonds and simultaneously buy insurance on those bonds from
an insurance company, but only if S&P gives a AAA rating to bonds insured by
that insurance company. For a description of S&P's and Moody's rating systems,
see "Appendix." The Insured Fund may also buy a portfolio insurance policy that
covers its holdings of uninsured tax-exempt bonds. Insurance reduces but does
not eliminate the credit risk of holding tax-exempt bonds, since an insurer may
not be able to meet its obligations. Insurance does not reduce fluctuations in
the Insured Fund share values resulting from changes in market interest rates.
Insured bonds generally have lower yields than comparable uninsured bonds. The
Insured Fund's purchases of insurance to cover uninsured bonds reduce the
Insured Fund's yield. Some forms of insurance cover bonds only so long as the
Insured Fund holds them, so that, if the bond issuer's creditworthiness
declines, the bonds would be worth less to other investors than to the Insured
Fund. Thus, the Insured Fund might not be able to sell the bonds for an
acceptable price and might continue to hold bonds that it would otherwise sell
to buy higher-yielding bonds. In valuing such securities, the Insured Fund
values the insurance at the difference between the market value of the security
and the market value of similar securities whose issuers' creditworthiness has
not substantially declined.

The Intermediate Fund. The Intermediate Fund normally invests substantially all
its assets in investment grade tax-exempt bonds. The Intermediate Fund may
invest in bonds of any maturity. The weighted average maturity will normally
range from 3 to 10 years. Tax-exempt bonds may include fixed, variable or
floating rate general obligation and revenue bonds (including municipal lease
obligations and resource recovery bonds); zero coupon and asset-backed
securities; inverse floating obligations; tax, revenue or bond anticipation
notes; and tax-exempt commercial paper. The value of debt securities (and thus
the Intermediate Fund shares) usually fluctuates inversely to changes in
interest rates. The Intermediate Fund may buy or sell securities on a
delayed-delivery basis and may purchase when-issued securities and securities
restricted as to resale. Many bonds have call features that permit the issuer to
repay the bond before maturity. If this occurs, the Intermediate Fund may only
be able to invest the proceeds only at lower yields.

Investment grade securities are rated Baa or higher by Moody's or BBB or higher
by S&P or unrated securities determined by the Adviser to be of comparable
quality. Bonds rated Baa or BBB are considered to have some speculative
characteristics and could be more adversely affected by unfavorable economic
developments than higher rated bonds. For a description of S&P's and Moody's
rating systems, see "Appendix." The Intermediate Fund is not required to sell a
security when its rating is reduced. The Intermediate Fund currently intends to
limit its investments in unrated bonds to less than 25% of total assets.

"Inverse floating obligations," also known as "residual interest bonds,"
represent interests in tax-exempt bonds. These securities carry interest rates
that vary inversely to changes in market interest rates. Such securities have
investment characteristics similar to investment leverage.

11
<PAGE>

Their market values are subject to greater risks of fluctuation than securities
bearing a fixed rate of interest which may lead to greater fluctuation in the
value of the Intermediate Fund shares.

"Asset-backed securities" are interests in pools of debt securities. Principal
and interest payments on the underlying debt are passed through to the holders
of the asset-backed securities. A pool may issue more than one class of
asset-backed securities, representing different rights to receive principal
and/or interest. Principal on the asset-backed securities may be prepaid if the
underlying debt securities are prepaid. As a result, these securities may not
increase in value when interest rates fall. The Intermediate Fund may be able to
invest prepaid principal only at lower yields. The prepayment of such securities
purchased at a premium may result in losses equal to the premium.

"Zero coupon securities" are 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 Intermediate Fund and distributed to its shareholders. These distributions
must be made from the Intermediate Fund's cash assets or, if necessary, from the
proceeds of sales of portfolio securities. The Intermediate 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.

Certain bonds, including zero coupon bonds, do not pay interest in cash on a
current basis. However, the Intermediate Fund will accrue and distribute this
interest on a current basis, and may have to sell securities to generate cash
for distributions.

The Tax-Exempt Fund, the Insured Fund and the Intermediate Fund.

"When Issued" and "Delayed Delivery" Securities. Each Fund may acquire
securities on a "when-issued" or "delayed delivery" basis by contracting to
purchase securities for a fixed price on a date beyond the customary settlement
time with no interest accruing until settlement. If made through a dealer, the
contract is dependent on the dealer completing the sale. The dealer's failure
could deprive a Fund of an advantageous yield or price. These contracts involve
the risk that the value of the underlying security may change prior to
settlement. A Fund may realize short-term gains or losses if the contracts are
sold. Transactions in when-issued securities may be limited by certain Internal
Revenue Code requirements.

Options and Futures. Each Fund may write covered call and put options on
securities held in its portfolio and purchase call and put options on debt
securities. A call option gives the purchaser the right to buy a security from,
and a put option the right to sell a security to, the option writer at a
specified price, on or before a specified date. A Fund will pay a premium when
purchasing an option, which reduces a Fund's return on the underlying security
if the option is exercised and results in a loss if the option expires
unexercised. A Fund will receive a premium from writing an option, which may
increase its return if the option expires or is closed out at a profit. So long
as a Fund is the writer of a call option it will own the underlying security
subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). So long as a Fund is the writer of a put
option it will hold cash and/or high-grade debt obligations equal to the price
to be paid if the option is exercised. If a Fund is unable to close out an
unexpired option, a Fund must continue to hold the underlying security until the
option expires. Trading hours for options may differ from the trading hours for
the underlying securities. Thus significant price movements may occur in the
securities markets that are not reflected in the options market. This may limit
the effectiveness of options as hedging devices.

Each Fund may buy or write options that are not traded on national securities
exchanges and not protected by the Options Clearing Corporation. These
transactions are effected directly with a broker-dealer, and each Fund bears the
risk that the broker-dealer will fail to meet its obligations. The market value
of such options and other illiquid assets will not exceed 10% (for the
Tax-Exempt Fund and the Insured Fund) or 15% (for the Intermediate Fund) of each
Fund's total assets.

For hedging purposes, each Fund may purchase or sell (1) interest rate and
tax-exempt bond index futures contracts, and (2) put and call options on such
contracts and on

12
<PAGE>

such indices. A futures contract creates an obligation by the seller to deliver
and the buyer to take delivery of the type of instrument at the time and in the
amount specified in the contract. Although futures call for delivery (or
acceptance) of the specified instrument, futures are usually closed out before
the settlement date through the purchase (sale) of a comparable contract. If the
initial sale price of the future exceeds (or is less than) the price of the
offsetting purchase, a Fund realizes a gain (or loss). Options on futures
contracts operate in a similar manner to options on securities, except that the
position assumed is in futures contracts rather than in securities. A Fund may
not purchase or sell futures contracts or purchase related options if
immediately thereafter the sum of the amount of deposits for initial margin or
premiums on the existing futures and related options positions would exceed 5%
of the market value of that Fund's total assets. Transactions in futures and
related options involve the risk of (1) imperfect correlation between the price
movement of the contracts and the underlying securities, (2) significant price
movement in one but not the other market because of different trading hours and
(3) the possible absence of a liquid secondary market at any point in time.
Also, if the Adviser's prediction on interest rates is inaccurate, a Fund may be
worse off than if it had not hedged.

Short-Term Investments. A portion of each Fund's assets may be held in cash or
invested in short-term securities for day-to-day operating purposes. Each Fund
intends that its short-term investments will be tax-exempt, but if suitable
tax-exempt securities are not available or are available only on a when-issued
basis, each Fund may invest up to 20% of its assets in repurchase agreements;
short-term taxable obligations rated A-1+ of banks which have or whose parent
holding companies have long-term debt ratings of AAA, or of corporations with
long-term debt ratings of AAA; and securities of the U.S. government. The
Tax-Exempt Fund and the Insured Fund may each invest up to 20% of its assets
(reduced by the percentage of its total assets invested in "private activity
bonds." Based on the Adviser's determination, each Fund may temporarily invest
more than 20% of its assets in such taxable obligations for defensive purposes.
Each Fund's policy is not to concentrate in any industry, but each Fund may
invest up to 25% of its assets in industrial development revenue bonds based on
the credit of private entities in any one industry (governmental issuers are not
considered to be part of any "industry"). As a fundamental policy, each Fund
normally limits investments in securities subject to the federal alternative
minimum tax to a maximum of 20% of total assets.

Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, treasury bills and repurchase
agreements. Some or all of each Fund's assets may be invested in such
investments during periods of unusual market conditions. Under a repurchase
agreement, a Fund buys a security from a bank or dealer, which is obligated to
buy it back at a fixed price and time. The security is held in a separate
account at a Fund's custodian and constitutes a Fund's collateral for the bank's
or dealer's repurchase obligation. Additional collateral will be added so that
the obligation will at all times be fully collateralized. However, if the bank
or dealer defaults or enters bankruptcy, a Fund may experience costs and delays
in liquidating the collateral and may experience a loss if it is unable to
demonstrate its right to the collateral in a bankruptcy proceeding. Not more
than 10% of each Fund's net assets will be invested in repurchase agreements
maturing in more than 7 days and other illiquid assets.

Borrowing of Money. Each Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets; however, a Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.

Short-Term Trading. Each Fund may trade portfolio securities for short-term
profits to take advantage of price differentials. These trades are limited by
certain Internal Revenue Code requirements.

Other. Each Fund may not always achieve its investment objective. Each Fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval. Each Fund will notify investors in connection with
any material change in its investment objective or investment policies. If there
is a change in the investment objective or investment policies, shareholders
should consider whether a Fund remains an appropriate investment in light of
their financial position and needs. Shareholders may incur a contingent deferred
sales charge if shares are redeemed in response to a change in investment
objective or investment policies. Each Fund has a fundamental investment policy
of investing under normal circumstances at least 80% of its total assets in
tax-exempt bonds. This policy

13
<PAGE>

and each Fund's fundamental investment policies listed in the Statement of
Additional Information cannot be changed without the approval of a majority of
that Fund's outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is contained
in the Statement of Additional Information.

HOW THE FUNDS MEASURE THEIR PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 4.75% (the Tax-Exempt Fund
and the Insured Fund) or 3.25% (the Intermediate Fund) on Class A shares, and
the contingent deferred sales charge applicable to the time period quoted on
Class B and Class C shares. Other total returns differ from the average annual
total return only in that they may relate to different time periods, may
represent aggregate as opposed to average annual total returns, and may not
reflect the initial or contingent deferred sales charges.

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

All performance information is historical and does not predict future results.

HOW THE FUNDS ARE MANAGED

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

Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
serves as the distributor for each of the Fund's shares. Colonial Investors
Service Center, Inc. (Transfer Agent), an affiliate of the Adviser, serves as
the shareholder services and transfer agent for each Fund. Each of the Adviser,
Distributor and the Transfer Agent is an indirect subsidiary of Liberty
Financial Companies, Inc., which in turn is an indirect subsidiary of Liberty
Mutual Insurance Company (Liberty Mutual). Liberty Mutual is considered to be
the controlling entity of the Adviser and its affiliates. Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.

The Adviser furnishes each Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Funds paid the
Adviser the following percentages of their average daily net assets in fiscal
year 1996: the Tax-Exempt Fund - 0.52%, the Insured Fund - 0.55% and the
Intermediate Fund - 0% (after fee waiver). During 1996, the Tax-Exempt Fund's
fee was reduced as follows:
Cumulative Annualized
Effective Date Reduction

January 1, 1996 0.01%
April 1, 1996 0.02%
July 1, 1996 0.03%
October 1, 1996 0.04%

Bonny E. Boatman, Senior Vice President and Director of the Adviser and head of
the Adviser's Tax-Exempt Group, has managed the Tax-Exempt Fund since 1993 and
has managed various other Colonial tax-exempt funds since 1985. William C.
Loring, Vice President of the Adviser, has managed the Tax-Exempt Fund, the
Insured Fund and the Intermediate Fund since May 1997, 1987 and 1993,
respectively, and various other Colonial tax-exempt funds since 1986. Brian M.
Hartford, Vice President of the Adviser, has managed the Tax-Exempt Fund since
May, 1997, and various other Colonial tax-exempt funds since 1993. Mr. Hartford
was a Senior Municipal Trader of the Adviser from 1991 until 1993.

14
<PAGE>

The Adviser also provides pricing and bookkeeping services to each Fund for a
monthly fee of $2,250 plus a percentage of each Fund's average net assets over
$50 million.

The Transfer Agent provides transfer agency and shareholder services to each
Fund for a fee of 0.14% annually of the Fund's average net assets plus certain
out-of-pocket expenses.

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

The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services. Subject
to seeking best execution, the Adviser may consider sales of shares of the Fund
(and of certain other Colonial funds) in selecting broker-dealers for portfolio
security transactions.

HOW THE FUNDS VALUE THEIR SHARES

Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Funds are
valued as of the close of the New York Stock Exchange (Exchange) (normally 4:00
p.m. Eastern time) each day the Exchange is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, pursuant to procedures adopted by the Trustees,
that such cost approximates current market value. All other securities and
assets are valued at fair value following procedures adopted by the Trustees.

DISTRIBUTIONS AND TAXES

Each Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income monthly and
any net realized gain at least annually.

The Funds generally declare distributions daily. Distributions of each Fund are
invested in additional shares of the same Class of a Fund at net asset value
unless the shareholder elects to receive cash. Regardless of the shareholder's
election, distributions of $10 or less will not be paid in cash to shareholders
but will be invested in additional shares of the same Class of shares of a Fund
at net asset value. To change your election, call the Transfer Agent for
information.

If the Funds make 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
Funds' 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 a Fund. Furthermore, capital gains
distributions by the Funds will generally be subject to federal, state and local
income taxes. Each 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 a Fund's ordinary income and will be
taxable to shareholders as such when it is distributed to them. 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 Funds are offered continuously. Orders received in good form prior
to the time at which the Funds value their shares (or placed with

15
<PAGE>

a financial service firm before such time and transmitted by the financial
service firm before a Fund processes that day's share transactions) will be
processed based on that day's closing net asset value, plus any applicable
initial sales charge.

The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class C shares and there are
some limitations on the issuance of Class A share certificates. The Funds may
refuse any purchase order for their shares. See the Statement of Additional
Information for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

The Tax-Exempt Fund And The Insured Fund

Initial Sales Charge
------------------------------------
Retained
by
Financial
Service
as % of Firm
---------------------- as % of
Amount Amount Offering Offering
Purchased Invested Price Price
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less
than $100,000 4.71% 4.50% 4.00%
$100,000 to less
than $250,000 3.63% 3.50% 3.00%
$250,000 to less
than $500,000 2.56% 2.50% 2.00%
$500,000 to less
than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 or
more 0.00% 0.00% 0.00%

The Intermediate Fund

Initial Sales Charge
------------------------------------
Retained
by
Financial
Service
as % of Firm
---------------------- as % of
Amount Amount Offering Offering
Purchased Invested Price Price
Less than
$100,000 3.35% 3.25% 3.00%
$100,000 to less
than $250,000 2.56% 2.50% 2.25%
$250,000 to less
$500,000 2.04% 2.00% 1.75%
$500,000 to less
than $1,000,000 1.52% 1.50% 1.25%
$1,000,000 or
more 0.00% 0.00% 0.00%

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

Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)

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

In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held by the investor. If
a purchase results in an account having a value from $1 million to $5 million,
then the shares purchased will be subject to a 1.00% contingent deferred sales
charge, payable to the Distributor, if redeemed within 18 months from the first
day of the month following the purchase. If the purchase results in an account
having a value in excess of $5 million, the contingent deferred sales charge
will not apply to the portion of the purchased shares representing such excess
amount.

Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, and are subject to a 0.75% (the Tax-Exempt Fund and the
Insured Fund) or 0.65% (the Intermediate Fund) annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee) and a declining contingent

16
<PAGE>

deferred sales charge if redeemed within six (the Tax-Exempt Fund and the
Insured Fund) or four (the Intermediate Fund) years after purchase. As shown
below, the amount of the contingent deferred sales charge depends on the number
of years after purchase that the redemption occurs:

The Tax-Exempt Fund And The Insured Fund

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%

The Intermediate Fund

Years Contingent Deferred
After Purchase Sales Charge

0-1 4.00%
1-2 3.00%
2-3 2.00%
3-4 1.00%
More than 4 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% (the Tax-Exempt Fund and the Insured Fund) or 3.00% (the Intermediate
Fund) on Class B share purchases.

Class C Shares. Class C shares are offered at net asset value and are subject to
a 0.75% annual distribution fee (the Tax-Exempt Fund and the Insured Fund) or
0.65% (the Intermediate Fund) and a 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which the
purchase was accepted. The Distributor has voluntarily agreed to waive a portion
of the distribution fee so that it will not exceed 0.60% (the Tax-Exempt Fund),
0.45% (the Insured Fund) and 0.20% (the Intermediate Fund) annually. This waiver
may be terminated by the Distributor at any time without shareholder approval.

The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.55% (the Tax-Exempt
Fund), 0.35% (the Insured Fund) and 0.10% (the Intermediate Fund) annually
commencing after the shares purchased have been outstanding for one year.
Payment of the ongoing commission is conditioned on receipt by the Distributor
of the annual distribution fee, applicable to each Fund, referred to above. The
commission may be reduced or eliminated if the distribution fee paid by the Fund
is reduced or eliminated for any reason.

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

Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class C shares. Purchases of $250,000 or
more must be for Class A or Class C shares. Purchases of $1,000,000 or more must
be for Class A shares. Consult your financial service firm.

Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. See the
Statement of Additional Information for more information.

Special Purchase Programs. The Funds allow certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. These programs are described in the Statement of
Additional

17
<PAGE>

Information under "Programs for Reducing or Eliminating Sales Charges."

Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.

In June of any year, a Fund may deduct $10 (payable to the Transfer Agent) from
accounts valued at less than $1,000 unless the account value has dropped below
$1,000 solely as a result of share value depreciation. Shareholders will receive
60 days' written notice to increase the account value before the fee is
deducted. The Fund may also deduct annual maintenance and processing fees
(payable to the Transfer Agent) in connection with certain retirement plan
accounts. See "Special Purchase Programs/Investor Services" in the Statement of
Additional Information for more information.

HOW TO SELL SHARES

Shares of the Funds may be sold on any day the Exchange is open, either directly
to a 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, a Fund
will send proceeds as soon as the check has cleared (which may take up to 15
days).

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

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

Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Funds value their shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.

General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, a Fund
may suspend repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law.

HOW TO EXCHANGE SHARES

Except as described below with respect to money market funds, Fund shares may be
exchanged at net asset value among shares of the same class of most Colonial
funds. Shares will continue to age without regard to the exchange for purposes
of conversion and in determining the contingent deferred sales charge, if any,
upon redemption. Carefully read the prospectus of the fund into which the
exchange will go before submitting the request. Call 1-800-426-3750 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction. The exchange
service may be changed, suspended or eliminated on 60 days' written notice. Each
of the Funds will terminate the exchange privilege as to a particular
shareholder if the Adviser determines, in its sole and absolute discretion, that
the shareholder's exchange activity is likely to adversely impact the Adviser's
ability to manage each of the Fund's investments in accordance with their
investment objective or otherwise harm each of the Funds or its remaining
shareholders.

Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.

18
<PAGE>

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 (the
Tax-Exempt Fund and the Insured Fund) or four years (the Intermediate Fund)
after the original purchase, a contingent deferred sales charge will be assessed
using the schedule of the fund into which the original investment was made.

Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one "round-trip" exchange of the Fund's Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund A to Fund B and back to Fund A would be permitted only
once during each three-month period.

TELEPHONE TRANSACTIONS

All shareholders and/or their financial advisers are automatically eligible to
exchange each Fund's shares by telephone and may redeem up to $50,000 of a
Fund's shares by calling 1-800-422-3737 toll-free any business day between 9:00
a.m. and the time at which the Fund values its shares. Telephone redemption
privileges for larger amounts may be elected on the account application. The
Transfer Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and may be liable for losses related to
unauthorized or fraudulent transactions in the event reasonable procedures are
not employed. Such procedures include restrictions on where proceeds of
telephone redemptions may be sent, limitations on the ability to redeem by
telephone shortly after an address change, recording of telephone lines and
requirements that the redeeming shareholder and/or their financial adviser
provide certain identifying information. 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 a Fund at its toll-free telephone number during periods of drastic
economic or market changes. In that event, shareholders and/or their financial
advisers should follow the procedures for redemption or exchange by mail as
described above under "How to Sell Shares." The Adviser, the Transfer Agent and
each Fund reserve the right to change, modify or terminate the telephone
redemption or exchange services at any time upon prior written notice to
shareholders. Shareholders and/or their financial advisers are not obligated to
transact by telephone.

12B-1 PLAN

Under a 12b-1 Plan, each Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% (the Tax-Exempt Fund and the Insured Fund) or 0.20% (the
Intermediate Fund) of the Fund's net assets attributed to each Class of shares.
The 12b-1 Plan also requires each Fund to pay the Distributor monthly a
distribution fee at the annual rate of 0.75% (the Tax-Exempt Fund and the
Insured Fund) or 0.65% (the Intermediate Fund) of the average daily net assets
attributed to its Class B and Class C shares. The Distributor has voluntarily
agreed to waive a portion of the Class C share distribution fee so that it does
not exceed 0.60% (the Tax-Exempt Fund), 0.45% (the Insured Fund) and 0.20% (the
Intermediate Fund) annually. The Distributor may terminate this waiver at any
time without shareholder approval. Because the Class B and Class C shares bear
the additional distribution fees, their dividends will be lower than the
dividends of Class A shares. Class B shares automatically convert to Class A
shares, approximately eight years after the Class B shares were purchased. Class
C shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold a Fund's 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
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of a Fund's
shares.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized in 1978. Each Fund
represents the entire interest in a separate portfolio of the Trust.

The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive

19
<PAGE>

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 bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.

AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.

A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.

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

C ratings are reserved for income bonds on which no interest is being paid.

D bonds are in default, and payment of interest and/or principal is in arrears.

Plus(+) or minus (-) are modifiers relative to the standing within the major
rating categories.

MOODY'S

Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities. Those bonds in the Aa through B
groups which Moody's believes possess the strongest investment attributes are
designated by the symbol Aa1, A1 and Baa1.

A bonds possess many favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.

Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

Ba bonds are judged to have speculative elements; their future cannot be
considered as well secured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.

20
<PAGE>

Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.

21
<PAGE>

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

Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621

Custodian
UMB, n.a.
928 Grand Avenue
Kansas City, MO 64106

Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611

Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624

Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624

Your financial service firm is:

Printed in U.S.A.

March 31, 1997; Revised August 1, 1997

COLONIAL TAX-
EXEMPT FUND

COLONIAL TAX-EXEMPT INSURED FUND

COLONIAL INTERMEDIATE TAX-EXEMPT FUND

PROSPECTUS

Colonial Tax-Exempt Fund (the Tax-Exempt Fund) and Colonial Tax-Exempt Insured
Fund (the Insured Fund) each seeks as high a level of after-tax total return as
is consistent with prudent risk, by pursuing current income exempt from federal
income tax and opportunities for long-term appreciation from a portfolio
primarily invested in investment-grade municipal bonds (the Tax-Exempt Fund) and
insured municipal bonds (the Insured Fund). Colonial Intermediate Tax-Exempt
Fund (the Intermediate Fund) seeks as high a level of after-tax total return as
is consistent with moderate volatility, by pursuing current income exempt from
federal income tax and opportunities for appreciation from a portfolio primarily
invested in investment grade, intermediate-term municipal bonds.

For more detailed information about the Funds, call the Adviser at
1-800-426-3750 for the March 31, 1997; Revised August 1, 1997 Statement of
Additional Information.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

Colonial Mutual Funds
Please send your completed application to:

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

New A, B & C Shares Account Application/Revision to Existing Account

To open a new account, complete sections 1, 2, 3, & 7.

To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.

___ Please check here if this is a revision.

1-----------Account ownership--------------
Please choose one of the following.

__Individual: Print your name, Social Security #, U.S. citizen status.

__Joint Tenant: 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

______________________________________
City, State, and Zip

______________________________________
Daytime phone number

______________________________________
Social Security # or Taxpayer I.D. #

Are you a U.S. citizen? ___Yes ___No

______________________________________
If no, country of permanent residence

______________________________________
Account Owner's date of birth

______________________________________
Account number (if existing account)

2 -----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 C shares. If no distribution
option is selected, distributions will be reinvested in additional fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.

Fund Fund Fund

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

$_______________ $__________________ $____________________
Amount Amount Amount

Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (less than
$1,000,000, available on certain funds after July 1,
1997; see prospectus)

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

___Reinvest dividends and capital gains

___Dividends and capital gains in cash

___Dividends in cash; reinvest capital gains

___Automatic Dividend Diversification See section 5A, inside

___Direct Deposit via Colonial Cash Connection Complete Bank information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House System.

3---Your signature & taxpayer I.D. number certification----

Each person signing on behalf of an entity represents that his/her actions are
authorized. I have received and read each appropriate fund prospectus and
understand that its terms are incorporated by reference into this application.
I understand that this application is subject to acceptance. I understand that
certain redemptions may be subject to a contingent deferred sales charge. It
is agreed that the fund, 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 sections 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 preceding business day if the 10th falls on a non-business day. If you
receive your SWP payment via electronic funds transfer (EFT), you may request
it to be processed any day of the month. Withdrawals in excess of 12% annually
of your current account value will not be accepted. Redemptions made in
addition to SWP payments may be subject to a contingent deferred sales charge
for Class B or C shares. Please consult your financial or tax adviser before
electing this option.

Funds for withdrawal:

___________________
Name of fund

Withdrawal amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________

Frequency (choose one)
__Monthly __Quarterly __Semiannually

I would like payments to begin _____/_____ (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 pptions
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.

1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.

2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or EFT. Telephone redemptions over $500 will be sent via federal fund wire,
usually on the next business day ($7.50 will be deducted). Redemptions of
$500 or less will be sent by check to your designated bank.

3. On-Demand EFT Redemption
__I would like the On-Demand EFT Redemption Privilege. Proceeds paid via EFT
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from your fund account
by telephone and send your money to your bank account. If you are adding this
service to an existing account, complete the Bank Information section below
and have all shareholder signatures guaranteed.

Colonial'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

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

C. Fundamatic/On-Demand EFT Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial fund account on a regular basis. The On-
Demand EFT Purchase program moves money from your bank checking account to
your Colonial fund account by electronic funds transfer based on your
telephone request. You will receive the applicable price two
business days after the receipt of your request. Your bank needs to be a
member of the Automated Clearing House System. Please attach a blank check
marked "VOID." (Deposit slips are not a substitution). Also, complete the
section below. Please allow 3 weeks for Colonial to establish these services
with your bank.

____________________________________
Fund name

_________________________________
Account number

$_____________________ _________________
Amount to transfer Month to start

___________________________________
Fund name

________________________________
Account number

$_____________________ _________________
Amount to transfer Month to start

__On-Demand Purchase (will be automatically established if you choose
Fundamatic)
__Fundamatic Frequency
__Monthly or __Quarterly

Check one:

__EFT- Choose any day of the month_____________________
__Paper Draft-Choose either the:
__5th day of the month
__20th day of the month

Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. Do Not Detach. Make sure all depositors on the bank account sign to
the far right. Please attach a blank check marked "VOID" here. (Deposit slips
are not a substitution). See reverse for bank instructions.

