COLONIAL TRUST IV, 485BPOS, 1998-03-30

COLONIAL TRUST IV
485BPOS, 1998-03-30

Previous: TIDELANDS ROYALTY TRUST B, 10-K405, 1998-03-30

Next: FARM FAMILY MUTUAL INSURANCE CO, 10-K, 1998-03-30

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. 48 [X]

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

Amendment No. 46 [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:
- -------------------------------------- --------

Michael H. Koonce, 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 March 30, 1998 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.

<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 30, 1998

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 (Tax-Exempt Fund), Colonial Tax-Exempt Insured
Fund (Insured Fund) and Colonial Intermediate Tax-Exempt Fund (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 30, 1998 Statement of Additional
Information, which has been filed with the Securities and Exchange Commission
and is obtainable free of charge by calling the Adviser at 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.

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.

TE-01/842E-0398

<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, adjusted to reflect current fees, 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%(4) 0.00%(4) 3.25% 0.00%(4) 0.00%(4)
Maximum Contingent Deferred Sales Charge
(as a % of offering price)(3) 1.00%(5) 5.00% 1.00% 1.00%(5) 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 $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.

(3) Does not apply to reinvested distributions.

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

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

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

<TABLE>
<CAPTION>
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 0.50% 0.50% 0.50% 0.56% 0.56% 0.56%
12b-1 fees (after applicable fee waiver) 0.25 1.00 0.85(6) 0.25 1.00 0.70(6)
Other expenses 0.23 0.23 0.23(7) 0.26 0.26 0.26(7)
---- ---- ---- ---- ---- ----
Total operating expenses
(after applicable fee waiver)
0.98% 1.73% 1.58%(8) 1.07% 1.82% 1.52%(8)
==== ==== ==== ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
The Intermediate Fund
---------------------------------------------------------
Class A Class B Class C
<S> <C> <C> <C>
Management fee (after applicable fee waiver) 0.00%(9) 0.00%(9) 0.00%(9)
12b-1 fees(after applicable fee waiver) 0.20 0.85 0.40(6)
Other expenses (after applicable fee waiver) 0.60(9) 0.60(9) 0.60(7)(9)
---- ---- ----
Total operating expenses (after applicable fee waiver) 0.80%(10) 1.45%(10) 1.00%(10)
==== ==== ====

</TABLE>

(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 annually
0.60%, 0.45% and 0.20%, for the Tax-Exempt Fund, the Insured Fund and the
Intermediate Fund, respectively. This waiver may be revoked at any time.
See "12b-1 Plan." Absent such fee waiver, the "12b-1 fees" would have been
1.00%, 1.00% and 0.85% for the Class C shares of the Tax-Exempt Fund, the
Insured Fund and the Intermediate Fund, respectively.

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

(8) Absent the fee waiver discussed above, "Total operating expenses" would be
1.73% and 1.82% for the Tax-Exempt Fund and the Insured Fund, respectively.

(9) The Adviser has voluntarily agreed to waive and/or reimburse expenses to
the extent that the Fund's total operating expenses (exclusive of 12b-1
fees, brokerage commissions, interest, taxes and extraordinary expenses, if
any) do not exceed 0.60% annually of the Fund's average net assets. This
agreement may be revoked at any time. Absent such

2
<PAGE>

agreement, "Management fees" and "Other expenses" for each class of shares
would have been 0.55% and 0.70%, respectively.

(10) Absent any fee waivers or reimbursements described above, "Total operating
expenses" would have been 1.45%, 2.10% and 2.10% for the Class A, Class B
and Class C shares, respectively.

3
<PAGE>

Example

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

<TABLE>
<CAPTION>
The Tax-Exempt Fund The Insured Fund
---------------------------------------------------------- ----------------------------------------------------------
Period: Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(11) (12) (11) (12) (11) (12) (11) (12)
1 year $57 $68 $18 $ 26 $ 16 $58 $68 $18 $25 $15
3 years 77 84 54 50(13) 50 80 87 57 48(13) 48
5 years 99 114 94 86 86 104 119 99 83 83
10 years 162 184(14) 184(14) 188 188 172 194(14) 194(14) 181 181

</TABLE>

<TABLE>
<CAPTION>
The Intermediate Fund(13)
-------------------------------------------------------------------------------------
Period: Class A Class B Class C
<S> <C> <C> <C> <C> <C>
(11) (12) (11) (12)
1 year $ 40 $ 55 $ 15 $20 $ 10
3 years 57 66 46 32(13) 32
5 years 75 79 79 55 55
10 years 128 156(14) 156(14) 122 122

</TABLE>

(11) Assumes redemption at period end.