I authorize 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

______________________________________
City State Zip

______________________________________
Bank account number

______________________________________
Bank routing #

X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records

6------------Ways to reduce your sales charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.

A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial 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

_____________________________________
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 account numbers or tax I.D. numbers of accounts to be linked.

________________________________________________________________________

Fundamatic (See reverse side)
Applications must be received before the start date for processing.

This program's deposit privilege can be revoked by 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-823D-0697 (6/97)

<PAGE>

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

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

COLONIAL TRUST IV

Cross Reference Sheet

Colonial High Yield Municipal 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 is 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 Plan; Back
Cover

8. Summary of Expenses; How to Sell Shares; How to
Exchange Shares; Telephone Transactions

9. Not Applicable

<PAGE>

March 31, 1997; Revised August 1, 1997

COLONIAL HIGH YIELD MUNICIPAL FUND

PROSPECTUS

BEFORE YOU INVEST

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

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

Colonial High Yield Municipal Fund (Fund), a diversified portfolio of Colonial
Trust IV (Trust), an open-end management investment company, seeks a high level
of after-tax total return by pursuing current income exempt from ordinary
federal income tax and opportunities for long-term appreciation from a portfolio
primarily invested in medium- to lower-grade municipal bonds.

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

The Fund may invest in lower rated bonds (commonly referred to as "junk bonds")
which are regarded as speculative as to payment of principal and interest.
Purchasers should carefully assess the risks associated with an investment in
the Fund.

This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference.

More detailed information about the Fund is in
the March 31, 1997; Revised August 1, 1997, Statement of Additional Information
which has been filed with the

HM-01/918D-0897

Securities and Exchange Commission and is obtainable free of charge by calling
the Adviser at 1-800-426-3750. The Statement of Additional Information is
incorporated by reference in (which means it is considered to be a part of) this
Prospectus. The Fund offers three classes of shares. Class A shares are offered
at net asset value plus a sales charge imposed at the time of purchase; Class B
shares are offered at net asset value and are subject to an annual distribution
fee and a declining contingent deferred sales charge on redemptions made within
six years after purchase; and Class C shares are offered at net asset value and
are subject to an annual distribution fee and a contingent deferred sales charge
on redemptions made within one year after purchase. Class B shares automatically
convert to Class A shares after approximately eight years. See "How to Buy
Shares."

Contents Page
Summary of Expenses 2
The Fund's Financial History 3
The Fund's Investment Objective 4
How the Fund Pursues its Objective and
Certain Risk Factors 4
How the Fund Measures its Performance 6
How the Fund is Managed 7
How the Fund Values its Shares 7
Distributions and Taxes 7
How to Buy Shares 8
How to Sell Shares 9
How to Exchange Shares 10
Telephone Transactions 10
12b-1 Plan 10
Organization and History 11
Appendix 11

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

THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

SUMMARY OF EXPENSES

Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. See "How the Fund
is Managed" and "12b-1 Plan" for more complete descriptions of the Fund's
various costs and expenses.

Shareholder Transaction Expenses (1)(2)

Class A Class B Class C
Maximum Initial Sales Charge
Imposed on a Purchase
(as a % of offering price)(3) 4.75% 0.00%(5) 0.00%(5)

Maximum Contingent Deferred
Sales Charge
(as a % of offering price)(3) 1.00%(4) 5.00% 1.00%

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

(2) Redemption proceeds exceeding $1,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.

(3) Does not apply to reinvested distributions.

(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."

(5) Because of the distribution fee applicable to Class B and Class C shares,
long-term Class B and Class C shareholders may pay more in aggregate sales
charges than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because the Fund's Class B
shares automatically convert to Class A shares after approximately 8 years,
this is less likely for Class B shares than for a class without a
conversion feature.

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

Class A Class B Class C

Management fee 0.55% 0.55% 0.55%
12b-1 fees 0.25 1.00 0.85(6)
Other expenses 0.30 0.30 0.30

<PAGE>

Total operating expenses 1.10% 1.85% 1.70%

(6) The Distributor has voluntarily agreed to waive a portion of the Class C
share Rule 12b-1 distribution fee so that it will not exceed 0.60%
annually. The Distributor may terminate the fee waiver at any time without
shareholder approval. See "12b-1 Plan." Absent such fee waiver, the "12b-1
fees" would have been 1.00% and the "Total operating expenses" would have
been 1.85%.

Example

The following example shows the cumulative expenses attributable to a $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 in this Example should not be considered
indicative of actual or expected Fund performance, both of which will vary:

Class A Class B Class C
Period (7) (8) (7) (8)
1 year $ 58 $ 69 $ 19 $ 27 $ 17
3 years 81 88 58 54(10) 54(10)
5 years 105 120 100 92 92
10 years 175 197(9) 197(9) 201 201

If the Distributor had not agreed to waive a portion of the Class C share
distribution fee, amounts for Class C shares in the Example would be as follows:
$29, $58, $100 and $217 for 1, 3, 5 and 10 years, respectively, assuming
redemption at period end; and $19, $58, $100 and $217 for 1, 3, 5 and 10 years,
respectively, assuming no redemption.

(7) Assumes redemption at period end.

(8) Assumes no redemption.

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

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

<PAGE>

THE FUND'S FINANCIAL HISTORY

The following financial highlights for a share outstanding throughout each
period through the year ended November 30, 1996 have been audited by Price
Waterhouse LLP, independent accountants. Their unqualified report is included in
the Fund's 1996 Annual Report and is incorporated by reference into the
Statement of Additional Information. The financial highlights for the period
ended May 31, 1997 are unaudited. The Fund adopted its current investment
objective on May 31, 1995. The data presented for periods prior to May 31, 1995
represent operations under earlier investment objectives and policies. No Class
C shares were outstanding during the periods shown.

Six months ended
May 31
---------------------------
1997
----
Class A Class B
------- -------
Net asset value - Beginning of period $10.160 $10.160
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.301 0.263
Net realized and unrealized
gain (loss) (0.094) (0.094)
------ ------
Total from Investment Operations 0.207 0.169
----- -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.303) (0.265)
------ ------
In excess of net investment income (0.004) (0.004)
------ ------
Total Distributions Declared to Shareholders (0.307) (0.269)
------ ------
Net asset value - End of period $10.060 $10.060
======= =======
Total return (d) 2.07%(e) 1.69%(e)
---- ----
RATIOS TO AVERAGE NET ASSETS
Expenses 1.09%(g)(h) 1.84%(g)(h)
Fees waived by the Adviser -- --
Net investment income 5.96%(g)(h) 5.21%(g)(h)
Portfolio turnover 10%(e) 10%(e)
Net assets at end of period (000) $46,559 $143,694

<TABLE>
<CAPTION>
Year ended November 30
------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Class A Class B Class A Class B Class A(a) Class B
------- ------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $10.230 $10.230 $9.330 $9.330 $9.800 $10.320
------- ------- ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.624 0.548 0.656 0.583 0.188 0.605
Net realized and unrealized
gain (loss) (0.051) (0.051) 0.912 0.912 (0.496) (1.016)
------ ------ ----- ----- ------ ------
Total from Investment Operations 0.573 0.497 1.568 1.495 (0.308) (0.411)
----- ----- ----- ----- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.643) (0.567) (0.668) (0.595) (0.162) (0.579)
------ ------ ------ ------ ------ ------
In excess of net investment income
Total Distributions Declared to Shareholders
Net asset value - End of period $10.160 $10.160 $10.230 $10.230 $9.330 $9.330
======= ======= ======= ======= ====== ======
Total return (d) 5.86% 5.07% 17.28% 16.42% (3.15)%(e)% (4.10)%
---- ---- ----- ----- ----- -----
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%(g) 1.85%(g) 1.17%(g) 1.92%(g) 1.15%(h) 1.90%
Fees waived by the Adviser -- -- -- -- -- --
Net investment income 6.19%(g) 5.44%(g) 6.67%(g) 5.92%(g) 7.19%(h) 6.44%
Portfolio turnover 8% 8% 26% 26% 25% 25%
Net assets at end of period (000) $37,420 $145,200 $17,997 $137,893 $6,027 $113,549
</TABLE>

Year ended November 30
-----------------------
1993
----
Class B
-------
Net asset value - Beginning of period $10.070
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.609
Net realized and unrealized
gain (loss) 0.277
-----
Total from Investment Operations 0.886
-----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.636)
------
In excess of net investment income
Total Distributions Declared to Shareholders
Net asset value - End of period $10.320
=======
Total return (d) 9.00%
----
RATIOS TO AVERAGE NET ASSETS
Expenses 1.94%
Fees waived by the Adviser --
Net investment income 5.95%
Portfolio turnover 31%
Net assets at end of period (000) $120,523
- -------------------------------------------

3
<PAGE>

THE FUND'S FINANCIAL HISTORY CONT'D

Period ended
November
30
------------------
1992
----
Class B(b)
----------
Net asset value - Beginning of period $10.000
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.338 (c)
Net realized and unrealized
gain (loss) 0.041
-----
Total from Investment Operations 0.379
-----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.309)
In excess of net investment income
Total Distributions Declared to Shareholders
Net asset value - End of period $10.070
Total return (d) 3.80% (e)(f)
RATIOS TO AVERAGE NET ASSETS
Expenses 2.00% (h)
Fees waived by the Adviser 0.01% (h)
Net investment income 6.83% (h)
Portfolio turnover 13% (h)
Net assets at end of period (000) $63,390

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

(a) Class A shares were initially offered on September 1, 1994. Per share
amounts reflect activity from that date.

(b) The Fund commenced investment operations on June 8, 1992.

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

(e) Not annualized.

(f) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.

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

(h) Annualized.

<PAGE>

Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks a high level of after-tax total return by pursuing current income
exempt from ordinary federal income tax and opportunities for long-term
appreciation from a portfolio primarily invested in medium- to lower-grade
municipal bonds.

HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS

The Fund has a fundamental policy of investing at least 80% of its total assets
in tax-exempt securities (securities of any maturity that, in the opinion of
issuer's counsel, are exempt from ordinary federal income tax). The Fund
ordinarily invests primarily in securities rated BBB through C by S&P,
comparably rated by another national rating service or unrated but considered by
the Adviser to be of similar quality. Securities rated lower than BBB by
Standard & Poor's Corporation (S&P), comparably rated securities and similar
unrated securities are considered to be speculative. The value of debt
securities (and therefore of Fund shares) usually fluctuates inversely to
changes in interest rates. Many bonds have call features that require the Fund
to tender the bond back to the issuer at the issuer's request. If a bond is
called, the Fund may be able to invest the proceeds only at lower yields.

The Fund may invest any or all of its assets in higher quality tax-exempt
securities when the Adviser expects interest rates to increase or when yield
spreads narrow. This may reduce the Fund's current income. The Fund intends to
hold short-term tax-exempt securities to meet its operating needs, but when such
securities are not available, or are only available on a "when-issued" basis,
the Fund may invest up to 20% of its total assets in taxable high quality money
market instruments. In periods of unusual market conditions, for temporary
defensive purposes, the Fund may invest more than 20% of its total assets in
taxable securities.

Three common types of tax-exempt bonds are general obligation bonds (GOs),
revenue bonds (RBs) and industrial revenue bonds (IRBs). GOs are payable from
the issuer's unrestricted revenues and may depend on appropriation by the
applicable legislative body. RBs are payable only from a specified revenue
source, not the unrestricted revenues of the issuer. An IRB generally is payable
only from the revenues of the corporate user of a facility and consequently its
credit rating relates to that of the corporate user. While the Fund may invest
more than 25% of its total assets in IRBs, it limits its investments in IRBs
which are based on the credit of private entities in any one industry to 25% or
less. The Fund may invest in a relatively high percentage of tax-exempt
securities issued by entities with similar characteristics (i.e., location or
revenue source), possibly making the Fund more susceptible to economic,
political or regulatory occurrences.

The Fund may invest without limit in securities, the income from which is
subject to the individual alternative minimum tax; therefore, while the Fund's
distributions from tax-exempt securities are not subject to regular federal
income tax, a portion or all may be included in determining a shareholder's
federal alternative minimum tax. Social security benefits may be taxed as a
result of receiving tax-exempt income.

Certain Investment Techniques And Risk Factors
Lower Rated Debt Securities (commonly referred to as junk bonds). Compared to
securities of higher quality, lower rated bonds and unrated bonds:

1. Are likely to have more volatile market prices
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 of valuing or
disposing of the security;

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.

2. The Fund's achievement of its

4
<PAGE>

investment objective is more dependent on the
Adviser's credit analysis; and

3. Lower rated debt securities are less sensitive
to interest changes but are more sensitive to
adverse economic developments.

Weighted average composition of the Fund's portfolio at May 31, 1997, was:

Rated Unrated

Investment grade 53.6% 7.7%
B-BB and equivalent 3.9% 30.7%
Below B 0.0% 4.1%
Total 57.5% 42.5%

The above table reflects adjustments made by the Adviser in March 1997 to its
proprietary system used for analyzing unrated bonds to place greater weight on
factors similar to those used by nationally recognized rating services such as
S&P and Moody's Investors Services, Inc. This represents a change in emphasis in
the criteria considered by the Adviser when assigning an internal rating to
unrated bonds. As a result, approximately 34% of the Fund's portfolio was
reclassified as below investment grade. An additional 6% of the change in
investment grade assets represents a change in the holdings of the Fund's
portfolio.

This composition does not necessarily reflect the current or future portfolio.
The Fund is not required to sell a security when its rating is reduced.

Temporary/Defensive Investments. The Fund may invest temporarily available cash
in certificates of deposit, bankers' acceptances, high quality commercial paper,
treasury bills and repurchase agreements. Under unusual market conditions the
Fund may invest any or all of its assets in such instruments and U.S. government
securities. Under a repurchase agreement, the Fund buys a security from a bank
or dealer, which is obligated to buy it back at a fixed price and time. The
security is held in a separate account at the Fund's custodian and constitutes
the Fund's collateral for the bank's or dealer's repurchase obligation.
Additional collateral may be added so that the obligation will at all times be
fully collateralized. However, if the bank or dealer defaults or enters
bankruptcy, the Fund may experience costs and delays in liquidating the
collateral and may experience a loss if it is unable to demonstrate its right to
the collateral in a bankruptcy proceeding. While there is no limit on the Fund's
investment in repurchase agreements, not more than 10% of the Fund's net assets
will be invested in repurchase agreements maturing in more than 7 days.

"When-Issued" and "Delayed Delivery" Securities. The Fund may without limit
acquire securities on a "when-issued" or "delayed delivery" basis by contracting
to purchase securities for a fixed price on a date beyond the customary
settlement time with no interest accruing until settlement. If made through a
dealer the contract is dependent on the dealer completing the sale. The dealer's
failure could deprive the Fund of an advantageous yield or price. These
contracts involve the additional risk that the value of the underlying security
changes prior to settlement. The Fund may realize short-term gains or losses if
the contracts are sold. Transactions in when-issued securities may be limited by
certain Internal Revenue Code requirements.

Options and Futures. The Fund may write covered call and put options on
securities held in its portfolio and purchase call and put options on debt
securities. A call option gives the purchaser the right to buy a security from,
and a put option the right to sell a security to, the option writer at a
specified price, on or before a specified date. The Fund will pay a premium when
purchasing an option, which reduces the Fund's return on the underlying security
if the option is exercised and results in a loss if the option expires
unexercised. The Fund will receive a premium from writing an option, which may
increase its return if the option expires or is closed out at a profit. So long
as the Fund is the writer of a call option it will own the underlying securities
subject to the option (or comparable securities satisfying the cover
requirements at securities exchange). So long as the Fund is a writer of a put
option it will hold cash and /or high-grade debt obligations equal to the price
to be paid if the option is exercised. If the Fund is unable to close out an
unexpired option, the Fund must continue to hold the underlying security until
the option expires. Trading hours for options may differ from the trading hours
for the underlying securities. Thus, significant price movements may occur in
the securities markets that are not reflected in the options market. This may
limit the effectiveness of options as hedging devices. The Fund may buy or write
options that are not traded on national securities exchanges and not protected
by the

5
<PAGE>

Options Clearing Corporation. These transactions are effected directly with a
broker-dealer, and the Fund bears the risk that the broker-dealer will fail to
meet its obligations. The market value of such options and other illiquid assets
will not exceed 10% of the Fund's total assets.

For hedging purposes the Fund may purchase or sell (1) interest rate and
tax-exempt bond index futures contracts, and (2) put and call options on such
contracts and on such indices. A futures contract creates an obligation by the
seller to deliver and the buyer to take delivery of the type of instrument at
the time and in the amount specified in the contract. Although futures call for
delivery (or acceptance) of the specified instrument, futures are usually closed
out before the settlement date through the purchase (sale) of a comparable
contract. If the initial sale price of the future exceeds (or is less than) the
price of the offsetting purchase, the Fund realizes a gain (or loss). Options on
futures contracts operate in a similar manner to options on securities, except
that the position assumed is in futures contracts rather than in the securities.
The Fund may not purchase or sell futures contracts or purchase related options
if immediately thereafter the sum of the amount of deposits for initial margin
or premiums on the existing futures and related options positions would exceed
5% of the market value of the Fund's total assets. Transactions in futures and
related options involve the risk of (1) imperfect correlation between the price
movement of the contracts and the underlying securities, (2) significant price
movement in one but not the other market because of different trading hours and
(3) the possible absence of a liquid secondary market at any point in time.
Also, if the Adviser's prediction on interest rates is inaccurate, the Fund may
be worse off than if it had not hedged.

Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets.

Short-Term Trading. Each Fund may trade portfolio securities for short-term
profits to take advantage of price differentials. These trades are limited by
certain Internal Revenue Code requirements.

Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors in connection with
any material change in the Fund's investment objective. If there is a change in
the investment objective or investment policies, shareholders should consider
whether the Fund remains an appropriate investment in light of their financial
position and needs. Shareholders may incur a contingent deferred sales charge if
shares are redeemed in response to a change in the investment objective or
investment policies. The Fund's fundamental investment policies listed in the
Statement of Additional Information cannot be changed without the approval of a
majority of the Fund's outstanding voting securities. Additional information
concerning certain of the securities and investment techniques described above
is contained in the Statement of Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average total returns are calculated in accordance with the Securities and
Exchange Commission's formula, and assume the reinvestment of all distributions,
the maximum initial sales charge of 4.75% on Class A shares and the contingent
deferred sales charge applicable to the time period quoted on Class B and Class
C shares. Other total returns differ from the average annual total return only
in that they may relate to different time periods, represent aggregate as
opposed to average annual total return, and may not reflect the initial or
contingent deferred sales charge.

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

All performance information is historical and does not predict future results.

6
<PAGE>

HOW THE FUND IS MANAGED

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

Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
serves as the distributor for the Fund's shares. Colonial Investors Service
Center, Inc. (Transfer Agent), an affiliate of the Adviser, serves as the
shareholder services and transfer agent for the Fund. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect subsidiary of Liberty
Financial Companies, Inc., which in turn is an indirect subsidiary of Liberty
Mutual Insurance Company (Liberty Mutual). Liberty Mutual is considered to be
the controlling entity of the Adviser and its affiliates. Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.

The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.55% of the Fund's average daily net assets for fiscal year 1996.

Bonny E. Boatman, Senior Vice President and Director of the Adviser and head of
the Adviser's Tax-Exempt Group, has managed the Fund since its inception and
various other Colonial tax-exempt funds since 1985.

Peter C. Andersen, Vice President of the Adviser, has co-managed the Fund since
January 1996. Prior to co-managing the Fund, Mr. Andersen was an Associate
Portfolio Manager of the Fund and a high yield credit analyst for the Adviser's
tax-exempt funds. Before joining the Adviser in 1993, Mr. Andersen was a venture
capital research associate at MTDC and a management consultant at Arthur D.
Little.

The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million. The Transfer Agent provides transfer agency and shareholder
services to the Fund for a fee of 0.14% annually of average net assets plus
certain out-of-pocket expenses.

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

HOW THE FUND VALUES ITS SHARES

Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close (normally 4:00 p.m. Eastern time) of the New York Stock
Exchange (Exchange) each day the Exchange is open. Portfolio securities for
which market quotations are readily available are valued at current market
value. Short-term investments maturing in 60 days or less are valued at
amortized cost when the Adviser determines, pursuant to procedures adopted by
the Trustees, that such cost approximates current market value. All other
securities and assets are valued at fair value following procedures adopted by
the Trustees.

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income monthly and
any net realized gain at least annually.

The Fund generally declares distributions daily and pays them monthly.
Distributions are invested in additional shares of the Fund at net asset value
unless the shareholder elects to receive cash. Regardless of the shareholder's
election, distributions of $10 or less will not be paid in cash to shareholders,
but will be invested in additional shares of the same Class of the Fund

7
<PAGE>

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 them 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 distribution of interest from tax-exempt bonds will not be subject to
regular federal income tax, a portion or all 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 shareholders as such when it is distributed to them. 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, plus any applicable initial sales charge.

The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50 and the minimum initial investment for a Colonial retirement account is $25.
Certificates will not be issued for Class B or Class C shares and there are some
limitations on the issuance of Class A share certificates. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

Initial Sales Charge
------------------------------------------------------------
Retained
by
Financial
Service
as % of Firm
--------------------- as % of
Amount Offering Offering
Amounted Purchased Invested Price Price

Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than
$100,000 4.71% 4.50% 4.00%
$100,00 to less than
$250,000 3.63% 3.50% 3.00%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%

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

Amount Purchase Commission

First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)

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

8
<PAGE>

bearing a distribution fee) and a declining contingent deferred sales charge if
redeemed within six years after purchase. As shown below, the amount of the
contingent deferred sales charge depends on the number of years after purchase
that the redemption occurs:

Years Contingent Deferred
After Purchase Sales Charge

0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%

Year one ends one year after the end of the month in which the purchase was
accepted and so on.

The Distributor pays financial service firms a commission of 4.00% on Class B
share purchases.

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

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

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

Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."

Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.

In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000 unless the account value has dropped
below $1,000 solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before the fee is
deducted. The Fund may also deduct annual maintenance and processing fees
(payable to the Transfer Agent) in connection with certain retirement plan
accounts

9
<PAGE>

see "Special Purchase Programs/Investor Services" in the Statement of Additional
Information for more information.

HOW TO SELL SHARES

Shares of the Fund may be sold on any day the Exchange is open either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).

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

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

Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.

General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.

HOW TO EXCHANGE SHARES

Except as described below with respect to money market funds, Fund shares may be
exchanged at net asset value among shares of the same class of most Colonial
funds. Shares will continue to age without regard to the exchange for purposes
of conversion and determining the contingent deferred sales charge, if any, upon
redemption. Carefully read the prospectus of the fund into which the exchange
will go before submitting the request. Call 1-800-426-3750 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction. The exchange
service may be changed, suspended or eliminated on 60 days' written notice. The
Fund will terminate the exchange privilege as to a particular shareholder if the
Adviser determines, in its sole and absolute discretion, that the shareholder's
exchange activity is likely to adversely impact the Adviser's ability to manage
the Fund's investments in accordance with its investment objective or otherwise
harm the Fund or its remaining shareholders.

Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge previously was
paid. Non-money market fund shares must be held for five months before
qualifying for exchange to a fund with a higher sales charge, after which,
exchanges are made at the net asset value next determined.

Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund into which the original investment was made.

Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one "roundtrip" exchange of the Fund's Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund A to Fund B

10
<PAGE>

and back to Fund A would be permitted only once during each three-month period.

TELEPHONE TRANSACTIONS

All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares by telephone and redeem up to $50,000 of Fund shares by
calling 1-800-422-3737 toll-free any business day between 9:00 a.m. and the time
at which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized or
fraudulent telephone transactions in the event reasonable procedures are not
employed. Such procedures include restrictions on where proceeds of telephone
redemptions may be sent, limitations on the ability to redeem by telephone
shortly after an address change, recording of telephone lines and requirements
that the redeeming shareholder and/or their financial adviser provide certain
identifying information. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
above under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund
reserve the right to change, modify or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.

12B-1 PLAN

Under a 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The 12b-1 Plan also requires the Fund to pay the Distributor monthly a
distribution fee at the annual rate of 0.75% of the average daily net assets
attributed to its Class B and Class C shares. The Distributor has voluntarily
agreed to waive a portion of the Class C share distribution fee so that it does
not exceed 0.60% annually. The Distributor may terminate this waiver at any time
without shareholder approval. Because the Class B and Class C shares bear the
additional distribution fee, their dividends will be lower than the dividends of
Class A shares. Class B shares automatically convert to Class A shares,
approximately eight years after the Class B shares were purchased. Class C
shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares, and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing costs
and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of Fund
shares.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized in 1978. The Fund
represents the entire interest in a separate portfolio of the Trust.

The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.

APPENDIX

DESCRIPTION OF BOND RATINGS

S&P

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

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

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

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

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

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

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

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

CC bonds are currently highly vulnerable to nonpayment.

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

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

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

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

MOODY'S

A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.

Baa bonds are considered as medium grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.

12
<PAGE>

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13
<PAGE>

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14
<PAGE>

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15
<PAGE>

Investment Adviser

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

Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621

Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611

Custodian
UMB, n.a.
928 Grand Avenue
Kansas City, MO 64106

Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624

Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624

Your financial service firm is:

Printed in U.S.A.

March 31, 1997; Revised August 1, 1997

COLONIAL HIGH YIELD
MUNICIPAL FUND

PROSPECTUS

Colonial High Yield Municipal Fund seeks a high level of after-tax total return
by pursuing current income exempt from ordinary federal income tax and
opportunities for long-term appreciation from a portfolio primarily invested in
medium-to lower-grade municipal bonds.

For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the March 31, 1997; Revised August 1, 1997 Statement of Additional
Information.

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

16
<PAGE>

COLONIAL TRUST IV

Cross Reference Sheet

Colonial Utilities 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 is 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 Plan; Back
Cover

8. Summary of Expenses; How to Sell Shares; How to
Exchange Shares; Telephone Transactions

9. Not Applicable

<PAGE>

March 31, 1997, Revised August 1, 1997

COLONIAL
UTILITIES
FUND

PROSPECTUS

BEFORE YOU INVEST

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

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

Colonial Utilities Fund (Fund), a diversified portfolio of Colonial Trust IV
(Trust), an open-end management investment company, seeks current income and
long-term growth.

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

This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the March 31, 1997 Statement of Additional
Information as revised August 31, 1997 which has been filed with the Securities
and Exchange Commission and is obtainable free of charge by calling the Adviser
at 1-800-426-3750. The Statement of Additional Information is incorporated by
reference in (which means it is considered to be a part of) this Prospectus.

The Fund offers three classes of shares. Class A shares are offered at net asset
value plus a sales charge imposed at the time of purchase; Class B shares are
offered at net asset value and are subject to an annual distribution fee and a
declining contingent deferred sales charge on redemptions made within six years
after purchase; and Class C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year after purchase. Class B shares automatically
convert to Class A shares after approximately eight years. See "How to Buy
Shares."

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

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<PAGE>

SUMMARY OF EXPENSES

Shareholder Transaction Expenses (1)(2)

Class A Class B Class C

Maximum Initial Sales Charge Imposed on a
Purchase (as a % of offering price)(3) 4.75% 0.00%(5) 0.00%(5)

Maximum Contingent Deferred Sales Charge
(as a % of offering price)(3) 1.00%(4) 5.00% 1.00%

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

(2) Redemption proceeds exceeding $1,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.