(12) Assumes no redemption.

(13) Class C shares do not incur a contingent deferred sales charge after one
year.

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

<PAGE>

THE FUNDS' FINANCIAL HISTORY

COLONIAL TAX-EXEMPT FUND

<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------

Year ended November 30
-------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $13.550 $13.720 $12.180 $13.920 $13.480
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.743 0.756 0.771 0.795 0.842
Net realized and unrealized gain (loss) 0.194 (0.171) 1.535 (1.744) 0.451
------- ------- ------- ------- -------
Total from Investment Operations 0.937 0.585 2.306 (0.949) 1.293
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.737) (0.755) (0.766) (0.791) (0.853)
From capital paid in -- -- -- -- --
Total Distributions Declared
to Shareholders (0.737) (0.755) (0.766) (0.791) (0.853)
Net asset value - End of period $13.750 $13.550 $13.720 $12.180 $13.920
------- ------- ------- ------- -------
Total return (b) 7.16% 4.47% 19.35% (7.08)% 9.80%
------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.98%(c) 0.99%(c) 1.01%(c) 1.01% 1.02%
Net investment income 5.45%(c) 5.61%(c) 5.82%(c) 6.00% 6.06%
Portfolio turnover 39% 40% 41% 56% 28%
Net assets at end of period
(in millions) $2,551 $2,818 $3,111 $2,858 $3,357

<CAPTION>
CLASS A
----------------------------------------------------------

Year ended November 30
----------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $13.190 $12.890 $13.020 $12.970 $12.760
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.913 0.955 0.986 1.001 1.007
Net realized and unrealized gain (loss) 0.277 0.305 (0.120) 0.045 0.235
------- ------- ------- ------- -------
Total from Investment Operations 1.190 1.260 0.866 1.046 1.242
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.900) (0.955) (0.996) (0.996) (1.032)
From capital paid in -- (0.005)(a) -- -- --
------- ------- ------- ------- -------
Total Distributions Declared
to Shareholders (0.900) (0.960) (0.996) (0.996) (1.032)
------- ------- ------- ------- -------
Net asset value - End of period $13.480 $13.190 $12.890 $13.020 $12.970
------- ------- ------- ------- -------
Total return (b) 9.29% 10.12% 6.95% 8.33% 10.03%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.05% 1.03% 1.05% 1.03% 1.06%
Net investment income 6.81% 7.29% 7.64% 7.67% 7.77%
Portfolio turnover 14% 10% 10% 9% 22%
Net assets at end of period
(in millions) $2,899 $2,486 $1,886 $1,547 $1,389

</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.

5
<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)
COLONIAL TAX-EXEMPT FUND

<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------------------------------
Period ended
Year ended November 30 November 30
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a) 1997(b)

<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $13.550 $13.720 $12.180 $13.920 $13.480 $13.230 $13.860
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.642 0.656 0.673 0.695 0.740 0.462 0.218
Net realized and unrealized gain (loss) 0.194 (0.171) 1.535 (1.744) 0.451 0.248 (0.114)(c)
------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 0.836 0.485 2.208 (1.049) 1.191 0.710 0.104
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.636) (0.655) (0.668) (0.691) (0.751) (0.460) (0.214)
------- ------- ------- ------- ------- ------- -------
Net asset value - End of period $13.750 $13.550 $13.720 $12.180 $13.920 $13.480 $13.750
------- ------- ------- ------- ------- ------- -------
Total return(d) 6.37% 3.70% 18.47% (7.78)% 9.00% 9.29(f) 0.77(f)
------- ------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.73%(e) 1.74%(e) 1.76%(e) 1.76% 1.77% 1.80(g) 1.59%(e)(g)
Net investment income 4.70%(e) 4.86%(e) 5.07%(e) 5.25% 5.31% 6.06(g) 4.76%(e)(g)
Portfolio turnover 39% 40% 41% 56% 28% 14% 39%
Net assets at end of period
(in millions) $380 $427 $469 $440 $430 $137 (h)

</TABLE>
- -----------------------------

(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.

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

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

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

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

(f) Not annualized.

(g) Annualized.

(h) Rounds to less than one million.

6
<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL TAX-EXEMPT INSURED FUND

<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------
Year ended November 30
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.330 $8.380 $7.450 $8.420 $8.080
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.398 0.403 0.418 0.439 0.456
Net realized and unrealized gain (loss) 0.136 (0.045) 0.935 (0.977) 0.338
------ ------ ------ ------ ------
Total from Investment Operations 0.534 0.358 1.353 (0.538) 0.794
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.394) (0.408) (0.423) (0.432) (0.454)
------ ------ ------ ------ ------
Total Distributions Declared to Shareholders (0.394) (0.408) (0.423) (0.432) (0.454)
------ ------ ------ ------ ------
Net asset value - End of period $8.470 $8.330 $8.380 $7.450 $8.420
------ ------ ------ ------ ------
Total return (a) 6.63% 4.48% 18.55% (6.61)% 10.00%
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.07%(b) 1.05%(b) 1.05%(b) 1.05% 1.07%
Net investment income 4.76%(b) 4.92%(b) 5.20%(b) 5.44% 5.44%
Portfolio turnover 26% 25% 31% 36% 12%
Net assets at end of period (000) $181,543 $206,713 $240,894 $198,909 $241,610

<CAPTION>
Class A
----------------------------------------------------------
Year ended November 30
----------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.880 $7.660 $7.680 $7.460 $7.260
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.480 0.496 0.506 0.508 0.510
Net realized and unrealized gain (loss) 0.200 0.222 (0.016) 0.222 0.201
------ ------ ------ ------ ------
Total from Investment Operations 0.680 0.718 0.490 0.730 0.711
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.480) (0.498) (0.510) (0.510) (0.511)
------ ------ ------ ------ ------
Total Distributions Declared to Shareholders (0.480) (0.498) (0.510) (0.510) (0.511)
------ ------ ------ ------ ------
Net asset value - End of period $8.080 $7.880 $7.660 $7.680 $7.460
------ ------ ------ ------ ------
Total return (a) 8.85% 9.66% 6.65% 10.07% 10.05%
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.08% 1.10% 1.12% 1.12%
Net investment income 5.97% 6.35% 6.66% 6.70% 6.85%
Portfolio turnover 7% 8% 15% 38% 78%
Net assets at end of period (000) $217,782 $189,483 $142,525 $124,119 $104,074

</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.

<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL TAX-EXEMPT INSURED FUND

<TABLE>
<CAPTION>
Class B Class C (b)
------------------------------------------------------------------------- ---------------
Period ended
Year ended November 30 November 30
------------------------------------------------------------------------ ---------------
1997 1996 1995 1994 1993 1992 (a) 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.330 $8.380 $7.450 $8.420 $8.080 $7.910 $8.530
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.336 0.342 0.359 0.378 0.395 0.240 0.118
Net realized and unrealized gain (loss) 0.136 (0.045) 0.935 (0.977) 0.338 0.170 (0.061)(c)
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.472 0.297 1.294 (0.599) 0.733 0.410 0.057
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.332) (0.347) (0.364) (0.371) (0.393) (0.240) (0.117)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $8.470 $8.330 $8.380 $7.450 $8.420 $8.080 $8.470
------ ------ ------ ------ ------ ------ ------
Total return (d) 5.83% 3.70% 17.68% (7.31)% 9.20% 5.23%(e) 0.68%(e)
------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.82%(f) 1.80%(f) 1.80%(f) 1.80% 1.82% 1.85%(g) 1.51%(f)(g)
Net investment income 4.01%(f) 4.17%(f) 4.45%(f) 4.69% 4.69% 5.22%(g) 4.22%(f)(g)
Portfolio turnover 26% 25% 31% 36% 12% 7% 26%
Net assets at end of period (000) $38,580 $44,621 $50,016 $45,801 $46,035 $16,519 $100

</TABLE>

_________________________________

(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.

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

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

(e) Not annualized.

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

(g) Annualized.

<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL INTERMEDIATE TAX-EXEMPT FUND

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
Year ended Period ended
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) 0.388 0.375 0.387 0.366 0.305
Net realized and unrealized gain (loss) 0.093 0.022 0.641 (0.596) 0.302
------ ------ ------ ------ ------
Total from Investment Operations 0.481 0.397 1.028 (0.230) 0.607
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.381) (0.367) (0.388) (0.370) (0.297)
------ ------ ------ ------ ------
Net asset value - End of period $7.980 $7.880 $7.850 $7.210 $7.810
------ ------ ------ ------ ------
Total return (c)(d) 6.29% 5.23% 14.56% (3.05)% 8.18%(e)
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60%(f) 0.60%(f) 0.36%(f) 0.20% 0.20%(g)
Fees and expenses waived or borne by the Adviser 0.85%(f) 0.72%(f) 0.96%(f) 1.07% 1.33%(g)
Net investment income 4.84%(f) 4.75%(f) 5.03%(f) 4.85% 4.53%(g)
Portfolio turnover 31% 20% 69% 26% 5%(g)
Net assets at end of period (000) $10,330 $12,479 $13,317 $16,791 $14,700

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

(a) Net of fees and expenses
waived or borne by the Adviser
which amounted to $0.073 $ 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 an impact of 0.01% and $0.001 per share in 1997 only.
Prior years' ratios are net of benefits received, if any.