(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."

(5) Because of the annual 0.75% distribution fee applicable to Class B and Class
C shares, long-term Class B and Class C shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted by
the National Association of Securities Dealers, Inc. However, because the
Fund's Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for a
class without a conversion feature.

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

Class A Class B Class C

Management fee 0.65% 0.65% 0.65%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.30 0.30 0.30
---- ---- ----
Total operating expenses 1.20% 1.95% 1.95%
==== ==== =====

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.

Period: Class A Class B Class C
(6) (7) (6) (7)
1 year $ 59 $ 20 $ 70 $ 20 $ 30
3 years 84 61 91 61 61(9)
5 years 110 105 125 105 105
10 years 186 208(8) 208(8) 227 227

(6) Assumes no redemption.
(7) Assumes redemption.
(8) Class B shares automatically convert to Class A shares after approximately 8
years; therefore, years 9 and 10 reflect Class A share expenses.

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

<PAGE>

THE FUND'S FINANCIAL HISTORY

The following financial highlights for a share outstanding throughout each
period through the year ended November 30, 1996, 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. The financial highlights for the period
ended May 31, 1997 are unaudited. The financial highlights have been restated to
reflect the 4:1 split which occurred on February 10, 1992. The Fund adopted the
objectives of seeking current income and, to the extent consistent with the
objective, growth of income and long-term capital appreciation on March 4, 1992.
On February 28, 1995, the wording of the Fund's objective was modified to "seeks
primarily current income and secondarily long-term growth." The data presented
below does not necessarily reflect results that would have been achieved had the
Fund's current objective and policies then been in effect. No Class C shares
were outstanding during the periods shown.

Class A
------------------------------------------------------------------------------------
(Unaudited)
Six months ended
May 31 Year ended November 30
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
Net asset value - Beginning $15.210 $14.370 $11.720 $13.600 $12.960 $11.440
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.301 0.612 0.640 0.681 0.713 0.741
Net realized and unrealized gain (loss) 0.459 0.831 2.659 (1.896) 0.616 1.517
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.760 1.443 3.299 (1.215) 1.329 2.258
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.300) (0.603) (0.649) (0.665) (0.689) (0.727)
From net realized gains --- --- --- --- --- ---
From capital paid in --- --- --- --- --- (0.011)(b)
Total Distributions
Declared to Shareholders (0.300) (0.603) (0.649) (0.665) (0.689) (0.738)
------- ------- ------- ------- ------- -------
Net asset value - End of
period $15.670 $15.210 $14.370 $11.720 $13.600 $12.960
------- ------- ------- ------- ------- -------
Total return (c) 5.04%(f) 10.27% 28.90% (9.04)% 10.20% 20.21%
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.22%(d)(g) 1.20%(d) 1.21%(d) 1.23% 1.19% 1.16%
Net investment income 3.89%(d)(g) 4.16%(d) 5.00%(d) 5.49% 4.92% 5.52%
Portfolio turnover 0% 8% 7% 16% 6% 35%
Average commission rate(e) $0.0470 $0.0484 --- --- --- ---
Net assets at end of period (in millions) $3.17 $348 $400 $373 $503 $232

</TABLE>

Class A
----------------------------------------------------------------------------------------

Year ended November 30
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1991(a) 1990(a) 1989(a) 1988(a) 1987(a)
------- ------- ------- ------- -------
Net asset value - Beginning $10.090 $11.600 $10.710 $10.300 $12.560
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.917 0.930 0.939 0.851 0.988
Net realized and unrealized
gain (loss) 1.37 (1.472) 0.927 0.529 (2.110)
------- ------- ------- ------- -------
Total from Investment
Operations 2.29 (0.542) 1.866 1.380 (1.122)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.941) (0.968) (0.932) (0.850) (0.973)
From net realized gains --- --- (0.044) (0.120) (0.165)
From capital paid in (0.003)(b) --- --- --- ---
Total Distributions
Declared to Shareholders (0.944) (0.968) (0.976) (0.970) (1.138)
------- ------- ------- ------- -------
Net asset value - End of
period $11.440 $10.090 $11.600 $10.710 $10.300
------- ------- ------- ------- -------
Total return (c) 23.56% (4.74)% 17.94% 13.75% (9.84)%
------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.11% 1.17% 1.12% 1.15% 1.09%
Net investment income 8.50% 8.69% 8.10% 7.94% 8.18%
Portfolio turnover 1% 2% 24% 11% 206%
Average commission rate(e) --- --- --- --- ---
Net assets at end of period (in millions) $135 $162 $141 $183 $288

</TABLE>

(a) All per share amounts have been restated to reflect the 4-for-1 stock split
effective February 10, 1992.
(b) The return of capital is for book purposes only and is a result of
book-tax differences arising from the merger of Colonial Utilities Fund
(formerly Colonial Corporate Cash Trust I) and Colonial Corporate Cash
Trust II in a prior year. The 1992 amount represents a reclassification,
for book purposes only, relating to that merger.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(e) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.
(f) Not annualized.
(g) Annualized.

<PAGE>

THE FUND'S FINANCIAL HISTORY (CONT'D)

Class B
------------------------------------------------------------------------------
(Unaudited)
Six months ended
May 31 Year ended November 30
------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
<S> <C> <C> <C> <C> <C> <C>
Net asset value-Beginning of period $15.210 $14.370 $11.720 $13.600 $12.960 $12.310
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.243 0.502 0.544 0.587 0.612 0.296
Net realized and unrealized gain (loss) 0.459 0.831 2.659 (1.896) 0.616 0.691
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.702 1.333 3.203 (1.309) 1.228 0.987
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.242) (0.493) (0.553) (0.571) (0.588) (0.337)
------- ------- ------- ------- ------- -------
Net asset value-End of period $15.670 $15.210 $14.370 $11.720 $13.600 $12.960
------- ------- ------- ------- ------- -------
Total return(b) 4.65%(c) 9.45% 27.96% (9.73)% 9.42% 6.06%(c)
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.97%(d)(e) 1.95%(e) 1.96%(e) 1.98% 1.94% 1.91%(d)
Net investment income 3.14%(d)(e) 3.41%(e) 4.25%(e) 4.74% 4.17% 4.77%(d)
Portfolio turnover 0% 8% 7% 16% 6% 35%
Average commission rate(f) $0.0470 $0.0484 --- --- --- ---
Net assets at end of period (in millions) $660 $729 $821 $744 $971 $156

</TABLE>
(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Not annualized.
(d) Annualized.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(f) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for trades on which
commissions are charged.

Further performance information is contained in the Fund's 1996 Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks current income and long-term growth.

HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS

The Fund seeks to achieve its objective by investing primarily in common and
preferred equity securities of companies engaged in the manufacture, production,
generation, transmission, sale or distribution of electricity, natural gas or
other types of energy, or water or other sanitary services, companies engaged in
telecommunications, including telephone, telegraph, satellite, microwave,
cellular, wireless or other communications media and companies primarily engaged
in public broadcasting, print media and cable television (Utility Companies).
The value of the Fund's shares will be more closely tied to factors affecting
Utility Companies, and may be more volatile, than for a fund investing in a
wider variety of industries.

The Fund may invest up to 20% of its total assets in equity securities of
foreign Utility Companies and up to 20% of its total assets in equity securities
of non-Utility Companies.

Equity Securities Generally. Equity securities generally include common and
preferred stock, warrants (rights) to purchase such stock and sponsored and
unsponsored American Depositary Receipts (ADRs)(receipts issued in the U.S. by
banks or trust companies evidencing ownership of underlying foreign securities).

Utility Companies. The values of securities issued by Utility Companies (and
therefore the value of Fund shares) are especially affected by changes in
prevailing interest rate levels (as interest rates increase, the values of
securities issued by Utility Companies tend to decrease, and vice versa). The
values of and dividends paid on such securities also are affected by general
competitive and market forces in the utility industries (in general, Utility
Companies are facing increased competition), changes in federal and state
regulation, energy conservation efforts and other environmental concerns,
changes in energy demand due to weather conditions and, particularly with
respect to nuclear facilities, shortened economic life and repair and
decommissioning costs. Utility Companies are facing a trend toward deregulation
which (by replacing monopoly positions with competition) can adversely affect
their profitability by driving down prices and profit margins. Moreover, unless
specifically provided for by regulatory agreements in the move toward a
competitive environment, certain electric Utility Companies may not be able to
recover all of their investment, in contracts or plants producing power, at
above-market rates. Additionally, domestic Utility Companies, either directly or
through joint ventures with other firms, may make investments abroad. Such
investments, whether for the construction of power plants or for controlling or
minority interests in foreign utility firms, may subject the investing
companies, and, in turn, the Fund's holdings of their securities, to risks
associated with foreign investments.

When-Issued Securities. The Fund may invest in equity securities on a
"when-issued" or forward basis. This means that the Fund will enter into a
contract to purchase the underlying security for a fixed price on a date beyond
the customary settlement date. No interest accrues until settlement.

Options. The Fund may write covered call options and purchase put options on
stocks and stock indexes to hedge. A call option gives the purchaser the right
to buy from the

<PAGE>

Fund, and a put option gives the Fund the right to sell to the seller of the
put, a specified security at the exercise price at any time prior to the
expiration of the contract. The Fund will receive a premium from writing a call
option which increases its return on the underlying security if the option
expires or is closed out at a profit. Written calls may obligate the Fund to
sell the underlying security at a below market price. The Fund will pay a
premium for a put option, which will represent a loss to the Fund if the option
expires unexercised. Both are exercisable at any time prior to expiration.

Foreign Investments. Investments in foreign securities and sponsored and
unsponsored ADRs have special risks related to political, economic and legal
conditions outside of the U.S. As a result, the prices of foreign securities may
fluctuate substantially more than the prices of securities of issuers based in
the U.S. Special risks associated with foreign securities include the
possibility of unfavorable movements in currency exchange rates, the existence
of less liquid markets, the unavailability of reliable information about
issuers, the existence (or potential imposition) of exchange control regulations
(including currency blockage), and political and economic instability, among
others. In addition, transactions in foreign securities may be more costly due
to currency conversion costs and higher brokerage and custodial costs. See
"Foreign Securities" and "Foreign Currency Transactions" in the Statement of
Additional Information for more information about foreign investments.

Foreign Currency Transactions. In connection with its investments in foreign
securities, the Fund may purchase and sell (i) foreign currencies on a spot or
forward basis, (ii) foreign currency futures contracts, and (iii) options on
foreign currencies and foreign currency futures. Such transactions will be
entered into (i) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the Fund,
or (ii) to hedge against a decline in the value, in U.S. dollars or in another
currency, of a foreign currency in which securities held by the Fund are
denominated. The Fund will not attempt, nor would it be able, to eliminate all
foreign currency risk. Further, although hedging may lessen the risk of loss if
the hedged currency's value declines, it limits the potential gain from currency
value increases. See the Statement of Additional Information for information
relating to the Fund's obligations in entering into such transactions.

Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
treasury bills, U.S. government securities and repurchase agreements. Some or
all of the Fund's assets also may be invested in such investments during periods
of unusual market conditions. Under a repurchase agreement, the Fund buys a
security from a bank or dealer, which is obligated to buy it back at a fixed
price and time. The security is held in a separate account at the Fund's
custodian and constitutes the Fund's collateral for the bank's or dealer's
repurchase obligation. Additional collateral will be added so that the
obligation will at all times be fully collateralized. However, if the bank or
dealer defaults or enters bankruptcy, the Fund may experience costs and delays
in liquidating the collateral and may experience a loss if it is unable to
demonstrate its right to the collateral in a bankruptcy proceeding. Not more
than 10% of the Fund's net assets will be invested in repurchase agreements
maturing in more than 7 days and other illiquid assets.

Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes in amounts of up to 10% of its net assets; however, it will
not purchase additional portfolio securities while borrowings exceed 5% of net
assets.

Other. The Fund may not always achieve its investment objective. The Fund's
investment
6

<PAGE>

objective and non-fundamental investment policies may be changed without
shareholder approval. The Fund will notify investors in connection with any
material change in the Fund's investment objective. If there is a change in the
investment objective or investment policies, shareholders should consider
whether the Fund remains an appropriate investment in light of their financial
position and needs. Shareholders may incur a contingent deferred sales charge if
shares are redeemed in response to a change in investment objective or
investment policies. The Fund's fundamental policies listed in the Statement of
Additional Information cannot be changed without the approval of a majority of
the Fund's outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is contained
in the Statement of Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 4.75% on Class A shares and
the contingent deferred sales charge applicable to the time period quoted for
Class B and Class C shares. Other total returns differ from the average annual
total return only in that they may relate to different time periods, may
represent aggregate as opposed to average annual total return, and may not
reflect the initial or contingent deferred sales charges.

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

All performance information is historical and does not predict future results.

HOW THE FUND IS MANAGED

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

Colonial Investment Services, Inc. (Distributor), a subsidiary of the Adviser,
serves as the distributor for the Fund's shares. Colonial Investors Service
Center, Inc. (Transfer Agent), an affiliate of the Adviser, serves as the
shareholder services and transfer agent for the Fund. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect subsidiary of Liberty
Financial Companies, Inc. which in turn is an indirect subsidiary of Liberty
Mutual Insurance Company (Liberty Mutual). Liberty Mutual is considered to be
the controlling entity of the Adviser and its affiliates. Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.

The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.65% of the Fund's average daily net assets for fiscal year 1996.

John E. Lennon serves as manager of the Fund. Mr. Lennon, Vice President of the
Adviser, has managed or co-managed the Fund since 1984 and various other
Colonial equity funds since 1982.

<PAGE>

The Adviser also provides pricing and bookkeeping services to the Fund for a
monthly fee of $2,250 plus a percentage of the Fund's average net assets over
$50 million.

The Transfer Agent provides transfer agency and shareholder services to the Fund
for a fee of 0.20% annually of average net assets plus certain out-of-pocket
expenses.

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

The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished by such brokers to the Adviser and its affiliates and may, in
recognition of the research and brokerage services provided, pay the selected
broker-dealer a higher commission than would have been charged by another
broker-dealer not providing such services. Subject to seeking best execution,
the Adviser may consider sales of shares of the Fund (and of certain other
Colonial funds) in selecting broker-dealers for portfolio security transactions.

HOW THE FUND VALUES ITS SHARES

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income monthly and
any net realized gain at least annually.

The Fund generally declares distributions daily. Distributions are invested in
additional shares of the same Class of the Fund at net asset value unless the
shareholder elects to receive cash. Regardless of the shareholder's election,
distributions of $10 or less will not be paid in cash to shareholders but will
be invested in additional shares of the same Class of the Fund at the net asset
value. To change your election, call the Transfer Agent for information. Whether
you receive distributions in cash or in additional Fund shares, you must report
them as taxable income unless you are a tax-exempt institution. Each January,
information on the amount and nature of the Fund's distributions for the prior
year is sent to shareholders.

Distributions will qualify for the federal corporate dividends-received
deduction only to the extent of aggregate qualifying dividends received by the
Fund. Corporate shareholders must hold shares of the Fund for 46 days to be
eligible for the deduction. The amount of dividends qualifying for the deduction
will be reduced if a shareholder has indebtedness "directly attributable" to the
shares owned. A corporate shareholder's distributions from the Fund are
includable in its adjusted current earnings for purposes of computing the
corporate alternative minimum tax (AMT) and may result in AMT liability.

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

<PAGE>

such time and transmitted by the financial service firm before the Fund
processes that day's share transactions) will be processed based on that day's
closing net asset value, plus any applicable initial sales charge.

The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class C shares and there are
some limitations on the issuance of Class A share certificates. The Fund may
refuse any purchase order for its shares. See the Statement of Additional
Information for more information.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

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

Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less 4.71% 4.50% 4.00%
than $100,000
$100,000 to less 3.63% 3.50% 3.00%
than $250,000
$250,000 to less 2.56% 2.50% 2.00%
than $500,000
$500,000 to less 2.04% 2.00% 1.75%
than $1,000,000
$1,000,000 or more 0.00% 0.00% 0.00%

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

Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)

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

In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held. If a purchase
results in an account having a value from $1 million to $5 million, then the
shares purchased will be subject to a 1.00% contingent deferred sales charge,
payable to the Distributor, if redeemed within 18 months from the first day of
the month following the purchase. If the purchase results in an account having a
value in excess of $5 million, the contingent deferred sales charge will not
apply to the portion of the purchased shares comprising such excess amount.

Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee) and a declining contingent deferred sales
charge if redeemed within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the number of years after
purchase that the redemption occurs:

Years Contingent Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%

Year one ends one year after the end of the month in which the purchase was
accepted and so on.

The Distributor pays financial service firms a commission of 4.00% on Class B
share purchases.

Class C Shares. Class C shares are offered at net asset value and are subject to
a 0.75%

<PAGE>

annual distribution fee and 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which the
purchase was accepted.

The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.75% annually commencing
after the shares purchased have been outstanding for one year. Payment of the
ongoing commission is conditioned on receipt by the Distributor of the 0.75%
distribution fee referred to above. The commission may be reduced or eliminated
if the distribution fee paid by the Fund is reduced or eliminated for any
reason.

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

Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B and Class C
shares have 100% of the purchase invested immediately. Investors investing for a
relatively short period of time might consider Class C shares. Purchases of
$250,000 or more must be for Class A or Class C shares. Purchases of $1,000,000
or more must be for Class A shares. Consult your financial service firm.

Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced, or without, initial or contingent
deferred sales charges. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."

Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about the services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.

HOW TO SELL SHARES

Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm.

<PAGE>

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

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

General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.

HOW TO EXCHANGE SHARES

Except as described below with respect to money market funds, Fund share may be
exchanged at net asset value among shares of the same class of most Colonial
funds. Shares will continue to age without regard to the exchange for purposes
of conversion and determining the contingent deferred sales charge, if any, upon
redemption. Carefully read the prospectus of the fund into which the exchange
will go before submitting the request. Call 1-800-426-3750 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended or eliminated upon
60 days' written notice. The Fund will terminate the exchange privilege as to a
particular shareholder if the Adviser determines, in its sole and absolute
discretion, that the shareholder's exchange activity is likely to adversely
impact the Adviser's ability to manage the Fund's investments in accordance with
its investment objective or otherwise harm the Fund or its remaining
shareholders.

<PAGE>

Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one "roundtrip" exchange of the Fund's Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund A to Fund B and back to Fund A would be permitted only
once during each three-month period.

TELEPHONE TRANSACTIONS

All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares by telephone and may redeem up to $50,000 of Fund shares by
calling 1-800-422-3737 toll-free any business day between 9:00 a.m. and the time
at which the Fund values its shares. Telephone redemption privileges for larger
amounts may be elected on the account application. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for any losses related to unauthorized
or fraudulent telephone transactions in the event reasonable procedures are not
employed. Such procedures include restrictions on where proceeds of telephone
redemptions may be sent, limitations on the ability to redeem by telephone
shortly after an address change, recording of telephone lines and requirements
that the redeeming shareholder and/or financial adviser provide certain
identifying information. Shareholders and/or their financial advisers wishing to
redeem or exchange shares by telephone may experience difficulty in reaching the
Fund at its toll-free telephone number during periods of drastic economic or
market changes. In that event, shareholders and/or their financial advisers
should follow the procedures for redemption or exchange by mail as described
under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund reserve
the right to change, modify or terminate the telephone redemption or exchange
services at any time upon prior written notice to shareholders. Shareholders
and/or their financial advisers are not obligated to transact by telephone.

12B-1 PLAN

Under a 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The 12b-1 Plan also requires the Fund to pay the Distributor monthly a
distribution fee at the annual rate of 0.75% of the average daily net assets
attributed to its Class B and Class C shares. Because the Class B and Class C
shares bear the additional distribution fee, their dividends will be lower than
the dividends of Class A shares. Class B shares automatically convert to Class A
shares, approximately eight years after the Class B shares were purchased. Class
C shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing costs
and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of Fund
shares.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized in 1978. The Fund
represents an entire interest in a separate portfolio of the Trust.

The Trust is not required to hold annual shareholder meetings, but special
meetings

<PAGE>

may be called for certain purposes. Shareholders receive one vote for each Fund
share. Shares of the Trust vote together except when required by law to vote
separately by fund or by class. Shareholders owning in the aggregate ten percent
of Trust shares may call meetings to consider removal of Trustees. Under certain
circumstances, the Trust will provide information to assist shareholders in
calling such a meeting. See the Statement of Additional Information for more
information.

<PAGE>

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

Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621

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

Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611

Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624

Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624

Your financial service firm is:

Printed in U.S.A.

March 31, 1997, Revised August 1, 1997

COLONIAL
UTILITIES
FUND

PROSPECTUS

Colonial Utilities Fund seeks current income and long-term growth.

For more detailed information about the Fund, call the Adviser at 1-800-426-3750
for the March 31, 1997 as revised August 1, 1997 Statement of Additional
Information.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

<PAGE>

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 Plan; Back
Cover

8. Summary of Expenses; How to Sell Shares; How to
Exchange Shares; Telephone Transactions

9. Not Applicable

<PAGE>

October 28, 1996, Revised August 1, 1997

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.

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.

TM-01/922D-0897
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Administrator at 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.

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 three classes of shares. Class A shares are offered at net asset
value; Class B shares are offered at net asset value and are subject to an
annual distribution fee and a declining contingent deferred sales charge on
redemptions made within six years after purchase; and Class C shares are offered
at net asset value and are subject to an annual distribution fee and a
contingent deferred sales charge on redemptions made within one year after
purchase. Class B shares automatically convert to Class A shares after
approximately eight years. See "How to Buy Shares."

Class B and Class C shares of the Fund are only for temporary investment while,
for example, considering investments in Class B and Class C shares of other
Colonial funds. Unlike shares of most money market funds, investments in the
Fund's Class B and Class C shares are subject to contingent deferred sales
charges, a distribution fee and a service fee.

Contents Page
Summary of Expenses 2
The Fund's Financial History 3
Two-Tiered Structure 5
The Fund's Investment Objective 5
How the Fund Pursues its Objective
and Certain Risk Factors 5
How the Fund Measures its Performance 9
How the Fund and the Portfolio are Managed 9
How the Fund Values its Shares 10
Distributions and Taxes 10
How to Buy Shares 11
How to Sell Shares 12
How to Exchange Shares 13
Telephone Transactions 13
12b-1 Plan 14
Organization and History 14
Appendix 15

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<PAGE>

SUMMARY OF EXPENSES

Expenses are one of several factors to consider when investing in the Fund.

Shareholder Transaction Expenses (1)(2)

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Contingent Deferred Sales Charge (as a % of 1.00%(4) 5.00%(5) 1.00%(5)
offering price)(3)
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to Buy Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will
be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase. See
"How to Buy Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and Class C
shares, long-term Class B and Class C 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)

Class A Class B Class C

12b-1 fees 0.00% 1.00% 0.40%(6)
Other expenses (after expense
reimbursement and fee waiver) 0.75 0.75 0.75
---- ---- -----
Administration fee (after fee 0.00% 0.00% 0.00%
waiver) ----- ----- -----
Total operating expenses 0.75%(6) 1.75%(6) 1.15%(6)
===== ===== =====

(6) The Administrator has voluntarily agreed to waive or bear certain Fund
expenses until further notice to the Fund. The Distributor has
voluntarily agreed to waive a portion of the Class C share Rule 12b-1
distribution fee so that it will not exceed 0.15% annually. The
Distributor may terminate the fee waiver at any time without shareholder
approval. Absent such agreements, the "12b-1 fees" would have been 1.00%
for Class C shares, the "Administration fee" would have been 0.25% for
each Class of shares, "Other expenses" would have been 1.26% for each
Class of shares and "Total operating expenses" would have been 1.51% for
Class A shares, 2.51% for Class B shares and 2.51% for Class C shares.

The preceding tables summarize your maximum transaction costs and your annual
expenses for an investment in each Class of the Fund's shares. Total Operating
Expenses include the expenses of the Portfolio as well as the Fund. Total
Operating Expenses have been restated to reflect current fees. See "How the Fund
and the Portfolio are Managed" and "12b-1 Plan" for more complete descriptions
of the Fund's and the Portfolio's various costs and expenses.

Class A Class B Class C
Period: (7) (8) (7) (8)
1 year $ 8 $ 68 $18 $ 22 $ 12
3 years 24 85 55 37(10) 37(10)
5 years 42 115 95 63 63
10 years 93 180(9) 180(9) 140 140

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

Without voluntary fee reduction, the amounts would be $15, $48, $82 and $180 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;
$25, $78, $134 and $260 for Class B shares assuming no redemptions for 1, 3, 5
and 10 years, respectively; $35, $78, $134 and $285 for Class C shares assuming
redemptions for 1, 3, 5 and 10 years, respectively; and $25, $78, $134 and $285
for Class C shares assuming no redemptions for 1, 3, 5 and 10 years,
respectively.

<PAGE>

THE FUND'S FINANCIAL HISTORY (a)

The following schedule of financial highlights for a share outstanding
throughout each period through the year ended June 30, 1996, have been audited
by Price Waterhouse LLP, independent accountants. Their unqualified report is
included in the Fund's 1996 Annual Report and is incorporated by reference into
the Statement of Additional Information. The financial highlights for the period
ended December 31, 1996 are unaudited. No Class C shares were outstanding during
the periods shown.

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------
Period ended
December 31 Year ended Period ended
(Unaudited) June 30 June 30
------------- ------------ -------------
1996 1996(c) 1995(d)
------------- ------------ -------------
<S> <C> <C> <C>
Net asset value - Beginning of
period $1.000 $1.000 $1.000
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(b) 0.015 (f) 0.030 (f) 0.018
------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.015) (0.030) (0.018)
Net asset value - End of period $1.000 $1.000 $1.000
====== ====== ======
Total return(g)(h) 1.46% (i) 3.04% 1.80% (i)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.75% (j) 0.75% (f) 0.75% (j)
Fees and expenses waived
or borne by the Adviser/
Administrator 0.60% (j) 0.84% (f) 0.36% (j)
Net investment income 2.91% (j) 3.00% (f) 3.05% (j)
Net assets at end of period (000) $20,283 $19,676 $24,675

<CAPTION>
CLASS A
--------------------------------------------------------------------------------------------
Year ended November 30
--------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987(e)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(b) 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 (0.020) (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
====== ====== ====== ====== ====== ====== ====== ======
Total return(g)(h) 2.00% 1.73% 2.44% 4.26% 5.64% 6.11% 5.12% 2.19% (i)
------ ------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.60% 0.75% 0.75% 0.75% 0.75% 0.66% 0.39% ---
Fees and expenses waived
or borne by the Adviser/
Administrator 0.59% 0.50% 0.61% 0.53% 0.38% 0.31% 0.49% 1.08% (j)
Net investment income 2.05% 1.69% 2.42% 4.23% 5.50% 5.96% 4.95% 5.37% (j)
Net assets at end of period (000) $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 for periods prior to
September 28, 1995 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
$0.003 $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, Stein Roe & Farnham became the investment adviser of the
Portfolio.
(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>

4
<PAGE>

THE FUND'S FINANCIAL HISTORY(a) (continued)

<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------------------------
Period ended
December 31 Year ended Period ended
(Unaudited) June 30 June 30 Year ended November 30
------------- ---------- ------------ -------------------------------
1996 1996(c) 1995(d) 1994 1993 1992(e)
---- ------- ------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of
period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income(b) 0.011 0.020 (f) 0.012 0.010 0.009 0.007
----- ----- ----- -------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.011) (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 $1.000
====== ====== ====== ====== ====== ======
Total return(g)(h) 1.12% (i) 2.02% 1.20% (i) 1.01% 0.93% 0.68% (i)
----- ---- ----- ----- ----- -----
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.75% (j) 1.75% (f) 1.75% (j) 1.60% 1.75% 1.75% (j)
Fees and expenses waived
or borne by the Adviser/
Administrator 0.60% (j) 0.84% (f) 0.36% (j) 0.59% 0.50% 0.79% (j)
Net investment income 1.91% (j) 2.00% (f) 2.05% (j) 1.05% 0.69% 1.42% (j)
Net assets at end of period (000) $1,586 $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 for periods prior to
September 28, 1995 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
$0.003 $0.008 $0.002 $0.006 $0.005 $0.003
(c) Effective September 28, 1995, Stein Roe & Farnham became the investment
adviser of the Portfolio.
(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 1-800-426-3750.

5
<PAGE>

TWO-TIERED STRUCTURE

Unlike other mutual funds which invest directly in individual securities, the
Fund is an open-end management investment company that seeks to achieve its
investment objective by investing all of its assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund and
which invests directly in portfolio securities. See "The Fund's Investment
Objective," "How the Fund Pursues its Objective and Certain Risk Factors" and
"How the Fund and the Portfolio are Managed" for information concerning the
Portfolio's and the Fund's investment objectives, policies, management and
expenses. The following describes certain of the effects and risks of this
structure. The Fund's and the Portfolio's investment objectives may be changed
without shareholder approval. 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 proporiton to the
votes actually received from Fund shareholders.

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

6
<PAGE>

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

7
<PAGE>

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.

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<PAGE>

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. To the extent the Fund invests Municipal Securities
backed by third parties, including banks and other financial institutions,
changes in the credit quality of those third party institutions could result in
losses to the Fund and affect the Fund's share price.

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 investment policies may be changed without shareholder approval.
The Fund will notify investors in connection with any material change in the
Fund's investment objective or investment policies. If there is a change in the
investment objective or investment policies shareholders should consider whether
the Fund remains an appropriate

9
<PAGE>

investment in light of their current financial position and needs. Class B and
Class C shareholders may incur a contingent deferred sales charge if shares are
redeemed in response to a change in investment objective or investment policies.
The Fund's 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 and Class C shares. Other total returns differ from
average annual total return only in that they may relate to different time
periods, may represent aggregate 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 selecting broker-dealers, the Adviser may consider research and
brokerage services furnished by such broker-dealers to the Adviser and its
affiliates. In recognition of the research and brokerage services provided, the
Adviser may cause the Fund to pay the selected broker-dealer a higher commission
than would have been charged by another broker-dealer not providing such
services. Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.

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.

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<PAGE>

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) (normally 4:00 p.m. Eastern time, 3:00 p.m. Chicago time) 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 to shareholders but will be invested in additional shares of
the same Class of the Fund at net asset value. To change your election, call the
Transfer Agent for information.

If the Fund makes taxable distributions, they will generally be taxable whether
you receive distributions in cash or in additional Fund shares, and 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

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<PAGE>

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 shares of 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, and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution 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.

Class C Shares. Class C shares are offered at net asset value and are subject to
a 0.75% annual distribution fee and a 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which the
purchase was accepted. The Distributor has voluntarily agreed to waive a portion
of the distribution fee so that it will not exceed 0.15% annually. This waiver
may be terminated by the Distributor at any time without shareholder approval.

The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.10% annually, commencing
after the shares purchased have been outstanding for one year. Payment of the
ongoing commission is conditioned on receipt by the Distributor of the 0.15%
annual distribution fee referred to above. The commission may be reduced or
eliminated if the distribution fee paid by the Fund is reduced or eliminated for
any reason.

General. All contingent deferred sales charges are deducted from the 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 redemptions resulting in account value falling below its Base Amount.
When a redemption subject to a contingent deferred sales charge is made,
generally, older shares will be redeemed first unless the shareholder instructs
otherwise. See the Statement of Additional Information.

Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Class B and Class C shares of the Fund are only for
temporary investment while considering investments in Class B and Class C shares
of other Colonial funds. Purchases of $250,000 or more must be for Class A or
Class C shares. Purchases of $1,000,000 or more must be for Class A shares.
Consult your financial service firm.

Financial service firms 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.

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<PAGE>

In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000, unless the account value has dropped
below $1,000 solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before the fee is
deducted. The Fund may also deduct annual maintenance and processing fees
(payable to the Transfer Agent) in connection with certain retirement plan
accounts. See "Special Purchase Programs/Investor Services" on the Statement of
Additional Information for more information.

HOW TO SELL SHARES

Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will 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

Except as described below with respect to money market funds, the Fund shares
may be exchanged at net asset value among shares of the same class of most
Colonial funds. Shares will continue to age without regard to the exchange for
purposes of conversion and in determining the contingent deferred sales charge,
if any, upon redemption. Carefully read the prospectus of the fund into which
the exchange will go before submitting the request. Call 1-800-426-3750 to
receive a prospectus and an exchange authorization form. Call 1-800-422-3737 to
exchange shares by telephone. An exchange is a taxable capital transaction. The
exchange service may be changed, suspended or eliminated on 60 days' written
notice. The Fund will terminate the exchange privilege as to a particular
shareholder if the Administrator determines, in its sole and absolute
discretion, that the shareholder's exchange activity is likely to impact
adversely the Adviser's ability to manage the Fund's investments in accordance
with its investment objectives or otherwise harm the Fund or its remaining
shareholders.

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<PAGE>

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.

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 or fraudulent
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 PLAN

Under a 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the net assets attributed to the Fund's Class B and
Class C shares. The 12b-1 Plan also requires the Fund to pay the Distributor
monthly a distribution fee at the annual rate of 0.75% of the average daily net
assets attributed to its Class B and Class C shares. The Distributor has
voluntarily agreed to waive a portion of the Class C share distribution fee so
that it does not exceed 0.15% annually. The Distributor may terminate this
waiver at any time without shareholder approval. Because the Class B and Class C
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. Class
C shares do not convert the multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares, and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing

14
<PAGE>

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.

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<PAGE>

APPENDIX

DESCRIPTION OF BOND RATINGS

S&P

AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.

AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in a small degree.

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

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

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

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

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

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

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

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

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

Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.

Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.

SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.

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<PAGE>

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:

[bullet] Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).

[bullet] 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

Those bonds in the Aa through B groups which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1, Baa1, Ba1
and B1.

Baa bonds are considered as medium grade obligations, i.e. they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.

B bonds generally lack characteristics of a desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.

Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.

Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature

17
<PAGE>

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.

18
<PAGE>

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, Revised August 1, 1997

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
1-800-426-3750 for the October 28, 1996, Revised August 1, 1997 Statement of
Additional Information.

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

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

COLONIAL TRUST IV

Cross Reference Sheet

Colonial Tax-Exempt Fund

Colonial Tax-Exempt Insured Fund

Colonial Intermediate Tax-Exempt Fund

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

Part B
- ------

10. Cover Page

11. Table of Contents

12. Not Applicable

13. Investment Objectives and Policies of the Funds;
Fundamental Investment Policies of the Funds; Other
Investment Policies of the Funds; 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 Charges; How to Sell Shares; How to
Exchange Shares

20. Taxes

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

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

23. Independent Accountants

<PAGE>

COLONIAL TAX-EXEMPT FUND
COLONIAL TAX-EXEMPT INSURED FUND
COLONIAL INTERMEDIATE TAX-EXEMPT FUND
Statement of Additional Information
March 31, 1997; Revised August 1, 1997

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Tax-Exempt Fund, Colonial Tax-Exempt Insured Fund and Colonial Intermediate
Tax-Exempt Fund (each a Fund and, collectively, the Funds). This SAI is not a
prospectus and is authorized for distribution only when accompanied or preceded
by the Prospectus of the Funds dated March 31, 1997; Revised August 1, 1997.
This SAI should be read together with the Prospectus and the Funds' most recent
Annual and Semiannual Reports dated November 30, 1996 and May 31, 1997,
respectively. Investors may obtain a free copy of the Prospectus, Annual and
Semiannual Reports from Colonial Investment Services, Inc., One Financial
Center, Boston, MA 02111-2621.

Part 1 of this SAI contains specific information about the Funds. Part 2
includes information about the Colonial funds generally and additional
information about certain securities and investment techniques described in the
Funds' Prospectus.

TABLE OF CONTENTS

Page

Definitions
Investment Objectives and Policies
Fundamental Investment Policies
Other Investment Policies
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants

Part 2

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

TE-16/917D-0897

<PAGE>

Part 1

COLONIAL TAX-EXEMPT FUND
COLONIAL TAX-EXEMPT INSURED FUND
COLONIAL INTERMEDIATE TAX-EXEMPT FUND
Statement of Additional Information
March 31, 1997; Revised August 1, 1997

DEFINITIONS
"Trust" Colonial Trust IV
"Fund or Tax-Exempt Fund" Colonial Tax-Exempt Fund
"Fund or Insured Fund" Colonial Tax-Exempt Insured Fund
"Fund or Intermediate Fund" Colonial Intermediate Tax-Exempt Fund
"Adviser" Colonial Management Associates, Inc., the
Funds' investment adviser
"CISI" Colonial Investment Services, Inc., the Funds'
distributor
"CISC" Colonial Investors Service Center, Inc., the
Funds' investor services and transfer agent

INVESTMENT OBJECTIVES AND POLICIES
The Prospectus describes the Funds' investment objectives and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the fundamental investment policies of the Funds. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectus:

Short-Term Trading
Zero Coupon Securities (Intermediate Fund)
High Yield Bonds (Tax-Exempt Fund)
Forward Commitments
Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Inverse Floating Obligations (Intermediate Fund)

Except as indicated below under "Fundamental Investment Policies," the Funds'
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.

FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.

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 of
deficiency occurs as a result of such investment. For the purpose of the
Investment Company Act of 1940 (Act) diversification requirement, an issuer is
the entity whose revenues support the security.

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

<PAGE>

7. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets; (Tax-Exempt Fund, Insured Fund)
8. Invest up to 10% of net assets in illiquid assets; (Tax-Exempt Fund,
Insured Fund)
9. And will, under normal circumstances, invest at least 80% of its total
assets in tax-exempt bonds.

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

1. Purchase securities on margin, but it may receive short-term credit to
clear securities transactions and may make initial or maintenance margin
deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and

3. Invest more than 15% of its net assets in illiquid assets. (Intermediate
Fund)

FUND CHARGES AND EXPENSES
Under the Tax-Exempt Fund's and the Insured Fund's management agreement, the
Trust pays the Adviser a monthly fee based on the average daily net assets
allocated among the Tax-Exempt Fund, Insured Fund and Colonial High Yield
Municipal Fund at the following annual rates:

Average Net Assets Annual Fee Rate
------------------ ---------------
First $1 billion 0.60%
Next $2 billion 0.55%
Next $1 billion 0.50%
Excess over $4 billion 0.45%

Effective July 1, 1995, the management fee applicable to the Tax-Exempt Fund was
reduced by 0.05% annually on the average daily net assets of the Fund between $2
billion and $3 billion.

In addition, a further reduction to the management fee applicable to the
Tax-Exempt Fund was made based on the following schedule:

Effective Date Cumulative Annualized Reduction
-------------- -------------------------------
January 1, 1996 0.01%
April 1, 1996 0.02%
July 1, 1996 0.03%
October 1, 1996 0.04%

Under Intermediate Fund's management agreement, the Fund pays the Adviser a
monthly fee based on the average net assets of the Fund, determined at the close
of each business day during the month at the annual rate of 0.55% (subject to
reductions that the Adviser may agree to periodically).

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

<TABLE>
<CAPTION>
Tax-Exempt Fund
---------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $ 7,712 $17,385 $19,170 $20,098
Bookkeeping fee 380 763 765 766
Shareholder service and transfer agent fee 2,462 5,532 5,668 5,864
12b-1 fees:
Service fee 3,844 8,365 8,770 9,151
Distribution fee (Class B) 1,524 3,317 3,436 3,540
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Insured Fund
------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $ 661 $1,475 $1,544 $1,506
Bookkeeping fee 46 103 108 106
Shareholder service and transfer agent fee 193 430 452 436
12b-1 fees:
Service fee 296 666 699 685
Distribution fee (Class B) 158 350 364 372

</TABLE>

Intermediate Fund
-----------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Management fee $ 65 $145 $157 $162
Bookkeeping fee 14 27 27 27
Shareholder service and transfer agent fee 19 42 50 46
12b-1 fees:
Service fee 24 53 56 59
Distribution fee (Class B) 40 89 95 83
Fees and expenses
waived or borne by the Adviser (92) (190) (273) (317)

</TABLE>

Brokerage Commissions (dollars in thousands)
<TABLE>
<CAPTION>
Tax-Exempt Fund
---------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total Commissions $38 $49 $73 $37
Directed transactions (a) 0 0 0 0
Commissions on directed transactions 0 0 0 0
</TABLE>

<TABLE>
<CAPTION>
Insured Fund
------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total commissions $5 $2 $7 $2
Directed transactions (a) 0 0 0 0
Commissions on directed transactions 0 0 0 0
</TABLE>

<TABLE>
<CAPTION>
Intermediate Fund
-----------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total commissions $(b) $144 $689 $662
Directed transactions (a) 0 0 0 0
Commissions on directed transactions 0 0 0 0
</TABLE>

(a) See "Management of the Colonial Funds-Portfolio Transactions-Brokerage and
Research Services" in Part 2 of this SAI.
(b) Rounds to less than one.

<PAGE>

Trustees' Fees

For the fiscal year ended November 30, 1996 and the calendar year ended December
31, 1996, the Trustees received the following compensation for serving as
Trustees (c):

Aggregate
Compensation Aggregate Aggregate Total Compensation From
From Tax-Exempt Compensation Compensation Trust and Fund Complex
Trustee Fund For The From Insured Fund From Intermediate Fund For Paid To The Trustees For
- ------- Fiscal Year Ended For The Fiscal Year The Fiscal Year Ended The Calendar Year Ended
November 30, 1996 Ended November 30,1996 November 30, 1996 December 31, 1996(d)
----------------- ---------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Robert J. Birnbaum $13,823 $1,850 $ 903 $ 92,000
Tom Bleasdale 15,506(e) 2,073(g) 1,015(i) 104,500(k)
Lora S. Collins 13,820 1,845 902 92,000
James E. Grinnell 13,971 1,870 912 93,000
William D. Ireland, Jr. 16,209 2,169 1,059 109,000
Richard W. Lowry 14,117 1,889 923 95,000
William E. Mayer 13,691 1,830 892 91,000
James L. Moody, Jr. 15,823(f) 2,118(h) 1,036(j) 106,500(l)
John J. Neuhauser 14,174 1,895 927 94,500
George L. Shinn 15,748 2,109 1,027 105,500
Robert L. Sullivan 15,164 2,028 991 102,000
Sinclair Weeks, Jr. 16,360 2,192 1,071 110,000
</TABLE>

(c) The Fund does not currently provide pension or retirement plan
benefits to the Trustees.
(d) At December 31, 1996, the Colonial Funds complex consisted of 37
open-end and 5 closed-end management investment portfolios.
(e) Includes $7,677 payable in later years as deferred compensation.
(f) Includes $15,823 payable in later years as deferred compensation.
(g) Includes $1,024 payable in later years as deferred compensation.
(h) Includes $2,118 payable in later years as deferred compensation.
(i) Includes $502 payable in later years as deferred compensation.
(j) Includes $1,036 payable in later years as deferred compensation.
(k) Includes $51,500 payable in later years as deferred compensation.
(l) Total compensation of $106,500 for the calendar year ended December
31, 1996 will be payable in later years as deferred compensation.

The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(formerly known as The Charles Allmon Trust, Inc.) (together, Liberty Funds) for
service during the calendar year ended December 31, 1996:

Total Compensation
From Liberty Funds For The
Calendar Year Ended
Trustee December 31, 1996 (m)
- ------- ---------------------
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

(m) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (an intermediate
parent of the Adviser).

Ownership of the Fund
At June 30, 1997, the officers and Trustees of the Trust owned less than 1% of
the then outstanding shares of each of the Funds.

As of record on July 3, 1997, the following shareholders owned 5% or more of the
named Fund's outstanding shares:

Class B shares of the Tax-Exempt Fund: Merrill Lynch, Pierce, Fenner & Smith,
Inc., Attn: Book Entry, Mutual Funds Operations, 4800 Deer Lake Dr. E. 3rd FL,
Jacksonville, FL 32216, owned 6.85%.

<PAGE>

Class B shares of the Intermediate Fund: Merrill Lynch, Pierce, Fenner & Smith,
Inc., Attn: Mutual Funds Operations, 4800 Deer Lake Drive East, 3rd Floor,
Jacksonville, FL 32216, owned 8.38%.

At July 2, 1997; there were the following number of recordholders of each Fund:

67,687 Class A and 11,026 Class B (Tax-Exempt Fund)

4,809 Class A and 982 Class B (Insured Fund)

302 Class A and 316 Class B (Intermediate Fund)

Sales Charges (dollars in thousands)
<TABLE>
<CAPTION>
Tax-Exempt Fund
---------------
Class A Shares
--------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aggregate initial sales charges on Fund share $612 $1,804 $2,093 $6,172
Initial sales charges retained by CISI 75 218 243 468
</TABLE>

<TABLE>
<CAPTION>
Insured Fund
------------
Class A Shares
--------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aggregate initial sales charges on Fund share $41 $150 $214 $384
Initial sales charges retained by CISI 4 19 27 34
</TABLE>

Intermediate Fund
-----------------
Class A Shares
-----------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aggregate initial sales charges on Fund share $3 $14 $39 $ 74
Initial sales charges retained by CISI (n) 1 6 4

(n) Rounds to less than one.
</TABLE>

<TABLE>
<CAPTION>
Tax-Exempt Fund
---------------
Class B Shares
--------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by CISI $589 $1,201 $1,472 $1,272
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Insured Fund
------------
Class B Shares
--------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by CISI $72 $142 $161 $187
</TABLE>

<TABLE>
<CAPTION>
Intermediate Fund
-----------------
Class B Shares
--------------
Six months
ended May 31 Year ended November 30
------------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by CISI $17 $36 $46 $ 30
</TABLE>

12b-1 Plan, CDSCs and Conversion of Shares
Each Fund offers three classes of shares - Class A, Class B and Class C. The
Funds may in the future offer other classes of shares. The Trustees have
approved a 12b-1 plan (Plan) pursuant to Rule 12b-1 under the Act. Under the
Plan, each of the Tax-Exempt Fund and the Insured Fund pays CISI monthly a
service fee at an annual rate of 0.25% of net assets attributed to each Class of
shares and the Intermediate Fund pays CISI a monthly service fee of 0.20% of the
net assets attributed to each Class of shares. Each Fund also pays CISI monthly
a distribution fee at the annual rate of 0.75% of average daily net assets
attributed to Class B and Class C shares. The Distributor has voluntarily agreed
to waive a portion of the Class C share distribution fee so that it does not
exceed 0.60% (the Tax-Exempt Fund), 0.45% (the Insured Fund) and 0.20% (the
Intermediate Fund), annually. 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 in some cases
realize a profit from the fees.

The Plan authorizes any other payments by the Funds to CISI including its
affiliates (including the Adviser) to the extent that such payments might be
construed to be indirect financing of the distribution of Fund shares.

The Trustees believe the Plan could be a significant factor in the growth and
retention of each Fund's assets resulting in a more advantageous expense ratio
and increased investment flexibility which could benefit each class of each
Fund's shareholders. The Plan will continue in effect from year to year so long
as continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
Trustees.

Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase for the Tax-Exempt
Fund and the Insured Fund and within four years after purchase for the
Intermediate Fund. Class C shares are offered at net asset value and are subject
to a 1.00% CDSC on redemptions within one year after purchase. The CDSCs are
described in the Prospectus.

No CDSC will be imposed on an amount which represents an increase in the value
of the shareholder's account resulting from capital appreciation above the
amount paid for the shares. 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.

<PAGE>

Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.

Sales-related expenses (dollars in thousands) of CISI relating to each Fund
were:

Tax-Exempt Fund
---------------
Six months ended May 31, 1997 Year ended November 30, 1996
--------------------------------- ----------------------------------
Class A Shares Class B Shares Class A Shares Class B Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fees to FSFs $6,793 $1,500 $7,213 $1,737
Cost of sales material relating to the Fund
(including printing and mailing expenses) 191 51 168 39
Allocated travel, entertainment and other
promotional expenses (including advertising) 177 49 210 51
</TABLE>

Insured Fund
------------
Six months ended May 31, 1997 Year ended November 30, 1996
--------------------------------- ----------------------------------
Class A Shares Class B Shares Class A Shares Class B Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fees to FSFs $497 $158 $535 $158
Cost of sales material relating to the Fund
(including printing and mailing expenses) 13 6 12 8
Allocated travel, entertainment and other
promotional expenses (including advertising) 12 7 12 8
</TABLE>

<TABLE>
<CAPTION>
Intermediate Fund
-----------------
Six months ended May 31, 1997 Year ended November 30, 1996
----------------------------- ----------------------------
Class A Shares Class B Shares Class A Shares Class B Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fees to FSFs $ 23 $34 $ 23 $44
Cost of sales material relating to the Fund
(including printing and mailing expenses) 9 3 4 2
Allocated travel, entertainment and other
promotional expenses (including advertising) 3 1 1 2

</TABLE>

INVESTMENT PERFORMANCE
The Funds' yields for the seven days ended November 30, 1996 and May 31, 1997
were:

Tax-Exempt Fund
---------------
May 31, 1997 November 30, 1996
------------ -----------------
Class A Class B Class A Class B
------- ------- ------- -------

Yield 5.38% 4.88% 5.28% 4.79%
Tax-equivalent Yield 8.91% 8.08% 8.74% 7.93%

Insured Fund
------------
May 31, 1997 November 30, 1996
------------ -----------------
Class A Class B Class A Class B
------- ------- ------- -------

Yield 4.22% 3.68% 4.17% 3.62%
Tax-equivalent Yield 6.99% 6.06% 6.90% 5.99%

Intermediate Fund
-----------------
May 31, 1997 November 30, 1996
------------ -----------------
Class A Class B Class A Class B
------- ------- ------- -------

Yield 4.61% 4.11% 4.42% 3.91%
Tax-equivalent Yield 7.63% 6.80% 7.32% 6.47%

<PAGE>

Adjusted Yield 3.81% 3.29% 3.84% 3.32%

Each Fund's average annual total returns at May 31, 1997 were:

Tax-Exempt Fund
---------------
Class A Shares
--------------
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 2.14% 5.13% 6.78%
Without sales charge 7.24% 6.16% 7.30%

Insured Fund
------------
Class A Shares
--------------
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 2.34% 5.01% 6.88%
Without sales charge 7.44% 6.03% 7.40%

Intermediate Fund
-----------------
Class A Shares
--------------
February 1, 1993
(commencement of investment operations)
1 Year through May 31, 1997
------ --------------------
With sales charge of 3.25 3.13% 5.04%
Without sales charge 6.59% 5.85%

Tax-Exempt Fund
---------------
Class B Shares
--------------
May 5, 1992
(commencement of
investment operations)
1 year 5 years through May 31, 1997
------ ------- --------------------
With applicable CDSC 1.44% 5.07% 5.18% (2.00% CDSC)
(5.00% CDSC)
Without CDSC 6.44% 5.40% 5.50%

<PAGE>

Insured Fund
------------
Class B Shares
--------------
May 5, 1992
(commencement of
investment operations)
1 year 5 years through May 31, 1997
------ ------- --------------------
With applicable CDSC 1.64% 4.92% 5.06% (2.00% CDSC)
(5.00% CDSC)
Without CDSC 6.64% 5.25% 5.38%

Intermediate Fund
-----------------
Class B Shares
--------------
February 1, 1993
(commencement of investment
operations)
1 Year through May 31, 1997
------ --------------------
With applicable CDSC 1.91% (4.00% 5.17% (0.00% CDSC)
CDSC)
Without CDSC 5.91% 5.17%

Each Fund's Class A and Class B distribution rates at November 30, 1996 and May
31, 1997, which are based on the most recent month's distributions, annualized,
and the maximum offering price at the end of the month were:
<TABLE>
<CAPTION>
Period ended May 31, 1997 Year ended November 30, 1996
------------------------- ----------------------------
Class A Shares Class B Shares Class A Shares Class B Shares
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Tax-Exempt Fund 5.22% 4.74% 5.21% 4.74%
Insured Fund 4.60% 4.10% 4.57% 4.06%
Intermediate Fund 4.73% 4.24% 4.64% 4.16%
</TABLE>

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

CUSTODIAN
UMB, n.a. is the Funds' custodian. The custodian is responsible for safeguarding
the Funds' cash and securities, receiving and delivering securities and
collecting the Funds' interest and dividends.

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Funds' independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings. The
financial statements for the fiscal year ended November 30, 1996 incorporated by
reference in this SAI have been so incorporated, and the financial highlights
included in the Prospectus for the period ended November 30, 1996 have been so
included, in reliance upon the report of Price Waterhouse LLP given on the
authority of said firm as experts in accounting and auditing.

The financial statements and Report of Independent Accountants appearing in each
Fund's November 30, 1996 Annual Report and the unaudited financial statements
appearing in each Fund's May 31, 1997 Semiannual Report are incorporated in this
SAI by reference and can be found on the following pages:

Annual Report dated November 30, 1996
Tax-Exempt Fund Pages 6 through 56
Insured Fund Pages 6 through 29
Intermediate Fund Pages 6 through 22

Semiannual Report dated May 31, 1997
Tax-Exempt Fund Pages 6 through 50
Insured Fund Pages 6 through 28
Intermediate Fund Pages 6 through 21

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 debt unrated securities. Relative to debt securities of higher
quality:

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

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

3. 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.

4. the likelihood that lower rated bonds will help the fund achieve its
investment objective is more dependent on the Adviser's credit analysis.

5. 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

1
<PAGE>

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

2
<PAGE>

of possible delay in recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. As a matter of policy,
securities loans are made to banks and broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the value of the securities on
loan. The borrower pays to the fund an amount equal to any dividends or interest
received on securities lent. The fund retains all or a portion of the interest
received on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with respect to the
loaned securities pass to the borrower, the fund retains the right to call the
loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by the fund if the holders of such securities are asked
to vote upon or consent to matters materially affecting the investment. The fund
may also call such loans in order to sell the securities involved.

Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where such purchases are made
through dealers, the fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the fund of an advantageous
yield or price. Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the Adviser deems it appropriate to do so. The
fund may realize short-term profits or losses upon the sale of forward
commitments.

Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.

Repurchase Agreements

The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.

Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.

Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.

3
<PAGE>

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.

4
<PAGE>

When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.

The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.

If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.

A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.

Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.

Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.

Futures Contracts and Related Options

Upon entering into futures contracts, in compliance with the Securities and
Exchange Commission's requirements, cash or liquid securities, equal in value to
the amount of the fund's obligation under the contract (less any applicable
margin deposits and any assets that constitute "cover" for such obligation),
will be segregated with the fund's custodian.