(g) Annualized.

<PAGE>

THE FUNDS' FINANCIAL HISTORY (CONT'D)

COLONIAL INTERMEDIATE TAX-EXEMPT FUND

Class B Class C (c)
----------------------------------------------------------------- ----------------
Year ended Period ended Period ended
November 30 November 30 November 30
--------------------------------------------------- ---------- ----------------
1997 1996 1995 1994 1993(b) 1997
----------- ---------- -------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.880 $7.850 $7.210 $7.810 $7.500 $8.00
------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.337 0.324 0.338 0.317 0.263 0.121
Net realized and unrealized gain (loss) 0.093 0.022 0.641 (0.596) 0.302 (0.19)(d)
------ ------ ------ ------ ------ -----
Total from Investment Operations 0.430 0.346 0.979 (0.279) 0.565 0.102
------ ------ ------ ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.330) (0.316) (0.339) (0.321) (0.255) (0.122)
------ ------ ------ ------ ------ -----
Net asset value - End of period $7.980 $7.880 $7.850 $7.210 $7.810 $7.980
------ ------ ------ ------ ------ -----
Total return (e)(f) 5.60% 4.55% 13.82% (3.68)% 7.61%(g) 1.29%(g)
------ ------ ------ ------ ------ -----
RATIOS TO AVERAGE NET ASSETS
Expenses 1.25%(h) 1.25%(h) 1.01%(h) 0.85% 0.85%(i) 0.80%(h)(i)
Fees and expenses waived or
borne by the Adviser 0.85%(h) 0.72%(h) 0.96%(h) 1.07% 1.33%(i) 0.97%(h)(i)
Net investment income 4.19%(h) 4.10%(h) 4.38%(h) 4.20% 3.88%(i) 4.55%(h)(i)
Portfolio turnover 31% 20% 69% 26% 5%(i) 31%
Net assets at end of period (000) $10,269 $13,080 $14,820 $14,138 $9,396 $101

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

(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.073 $0.057 $0.074 $0.080 $0.090 $0.073

</TABLE>

(b) The Fund commenced investment operations on February 1, 1993.

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

(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge. (f) Had the
Adviser not waived or reimbursed a portion of expenses, total return would
have been reduced.

(g) Not annualized.

(h) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.001 per share in 1997 only.
Prior years' ratios are net of benefits received, if any.

(i) Annualized.

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.

<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. As a
fundamental policy, each Fund normally limits investments in taxable securities
and in securities subject to the federal alternative minimum tax to a maximum of
20% of total assets.

HOW THE FUNDS PURSUE THEIR OBJECTIVES AND CERTAIN RISK FACTORS

The Tax-Exempt Fund. The Tax-Exempt Fund normally invests substantially all of
its assets in tax-exempt bonds. The Tax-Exempt Fund may invest in bonds of any
maturity.

The Tax-Exempt Fund may not invest more than 35% of its total assets in 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).
In addition, the Fund may not invest more than 25% of its total assets in
unrated bonds of all credit qualities but excluding prerefunded bonds, (which
25% shall be included in the 35% aggregate limit for lower rated and unrated
bonds above). . For a description of S&P's and Moody's rating systems, see
"Appendix." Lower rated bonds are generally considered more speculative and
likely to default than higher quality bonds. Because of the increased risk of
default, lower rated bonds generally have higher yields than higher quality debt
securities. Regarding lower rated debt securities:

(i). an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default as
compared to higher quality debt securities;

(ii). the secondary market for such securities may at times be less liquid
or respond more adversely to negative publicity or investor
perceptions, making it more difficult to value or dispose of the
securities;

(iii). the likelihood that these securities will help a Fund achieve its
investment objective is more dependent on the Adviser's credit
analysis; and

(iv) may be less sensitive to interest rate changes and more sensitive to
adverse economic developments.