A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.

Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.

5
<PAGE>

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
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account of the fund's
custodian. The fund may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. The fund may use such options on
futures contracts in lieu of writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.

As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.

The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.

Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser`s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.

Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.

There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.

To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

Use by tax-exempt funds of 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

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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.

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<PAGE>

The fund may engage in both "transaction hedging" and "position hedging". When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.

The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.

For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.

When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.

The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.

It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.

Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.

Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.

A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.

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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.

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

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

Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.

Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.

The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.

Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.

Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid

<PAGE>

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

TAXES

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

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

Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT.

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.

The Revenue Reconciliation Act of 1993 requires that any market discount
recognized on a tax-exempt bond is taxable as ordinary income. This rule
applies only for disposals of bonds purchased after April 30, 1993. A market
discount bond is a bond acquired in the secondary market at a price below its
redemption value. Under prior law, the treatment of market discount as
ordinary income did not apply to tax-exempt obligations. Instead, realized
market discount on tax-exempt obligations was treated as capital gain. Under
the new law, gain on the disposition of a tax-exempt obligation or any other
market discount bond that is acquired for a price less than its principal amount
will be treated as ordinary income (instead of capital gain) to the extent of
accured market discount. This rule is effective only for bonds purchased after
April 30, 1993.

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.

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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.

<PAGE>

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, Colonial Newport Japan Fund
and Newport Greater China Fund - see Part I of each Fund's respective SAI for a
description of the investment adviser). The Adviser is a subsidiary of The
Colonial Group, Inc. (TCG), One Financial Center, Boston, MA 02111. TCG is a
direct 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.

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

<TABLE>
<CAPTION>
Name and Address Age Position with Principal Occupation
Fund
<S> <C> <C> <C>
Robert J. Birnbaum 69 Trustee Retired (formerly Special Counsel, Dechert Price & Rhoads
313 Bedford Road from September, 1988 to December, 1993).
Ridgewood, NJ 07450

Tom Bleasdale 66 Trustee Retired (formerly Chairman of the Board and Chief
102 Clubhouse Drive #275 Executive Officer, Shore Bank & Trust Company from
Naples, FL 34105 1992-1993), is a Director of The Empire Company since
June, 1995.

Lora S. Collins 61 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis,
1175 Hill Road Nessen, Kamin & Frankel from September, 1986 to
Southold, NY 11971 November, 1996).

James E. Grinnell 67 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945

William D. Ireland, Jr. 73 Trustee Retired, is a Trustee of certain charitable and
103 Springline Drive non-charitable organizations since February, 1990.
Vero Beach, FL 32963

Richard W. Lowry 61 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963

William E. Mayer* 56 Trustee Partner, Development Capital, LLC (formerly Dean, College
500 Park Avenue, 5th Floor of Business and Management, University of Maryland from
New York, NY 10022 October, 1992 to November, 1996, Dean, Simon Graduate
School of Business, University of Rochester from October, 1991 to
July, 1992).

James L. Moody, Jr. 65 Trustee Chairman of the Board and Director, Hannaford Bros. Co.
P.O. Box 1000 since May, 1984 (formerly Chief Executive Officer,
Portland, ME 04104 Hannaford Bros. Co. from May, 1973 to May, 1992).

John J. Neuhauser 53 Trustee Dean, Boston College School of Management since 1978.
140 Commonwealth Avenue
Chestnut Hill, MA 02167

George L. Shinn 74 Trustee Financial Consultant since 1989.
Credit Suisse First Boston
Corp.

13
<PAGE>

Eleven Madison Avenue, 25th
Floor
New York, NY 10010-3629

Robert L. Sullivan 69 Trustee Retired Partner, Peat Marwick Main & Co.
7121 Natelli Woods Lane
Bethesda, MD 20817

Sinclair Weeks, Jr. 73 Trustee Chairman of the Board, Reed & Barton Corporation since
Bay Colony Corporate Ctr. 1987.
Suite 4550
1000 Winter Street
Waltham, MA 02154

Harold W. Cogger 61 President President of Colonial funds since March, 1996 (formerly
(formerly Vice Vice President from July, 1993 to March, 1996); is
President) Director, since March, 1984 and Chairman of the Board
since March, 1996 of the Adviser (formerly President
from July, 1993 to December, 1996, Chief Executive
Officer from March, 1995 to December, 1996 and Executive
Vice President from October, 1989 to July, 1993); Director since
October, 1991 and Chairman of the Board since March, 1996 of TCG
(formerly President from October, 1994 to December, 1996 and Chief
Executive Officer from March, 1995 to December, 1996); Executive
Vice President and Director since March, 1995, Liberty Financial;
Director since November, 1996 of Stein Roe & Farnham Incorporated.

Timothy J. Jacoby 44 Treasurer and Treasurer and Chief Financial Officer of Colonial funds
Chief Financial since October, 1996, is Senior Vice President of the
Officer Adviser since September, 1996 (formerly Senior Vice
President, Fidelity Accounting and Custody Services
from September, 1993 to September, 1996 and Assistant
Treasurer to the Fidelity Group of Funds from August,
1990 to September, 1993).

Peter L. Lydecker 43 Chief Accounting Chief Accounting Officer and Controller of Colonial
Officer and funds since June, 1993 (formerly Assistant Controller
Controller from March, 1985 to June, 1993); is Vice President of
(formerly the Adviser since June, 1993 (formerly Assistant Vice
Assistant President of the Adviser from August, 1988 to June,
Controller) 1993).

Davey S. Scoon 50 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).

14
<PAGE>

Arthur O. Stern 58 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).
</TABLE>

* A Trustee who is an "interested person" (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 38 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, Colonial Newport Tiger Cub Fund or Newport Greater
China Fund)

Under a Management Agreement (Agreement), the Adviser has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space,

15
<PAGE>

equipment and other facilities. For these services and facilities, each Colonial
fund pays a monthly fee based on the average of the daily closing value of the
total net assets of each fund for such month. Under the Agreement, any liability
of the Adviser to the Trust, fund and/or its shareholders is limited to
situations involving the Adviser's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.

The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.

The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders. CISI pays the cost of printing and distributing all other
Prospectuses.

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, Colonial Newport Tiger Cub Fund and Newport Greater
China 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

16
<PAGE>

and the LFC Utilities Trust (LFC Portfolio) in which
Colonial Global Utilities Fund is invested and reporting
to the Trustees from time to time with respect thereto.

The Adviser is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this Statement of Additional Information.

The Pricing and Bookkeeping Agreement

The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Adviser, in its capacity as
the Administrator to each of Colonial 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, Colonial
Newport Tiger Cub Fund and Newport Greater China Fund), the Adviser is paid
monthly a fee of $2,250 by each fund, plus a monthly percentage fee based on net
assets of the fund equal to the following:

1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion

The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund, Colonial Newport Tiger Cub Fund and Newport
Greater China Fund for an annual fee of $27,000, plus 0.035% of each Fund's
average daily net assets over $50 million.

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

Portfolio Transactions

The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund, 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, Colonial Newport Tiger Cub Fund and Newport Greater China Fund
follows the same procedures as those set forth under "Brokerage and research
services."

Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Colonial Newport Tiger Fund, Colonial Newport Japan Fund,
Colonial Newport Tiger Cub Fund and Newport Greater China Fund, each of which is
administered by the Adviser. The Adviser's affiliate, CASI, advises other
institutional, corporate, fiduciary and individual clients for which CASI
performs various services. Various officers and Trustees of the Trust also serve
as officers or Trustees of other Colonial funds and the other corporate or
fiduciary clients of the Adviser. The Colonial funds and clients advised by the
Adviser or the funds administered by the Adviser sometimes invest in securities
in which the Fund also invests and sometimes engage in covered option writing
programs and enter into transactions utilizing stock index options and stock
index and financial futures and related options ("other instruments"). If the
Fund, such other Colonial funds and such other clients desire to buy or sell the
same portfolio securities, options or other instruments at about the same time,
the purchases and sales are normally made as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold by each.
Although in some cases these practices could have a detrimental effect on the
price or volume of the securities, options or other instruments as far as the
Fund is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the Trustees that the
desirability of retaining the Adviser as investment adviser to the Colonial
funds outweighs the disadvantages, if any, which might result from these
practices.

The portfolio managers of Colonial International Fund for Growth, a series of
Colonial Trust III, will use the trading facilities of Stein Roe & Farnham
Incorporated, an affiliate of the Adviser, to place all orders for the purchase
and sale of this fund's portfolio securities, futures contracts and foreign
currencies.

Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may

17
<PAGE>

consider sales of shares of the Colonial funds as a
factor in the selection of broker-dealers to execute securities transactions for
a Colonial fund.

The Adviser places the transactions of the Colonial funds with broker-dealers
selected by the Adviser and, if applicable, negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including the purchase and writing of options, the effecting of closing purchase
and sale transactions, and the purchase and sale of underlying securities upon
the exercise of options and the purchase or sale of other instruments. The
Colonial funds from time to time also execute portfolio transactions with such
broker-dealers acting as principals. The Colonial funds do not intend to deal
exclusively with any particular broker-dealer or group of broker-dealers.

It is the Adviser's policy generally to seek best execution, which is to place
the Colonial funds' transactions where the Colonial funds can obtain the most
favorable combination of price and execution services in particular transactions
or provided on a continuing basis by a broker-dealer, and to deal directly with
a principal market maker in connection with over-the-counter transactions,
except when it is believed that best execution is obtainable elsewhere. In
evaluating the execution services of, including the overall reasonableness of
brokerage commissions paid to, a broker-dealer, consideration is given to, among
other things, the firm's general execution and operational capabilities, and to
its reliability, integrity and financial condition.

Securities transactions of the Colonial funds may be executed by broker-dealers
who also provide research services (as defined below) to the Adviser and the
Colonial funds. The Adviser may use all, some or none of such research services
in providing investment advisory services to each of its investment company and
other clients, including the fund. To the extent that such services are used by
the Adviser, they tend to reduce the Adviser's expenses. In the Adviser's
opinion, it is impossible to assign an exact dollar value for such services.

The Trustees have authorized the Adviser to cause the Colonial funds to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction, including the sale
of an option or a closing purchase transaction, for the Colonial funds in excess
of the amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends and portfolio strategy and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The Adviser must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Adviser's
overall responsibilities to the Colonial funds and all its other clients.

The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by Colonial funds that write
options and to pay such clearing agent commissions of a fixed amount per share
(currently 1.25 cents) on the sale of the underlying security upon the exercise
of an option written by a fund.

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

18
<PAGE>

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 by the Adviser in good faith under the direction of the
Trust's Trustees.

Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each Colonial fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.

(The following two paragraphs are applicable only to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund, Colonial Newport Tiger Cub Fund and Newport
Greater China Fund - "Adviser" in these two paragraphs refers to each fund's
Adviser, Newport Fund Management, Inc.)

Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.

The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.

Amortized Cost for Money Market Funds (this section currently 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 that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting to the market value method (in which
case the NAV per share

19
<PAGE>

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, 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 C). 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.

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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, 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, 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,

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the value of all Class A, B, C, T and Z shares held by the shareholder on the
date of the Statement in Colonial funds (except shares of any Colonial money
market fund, unless such shares were acquired by exchange from Class A shares of
another non-money market Colonial fund). The value is determined at the public
offering price on the date of the Statement. Purchases made through reinvestment
of distributions do not count toward satisfaction of the Statement.

During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.

If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to 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,C or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for

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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,
and by participants in certain retirement plans.

Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to the Colonial Funds) (Classes A, B, and C) CDSCs may
be waived on redemptions in the following situations with the proper
documentation:

1. Death. CDSCs may be waived on redemptions within one year following
the death of (i) the sole shareholder on an individual
account, (ii) a joint tenant where the surviving joint tenant is
the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts
to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or
other custodial account. If, upon the occurrence of one of the
foregoing, the account is transferred to an account registered in
the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after
the death. If the Class B shares are not redeemed within one year
of the death, they will remain subject to the applicable CDSC, when
redeemed from the transferee's account. If the account is
transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged.

2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly, quarterly or
semi-annual SWP established with CISC, to the extent the
redemptions do not exceed, on an annual basis, 12% of the account's
value, so long as at the time of the first SWP redemption the
account had had distributions reinvested for a period at least
equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three
month period prior to the first SWP redemption); otherwise CDSCs
will be charged on SWP redemptions until this requirement is met;
this requirement does not apply if the SWP is set up at the time
the account is established, and distributions are being reinvested.
See below under "Investor Services - Systematic Withdrawal Plan."

3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as
defined in Section 72(m)(7) of the Internal Revenue Code). To be
eligible for such waiver, (i) the disability must arise after the
purchase of shares and (ii) the disabled shareholder must have been
under age 65 at the time of the initial determination of
disability. If the account is transferred to a new registration and
then a redemption is requested, the applicable CDSC will be
charged.

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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 C shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class C
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn. 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.

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A fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.

The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.

Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.

Telephone Redemptions. All Colonial fund shareholders and/or their FSFs (except
for Colonial Newport Tiger Cub Fund, Colonial Newport Japan Fund and Newport
Greater China Fund) are automatically eligible to redeem up to $50,000 of the
fund's shares by calling 1-800-422-3737 toll- free any business day between 9:00
a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time).
Transactions received after 4:00 p.m. Eastern time will receive the next
business day's closing price. Telephone redemption privileges for larger amounts
and for the Colonial Newport Tiger Cub Fund 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 FSFs will be required to
provide their name, address and account number. FSFs will also be required to
provide their broker number. All telephone transactions are recorded. A loss to
a shareholder may result from an unauthorized transaction reasonably believed to
have been authorized. No shareholder is obligated to execute the telephone
authorization form or to use the telephone to execute transactions.

Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of the Colonial
Funds) (Available only on the Class A shares of certain Colonial
funds) Shares may be redeemed by check if a shareholder has previously completed
an Application and Signature Card. CISC will provide checks to be drawn on The
First National Bank of Boston (the "Bank"). These checks may be made payable to
the order of any person in the amount of not less than $500 nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.

Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.

Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.

DISTRIBUTIONS

Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account.

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.

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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 or shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available from the Colonial
Literature Department by calling 1-800-426-3750.

A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.

You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or CISC. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.

Shareholders of the other Colonial open-end funds generally may exchange their
shares at NAV for the same class of shares of the fund.

An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.

SUSPENSION OF REDEMPTIONS

A Colonial fund may not suspend shareholders' right of redemption or postpone
payment for more than seven days unless the Exchange is closed for other than
customary weekends or holidays, or if permitted by the rules of the SEC during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.

SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the fund or the
Trust's Trustees. The Declaration provides for indemnification out of fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the fund would be unable to meet its obligations and
the disclaimer was inoperative.

The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.

SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for

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the purpose of obtaining the signatures necessary to demand a shareholders'
meeting to consider removal of a Trustee, request information regarding the
Trust's shareholders, the Trust will provide appropriate materials (at the
expense of the requesting shareholders). Except as otherwise disclosed in the
Prospectus and this SAI, the Trustees shall continue to hold office and may
appoint their successors.

At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.

PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.

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

Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.

Non money market. The yield for each class of shares of a fund is determined by
(i) calculating the income (as defined by the SEC for purposes of advertising
yield) during the base period and subtracting actual expenses for the period
(net of any reimbursements), and (ii) dividing the result by the product of the
average daily number of shares of the fund that were entitled to dividends
during the period and the maximum offering price of the fund on the last day of
the period, (iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.

Distribution rate. The distribution rate for each class of shares of a fund is
calculated by annualizing the most current period's distributions and dividing
by the maximum offering price on the last day of the period. Generally, the
fund's distribution rate reflects total amounts actually paid to shareholders,
while yield reflects the current earning power of the fund's portfolio
securities (net of the fund's expenses). The fund's yield for any period may be
more or less than the amount actually distributed in respect of such period.

The fund may compare its performance to various unmanaged indices published by
such sources as are listed in Appendix II.

The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Adviser to be reputable, and publications in
the press pertaining to a fund's performance or to the Adviser or its
affiliates, including comparisons with competitors and matters of national and
global economic and financial interest. Examples include Forbes, Business Week,
Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe,
Barron's National Business & Financial Weekly, Financial Planning, Changing
Times, Reuters Information Services, Wiesenberger Mutual Funds Investment
Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia
Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index and Disclosure Incorporated.

All data are based on past performance and do not predict future results.

27
<PAGE>

APPENDIX I
DESCRIPTION OF BOND RATINGS

STANDARD & POOR'S CORPORATION (S&P)

AAA bonds have the highest rating assigned by S&P.Capacity to pay interest and
repay principal is extremely strong.

AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.

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

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

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

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

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

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

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

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.

Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.

28
<PAGE>

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

Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.

Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.

A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.

Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.

Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.

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 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

29
<PAGE>

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

Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.

FITCH INVESTORS SERVICES

Investment Grade Bond Ratings

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

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

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

BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
securities and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
securities with higher ratings.

Conditional

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

Speculative-Grade Bond Ratings

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

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

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

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

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

30
<PAGE>

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

DUFF & PHELPS CREDIT RATING CO.

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

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

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

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

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

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

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

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

31
<PAGE>
<TABLE>
<CAPTION>

APPENDIX II

1996

SOURCE CATEGORY RETURN (%)

<S> <C> <C>
Donoghue Tax-Free Funds 4.95
Donoghue U.S. Treasury Funds 4.71
Dow Jones & Company Industrial Index 28.91
Morgan Stanley Capital International EAFE Index 6.05
Morgan Stanley Capital International EAFE GDP Index 7.63
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 4.36
Lipper California Municipal Bond Funds 3.65
Lipper Connecticut Municipal Bond Funds 3.48
Lipper Closed End Bond Funds 8.13
Lipper Florida Municipal Bond Funds 3.00
Lipper General Bond Fund 6.16
Lipper General Municipal Bonds 3.30
Lipper Global Funds 16.51
Lipper Growth Funds 19.24
Lipper Growth & Income Funds 20.78
Lipper High Current Yield Bond Funds 13.67
Lipper High Yield Municipal Bond Debt 4.17
Lipper Fixed Income Funds 10.24
Lipper Insured Municipal Bond Average 2.83
Lipper Intermediate Muni Bonds 3.70
Lipper Intermediate (5-10) U.S. Government Funds 2.68
Lipper Massachusetts Municipal Bond Funds 3.39
Lipper Michigan Municipal Bond Funds 3.17
Lipper Mid Cap Funds 18.10
Lipper Minnesota Municipal Bond Funds 3.11
Lipper U.S. Government Money Market Funds 4.75

Lipper New York Municipal Bond Funds 3.15
Lipper North Carolina Municipal Bond Funds 2.78
Lipper Ohio Municipal Bond Funds 3.35
Lipper Small Company Growth Funds 20.20
Lipper U.S. Government Funds 1.72
Lipper Pacific Region Funds-Ex-Japan 11.11
Lipper Pacific Region (4.45)
Lipper International Funds 11.78
Lipper Balanced Funds 13.76
Lipper Tax-Exempt Money Market 2.93
Shearson Lehman Composite Government Index 2.77
Shearson Lehman Government/Corporate Index 2.90
Shearson Lehman Long-term Government Index (0.84)
S&P S&P 500 Index 22.95
S&P Utility Index 3.12
S&P Barra Growth 23.98
S&P Barra Value 21.99
S&P Midcap 400 19.20
First Boston High Yield Index 12.40
Swiss Bank 10 Year U.S. Government (Corporate Bond) 0.30
Swiss Bank 10 Year United Kingdom (Corporate Bond) 19.10
Swiss Bank 10 Year France (Corporate Bond) 7.80
Swiss Bank 10 Year Germany (Corporate Bond) 1.00
Swiss Bank 10 Year Japan (Corporate Bond) (3.40)
</TABLE>

32
<PAGE>

<TABLE>

<S> <C> <C>
Swiss Bank 10 Year Canada (Corporate Bond) 10.5
Swiss Bank 10 Year Australia (Corporate Bond) 20.6
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 21.87
Morgan Stanley Capital International 10 Year Belgium (Equity) 15.16
<CAPTION>
SOURCE CATEGORY RETURN (%)
<S> <C> <C>
Morgan Stanley Capital International 10 Year Austria (Equity) 7.65
Morgan Stanley Capital International 10 Year France (Equity) 10.35
Morgan Stanley Capital International 10 Year Netherlands (Equity) 16.90
Morgan Stanley Capital International 10 Year Japan (Equity) 3.39
Morgan Stanley Capital International 10 Year Switzerland (Equity) 13.14
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 15.06
Morgan Stanley Capital International 10 Year Germany (Equity) 8.16
Morgan Stanley Capital International 10 Year Italy (Equity) 0.53
Morgan Stanley Capital International 10 Year Sweden (Equity) 16.42
Morgan Stanley Capital International 10 Year United States (Equity) 14.39
Morgan Stanley Capital International 10 Year Australia (Equity) 11.44
Morgan Stanley Capital International 10 Year Norway (Equity) 13.23
Morgan Stanley Capital International 10 Year Spain (Equity) 11.55
Morgan Stanley Capital International World GDP Index 11.50
-----
Morgan Stanley Capital International Pacific Region Funds Ex-Japan 20.54
Bureau of Labor Statistics Consumer Price Index (Inflation) 3.32
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 16.50
Frank Russell & Co. Russell 1000 Value 21.64
Frank Russell & Co. Russell 1000 Growth 11.26
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

COLONIAL TRUST IV

Cross Reference Sheet

Colonial High Yield Municipal Fund

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

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

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 HIGH YIELD MUNICIPAL FUND
Statement of Additional Information
March 31, 1997; Revised August 1, 1997

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial High
Yield Municipal Fund (Fund). This SAI is not a prospectus and is authorized for
distribution only when accompanied or preceded by the Prospectus of the Fund
dated March 31, 1997; Revised August 1, 1997. This SAI should be read together
with the Prospectus and the Fund's most recent annual and semiannual reports
dated November 30, 1996 and May 31, 1997, respectively. 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
Independent Accountants

Part 2

Miscellaneous Investment Practices
Taxes
Management of the Colonial Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Program/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

HM-16/919D-0897

a
<PAGE>

Part 1

COLONIAL HIGH YIELD MUNICIPAL FUND
Statement of Additional Information
March 31, 1997; Revised August 1, 1997

DEFINITIONS

"Trust" Colonial Trust IV

"Fund" Colonial High Yield Municipal Fund

Adviser Colonial Management Associates, Inc., the Fund's investment adviser

"CISI" Colonial Investment Services, Inc., the Fund's distributor

"CISC" Colonial Investors Service Center, Inc., the Fund's shareholder
services and transfer agent

INVESTMENT OBJECTIVES AND POLICIES

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

Short-Term Trading
High Yield Bonds
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options
Options

Except as indicated below under "Fundamental Investment Policies," the Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.

FUNDAMENTAL INVESTMENT POLICIES

The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more that 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.

The Fund may:

1. Only issue senior securities through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets;

2. Invest in real estate only up to 5% of its net assets;

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

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

5. Only underwrite securities issued by others when disposing of portfolio
securities;

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

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

8. Ordinarily invest at least 80% of its total assets in tax-exempt
securities.

<PAGE>

OTHER INVESTMENT POLICIES

As non-fundamental investment policies which may be changed without a vote of a
majority of the outstanding voting securities, the Fund may not:

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

Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act
diversification requirement, an issuer is the entity whose revenues support the
security.

FUND CHARGES AND EXPENSES

Under the Fund's management agreement, the Trust pays the Adviser a monthly fee
based on the average daily net assets allocated among the Fund, the Colonial
Tax-Exempt Fund and the Colonial Tax-Exempt Insured Fund at the following annual
rates: 0.60% on the first $1 billion, 0.55% on the next $2 billion, 0.50% of the
next $1 billion and 0.45% of any excess over $4 billion.

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

Six months ended
----------------
May 31 Year ended November 30
------ ----------------------
1997 1996 1995 1994
---- ---- ---- ----
Management fee $ 516 $ 925 $ 759 $ 651
Bookkeeping fee 37 68 58 51
Shareholder service and
transfer 148 271 227 193
agent fee
12b-1 fees:
Service fee 232 418 345 297(a)
Distribution fee (Class B) 540 1,057 948 882
Distribution fee (Class C) -- -- -- --

(a) Class A shares were offered for sale to the general public commencing
September 1, 1994.

Brokerage Commissions

The Fund did not pay brokerage commissions for the period ended May 31, 1997 and
for the fiscal years ended November 30, 1996, 1995 and 1994.

Trustees Fees

For the fiscal year ended November 30, 1996 and the calendar year ended December
31, 1996, the Trustees received the following compensation for serving as
Trustees (b).

Aggregate Total Compensation
Compensation From Trust And
From Fund For The Fund Complex Paid To The
Fiscal Year Ended Trustees For The Calendar Year
Trustee November 30, 1996 Ended December 31, 1996(c)
Robert J. Birnbaum $1,408 $ 92,000
Tom Bleasdale 1,584 (d) 104,500 (e)
Lora S. Collins 1,407 92,000
James E. Grinnell 1,424 93,000
William D. Ireland, Jr. 1,651 109,000

<PAGE>

Richard W. Lowry 1,438 95,000
William E. Mayer 1,395 91,000
James L. Moody, Jr. 1,614 (f) 106,500 (g)
John J. Neuhauser 1,448 94,500
George L. Shinn 1,596 105,500
Robert L. Sullivan 1,547 102,000
Sinclair Weeks, Jr. 1,670 110,000

(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.

(c) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.

(d) Includes $786 payable in later years as deferred compensation.

(e) Includes $51,000 payable in later years as deferred compensation.

(f) Total compensation of $1,614 for the fiscal year ended November 30, 1996
will be payable in later years as deferred compensation.

(g) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

Total Compensation From Liberty
Funds For The Calendar Year
Trustee Ended December 31, 1996 (h)

Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

(h) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

At June 30, 1997, the officers and Trustees of the Fund as a group owned less
than 1% of the outstanding shares of the Fund.

As of record on July 3, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Attn:
Fund Administration, 4800 Deer Lake Drive, E. 3rd Floor, Jacksonville, FL 32216
owned 12.11% of the Fund's outstanding Class B shares.

At June 30, 1997, there were 1,172 Class A and 3,545 Class B shareholders.

Sales Charges (dollars in thousands)

<TABLE>
<CAPTION>
Class A Shares
September 1, 1994
Six months ended Years Ended (commencement of
May 31 November 30 investment operations)
1997 1996 1995 through November 30, 1994
---- ---- ---- -------------------------
<S> <C> <C> <C> <C>
Aggregate initial sales
charges on Fund share sales $133 $428 $228 $110

Initial sales charges
retained by CISI 15 49 27 12
</TABLE>

<PAGE>

Class B Shares
Six months ended
May 31 Year Ended November 30

1997 1996 1995 1994
---- ---- ---- ----
Aggregate contingent deferred
sales charges (CDSC) on Fund
redemptions retained by CISI $168 $281 $265 278

12b-1 Plan, CDSC and Conversion of Shares

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

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

The Trustees believe the Plan could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are not interested persons is effected by such non-interested
Trustees.

Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase. Class C shares
are offered at net asset value and are subject to a 1.00% CDSC on redemptions
within one year after purchase. The CDSCs are described in the Prospectus.