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

Rated Unrated
Investment grade 83.40% 3.20%
B-BB and equivalent 0.80 11.30
Below B 0.00 1.30
Total 84.20% 15.80%

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%

11
<PAGE>

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's 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 generally be rated AAA when acquired except that, to a limited
extent, the Fund may purchase bonds insured by American Capital Access
Corporation which are rated A by S&P and not rated by Moody's. 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, or the insurance is obtained from
American Capital Access Corporation. 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 securities that are covered by
insurance, 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
of 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 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.

12
<PAGE>

Each Fund may engage in the following investment techniques:

Inverse Floating Obligations. Inverse floating obligations 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. 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 a Fund's shares.

Asset-Backed Securities. 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. A 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. Zero coupon securities are debt securities which do not
pay interest in cash on a current basis, 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 a Fund and distributed to its shareholders.
These distributions must be made from that Fund's cash assets or, if necessary,
from the proceeds of sales of portfolio securities. A 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.

Many bonds have call features that permit the issuer to repay the bond before
maturity. If this occurs, a 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 Fund shares) usually fluctuates inversely with changes in interest rates.

"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.

Stand-By Commitments. Each Fund may obtain stand-by commitments when it
purchases municipal bonds. 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. Each Fund may purchase participation interests or
certificates of participation in all or part of specific holdings of municipal
bonds. Some participation interests, certificates of participation and municipal
lease obligations are illiquid and, as such, will be subject to the Tax-Exempt
Fund and Insured Fund's 10% limit, and the Intermediate Fund's 15% limit, on
investments in illiquid securities.

Pay-In-Kind Securities. Each Fund may purchase debt securities that pay interest
in additional securities instead of cash.

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

13
<PAGE>

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 or marketable securities within a value 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 securities 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 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 interest rate expectancies are 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. Under
normal market conditions, the Tax-Exempt Fund and the Insured Fund may each
invest up to 20% of its assets in taxable investments. Based on

14
<PAGE>

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").

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% (for the Tax-Exempt Fund and the Insured Fund) or 15% (for the
Intermediate Fund) of a Fund's net assets will be invested in repurchase
agreements maturing in more than seven 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.

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 has a fundamental investment policy of
investing under normal circumstances at least 80% of its total assets in
tax-exempt bonds. This policy 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 and Exchange Commission's formula. Each Class's
distribution rate is calculated by dividing the most recent month's
distribution, annualized, by the maximum offering price of that Class at the end
of the month. Each Class's performance may be compared to various indices.
Quotations from various publications may be included in sales literature and
advertisements. See

15
<PAGE>

"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.

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

The Adviser furnishes 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 1997: the Tax-Exempt Fund - 0.50%, the Insured Fund - 0.56% and the
Intermediate Fund - 0% (after fee waiver). Gary Swayze, Vice President of the
Adviser, has managed the Insured Fund since September 1997. Prior to joining the
Adviser in 1997, Mr. Swayze was a portfolio manager and group leader at Fidelity
Management and Research Company and the writer and editor of a bond market
newsletter.

Gary Swayze, Vice President of the Adviser, has managed the Insured Fund since
September 1997. Prior to joining the Adviser in 1997, Mr. Swayze was a
portfolio manager and group leader at Fidelity Management and Research Company
and the writer and editor of a bond market newsletter.

William C. Loring and Brian M. Hartford, each a Vice President of the Adviser,
have co-managed the Tax-Exempt Fund since May 1997. Mr. Loring has also managed
the Intermediate Fund since 1993. Messrs. Loring and Hartford have managed
various other Colonial tax-exempt funds since 1986 and 1993, respectively.

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 0.13% 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 mutual funds advised by the Adviser and its affiliates,
Stein Roe & Farnham Incorporated and Newport Fund Management, Inc.) in selecting
broker-dealers for portfolio security transactions.

HOW THE FUNDS VALUE THEIR SHARES

Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Funds are
generally valued as of the close of regular trading on the New York Stock
Exchange (Exchange) (normally 4:00 p.m. Eastern time) each day the Exchange is
open. Portfolio securities for which market

16
<PAGE>

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

Whether you receive capital gains 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 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. 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:

17
<PAGE>

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 portion of the shares purchased that caused the account value to exceed
$1 million will be subject to a 1.00% contingent deferred sales charge payable
to the Distributor, if redeemed within 18 months 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 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%

18
<PAGE>

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 by the Distributor at any time.

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

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

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

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

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

19
<PAGE>

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 delay sending proceeds for up to 15 days in order to protect a Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks. To avoid delay in payment, investors are advised to purchase
shares unconditionally, such as by certified check or other immediately
available funds.

Selling Shares Directly To A Fund. Send a signed letter of instruction or stock
power form to the Transfer Agent, along with any certificates for shares to be
sold. The sale price is the net asset value (less any applicable contingent
deferred sales charge) next calculated after the 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. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.

HOW TO EXCHANGE SHARES

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

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

20
<PAGE>

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 its 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.

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 may be elected on the account application. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized or
fraudulent transactions in the event reasonable procedures are not employed.
Such procedures include restrictions on where proceeds of telephone redemptions
may be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or his or her financial adviser provide certain identifying
information. 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.

21
<PAGE>

12B-1 PLAN

Under its 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. Each 12b-1 Plan also requires a 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. Each Plan also
authorizes other payments to the Distributor and its affiliates (including the
Adviser) which may be construed to be indirect financing of sales of a Fund's
shares.

22
<PAGE>

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

23
<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 small degree.

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

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

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

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

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

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

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

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

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

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

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

24
<PAGE>

MOODY'S

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

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

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

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

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

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

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

Numerical modifiers 1,2 and 3 are applied in each generic rating classification
from Aa to B. The modifier 1 indicates higher range of a generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates lower range of a generic category.

25
<PAGE>

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

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

Custodian
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245

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

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

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

Your financial service firm is:

Printed in U.S.A.

March 30, 1998

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 30, 1998 Statement of Additional Information.

---------------- -----------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
---------------- -----------------
<PAGE>

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

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

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

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

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

___ Please check here if this is a revision.

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

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

__Joint Tenant w/rights of survivorship: Print all names, the Social
Security # for the first person,
and his/her U.S. citizen status.

__Uniform Gift to Minors: Names of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.

__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.

__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.

______________________________________
Name of account owner

______________________________________
Name of joint account owner (JTWROS)

______________________________________
Street address

______________________________________
City, State, and Zip

______________________________________
Daytime phone number

______________________________________
Social Security # or Taxpayer I.D. #

Are you a U.S. citizen? ___Yes ___No

______________________________________
If no, country of permanent residence

______________________________________
Account Owner's date of birth

______________________________________
Account number (if existing account)

2 -----Fund(s) you are purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or C shares. If no distribution
option is selected, distributions will be reinvested in additional fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.

Fund Fund Fund

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

$_______________ $__________________ $____________________
Amount Amount Amount

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

Method of Payment Choose one

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

Ways to receive your distributions

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

___Reinvest dividends and capital gains

___Dividends and capital gains in cash

___Dividends in cash; reinvest capital gains

___Automatic Dividend Diversification See section 5A, inside

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

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

Each person signing on behalf of an entity represents that his/her actions are
authorized. I have received and read each appropriate fund prospectus and
understand that its terms are incorporated by reference into this application.
I understand that this application is subject to acceptance. I understand that
certain redemptions may be subject to a contingent deferred sales charge. It
is agreed that the fund, The Colonial Group, Inc. and its affiliates and their
officers, directors, agents, and employees will not be liable for any loss,
liability, damage, or expense for relying upon this application or any
instruction believed genuine.

I certify, under penalties of perjury, that:

1. The Social Security # or Taxpayer I.D. # provided is correct.

You must cross out Item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.

2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding.

The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholdings.

X______________________________________________
Signature

_______________________________________________
Capacity, if applicable Date

X______________________________________________
Signature

_______________________________________________
Capacity, if applicable Date

4--------Ways to withdraw from your fund-------

It may take up to 30 days to activate the following features. Complete only
the sections that apply to the features you would like.

A. Systematic Withdrawal Plan (SWP)
Dividends and capital gains must be reinvested.
You can receive monthly, quarterly, or semiannual checks from your account in
any amount you select, with certain limitations. Your redemption checks can
be sent to you at the address of record for your account, to your bank
account, or to another person you choose. The value of the shares in your
account must be at least $5,000 and you must reinvest all of your
distributions. Checks will be processed on the 10th calendar day of the month
unless the 10th falls on a non-business day or the first day of the week. If
this occurs, the process date will be the previous business day. If you
receive your SWP payment via electronic funds transfer (EFT), you may request
it to be processed any day of the month. Withdrawals in excess of 12% annually
of your current account value will not be accepted. Redemptions made in
addition to SWP payments may be subject to a contingent deferred sales charge
for Class B or C shares. Please consult your financial or tax adviser before
electing this option.