No CDSC will be imposed on shares derived from reinvestment of distributions or
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.

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

<TABLE>
<CAPTION>
Six months ended May 31, 1997
-----------------------------
Class A Shares Class B Shares
-------------- --------------
<S> <C> <C>
Fees to FSFs $98 $1,204

Cost of sales material relating to the Fund (including
printing and mailing expenses) 45 108

e
<PAGE>

Allocated travel, entertainment and other promotional
expenses (including travel) 46 93

Year ended November 30, 1996
----------------------------
Class A Shares Class B Shares
-------------- --------------
Fees to FSFs $77 $1,310

Cost of sales material relating to the Fund (including
printing and mailing expenses) 31 60

Allocated travel, entertainment and other promotional
expenses (including advertising) 44 78
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A and Class B yields were as follows:

Month ended May 31, 1997
Class A Class B

Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield

5.33% 8.82% 4.83% 8.00%

Month ended November 30, 1996
Class A Class B

Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield

5.57% 9.22% 5.09% 8.43%

The Fund's total returns at May 31, 1997 were:

Class A Shares
Average annual total return
Total return 1 year Since inception
Six-months ended 6/1/96 to 9/1/94 to
May 31, 1997 5/31/97 5/31/97

With sales charge of 4.75% (2.78)% 2.78% 5.84%
Without sales charge 2.07% 7.90% 7.73%

Class B Shares
Average annual total return
Total return 1 year Since inception
Six-months ended 6/1/96 to 6/8/92 to
May 31, 1997 5/31/97 5/31/97

With applicable CDSC (3.26)%(4.95% CDSC) 2.10% (5.00% CDSC) 5.88%(2.00% CDSC)
Without CDSC 1.69% 7.10% 6.20%

The Fund's Class A and Class B distribution rates at May 31, 1997 and November
30, 1996, based on the most recent month's distribution, annualized, and the
maximum offering price at the end of the month, were 6.00% and 5.26% and 5.96%
and 5.52%, respectively.

f
<PAGE>

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

CUSTODIAN

UMB, n.a. is the Fund's custodian. The custodian is responsible for safeguarding
the Fund's cash and securities, receiving and delivering securities and
collecting the Fund's interest and dividends.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings. The
financial highlights for the fiscal year ended November 30, 1996 incorporated by
reference in this SAI have been so incorporated, and the financial highlights
for the period ended May 31, 1997 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 6 through 30 of the November 30, 1996 Annual Report and the unaudited
financial statements appearing on pages 6 through 30 of the May 31, 1997
Semiannual Report are incorporated in this SAI by reference.

COLONIAL TRUST IV

Cross Reference Sheet

Colonial Utilities Fund

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

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

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 UTILITIES FUND
Statement of Additional Information

March 31, 1997, Revised August 1, 1997

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Utilities Fund (Fund). This SAI is not a prospectus and is authorized for
distribution only when accompanied or preceded by the Prospectus of the Fund
dated March 31, 1997, Revised August 1, 1997. This SAI should be read together
with the Prospectus and the Fund's most recent annual report dated November 30,
1996 and the semiannual report dated May 31, 1997. Investors may obtain a free
copy of the Prospectus and reports to shareholders from Colonial Investment
Services, Inc., One Financial Center, Boston, MA 02111-2621.

TABLE OF CONTENTS

Part 1 Page

Definitions b
Investment Objective and Policies b
Fundamental Investment Policies b
Other Investment Policies b
Special Tax Considerations c
Fund Charges and Expenses c
Investment Performance e
Custodian f
Independent Accountant f

Part 2

Miscellaneous Investment Practices 1
Taxes 11
Management of the Colonial Funds 12
Determination of Net Asset Value 18
How to Buy Shares 19
Special Purchase Programs/Investor Services 19
Programs for Reducing or Eliminating Sales Charge 20
How to Sell Shares 23
Distributions 24
How to Exchange Shares 24
Suspension of Redemptions 25
Shareholder Liability 25
Shareholder Meetings 25
Performance Measures 26
Appendix I 27
Appendix II 31

UF--0797

<PAGE>

Part 1

COLONIAL UTILITIES FUND
Statement of Additional Information

March 31, 1997, Revised August 1, 1997

DEFINITIONS
"Trust" Colonial Trust IV
"Fund" Colonial Utilities Fund
"Adviser" Colonial Management Associates, Inc., the Fund's investment adviser
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
investor services and transfer agent

INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the fundamental investment policies of the Fund. Part 2 contains
additional information about the following securities and investment techniques
which the Fund may use or invest in:

Options (on Indices and Securities)

Foreign Securities
Foreign Currency Transactions

Repurchase Agreements
Rule 144A Securities

Except as described below under "Fundamental Investment Policies," the Fund's
investment policies are not fundamental, and the Trustees may change the
policies without shareholder approval.

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

OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but it may receive short-term credit to clear
securities transactions and may make initial or maintenance margin deposits
in connection with futures transactions; and
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities.

<PAGE>

Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act
diversification requirement, an issuer is the entity whose revenues support the
security.

SPECIAL TAX CONSIDERATIONS
The Fund may designate dividends as eligible for the dividends-received
deduction only to the extent that the Fund receives dividends for which the Fund
would be entitled to the dividends-received deduction if the Fund were a regular
corporation and not a regulated investment company. The dividends-received
deduction is available only to corporations and is not available to certain
special corporations, such as Subchapter S corporations, to other entities or to
individuals. There can be no assurance that the dividends-received deduction
will not be reduced or eliminated in the future.

For dividends designated by the Fund as eligible for the dividends-received
deduction to qualify as such by a particular shareholder, the shareholder must
meet the 46-day holding period. The basis of a shareholder's shares may be
reduced by an amount equal to the non-taxed portion of "extraordinary dividends"
eligible for the dividends-received deduction.

One-hundred percent of the distributions paid by the Fund from investment income
earned in the year ended November 30, 1996, qualified for the corporate
dividends-received deduction.

FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets at the annual rate of 0.65%. The Adviser
has voluntarily agreed to waive its fee so that its actual fee will not exceed
0.65% of average daily net assets of the first $1 billion and 0.60% in excess of
$1 billion.

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

Six months ended
May 31 Year ended November 30
1997 1996 1995 1994
Management fee $3,311 $7,437 $7,486 $8,204
Bookkeeping fee 182 399 401 450
Shareholder service and transfer 1,288 2,809 2,955 3,134
agent fee
12b-1 fees:
Service fee 1,271 2,882 2,905 3,187
Distribution fee (Class B) 2,591 5,869 5,843 6,401

Brokerage Commissions (dollars in thousands)

Six months ended
May 31 Year ended November 30
1997 1996 1995 1994
Total commissions $ 143 $509 $ 468 $ 1,067
Directed transactions (a) 37,757 -- 7,301 16,100
Commissions on directed
transactions 60 -- 7 24

(a) See "Management of the Colonial Funds-Portfolio Transactions-Brokerage and
Research Services" in Part 2 of this SAI.

Trustees and Trustees Fees
For the fiscal year ended November 30, 1996 and the calendar year ended December
31, 1996, the Trustees received the following compensation for serving as
Trustees (b):
Total Compensation From
Aggregate Compensation Fund and
From Fund For Fund Complex Paid To The
Fiscal Year Ended Trustees For Calendar Year
Trustee November 30, 1996 Ended December 31, 1996(c)
Robert J. Birnbaum $5,305 $92,000
Tom Bleasdale 5,958(d) 104,500(e)
Lora S. Collins 5,308 92,000
James E. Grinnell 5,363 93,000
William D. Ireland, Jr. 6,237 109,000
Richard W. Lowry 5,418 95,000

<PAGE>

William E. Mayer 5,247 91,000
James L. Moody, Jr. 6,074(f) 106,500(g)
John J. Neuhauser 5,444 94,500
George L. Shinn 6,067 105,500
Robert L. Sullivan 5,820 102,000
Sinclair Weeks, Jr. 6,296 110,000

(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(c) At December 31, 1996, the Colonial Funds complex consisted of 37 open-end
and 5 closed-end management investment company portfolios.
(d) Includes $2,950 payable in later years as deferred compensation.
(e) Includes $49,000 payable in later years as deferred compensation.
(f) Total compensation of $6,074 payable in later years as deferred
compensation.
(g) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1996 (h)

Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

(h) The Liberty Funds are advised by Liberty Asset Management Company (LAMCO).
LAMCO is an indirect wholly-owned subsidiary of Liberty Financial Companies,
Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

At June 30, 1997, the officers and Trustees of the Trust as a group owned less
than 1% of the then outstanding shares of the Fund.

As of record on July 3, 1997, the following shareholders owned 5% or more of the
Fund's outstanding shares: Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800
Deer Lake Drive, East, 3rd Floor, Jacksonville, FL 32216 (5.88% of Class A
shares); Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive,
East, 3rd Floor, Jacksonville, FL 32216 (17.65% of Class B shares).

At June 30, 1997, there were 17,724 Class A and 38,578 Class B shareholders of
record.

Sales Charges (dollars in thousands)

Class A Shares
Six months ended
May 31 Year ended November 30
1997 1996 1995 1994
Aggregate initial sales
charges on Fund share sales $106 $117 $706 $1,892
Initial sales charges
retained by CISI $ 13 $ 68 $ 74 $ 210

Class B Shares
Six months ended
May 31 Year ended November 30

d
<PAGE>

1997 1996 1995 1994
Aggregate contingent deferred
sales charges (CDSC) on Fund
redemptions retained by CISI $1,442 $3,366 $3,597 $4,073

12b-1 Plan, CDSCs and Conversion of Shares

The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays CISI monthly a service fee at an annual rate of 0.25% of the net assets
attributed to each class of shares. The Fund also pays CISI monthly a
distribution fee at the annual rate of 0.75% of the average daily net assets
attributed to Class B and Class C 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 fee
is payable regardless of the amount of CISI's expenses, CISI may in some cases
realize a profit from the fees.

The Trustees believe the Plan could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are not interested persons of the Trust is effected by such
disinterested Trustees.

Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value subject to a
CDSC if redeemed within six years after purchase. Class C shares are offered at
net asset value and are subject to a 1.00% CDSC on redemptions within one year
after purchase. The CDSC's are described in the Prospectus.

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

Six months ended May 31, 1997
Class A Shares Class B Shares

Fees to FSFs $826 $2,462
Cost of sales material relating to
the Fund (including printing and
mailing expenses) 49 123
Allocated travel, entertainment and
other promotional expenses
(including advertising) 33 83

Year ended November 30, 1996
Class A Shares Class B Shares

Fees to FSFs $882 $3,564
Cost of sales material relating to
the Fund (including printing and
mailing expenses) 38 104
Allocated travel, entertainment and
other promotional expenses
(including advertising) 43 124

<PAGE>

INVESTMENT PERFORMANCE

The Fund's Class A and Class B yields for the months ended May 31, 1997 and
November 30, 1996 were 3.64% and 3.07% and 3.75% and 3.18%, respectively.

The Fund's average annual total returns at May 31, 1997, achieved in part under
the investment objectives and policies of the Fund prior to its conversion to a
utilities fund on March 4, 1992, were:

Class A Shares

Six months 1 year 5 years 10 years
With sales charge of 4.75% 0.05% 7.93% 8.72% 9.41%
Without sales charge 5.04% 13.32% 9.78% 9.94%

Class B Shares

<TABLE>
<CAPTION>
Since inception
5/5/92 to 5/31/97
Six months 1 year 5 years (2.00% CDSC)
<S> <C> <C> <C> <C>
With applicable CDSC (0.35)%(5.00% CDSC) 7.48% 8.67(2.00% CDSC) 8.94%(2.00% CDSC)
Without CDSC 4.65% 12.48% 8.96% 9.22%

</TABLE>

The Fund's Class A and Class B distribution rates at May 31, 1997 and November
30, 1996, which were based on the latest month's distributions, annualized, and
the maximum offering price at the end of the month, were % and % and 3.76% and
3.22%, respectively.

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

CUSTODIAN
Boston Safe Deposit and Trust Company is the Fund's custodian. The custodian is
responsible for safeguarding the Fund's cash and securities, receiving and
delivering securities and collecting the Fund's interest and dividends.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings. The
financial statements for the fiscal year ended November 30, 1996 incorporated by
reference in this SAI have been so incorporated, and the schedule of financial
highlights included in the Prospectus for the periods ended November 30, 1996
has 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 for the fiscal year ended November 30, 1996 and Report
of Independent Accountants appearing on pages 7 through 21 of the Fund's
November 30, 1996 Annual Report and the unaudited financial statements appearing
on pages 7 through 14 of the Fund's May 31, 1997 Semiannual Report are
incorporated in this SAI by reference.

<PAGE>

COLONIAL TRUST IV

Cross Reference Sheet

Colonial Municipal Money Market Fund

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

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, Revised August 1, 1997

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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, Revised August 1, 1997. This SAI should be
read together with the Prospectus and the Fund's most recent Annual and
Semi-Annual Reports dated June 30, 1996 and December 31, 1996. Investors may
obtain a free copy of the Prospectus from Colonial Investment Services, Inc.,
One Financial Center, Boston, MA 02111-2621.

TABLE OF CONTENTS

Part 1 Page

Definitions b
Investment Objective and Policies b
Fundamental Investment Policies b
Other Investment Policies c
Fund Charges and Expenses c
Investment Performance g
Custodian of the Fund h
Independent Accountants of the Fund h
Management of the Base Trust h
Information Concerning the Portfolio i

Part 2

Miscellaneous Investment Practices 1
Taxes 11
Management of the Colonial Funds 13
Determination of Net Asset Value 18
How to Buy Shares 19
Special Purchase Programs/Investor Services 20
Programs for Reducing or Eliminating Sales Charges 21
How to Sell Shares 23
Distributions 25
How to Exchange Shares 25
Suspension of Redemptions 25
Shareholder Liability 25
Shareholder Meetings 26
Performance Measures 26
Appendix I 28
Appendix II 33

TM-16/923D-0897

<PAGE>

PART 1
COLONIAL MUNICIPAL MONEY MARKET FUND
Statement of Additional Information
October 28, 1996, Revised August 1, 1997

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
"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.

<PAGE>

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;

- ------------------------------------------
(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.

<PAGE>
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 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;

5. 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 the
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;

6. Purchase shares of other open-end investment companies, except in
connection with a merger, consolidation, acquisition, or
reorganization;

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 the 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
Six Months ended Year ended Period ended November 30
December 31, 1996 June 30, 1996 June 30, 1995(b) 1994 1993
----------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Administration fee $24 $42 N/A N/A N/A
Management fee 177 290 $88 $131 $129
Bookkeeping fee 9 20 16 27 27
Shareholder service and transfer agent fee 24 53 43 59 60
Amount of above fees waived (60) (196) (63) (153) (129)
12b-1 fees:
Service fee (Class B) 2 6 4 4 1
Distribution fee (Class B) 4 18 13 14 2
Distribution fee (Class C) --- ---- ---- ---- ----
</TABLE>

(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.

<PAGE>

(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 periods ended December 31,
1996, and 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,
1996, the Trustees received the following compensation for serving as
Trustees(c):

<TABLE>
<CAPTION>
Total Compensation From Trust And Fund Complex
Aggregate Compensation From Fund For Paid To The Trustees For The Calendar Year
Trustee The Fiscal Year Ended June 30, 1996 Ended December 31, 1996(c)
- ------- ----------------------------------- --------------------------
<S> <C> <C>
Robert J. Birnbaum $ 910 $ 92,000
Tom Bleasdale 993(e) 104,500(f)
Lora S. Collins 908 92,000
James E. Grinnell(d) 920 93,000
William D. Ireland, Jr. 1,130 109,000
Richard W. Lowry(d) 918 95,000
William E. Mayer 902 91,000
James L. Moody, Jr. 1,031(g) 106,500(h)
John J. Neuhauser 909 94,500
George L. Shinn 1,027 102,000
Robert L. Sullivan 1,012 102,000
Sinclair Weeks, Jr. 1,138 110,000

(c) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(d) At December 31, 1996, the Colonial funds complex consisted of 38 open-end and 5 closed-end management investment company
portfolios.
(e) Includes $482 payable in later years as deferred compensation.
(f) Includes $51,500 payable in later years as deferred compensation.
(g) Total compensation of $1,031 for the fiscal year ended June 30, 1996 will be payable in later years as deferred
compensation.
(h) Total compensation of $106,500 for the calendar year ended December 31, 1996 will be payable in later years as deferred
compensation.
</TABLE>

Total Compensation From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1996(i)
- ------- --------------------
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000

<PAGE>

(i) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary
of Liberty Financial Companies, Inc. (Liberty Financial) (an
intermediate parent of the Adviser).

Ownership of the Fund
At June 30, 1997, the Trustees and officers of the Trust as a group owned less
than 1% of the then outstanding shares of the Fund.

As of record on July 3, 1997, the following shareholders owned 5% or more of the
Fund's outstanding Class B shares:

Alan Baker Co.
160 Sylvester Road
South San Francisco, CA 94080-6014 12.67%

Charles R. Matties & Laura B. Matties JT TEN
84 Overbrook Road
West Hartford, CT 06107 9.52%

John F. Milan & Cheryl L. Milan JT TEN 7.49%
2165 Willow Circle
Shelby Township, MI 48316

Verna P. Williams
7116 Fort Hunt Road
Alexandria, VA 22307 6.92%

At June 30, 1997, there were 686 Class A and 49 Class B shareholders of record
of the Fund.

<PAGE>

Sales Charges (in thousands)

<TABLE>
<CAPTION>
Class B Shares
------------------------------------------------------------------------------------
Year ended
Six Months ended Year ended Period ended November 30
December 31, 1996 June 30, 1996 June 30, 1995 1994 1993
----------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Aggregate contingent deferred sales
charges (CDSCs) on Fund
redemptions retained by CISI $6 $14 $21 $28 $10

</TABLE>

12b-1 Plan, CDSCs and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays CISI monthly a service fee at the annual rate of 0.25% of the Fund's net
assets attributed to its Class B and Class C shares and a distribution fee at an
annual rate of 0.75% of the average daily net assets attributed to its Class B
and Class C shares. The Distributor has voluntarily agreed to waive a portion of
the Class C share distribution fee so that it does not exceed 0.15% annually.
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 and Class C 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 Plan could be a significant factor in the
growth and retention of Fund assets resulting in a more advantageous expense
ratio and increased investment flexibility which could benefit each class of
Fund shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the Trustees
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 Plan or in any agreements related to the Plan (independent
Trustees), cast in person at a meeting called for the purpose of voting on the
Plan. The Plan may not be amended to increase the fee materially without
approval by vote of a majority of the outstanding voting securities of the
relevant class of shares and all material amendments of the Plan must be
approved by the Trustees in the manner provided in the foregoing sentence. The
Plan may be terminated at any time by vote of a majority of the independent
Trustees or by vote of a majority of the outstanding voting securities of the
relevant class of shares. The continuance of the Plan will only be effective if
the selection and nomination of the Trustees who are not interested persons of
the Trust is effected by such disinterested Trustees.

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

<PAGE>

Sales-related expenses (in thousands) of CISI relating to the Fund were as
follows:

<TABLE>
<CAPTION>
Six Months ended Year ended Period ended
December 31, 1996 June 30, 1996 June 30, 1995
-------------------- ---------------------- -----------------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fees to FSF $0 $14 $ 0 $10 $0 $9
Cost of sales material relating to
the Fund (including printing and
mailing expenses) $8 (j) $10 (j) $1 (j)

Allocated travel, entertainment and
other promotional expenses
(including advertising) $0 $0 $ 0 $ 0 $0 $0
</TABLE>

(j) Rounds to less than one.

INVESTMENT PERFORMANCE
The Fund's yields for the seven days ended December 31, 1996, and June 30, 1996,
were:

<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996
----------------- -------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current Yield 3.310% 2.334% 2.773% 1.769%
Effective Yield 3.364% 2.361% 2.811% 1.784%
Tax-Equivalent Current Yield 5.480% 3.860% 4.590% 2.930%
Tax-Equivalent Effective Yield 5.570% 3.910% 4.650% 2.950%
</TABLE>

The Fund's total returns at December 31, 1996, were:

<TABLE>
<CAPTION>
Total Return
Six Months ended Average Annual Total Return
---------------- ---------------------------
December 31, 1996 1 Year 5 Years 10 Years
----------------- ------ ------- --------
<S> <C> <C> <C> <C>
Class A: 1.46% 2.94% 2.56% 3.69%
Class B with applicable CDSC: (3.88%)(5.00% CDSC) (2.93%) (5.00% CDSC) 1.97% (2.00% CDSC) 3.58%
Class B without CDSC: 1.12% (2.07%) 2.33% 3.58%
</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 Commission filings. The
financial statements of the Fund for the fiscal year ended June 30, 1996
incorporated by reference in this SAI have been so incorporated, and the
financial highlights included in the Prospectus for the period ended June 30,
1996 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 and the
unaudited financial statements appearing on pages 4 through 23 in the December
31, 1996 Semiannual Report of the Fund are incorporated in this SAI by
reference.

<PAGE>

MANAGEMENT OF THE BASE TRUST
Trustees and Officers of the Base Trust

Gary A. Anetsberger(k), (Age 41), Senior Vice President, is Senior Vice
President of the Adviser since April 1996, Chief Financial Officer of the Mutual
Funds division of the Adviser; Vice President of the Adviser January, 1991 to
April, 1996.

Timothy K. Armour(k), (l), (Age 48), President and Trustee, is President of the
Mutual Funds division of the Adviser and Director of the Adviser.

Jilaine Hummel Bauer(k), (Age 41), Executive Vice President and Secretary, is
General Counsel and Secretary since November 1995, Senior Vice President since
April, 1992 of the Adviser.

Kenneth L. Block(k), (Age 77), Trustee, is Chairman Emeritus of A. T. Kearney,
Inc. (international management consultants), 11 Woodley Road, Winnetka, Illinois
60093.

William W. Boyd(k), (Age 70), Trustee, is Chairman and Director of Sterling
Plumbing Group, Inc. (manufacturer of plumbing projects) since 1992; President
and Chief Executive Officer of Sterling Plumbing Group, Inc., over five years;
2900 Golf Road, Rolling Meadows, Illinois 60008.

Thomas W. Butch(k), (Age 40), Executive Vice President, is Senior Vice President
of the Adviser since September, 1994; First Vice President Corporate
Communications of Mellon Bank Corporation prior thereto. Lindsay Cook(k), (l),
(Age 44), Trustee, is Executive Vice President of Liberty Financial since March,
1997; Senior Vice President of Liberty Financial prior thereto; 600 Atlantic
Avenue, Boston, Massachusetts 02210.

Douglas A. Hacker(k), (Age 41), Trustee, is Senior Vice President and Chief
Financial Officer, United Airlines since July, 1994; 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.

Janet Langford Kelly(k), (Age 39), Trustee, is Senior Vice President, Secretary
and General Counsel of Sara Lee Corporation (branded, packaged,
consumer-products manufacturer), since 1995; partner of Sidley & Austin (law
firm) prior thereto; Three First National Plaza, Chicago, Illinois 60602.

Francis W. Morley(k), (Age 77), 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(k), (Age 54), Trustee, is Van Voorhis Professor of Political
Economy of the University of Washington, over five years, Seattle, Washington
981953.

Nicolette D. Parrish(k), (Age 47), Vice President and Assistant Secretary, is
Senior Compliance Administrator and Assistant Secretary of the Adviser, since
November, 1995; Senior Legal Assistant, over five years.

Cynthia A. Prah(k), (Age 35), Vice President, is Manager of Shareholder
Transaction Processing for the Adviser.

Sharon R. Robertson(k), (Age 35), Controller, is Accounting Manager for the
Adviser's mutual funds division, since 1987.

Janet B. Rysz(k), (Age 41), Assistant Secretary, is Senior Compliance
Administrator of the Adviser.

<PAGE>

Thomas C. Theobald(k), (Age 60), 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.

Stacy H. Winick(k), (Age 32), Vice President, is Senior Legal Counsel for the
Adviser since October, 1996; associate of Bell, Boyd & Lloyd (law firm), June,
1993 to September, 1996; associate of Debevoise & Plimpton (law firm) prior
thereto.

Hans P. Ziegler(k), (Age 56), Executive Vice President, is Chief Executive
Officer of the Adviser since May, 1994; 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(k), (Age 30), Assistant Treasurer, is Accounting Manager for
the Adviser since April, 1997; Compliance Manager from August, 1995 to April,
1997; Compliance Accountant, January, 1995 to July, 1995; Section Manager,
January 1994 to January 1995; supervisor prior thereto.

(k) The address of each Trustee and Officer is One South Wacker Drive,
Chicago, IL 60606, unless otherwise noted.
(l) 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 plan, charitable organizations and other
institutional investors. As of December 31, 1996, the Adviser managed over $26.7
billion in net assets: including over $8 billion in equities and over $18.7
billion in fixed-income securities (including $1.6 billion in municipal
securities). The $26.7 billion in managed assets included over $7.5 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 227,000 shareholders. The $7.5 billion in mutual fund assets included
over $743 million in over 47,000 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
December 31, 1996, the Adviser employed approximately 19 research analysts and
55 account managers. The average investment-related experience of these
individuals is 22 years.

<PAGE>

The directors of the Adviser are Harold W. Cogger, Kenneth R. Leibler, Timothy
K. Armour, C. Allen Merritt, and Hans P. Ziegler. Mr. Cogger is Executive
Director of Liberty Financial; 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 Executive Vice President and Treasurer of Liberty
Financial; and Mr. Ziegler is Chief Executive Officer of the Adviser. The
business address of Messrs. Cogger, 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;

<PAGE>

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 valued 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.

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, and
the Portfolio's unaudited financial statement appearing on pages 4 through 14 of
the Fund's December 31, 1996 Semiannual Report are incorporated into this SAI by
reference.

<PAGE>

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.