Funds for withdrawal:

___________________
Name of fund

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

Frequency (choose one)
__Monthly __Quarterly __Semiannually

I would like payments to begin _____/_____ (month, day, if indicating EFT).

___________________
Name of fund

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

Frequency (choose one)
__Monthly __Quarterly __Semiannually

I would like payments to begin _____/_____ (month, day, if indicating EFT).

Payment instructions
Send the payment to (choose one):
__My address of record.
__My bank account via EFT. Please complete the Bank Information section below.
All EFT transactions will be made two business days after the processing date.
Your bank must be a member of the Automated Clearing House System.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.

______________________________________________
Name of payee

______________________________________________
Address of payee

______________________________________________
City

______________________________________________
State Zip

______________________________________________
Payee's bank account number, if applicable

B. Telephone withdrawal options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.

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

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

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

Colonial Investor Service Center, Inc. (CISC) and the fund's liability is
limited when following telephone instructions; a shareholder may suffer a loss
from an unauthorized transaction reasonably believed by CISC to have been
authorized.

Bank Information (For Sections A and B above)
I authorize deposits to the following bank account:

____________________________________________________________
Bank name City Bank account number

____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)

X__________________________________
Signature of account owner(s)

X__________________________________
Signature of account owner(s) Place signature guarantee here.

5-----Ways to make additional investments--------

These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.

A. Automatic Dividend Diversification
Please diversify my portfolio by investing distributions from one fund into
another Colonial, Newport or Stein Roe Advisor fund. These investments will
be made in the same share class and without sales charges. Accounts must be
identically registered. I have received and carefully read the prospectus for
the fund(s) listed below.

____________________________
From fund

____________________________
Account number (if existing)

____________________________
To fund

____________________________
Account number (if existing)

____________________________
From fund

____________________________
Account number (if existing)

____________________________
To fund

____________________________
Account number (if existing)

B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial, Newport
or Stein Roe Advisor fund in which you have a balance of at least $5,000
exchanged into the same share class of up to four other identically registered
Colonial, Newport or Stein Roe Advisor accounts, on a monthly basis. The minimum
amount for each exchange is $100. Please complete the section below.

____________________________________
Fund from which shares will be sold

$_________________________
Amount to redeem monthly

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

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

____________________________________
Fund name

_________________________________
Account number

$_____________________ _________________
Amount to transfer Month to start

___________________________________
Fund name

________________________________
Account number

$_____________________ _________________
Amount to transfer Month to start

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

Check one:

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

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

I authorize CISC to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial, Newport or Stein Roe Advisor fund.
CISC and my bank are not liable for any loss arising from delays or dishonored
draws. If a draw is not honored, I understand that notice may not be given and
CISC may reverse the purchase and charge my account $15.

______________________________________
Bank name

______________________________________
Bank street address

______________________________________
City State Zip

______________________________________
Bank account number

______________________________________
Bank routing #

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

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

A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial, Newport or Stein Roe Advisor funds, you may be eligible for a reduced
sales charge. The combined value of your accounts must be $50,000 or more.
Class A shares of money market funds are not eligible unless purchased by
exchange from another Colonial, Newport or Stein Roe Advisor fund.

The sales charge for your purchase will be based on the sum of the purchase(s)
added to the value of all shares in other Colonial, Newport or Stein Roe
Advisor funds at the previous day's public offering price.

__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.

_____________________________________
Name on account

_____________________________________
Account number

_____________________________________
Name on account

_____________________________________
Account number

B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.

__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.

7-------------Financial service firm---------------------
To be completed by a Representative of your financial service firm. If making
changes to the services on an account that has been in existence for more than
30 days, please have your clients signature guaranteed.

This application is submitted in accordance with our selling agreement with
Liberty Financial Investments, Inc. (LFII), the Fund's prospectus, and this
application. We will notify LFII of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.

_____________________________________
Representative's name

_____________________________________
Representative's number

_____________________________________
Representative's phone number

_____________________________________
Account # for client at financial
service firm

_____________________________________
Branch office address

_____________________________________
City

_____________________________________
State Zip

_____________________________________
Branch office number

_____________________________________
Name of financial service firm

_____________________________________
Main office address

_____________________________________
City

_____________________________________
State Zip

X____________________________________
Authorized signature

8----------Request for a combined quarterly statement mailing-----------
CISC can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.

__I want to receive a combined quarterly mailing for all my accounts. Please
indicate account numbers or tax I.D. numbers of accounts to be linked.