Part C OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Included in Part A

Summary of Expenses

The Fund's Financial History

Incorporated by reference into Part B are the financial
statements contained in the Annual Reports for the Registrant's
series, each as of November 30, 1996 (Colonial Municipal Money
Market Fund as of June 30, 1996), which have previously been
filed electronically pursuant to Section 30(b)(2) of the
Investment Company Act of 1940:

Fund Accession Number
---- ----------------
Colonial Tax-Exempt Fund 0000021847-97-000011
Colonial Utilities Fund 0000021847-97-000013
Colonial Tax-Exempt Insured Fund 0000021847-97-000016
Colonial Intermediate Tax-Exempt Fund 0000021847-97-000014
Colonial High Yield Municipal Fund 0000021847-97-000017
Colonial Municipal Money Market Fund 0000021832-96-000051

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

Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets

<PAGE>

Notes to Financial Statements

Financial Highlights

Report of Independent Accountants

Incorporated by reference into Part B are the financial
statements contained in the Semiannual Reports for the
Registrant's
series, each as of May 31, 1997 (Colonial Municipal Money
Market Fund as of December 31, 1996), which have previously been
filed electronically pursuant to Section 30(b)(2) of the
Investment Company Act of 1940:

Fund Accession Number
---- ----------------
Colonial Tax-Exempt Fund 0000021847-97-000091
Colonial Utilities Fund 0000021847-97-000092
Colonial Tax-Exempt Insured Fund 0000021847-97-000085
Colonial Intermediate Tax-Exempt Fund 0000021847-97-000089
Colonial High Yield Municipal Fund 0000021847-97-000084
Colonial Municipal Money Market Fund 0000021832-96-000004

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

Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets

Notes to Financial Statements

Financial Highlights

The following is included in Part B of this Post-Effective
Amendment No. 46 (on behalf of Colonial Municipal Money Market
Fund)

SR&F Municipal Money Market Portfolio Investment Portfolio, June
30, 1996

SR&F Municipal Money Market Portfolio Statement of Assets and
Liabilities, June 30, 1996

SR&F Municipal Money Market Portfolio Statement of Operations,
Period ended June 30, 1996

SR&F Municipal Money Market Portfolio Statement of Changes in Net
Assets

SR&F Municipal Money Market Portfolio Financial Highlights

SR&F Municipal Money Market Portfolio Notes to Financial
Statements, June 30, 1996

Independent Auditors' Report

Incorporated by reference into Part B are the financial
statements contained in the Semiannual Report for the
Registrant's series, Colonial Municipal Money Market Fund, as of
December 31, 1996, which has previously been filed electronically
pursuant to Section 30(b)(2) of the Investment Company Act of
1940:

Fund Accession Number
---- ----------------
Colonial Municipal Money Market Fund 0000276716-97-000004

The Financial Statements contained in Colonial Municipal Money
Fund's Semiannual Report are as follows:

Investment Portfolio

Statement of Assets and Liabilities

Statement of Operations

Statement of Changes in Net Assets

Notes to Financial Statements

Financial Highlights

<PAGE>

The following is included in Part B of this Post-Effective
Amendment No. 46 (on behalf of Colonial Municipal Money Market
Fund)

SR&F Municipal Money Market Portfolio Investment Portfolio,
December 31, 1996 (unaudited)

SR&F Municipal Money Market Portfolio Statement of Assets and
Liabilities, December 31, 1996 (unaudited)

SR&F Municipal Money Market Portfolio Statement of Operations,
Six Months ended December 31, 1996 (unaudited)

SR&F Municipal Money Market Portfolio Statement of Changes in Net
Assets

SR&F Municipal Money Market Portfolio Financial Highlights,
Period ended December 31, 1996

SR&F Municipal Money Market Portfolio Notes to Financial
Statements, December 31, 1996 (unaudited)

(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

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

3. Not Applicable

4. Form of Specimen of Share Certificate (d)

5. (a) Management Agreement (CTEF, CTEIF, CHYMF) (b)

(a)(1) Amendment No. 2 to Management Agreement (CTEF,
CTEIF, CHYMF) (b)

(a)(2) Management Agreement (CUF) (b)

(a)(3) Management Agreement (CITEF) (b)

(a)(4) Management Agreement (CSTTEF) (b)

<PAGE>

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

(b)(2) Pricing and Bookkeeping Agreement (CMMMF) (c)

6. (a) Distributor's Contract with Colonial Investment
Services, Inc. - filed as Exhibit 6(a) in Part C,
Item 24(b) of Post-Effective Amendment No. 44 to
the Registration Statement on Form N-1A of
Colonial Trust I (File Nos. 2-41251 and 811-2214)
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 &

<PAGE>

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) (c)

(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 VI (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 (CUF)

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) Amendment No. 8 to Schedule A of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
9(a)(i) in Part C, Item 24(b) of Post-Effective
Amendment No. 97 to the Registration Statement on
Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881) and is hereby incorporated by
reference and made a part of this Registration
Statement

(c) Amendment No. 14 to Appendix I of Amended and
Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit
9(a)(ii) in Part C, Item 24(b) of Post-Effective
Amendment No. 97 to the Registration Statement on
Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881) and is hereby

<PAGE>

incorporated by reference and made a part of this
Registration Statement

(d) Agreement and Plan of Reorganization (CMMMF, CUF)
(c)

(e) Form of Administration Agreement between Colonial
Trust IV, on behalf of CMMMF, and Colonial
Management Associates, Inc. (a)

(f) 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 (a)

(g) 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.(a) Opinion and Consent of Counsel (CTEF) (d)

(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 CUF (File Nos.2-71242 & 811-3148)
and is hereby incorporated by reference and made
a part of this Registration Statement (CUF)

11.(a) Consent of Independent Accountants

(b) Consent of Independent Auditors (SR&F Municipal
Money Market Portfolio, master fund of CMMMF)

12. Not Applicable

13. Not Applicable

<PAGE>

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.(v) in Part C, Item 24(b) of Post-Effective
Amendment No. 27 to the Registration Statement on
Form N-1A of Colonial Trust II (File Nos.
2-66976 & 811-3009) and is hereby incorporated by
reference and made a part of this Registration
Statement

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

<PAGE>

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) (b)
(a)(2) Calculation of Yield (CTEF) (b)
(b)(1) Calculation of Performance Information (CTEIF)
(b)
(b)(2) Calculation of Yield (CTEIF) (b)
(c)(1) Calculation of Performance Information (CUF) (b)
(c)(2) Calculation of Yield (CUF) (b)
(d)(1) Calculation of Performance Information (CMMMF)
(b)
(d)(2) Calculation of Yield (CMMMF) (b)
(e)(1) Calculation of Performance Information (CHYMF)
(b)
(e)(2) Calculation of Yield (CHYMF) (b)
(f)(1) Calculation of PerformanceInformation (CITEF) (b)
(f)(2) Calculation of Yield (CITEF) (b)

17.(a) Financial Data Schedule (Class A) (CTEF)
(b) Financial Data Schedule (Class B) (CTEF)
(c) Financial Data Schedule (Class A)(CTEIF)
(d) Financial Data Schedule (Class B)(CTEIF)
(e) Financial Data Schedule (Class A)(CUF)
(f) Financial Data Schedule (Class B)(CUF)
(g) Financial Data Schedule (Class A) (CMMMF)
(h) Financial Data Schedule (Class B) (CMMMF)
(i) Financial Data Schedule (Class A)(CHYMF)
(j) Financial Data Schedule (Class B)(CHYMF)
(k) Financial Data Schedule (Class A)(CITEF)

<PAGE>

(l) Financial Data Schedule (Class B)(CITEF)

18.(a) 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. - filed as
Exhibit 18(a) in Part C, Item 24(b) of
Post-Effective Amendment No. 97 to the
Registration Statement on Form N-1A of Colonial
Trust III (File Nos. 2-15184 & 811-881) and is
hereby incorporated by reference and made a part
of this Registration Statement

18.(b) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940 filed as Exhibit
18(b) in Part C, Item 24(b) of Post-Effective
Amendment No. 97 to the Registration Statement on
Form N-1A of Colonial Trust I (File Nos. 2-41251
& 811-2214) and is hereby incorporated by
reference and made a part of this Registration
Statement
- ---------------------------------

(a) Incorporated by reference to Post-Effective
Amendment No. 40 filed on or about 7/27/95.
(b) Incorporated by reference to Post-Effective
Amendment No. 42 filed on 3/22/96.
(c) Incorporated by reference to Post-Effective
Amendment No. 44 filed on October 15, 1996.
(d) Incorporated by reference to Post-Effective
Amendment No. 45 filed on March 21, 1997.

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 6/30/97
- -------------- --------------------------------------
Shares of beneficial interest 67,699 Class A record holders (CTEF)
11,021 Class B record holders
Shares of beneficial interest 4,807 Class A record holders (CTEIF)
978 Class B record holders

<PAGE>

Shares of beneficial interest 15,078 Class A record holders (CUF)
31,628 Class B record holders
Shares of beneficial interest 682 Class A record holders (CMMMF)
45 Class B record holders
Shares of beneficial interest 1,170 Class A record holders (CHYMF)
3,541 Class B record holders
Shares of beneficial interest 302 Class A record holders (CITEF)
313 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).

<PAGE>
ITEM 28.
- --------

Registrant's investment adviser/administrator, Colonial Management
Associates, Inc. ("Colonial"), is registered as an investment adviser under
the Investment Advisers Act of 1940 (1940 Act). Colonial Advisory Services,
Inc. (CASI), an affiliate of Colonial, is also registered as an investment
adviser under the 1940 Act. As of the end of its fiscal year, December
31, 1996, CASI had one institutional, corporate or other account under
management or supervision, the market value of which was approximately $42.0
million. As of the end of its fiscal year, December 31, 1996, Colonial
was the investment adviser, sub-adviser and/or administrator to 49 Colonial
mutual funds (including funds sub-advised by Colonial, the market value of which
investment companies was approximately $17,165.0 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 Mutual Funds complex, including the Registrant.

The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:

(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 07/01/97. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Allard, Laurie V.P.

Andersen, Peter V.P.

Archer, Joseph A. V.P.

Babbitt, Debra V.P. Colonial Investment Services, Inc. V.P.,
Comp. Off.

Berliant, Allan V.P.

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

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

Bunten, Walter V.P.

Campbell, Kimberly V.P.

Carnabucci,
Dominick V.P.

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

Citrone, Frank V.P.

Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.;
Chairman; Chrm.
IPC Mbr.; Colonial Trusts I through VII Pres.
Exe. Cmte. Colonial High Income
Mbr. Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
LFC Utilities Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Stein Roe & Farnham Dir.
Incorporated

Conlin, Nancy 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.
LFC Utilities Trust Asst. Sec.

Daniszewski, V.P. Colonial Investment Services,
Joseph J. Inc. V.P.

Desilets, Marian V.P.

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

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

Feloney, Joseph L. V.P. Colonial Investment Services,
Inc. A.V.P.

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

Franklin, Sr. V.P.
Fred J.

Gauger, Richard V.P.

Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.

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

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. Sr. V.P.

Hill, William V.P.

Iudice, Jr. Philip V.P. The Colonial Group, Inc. Controller,
Controller Chief Acctg.
Officer
Colonial Investment Services, CFO
Inc. Treasurer
Colonial Advisory Services,
Inc. Controller

Jacoby, Timothy J. Sr. V.P. Colonial Trusts I through VII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO
LFC Utilities Trust Treasr.,CFO

Johnson, Gordon V.P.

Knudsen, Gail 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.
LFC Utilities 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.

Lessard, Kristen V.P.

Loring, William C. V.P.

Lydecker, Peter L. V.P.; Colonial Trusts I through VII Controller;CAO
Asst. Colonial High Income
Treasurer Municipal Trust Controller;CAO
Colonial InterMarket Income
Trust I Controller;CAO
Colonial Intermediate High
Income Fund Controller;CAO
Colonial Investment Grade
Municipal Trust Controller;CAO
Colonial Municipal Income
Trust Controller;CAO
LFC Utilities Trust Controller;CAO

MacKinnon, Dir.;
Donald S. Sr.V.P.

Newman, Maureen V.P.

Ostrander, Laura V.P.

Peters, Helen F. Dir.; Colonial Advisory Services, Dir. Pres.,
Sr.V.P.; Inc. CEO
IPC Mbr.

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

Rao, Gita V.P.

Reading, John V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel 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.
LFC Utilities Trust Asst. Sec.V.P.
Colonial Trusts I through VII Asst. Sec.

Rega, Michael V.P.

Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Exec. 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.
LFC Utilities Trust V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Colonial Investment Services,
Inc. Director

Seibel, Sandra L. V.P.

Spanos, Gregory Sr. V.P.

Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk, Dir.
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
LFC Utilities Trust 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. Colonial Advisory Services,
Inc. V.P.

Stoeckle, Mark V.P.

Wallace, John V.P.

Welsh, Stephen Treasurer The Colonial Group, Inc. Treasurer
Colonial Advisory Service,
Inc. Treasurer
Colonial Investors Service Treasurer
Center, Inc. Controller

Young, Deborah V.P. Colonial Investment Services
Inc. V.P.
- ------------------------------------------------
*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.

For a two-year history of officers and directors of the Manager, please refer to
the Form ADV of the Manager.

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).

<TABLE>
<CAPTION>
Position Formerly
Held Within Past
Current Position Two Years
---------------- -----------------
<S> <C> <C>
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; Chairman Vice Chairman

SR&F Base Trust
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Thomas W. Butch Executive Vice President Vice President
Michael T. Kennedy Vice President
Hans P. Ziegler Executive Vice President

Stein Roe Income Trust
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary

<PAGE>

Thomas W. Butch Executive Vice President Vice President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Stephen F. Lockman 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

Stein Roe Investment Trust
Gary A. Anetsberger Senior Vice President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Executive Vice President 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
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Arthur J. McQueen 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 President; Secretary
Thomas W. Butch Executive Vice President 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

Stein Roe Advisor Trust
Gary A. Anetsberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Bruno Bertocci Vice President

<PAGE>

David P. Brady Vice President
Thomas W. Butch Executive Vice President 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
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Arthur J. McQueen 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 and Stein Roe Trust
Gary A. Anetsberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Thomas W. Butch Executive Vice President Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Stephen F. Lockman 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
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
Deborah A. Jansen Vice President
</TABLE>

<PAGE>
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 V, Colonial
Trust VI, 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
- ------------------ ------------------- --------------

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

Ballou, Rich Regional V.P. None

Balzano, Christine R. V.P. None

Bartlett, John Sr. V.P. None

Bartsokas, David Regional V.P. None

Carroll, Greg Regional V.P. None

Chrzanowski, Regional V.P. None
Daniel

Clapp, Elizabeth A. V.P. None

Crossfield, Andrew Regional V.P. None

Daniszewski, V.P. None
Joseph J.

Davey, Cynthia Regional Sr. V.P. None

Desilets, Marian V.P. None

Donovan, John Regional V.P. None

Downey, Christopher V.P. None

Eckelman, Bryan Sr. V.P. None

Emerson, Kim P. Regional V.P. None

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

Evans, C. Frazier Sr. V.P. None

Feldman, David Regional V.P. None

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

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

Goldberg, Matthew Regional V.P. None

Harasimowicz, V.P. None
Stephen

Harrington, Tom Sr. Regional V.P. None

Hodgkins, Joseph Sr. Regional V.P. None

Iudice, Jr., Philip Treasurer and CFO None

Karagiannis, Sr. V.P. None
Marilyn

Kelley, Terry M. Regional V.P. None

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

Lloyd, Judith H. Sr. V.P. None

Menchin, Catherine V.P. None

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

Morner, Patrick V.P. None

Nerney, Andrew Regional V.P. None

Nolin, Kevin V.P. None

O'Shea, Kevin Sr. V.P. None

Predmore, Tracy Regional V.P. None

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

Scarlott, Rebecca V.P. None

Scoon, Davey Director V.P.

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

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

Stern, Arthur O. Clerk and Secretary
Counsel, Dir.

Studer, Eric Regional V.P. None

Sutton, R. Andrew Regional V.P. None

VanEtten, Keith H. V.P. None

Villanova, Paul Regional V.P. None

Wallace, John V.P. None

Welsh, Stephen Treasurer Asst. Treasurer

Wess, Valerie Regional V.P. None

Young, Deborah V.P. None

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

Item 30. Location of Accounts and Records

Persons maintaining physical possession of accounts, books and
other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules thereunder
include Registrant's Secretary; Registrant's investment adviser
and/or administrator, Colonial Management Associates, Inc.;
Registrant's principal underwriter, Colonial Investment
Services, Inc.; Registrant's transfer and dividend disbursing
agent, Colonial Investors Service Center, Inc.; and the
Registrant's custodians, UMB, n.a. and Boston Safe Deposit and
Trust Company. The address for each person except the
Registrant's custodians is One Financial Center, Boston, MA
02111. The address for UMB, n.a. is 928 Grand Avenue, Kansas
City, MO 64106. The address for Boston Safe Deposit and Trust
Company is One Boston Place, Boston, MA 02108.

Item 31. Management Services

See Item 5(c), Part A and Item 16(d), Part B.

Item 32. Undertakings

(a) Not applicable

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

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

<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, certifies
that it meets all of the requirements for effectiveness of the Registration
Statement pursuant to Rule 485(b) and has duly caused this Post-Effective
Amendment No 46 to its Registration Statement under the Securities Act of 1933
and Amendment No. 44 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 28th day of July, 1997.

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.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>

/s/ HAROLD W. COGGER President (chief July 28, 1997
- ------------------------------- executive officer)
Harold W. Cogger

/s/ TIMOTHY J. JACOBY Treasurer and Chief July 28, 1997
- ------------------------------- Financial Officer
Timothy J. Jacoby (principal financial
officer)

/s/ PETER L. LYDECKER Controller and Chief July 28, 1997
- ------------------------------- Accounting Officer
Peter L. Lydecker (principal accounting officer)

<PAGE>

/s/ ROBERT J. BIRNBAUM * Trustee
- -------------------------------
Robert J. Birnbaum

/s/ TOM BLEASDALE * Trustee
- -------------------------------
Tom Bleasdale

/s/ LORA S. COLLINS * Trustee
- -------------------------------
Lora S. Collins

/s/ JAMES E. GRINNELL * Trustee
- -------------------------------
James E. Grinnell

/s/ WILLIAM D. IRELAND, JR. * Trustee /s/ * NANCY L. CONLIN
- ------------------------------- -------------------------------
William D. Ireland, Jr. Nancy L. Conlin
Attorney-in-fact
For each Trustee
July 28, 1997

/s/ RICHARD W. LOWRY * Trustee
- -------------------------------
Richard W. Lowry

/s/ WILLIAM E. MAYER * Trustee
- -------------------------------
William E. Mayer

/s/ JAMES L. MOODY, JR. * Trustee
- -------------------------------
James L. Moody, Jr.

/s/ JOHN J. NEUHAUSER * Trustee
- -------------------------------
John J. Neuhauser

/s/ GEORGE L. SHINN * Trustee
- -------------------------------
George L. Shinn

/s/ ROBERT L. SULLIVAN * Trustee
- -------------------------------
Robert L. Sullivan

/s/ SINCLAIR WEEKS, JR. * Trustee
- -------------------------------
Sinclair Weeks, Jr.

</TABLE>

<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. 46 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. 44 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 28th day of July, 1997.

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.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>

/s/ TIMOTHY K. ARMOUR President (Principal
- ------------------------------- Executive Officer and July 28, 1997
Timothy K. Armour Trustee)

/s/ GARY A. ANETSBERGER Senior Vice President
- ------------------------------- and Chief Financial July 28, 1997
Gary A. Anetsberger Officer (Principal
Financial Officer)

/s/ SHARON R. ROBERTSON Controller (Principal
- ------------------------------- Accounting Officer) July 28, 1997
Sharon R. Robertson

<PAGE>

/s/ KENNETH L. BLOCK Trustee
- -------------------------------
Kenneth L. Block

/s/ WILLIAM W. BOYD Trustee
- -------------------------------
William W. Boyd

/s/ LINDSAY COOK Trustee
- -------------------------------
Lindsay Cook

/s/ DOUGLAS A. HACKER Trustee
- -------------------------------
Douglas A. Hacker

/s/ FRANCIS W. MORLEY Trustee
- -------------------------------
Francis W. Morley

/s/ CHARLES R. NELSON Trustee
- -------------------------------
Charles R. Nelson

/s/ THOMAS C. THEOBALD Trustee
- -------------------------------
Thomas C. Theobald

/s/ JANET LANGFORD KELLY Trustee
- -------------------------------
Janet Langford Kelly

</TABLE>

<PAGE>

EXHIBIT INDEX

1. Amendment No. 4 to the Agreement and Declaration of Trust

11.(a) Consent of Independent Accountants

11.(b) Consent of Independent Auditors (SR&F Municipal Money Market Portfolio,
master fund of CMMMF)

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

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

17.(c) Financial Data Schedule (Class A) (CTEIF)

17.(d) Financial Data Schedule (Class B) (CTEIF)

17.(e) Financial Data Schedule (Class A) (CUF)

17.(f) Financial Data Schedule (Class B) (CUF)

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

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

17.(i) Financial Data Schedule (Class A) (CHYMF)

17.(j) Financial Data Schedule (Class B) (CHYMF)

17.(k) Financial Data Schedule (Class A) (CITEF)

17.(l) Financial Data Schedule (Class B) (CITEF)

AMENDMENT NO. 4 TO THE

AGREEMENT AND DECLARATION OF TRUST

OF COLONIAL TRUST IV

AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this
15th day of November, 1991 by the Trustees hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as hereinafter provided.

WITNESSETH that

WHEREAS, this Trust has been formed to carry on the business of an
investment company; and

WHEREAS, the Trustees have agreed to manage all property coming into
their hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.

NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets, which they may from time to time acquire in
any manner as Trustees hereunder, IN TRUST to manage and dispose of the same
upon the following terms and conditions for the pro rata benefit of the holders
from time to time of Shares in this Trust as hereinafter set forth.

ARTICLE I

NAME AND DEFINITIONS

Name

Section 1. This Trust shall be known as Colonial Trust IV and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.

Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:

(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended from
time to time;

(b) "Trustees" refers to the Trustees of the Trust named
herein or elected in accordance with Article IV;

(c) "Shares" means the equal proportionate transferable units
of interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one series of Shares is
authorized by the Trustees, the equal proportionate units into which
each series of Shares shall be divided from time to time or, if more
than one class of Shares of any series is authorized by the Trustees,
the equal proportionate units into which each class of such series of
Shares shall be divided from time to time;

(d) "Shareholder" means a record owner of Shares;

(e) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time
to time;

(f) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Principal Underwriter" and "Majority Shareholder
Vote" (the 67% or 50% requirement of the third sentence of Section
2(a)(42) of the 1940 Act, whichever may be applicable) shall have the
meanings given them in the 1940 Act;

(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time; and

(h) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time.

ARTICLE II

PURPOSE

The purpose of the Trust is to provide investors a managed investment
primarily in securities, commodities and debt instruments.

ARTICLE III

Division of Beneficial Interest

Section 1. The Shares of the Trust shall be issued in one or more
series as the Trustees may, without Shareholder approval, authorize. The
Trustees may, without Shareholder approval, divide the Shares of any series into
two or more classes, Shares of each such class having such preferences or
special or relative rights or privileges (including conversion rights, if any)
as the Trustees may determine and as are not inconsistent with any provision of
this Declaration of Trust. Each series shall be preferred over all other series
in respect of the assets allocated to that series. The beneficial interest in
each series shall at all times be divided into Shares, without par value, each
of which shall, except as the Trustees may otherwise authorize in the case of
any series that is divided into two or more classes, represent an equal
proportionate interest in the series with each other Share of the same series,
none having priority or preference over another. The number of Shares authorized
shall be unlimited, and the Shares so authorized may be represented in part by
fractional shares. The Trustees may from time to time divide or combine the
Shares of any series or class into a greater or lesser number without thereby
changing the proportionate beneficial interests in the series or class.

Ownership of Shares

Section 2. The ownership of Shares shall be recorded on the books of
the Trust or its transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the trust as kept by the Trust or any
transfer or similar agent of the Trust, as the case may be, shall be conclusive
as to who are the Shareholders of each series and class and as to the number of
Shares of each series and class held from time to time by each Shareholder.

Investments in the Trust; Assets of the Series

Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they from time to time authorize.

All consideration received by the Trust for the issue or sale of Shares
of each series, together with all income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust and are herein referred to as "assets of"
such series.

No Preemptive Rights

Section 4. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust.

Status of Shares and Limitation of Personal Liability

Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust, shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.

ARTICLE IV

THE TRUSTEES

Election

Section 1. The number of Trustees shall be fixed by the Trustees,
except that, subsequent to any sale of Shares pursuant to a public offering,
there shall be not less than three Trustees. Any vacancies occurring in the
Board of Trustees may be filled by the Trustees if, immediately after filling
any such vacancy, at least two-thirds of the Trustees then holding office shall
have been elected to such office by the Shareholders. In the event that at any
time less than a majority of the Trustees then holding office were elected to
such office by the Shareholders, the Trustees shall call a meeting of
Shareholders for the purpose of electing Trustees. Each Trustee elected by the
Shareholders or by the Trustees shall serve until the next meeting of
Shareholders called for the purpose of electing Trustees and until the election
and qualification of his or her successor, or until he or she sooner dies,
resigns or is removed. The initial Trustees, each of whom shall serve until the
first meeting of Shareholders at which Trustees are elected and until his or her
successor is elected and qualified, or until he or she sooner dies, resigns or
is removed, shall be John A. McNeice, Jr. and such other persons as the Trustee
or Trustees then in office shall, prior to any sale of Shares pursuant to a
public offering, appoint. By vote of a majority of the Trustees then in office,
the Trustees may remove a Trustee with or without cause. At any meeting called
for the purpose, a Trustee may be removed, with or without cause, by vote of the
holders of two-thirds of the outstanding Shares.

Effect of Death, Resignation, etc. of a Trustee

Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.

Powers

Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such By-Laws do not reserve
that right to the Shareholders; they may fill vacancies in their number,
including vacancies resulting from increases in their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may appoint an advisory board, the members of which shall not be Trustees and
need not be Shareholders; they may employ one or more custodians of the assets
of the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent or a Shareholder services agent,
or both, provide for the distribution of Shares by the Trust, through one or
more principal underwriters or otherwise, set record dates for the determination
of Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.

Without limiting the foregoing, the Trustees shall have power and
authority:

(a). To invest and reinvest cash, and to hold cash
uninvested;

(b). To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust;

(c). To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and
to execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;

(d). To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities;

(e). To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or
in the name of the Trustees or of the Trust or in the name of a
custodian, subcustodian or other depository or a nominee or nominees or
otherwise;

(f). Subject to the provisions of Article III, Section 3, to
allocate assets, liabilities and expenses of the Trust to a particular
series of Shares or to apportion the same among two or more series,
provided that any liabilities or expenses incurred by a particular
series of Shares shall be payable solely out of the assets of that
series; and to the extent necessary or appropriate to give effect to
the preferences and special or relative rights and privileges of any
classes of Shares, to allocate assets, liabilities, income and expenses
of a series to a particular class of Shares of that series or to
apportion the same among two or more classes of Shares of that series;

(g). To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer,
any security of which is or was held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect
to any security held in the Trust;

(h). To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or trustee, and to delegate to them such
power and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depositary or trustee as the Trustees shall deem
proper;

(i). To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust on any matter in controversy, including
but not limited to claims for taxes;

(j). To enter into joint ventures, general or limited
partnerships and any other combinations or associations;

(k). To borrow funds;

(l). To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof; and to mortgage and
pledge the Trust property or any part thereof to secure any of or all
of such obligations;

(m). To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters or independent
contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter or independent contractor, including any
action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify
such person against such liability; and

(n) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus, share purchase, savings, thrift
and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits,
for any or all of the Trustees, officers, employees and agents of the
Trust.

The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. Except as otherwise
provided herein or from time to time in the By-Laws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
the Trustees (a quorum being present), within or without Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office.

Payment of Expenses by Trust

Section 4. The Trustees are authorized to pay or to cause to be paid
out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, Shareholder services agent and such
other agents or independent contractors, and such other expenses and charges, as
the Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular series of Shares, as determined by the Trustees, shall be
payable solely out of the assets of that series.

Ownership of Assets of the Trust

Section 5. Title to all of the assets of each series of Shares and of
the Trust shall at all times be considered as vested in the Trustees.

Advisory, Management and Distribution

Section 6. Subject to a favorable Majority Shareholder Vote, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services with Colonial Management
Associates, Inc., a Massachusetts corporation, or any other corporation, trust,
association or other organization (the "Adviser"), every such contract to comply
with such requirements and restrictions as may be set forth in the By-Laws; and
any such contract may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion, if any, of the
assets of the Trust shall be held uninvested, and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time, contract
with the Adviser or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.

The fact that:

(i). any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of or
for any corporation, trust, association or other organization, or of or
for any parent or affiliate of any organization, with which an advisory
or management contract, or principal underwriter's or distributor's
contract, or transfer, shareholder services or other agency contract
may have been or may hereafter be made, or that any organization, or
any parent or affiliate thereof, is a Shareholders or has an interest
in the Trust, or that

(ii). any corporation, trust, association or other
organization with which an advisory or management contract or principal
underwriter's or distributor's contract, or transfer, Shareholder
services or other agency contract may have been or may hereafter be
made also has an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer, shareholder
services or other agency contract with one or more other corporations,
trusts, associations or other organizations, or has other business or
interests

shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.

ARTICLE V

SHAREHOLDERS' VOTING POWERS AND MEETINGS

Voting Powers

Section 1. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1, (ii) with respect to
any Adviser as provided in Article IV, Section 6, (iii) with respect to any
termination of this Trust to the extent and as provided in Article IX, Section
4, (iv) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Article IX, Section 7, (v) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vi) with respect to such additional matters relating to the Trust as may be
required by law, this Declaration of Trust, the By-Laws or any registration of
the Trust with the Securities and Exchange Commission (or any successor agency)
or any state, or as the Trustees may consider necessary or desirable. Each whole
Share shall be entitled to one vote as to any matter on which it is entitled to
vote and each fractional Share shall be entitled to a proportionate fractional
vote. Notwithstanding any other provision of this Declaration of Trust, on any
matter submitted to a vote of Shareholders, all Shares of the Trust then
entitled to vote shall be voted in the aggregate as a single class without
regard to series or class; except (1) when required by the 1940 Act or when the
Trustees shall have determined that the matter affects one or more series or
classes materially differently, Shares shall be voted by individual series or
class; and (2) when the Trustees have determined that the matter affects only
the interests of one or more series or classes, then only Shareholders of such
series or classes shall be entitled to vote thereon. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.

Voting Power and Meetings

Section 2. Meetings of Shareholders of the Trust or of any series or
class may be called by the Trustees or such other person or persons as may be
specified in the By-Laws and held from time to time for the purpose of taking
action upon any matter requiring the vote or the authority of the Shareholders
of the Trust or any series or class as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Meetings of Shareholders of
the Trust or of any series or class shall be called by the Trustees or such
other person or persons as may be specified in the By-Laws upon written
application. The Shareholders shall be entitled to at least seven days' written
notice of any meeting of the Shareholders.

Quorum and Required Vote

Section 3. Thirty percent (30%) of the Shares entitled to vote shall be
a quorum for the transaction of business at a Shareholders' meeting, except that
where any provision of law or of this Declaration of Trust permits or requires
that holders of any series or class shall vote as a series or class, then thirty
percent (30%) of the aggregate number of Shares of that series or class entitled
to vote shall be necessary to constitute a quorum for the transaction of
business by that series or class. Any lesser number, however, shall be
sufficient for adjournments. Any adjourned session or sessions may be held
within a reasonable time after the date set for the original meeting without the
necessity of further notice. Except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws, a majority of the Shares
voted shall decide any questions and a plurality shall elect a Trustee, provided
that where any provision of law or of this Declaration of Trust permits or
requires that the holders of any series or class shall vote as a series or
class, then a majority of the Shares of that series or class voted on the matter
(or a plurality with respect to the election of a Trustee) shall decide that
matter insofar as that series or class is concerned.

Action by Written Consent

Section 4. Any action taken by Shareholders may be taken without a
meeting if a majority of Shareholder entitled to vote on the matter (or such
larger proportion thereof as shall be required by any express provision of this
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.

Additional Provisions

Section5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.

ARTICLE VI

DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES,
AND DETERMINATION OF NET ASSET VALUE

Distributions

Section 1. The Trustees may, but need not, each year distribute to the
Shareholders of each series or class such income and gains, accrued or realized,
as the Trustees may determine, after providing for actual and accrued expenses
and liabilities (including such reserves as the Trustees may establish)
determined in accordance with good accounting practices. The Trustees shall have
full discretion to determine which items shall be treated as income and which
items as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each series, if any be made, may be made
in one or more payments, which shall be in Shares, in cash or otherwise and on a
date or dates and as of a record date or dates determined by the Trustees. At
any time and from time to time in their discretion, the Trustees may distribute
to the Shareholders of any one or more series or classes as of a record date or
dates determined by the Trustees, in Shares, in cash or otherwise, all or part
of any gains realized on the sale or disposition of property of the series or
otherwise, or all or part of any other principal of the Trust attributable to
the series. In the case of any series not divided into two or more classes of
Shares, each distribution pursuant to this Section 1 shall be made ratably
according to the number of Shares of the series held by the several Shareholders
on the applicable record date thereof, provided that no distribution need be
made on Shares purchased pursuant to orders received, or for which payment is
made, after such time or times as the Trustees may determine. In the case of any
series divided into two or more classes, each distribution pursuant to this
Section 1 may be made in whole or in such parts as the Trustees may determine to
the Shareholders of any one or more classes, and the distribution to the
Shareholders of any class shall be made ratably according to the number of
Shares of the class (but need not be made ratably according to the number of
Shares of the series, considered without regard to class) held by the several
Shareholders on the record date thereof, provided that no distribution need be
made on Shares purchased pursuant to orders received, or for which payment is
made, after such time or times as the Trustees may determine. Any such
distribution paid in Shares will be paid at the net asset value thereof as
determined in accordance with Section 7 of this Article VI.

Redemptions and Repurchases

Section 2. Any holder of Shares of the Trust may by presentation of a
written request, together with his or her certificates, if any, for such Shares,
in proper form for transfer, at the office of the Trust or at a principal office
of a transfer agent appointed by the Trust, redeem his or her Shares for the net
asset value thereof determined and computed in accordance with the provisions of
this Section 2 and the provisions of Section 7 of this Article VI.

Upon receipt by the Trust or its transfer agent of such written request
for redemption of Shares, such Shares shall be redeemed at the net asset value
per share of the appropriate series next determined after such Shares are
tendered in proper order for transfer to the Trust or determined as of such
other time fixed by the Trustees as may be permitted or required by the 1940
Act, provided that no such tender shall be required in the case of Shares for
which a certificate or certificates have not been issued, and in such case such
Shares shall be redeemed at the net asset value per share of the appropriate
series next determined after such request has been received or determined at
such other time fixed by the Trustees as may be permitted or required by the
1940 Act.

The obligation of the Trust to redeem its Shares of each series or
class as set forth above in this Section 2 shall be subject to the conditions
that during any time of emergency, as hereinafter defined, such obligation may
be suspended by the Trust by or under authority of the Trustees for such period
or periods during such time of emergency as shall be determined by or under
authority of the Trustees. If there is such a suspension, any Shareholder may
withdraw any demand for redemption and any tender of Shares which has been
received by the Trust during any such period and any tender of Shares, the
applicable net asset value of which would but for such suspension be calculated
as of a time during such period. Upon such withdrawal, the Trust shall return to
the Shareholder the certificates therefor, if any. For the purposes of any such
suspension, "time of emergency" shall mean, either with respect to all Shares or
any series of Shares, any period during which:

a. the New York Stock Exchange is closed other than for
customary weekend and holiday closings; or

b. the Trustees or authorized officers of the Trust shall have
determined, in compliance with any applicable rules and regulations of
the Securities and Exchange Commission, either that trading on the New
York Stock Exchange is restricted, or that an emergency exists as a
result of which (i) disposal of the Trust of securities owned by it is
not reasonably practicable or (ii) it is not reasonably practicable for
the Trust fairly to determine the current value of its net assets; or

c. the suspension or postponement of such obligations is
permitted by order of the Securities and Exchange Commission.

The Trust may also purchase, repurchase or redeem Shares in accordance
with such other methods, upon such other terms and subject to such other
conditions as the Trustees may from time to time authorize at a price not
exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.

Payment in Kind

Section 3. Subject to any generally applicable limitation imposed by
the Trustees, any payment on redemption of Shares may, if authorized by the
Trustees, be made wholly or partly in kind, instead of in cash. Such payment in
kind shall be made by distributing securities or other property constituting, in
the opinion of the Trustees, a fair representation of the various types of
securities and other property then held by the series of Shares being redeemed
(but not necessarily involving a portion of each of the series' holdings) and
taken at their value used in determining the net asset value of the Shares in
respect of which payment is made.

Redemptions at the Option of the Trust

Section 4. The Trust shall have the right at its option and at any time
to redeem Shares of any Shareholder at the net asset value thereof as determined
in accordance with Section 7 of Article VI of this Declaration of Trust: (i) if
at such time such Shareholder owns fewer Shares than, or Shares having an
aggregate net asset value of less than, an amount determined from time to time
by the Trustees; or (ii) to the extent that such Shareholder owns Shares of a
particular series of Shares equal to or in excess of a percentage of the
outstanding Shares of that series (determined without regard to class)
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.

Dividends, Distributions, Redemptions and Repurchases

Section 5. No dividend or distribution (including, without limitation,
any distribution paid upon termination of the Trust or of any series) with
respect to, nor any redemption or repurchase of, the Shares of any series (or of
any class) shall be effected by the Trust other than from the assets of such
series (or of the series of which such class is a part).

Additional Provisions Relating to Redemptions and Repurchases

Section 6. The completion of redemption of Shares shall constitute a
full discharge of the Trust and the Trustees with respect to such shares, and
the Trustees may require that any certificate or certificates issued by the
Trust to evidence the ownership of such Shares shall be surrendered to the
Trustees for cancellation or notation.

Determination of Net Asset Value

Section a) The term "net asset value" of the Shares of each series or
class shall mean: (i) the value of all the assets of such series or class; (ii)
less the total liabilities of such series or class; (iii) divided by the number
of Shares of such series or class outstanding, in each case at the time of each
determination. The "number of Shares of such series or class outstanding" for
the purposes of such computation shall be exclusive of any Shares of such series
or class to be redeemed and not then redeemed as to which the redemption price
has been determined, but shall include Shares of such series or class presented
for repurchase and not then repurchased and Shares of such series or class to be
redeemed and not then redeemed as to which the redemption price has not been
determined and Shares of such series or class the sale of which has been
confirmed. Any fractions involved in the computation of net asset value per
share shall be adjusted to the nearer cent unless the Trustees shall determine
to adjust such fractions to a fraction of a cent.

The Trustees, or any officer or officers or agent of this Trust
designated for the purpose by the Trustees, shall determine the net asset value
of the Shares of each series or class, and the Trustees shall fix the times as
of which the net asset value of the Shares of each series or class shall be
determined and shall fix the periods during which any such net asset value shall
be effective as to sales, redemptions and repurchases of, and other transactions
in, the Shares of such series or class, except as such times and periods for any
such transaction may be fixed by other provisions of this Declaration of Trust
or by the By-Laws.

In valuing the portfolio investments of any series or class for
determination of net asset value per share of such series or class, securities
for which market quotations are readily available shall be valued at prices
which, in the opinion of the Trustees, or any officer or officers or agent of
the Trust designated for the purpose by the Trustees, most nearly represent the
market value of such securities, which may, but need not, be the most recent bid
price obtained from one or more of the market makers for such securities; other
securities and assets shall be valued at fair value as determined by or pursuant
to the direction of the Trustees. Notwithstanding the foregoing, short-term debt
obligations, commercial paper and repurchase agreements may be, but need not be,
valued on the basis of quoted yields for securities of comparable maturity,
quality and type, or on the basis of amortized cost. In determination of net
asset value of any series or class, dividends receivable and accounts receivable
for investments sold and for Shares sold shall be stated at the amounts to be
received therefor; and income receivable accrued daily on bonds and notes owned
shall be stated at the amount to be received. Any other assets shall be stated
at fair value as determined by the Trustees or such officer, officers or agent
pursuant to the Trustees' authority, except that no value shall be assigned to
good will, furniture, lists, reports, statistics or other noncurrent assets
other than real estate. Liabilities of any series or class for accounts payable
for investments purchased and for Shares tendered for redemption and not then
redeemed as to which the redemption price has been determined shall be stated at
the amounts payable therefor. In determining the net asset value of any series
or class, the person or persons making such determination on behalf of the Trust
may include in liabilities such reserves, estimated accrued expenses and
contingencies as such person or persons may in its, his or their best judgment
deem fair and reasonable under the circumstances. Any income dividends and gains
distributions payable by the Trust shall be deducted as of such time or times on
the record date therefor as the Trustees shall determine.

The manner of determining the net assets of any series or class or of
determining the net asset value of the Shares of any series or class may from
time to time be altered as necessary or desirable in the judgment of the
Trustees to conform to any other method prescribed or permitted by any
applicable law or regulation.

Determinations under this Section 7 made in good faith and in
accordance with the provisions of the 1940 Act shall be binding on all parties
concerned.

ARTICLE VII

COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES

Compensation

Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.

Limitation of Liability

Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, adviser or
principal underwriter of the Trust, nor shall any Trustees be responsible for
the act or omission of any other Trustee, but nothing herein contained shall
protect any Trustee against any liability to which he or she would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.

Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.

ARTICLE VIII

INDEMNIFICATION

Trustees, Officers, etc.

Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, except that no Covered Person shall be indemnified
against any liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid from time to
time by the Trust in advance of the final disposition of any such action, suit
or proceeding upon receipt of any undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article, provided
that (a) such Covered Person shall provide security for his undertaking, (b) the
Trust shall be insured against losses arising by reason of such Covered Person's
failure to fulfill his undertaking or (c) a majority of the Trustees who are
disinterested persons and who are not Interested Persons (provided that a
majority of such Trustees then in office act on the matter), or independent
legal counsel in a written opinion, shall determine, based on a review of
readily available facts (but not a full trial-type inquiry), that there is
reason to believe such Covered Person ultimately will be entitled to
indemnification.

Compromise Payment

Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an adjudication in a
decision on the merits by a court, or by any other body before which the
proceeding was brought, that such Covered Person is liable to the Trust or its
Shareholders by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office, indemnification shall be provided if (a) approved as in the
best interest of the Trust, after notice that it involves such indemnification,
by at least a majority of the Trustees who are disinterested persons and are not
interested Persons (provided that a majority of such Trustees then in office act
on the matter), upon a determination, based upon a review of readily available
facts (but not a full trial-type inquiry) that such Covered Person is not liable
to the Trust or its Shareholders by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Covered Person's office, or (b) there has been obtained an opinion in
writing of independent legal counsel, based upon a review of readily available
facts (but not a full-trial type inquiry) to the effect that such
indemnification would not protect such Covered Person against any liability to
the Trust to which such Covered Person would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Any approval pursuant to this
Section shall not prevent the recovery from any Covered Person of any amount
paid to such Covered Person in accordance with this Section as indemnification
if such Covered Person is subsequently adjudicated by a court of competent
jurisdiction to have been liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.

Indemnification Not Exclusive

Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators, and a "disinterested person"
is a person against whom none of the actions, suits or other proceedings in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of such persons.

Shareholders

Section 4. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of shares of
which he or she is or was a Shareholder.

ARTICLE IX

MISCELLANEOUS

Trustees, Shareholders, etc. Not Personally Liable; Notice

Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular series of Shares shall look only to
the assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.

Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustees or Trustee or as
officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, and may contain such
further recital as he or she or they may deem appropriate, but the omission
thereof shall not operate to bind any Trustees or Trustee of officers or officer
or Shareholders or Shareholder individually.

Trustee's Good Faith Action, Expert Advice, No Bond or Surety

Section 2. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.

Liability of Third Persons Dealing with Trustees

Section 3. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.

Duration and Termination of Trust

Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
vote of Shareholders holding at least two-thirds of the Shares of each series
entitled to vote or by the Trustees by written notice to the Shareholders. Any
series of Shares may be terminated at any time by vote of Shareholders holding
at least two-thirds of the Shares of such series entitled to vote or by the
Trustees by written notice to the Shareholders of such series.

Upon termination of the Trust or of any one or more series of Shares,
after paying or otherwise providing for all charges, taxes, expenses and
liabilities, whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets to distributable form in cash
or shares or other securities, or any combination thereof, and distribute the
proceeds to the Shareholders of the series involved, ratably according to the
number of Shares of such series held by the several Shareholders of such series
on the date of termination, except to the extent otherwise required or permitted
by the preferences and special or relative rights and privileges of any classes
of Shares of that series, provided that any distribution to the Shareholders of
a particular class of Shares shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them.

Filing of Copies, References, Headings

Section 5. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Clerk of the City of Boston, as well
as any other governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a certificate by an officer
of the Trust as to whether or not any such amendments have been made and as to
any matters in connection with the Trust hereunder; and, with the same effect as
if it were the original, may rely on a copy certified by an officer of the Trust
to be a copy of this instrument or of any such amendments. In this instrument
and in any such amendment, references to this instrument, and all expressions
such as "herein," "hereof" and "hereunder," shall be deemed to refer to this
instrument as amended or affected by any such amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part hereof
or control or affect the meaning, construction or effect of this instrument.
This instrument may be executed in any number of counterparts, each of which
shall be deemed an original.

Applicable Law

Section 6. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and its is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.

Amendments

Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
so to do by a vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which shall affect the holders of one or more
series or classes of Shares but not the holders of all outstanding series and
classes shall be authorized by vote of the Shareholders holding a majority of
the Shares entitled to vote of each series and class affected and no vote of
Shareholders of a series or class not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.

IN WITNESS WHEREOF, the undersigned have herunto set their hands in the
City of Boston, Massachusetts for themselves and their assignes, as of this 15th
day of November, 1991.

/s/ OLIVER F. AMES
Oliver F. Ames

/s/ TOM BLEASDALE
Tom Bleasdale

/s/ LORA S. COLLINS
Lora S. Collins

/s/ J. CRAIG HUFF, JR.
J. Craig Huff, Jr.

/s/ WILLIAM D. IRELAND, JR.
William D. Ireland, Jr.

/s/ JOHN A. MCNEICE, JR.
John A. MdNeice, Jr.

/s/ JAMES L. MOODY, JR.
James L. Moody, Jr.

/s/ JOHN J. NEUHAUSER
John J. Neuhauser

/s/ GEORGE L. SHINN
George L. Shinn

/s/ ROBERT L. SULLIVAN
Robert L. Sullivan

/s/ SINCLAIR WEEKS, JR.
Sinclair Weeks, Jr.

THE COMMONWEALTH OF MASSACHUSETTS

Boston, ss. November 15, 1991

Then personally appeared the above-named Trustees and acknowledged the
foregoing instrument to be his free act and deed, before me,

/s/ Diane M. Joyce
Notary Public

My commission expires: 3/2/95

(Notary's Seal)

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 and statement of additional information of Colonial
Municipal Money Market Fund, filed with the Securities and
Exchange Commission in this Post Effective Amendment No. 46 to
the Registration Statement under the Securities Act of 1933
(Registration No. 2-62492) and in this Amendment No. 44 to the
Registration Statement under the Investment Company Act of 1940
(Registration No. 811-2865).

ERNST & YOUNG LLP

Chicago, Illinois
July 28, 1997

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. 46
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 10, 1997,
relating to the financial statements and financial highlights appearing in the
November 30, 1996 Annual Reports to Shareholders of Colonial Tax-Exempt
Fund, Colonial Tax-Exempt Insured Fund, Colonial High Yield Municipal Fund,
Colonial Intermediate Tax-Exempt 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" in the Prospectuses and "Independent
Accountants" in the Statements of Additional Information."

PRICE WATERHOUSE LLP
Boston, Massachusetts
July 31, 1997

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

<ARTICLE> 6
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
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<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL TAX-EXEMPT INSURED FUND, CLASS A YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
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<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL UTILITIES FUND, CLASS A YEAR END NOV-30-1997 AND IS
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<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
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</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS A YEAR END JUN-30-1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
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<PAID-IN-CAPITAL-COMMON> 21870
<SHARES-COMMON-STOCK> 20285
<SHARES-COMMON-PRIOR> 19678
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 21869
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 369
<OTHER-INCOME> 0
<EXPENSES-NET> 82
<NET-INVESTMENT-INCOME> 287
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 287
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 269
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27554
<NUMBER-OF-SHARES-REDEEMED> 27189
<SHARES-REINVESTED> 242
<NET-CHANGE-IN-ASSETS> 958
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 142
<AVERAGE-NET-ASSETS> 20130
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.015
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.015
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS B YEAR END JUN-30-1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF
COLONIAL MUNICIPAL MONEY MARKET FUND, CLASS B YEAR END JUN-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 4
<NAME> COLONIAL MUNICPAL MONEY MARKET FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 20461
<RECEIVABLES> 1508
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21979
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110
<TOTAL-LIABILITIES> 110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21870
<SHARES-COMMON-STOCK> 1586
<SHARES-COMMON-PRIOR> 1235
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 21869
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 369
<OTHER-INCOME> 0
<EXPENSES-NET> 82
<NET-INVESTMENT-INCOME> 287
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 287
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6829
<NUMBER-OF-SHARES-REDEEMED> 6489
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 958
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 142
<AVERAGE-NET-ASSETS> 20130
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.011
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.011
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

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

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YIELD MUNICIPAL FUND, CLASS A YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
HIGH YIELD MUNICIPAL FUND, CLASS A YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 3
<NAME> COLONIAL HIGH YIELD MUNICIPAL FUND, CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 181880
<INVESTMENTS-AT-VALUE> 186038
<RECEIVABLES> 5290
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 191332
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1079
<TOTAL-LIABILITIES> 1079
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190603
<SHARES-COMMON-STOCK> 4647
<SHARES-COMMON-PRIOR> 3685
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (61)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4447)
<ACCUM-APPREC-OR-DEPREC> 4158
<NET-ASSETS> 190253
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6535
<OTHER-INCOME> 0
<EXPENSES-NET> (1551)
<NET-INVESTMENT-INCOME> 4984
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> (1566)
<NET-CHANGE-FROM-OPS> 3425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1242)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (18)
<NUMBER-OF-SHARES-SOLD> 1272
<NUMBER-OF-SHARES-REDEEMED> (373)
<SHARES-REINVESTED> 43
<NET-CHANGE-IN-ASSETS> 7633
<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4450)
<GROSS-ADVISORY-FEES> 516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1551
<AVERAGE-NET-ASSETS> 185249
<PER-SHARE-NAV-BEGIN> 10.160
<PER-SHARE-NII> 0.301
<PER-SHARE-GAIN-APPREC> (0.094)
<PER-SHARE-DIVIDEND> (0.303)
<PER-SHARE-DISTRIBUTIONS> (0.004)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.060
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YIELD MUNICIPAL FUND, CLASS B YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
HIGH YIELD MUNICIPAL FUND, CLASS B YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 3
<NAME> COLONIAL HIGH YIELD MUNICIPAL FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 181880
<INVESTMENTS-AT-VALUE> 186038
<RECEIVABLES> 5290
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 191332
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1079
<TOTAL-LIABILITIES> 1079
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190603
<SHARES-COMMON-STOCK> 4647
<SHARES-COMMON-PRIOR> 3685
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (61)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4447)
<ACCUM-APPREC-OR-DEPREC> 4158
<NET-ASSETS> 190253
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6535
<OTHER-INCOME> 0
<EXPENSES-NET> (1551)
<NET-INVESTMENT-INCOME> 4984
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> (1566)
<NET-CHANGE-FROM-OPS> 3425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3794)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (56)
<NUMBER-OF-SHARES-SOLD> 1628
<NUMBER-OF-SHARES-REDEEMED> (1810)
<SHARES-REINVESTED> 166
<NET-CHANGE-IN-ASSETS> 7633
<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4450)
<GROSS-ADVISORY-FEES> 516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1551
<AVERAGE-NET-ASSETS> 185249
<PER-SHARE-NAV-BEGIN> 10.160
<PER-SHARE-NII> 0.263
<PER-SHARE-GAIN-APPREC> (0.094)
<PER-SHARE-DIVIDEND> (0.265)
<PER-SHARE-DISTRIBUTIONS> (0.004)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.060
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

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

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL INTERMEDIATE TAX-EXEMPT FUND, CLASS A YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
INTERMEDIATE TAX-EXEMPT FUND, CLASS A YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 6
<NAME> COLONIAL INTERMEDIATE TAX-EXEMPT FUND, CLASS A
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 20193
<INVESTMENTS-AT-VALUE> 20853
<RECEIVABLES> 1581
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 22445
<PAYABLE-FOR-SECURITIES> 528
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 330
<TOTAL-LIABILITIES> 858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21455
<SHARES-COMMON-STOCK> 1302
<SHARES-COMMON-PRIOR> 1584
<ACCUMULATED-NII-CURRENT> 55
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (556)
<ACCUM-APPREC-OR-DEPREC> 633
<NET-ASSETS> 21587
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 649
<OTHER-INCOME> 0
<EXPENSES-NET> (110)
<NET-INVESTMENT-INCOME> 539
<REALIZED-GAINS-CURRENT> 90
<APPREC-INCREASE-CURRENT> (410)
<NET-CHANGE-FROM-OPS> 219
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (282)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 89
<NUMBER-OF-SHARES-REDEEMED> (391)
<SHARES-REINVESTED> 20
<NET-CHANGE-IN-ASSETS> (3972)
<ACCUMULATED-NII-PRIOR> 49
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (646)
<GROSS-ADVISORY-FEES> 65
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 202
<AVERAGE-NET-ASSETS> 23653
<PER-SHARE-NAV-BEGIN> 7.880
<PER-SHARE-NII> 0.196
<PER-SHARE-GAIN-APPREC> (0.105)
<PER-SHARE-DIVIDEND> (0.191)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.780
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL INTERMEDIATE TAX-EXEMPT FUND, CLASS B YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
INTERMEDIATE TAX-EXEMPT FUND, CLASS B YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 6
<NAME> COLONIAL INTERMEDIATE TAX-EXEMPT FUND, CLASS B
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 20193
<INVESTMENTS-AT-VALUE> 20853
<RECEIVABLES> 1581
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 22445
<PAYABLE-FOR-SECURITIES> 528
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 330
<TOTAL-LIABILITIES> 858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21455
<SHARES-COMMON-STOCK> 1472
<SHARES-COMMON-PRIOR> 1660
<ACCUMULATED-NII-CURRENT> 55
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (556)
<ACCUM-APPREC-OR-DEPREC> 633
<NET-ASSETS> 21587
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 649
<OTHER-INCOME> 0
<EXPENSES-NET> (110)
<NET-INVESTMENT-INCOME> 539
<REALIZED-GAINS-CURRENT> 90
<APPREC-INCREASE-CURRENT> (410)
<NET-CHANGE-FROM-OPS> 219
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (259)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29
<NUMBER-OF-SHARES-REDEEMED> (241)
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> (3972)
<ACCUMULATED-NII-PRIOR> 49
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (646)
<GROSS-ADVISORY-FEES> 65
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 202
<AVERAGE-NET-ASSETS> 23653
<PER-SHARE-NAV-BEGIN> 7.880
<PER-SHARE-NII> 0.171
<PER-SHARE-GAIN-APPREC> (0.105)
<PER-SHARE-DIVIDEND> (0.166)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.780
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>