________________________________________________________________________

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

This program's deposit privilege can be revoked by CISC without prior
notice if any check is not paid upon presentation. CISC has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by CISC by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.

To the Bank Named on the Reverse Side:

Your depositor has authorized Colonial Investors Service Center, Inc. (CISC) to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of CISC, LFII, hereby
indemnifies and holds you harmless from any loss (including reasonable
expenses) you may suffer from honoring such draw, except any losses due to your
payment of any draw against insufficient funds.

Liberty Financial Investments, Inc., Distributor SH-809E-0298
[Colonial Flag Logo]
Colonial
Mutual Funds

Checkwriting Signature Card
(Class A Shares Only)

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-999D-0797

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 30, 1998 HM-01/858E-0298

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.

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

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

Colonial High Yield 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 30, 1998; Statement of
Additional Information which has been filed with the Securities and Exchange
Commission and is obtainable free of charge by calling the Adviser at
1-800-426-3750. The Statement of Additional Information is incorporated by
reference in (which means it is considered to be a part of) this Prospectus.

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

Contents Page
Summary of Expenses 2
The Fund's Financial History 3
The Fund's Investment Objective 5
How the Fund Pursues its Objective and
Certain Risk Factors 5
How the Fund Measures its Performance 7
How the Fund is Managed 8
How the Fund Values its Shares 8
Distributions and Taxes 8
How to Buy Shares 9
How to Sell Shares 11
How to Exchange Shares 11
Telephone Transactions 12
12b-1 Plan 12
Organization and History 12
Appendix 13

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

<PAGE>

SUMMARY OF EXPENSES

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

Shareholder Transaction Expenses (1)(2)

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

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."
(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the distribution fee applicable to Class B and Class C shares,
long-term Class B and Class C shareholders may pay more in aggregate sales
charges than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because Class B shares
automatically convert to Class A shares after approximately 8 years, this
is less likely for Class B shares than for a class without a conversion
feature.
(5) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."

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

Class A Class B Class C
Management fee 0.56% 0.56% 0.56%
12b-1 fees 0.25 1.00 0.85(6)
Other expenses 0.30 0.30 0.30(7)
---- ---- -------
Total operating expenses 1.11% 1.86% 1.71%
==== ==== ====

(6) The Distributor has voluntarily agreed to waive 0.15% of the Class C share
Rule 12b-1 distribution fee so that it will not exceed 0.60% annually. The
Distributor may terminate the fee waiver at any time without shareholder
approval. See "12b-1 Plan." Absent such fee waiver, the "12b-1 fees" would
have been 1.00% and the "Total operating expenses" would have been 1.86%.
(7) "Other expenses" are estimated based on the annual operating expenses of
the Class A and Class B shares.

Example

The following example shows the cumulative transaction and operating 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 expense numbers used in the Example assume the
Class C 12b-1 fee waiver described above remains in effect for all periods. 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

(8) (9) (8) (9)
1 year $ 58 $ 69 $ 19 $ 27 $ 17
3 years 81 88 58 54(10) 54
5 years 106 121 101 93 93
10 years 176 198(11) 198(11) 202 202

(8) Assumes redemption at period end.

(9) Assumes no redemption.

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

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

<PAGE>

THE FUND'S FINANCIAL HISTORY

Class A
Year ended November 30
-----------------------------------------------------------
1997 1996 1995 1994(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning
of period $10.160 $10.230 $9.330 $9.800
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.592 0.624 0.656 0.188
Net realized and unrealized gain (loss) 0.188 (0.051) 0.912 (0.496)
------ ------- ------ -------
Total from Investment 0.780 0.573 1.568 (0.308)
------ ------ ------ -------
Operations
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.594) (0.643) (0.668) (0.162)
------- ------- ------- -------
In excess of net investment income (0.006) -- -- --
------- ------- ------- -------
Total Distributions Declared to (0.600) 0.643 (0.668) (0.162)
------- ------ ------- -------
Shareholders
Net asset value - End of period $10.340 $10.160 $10.230 $9.330
------- ------- ------- -------
Total return (b) 7.95% 5.86% 17.28% (3.15)% (c)
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.11% (d) 1.10% (d) 1.17% (d) 1.15% (e)
Net investment income 5.83% (d) 6.19% (d) 6.67% (d) 7.19% (e)
Portfolio turnover 23% 8% 26% 25%
Net assets at end of period (000) $52,847 $37,420 $17,997 $6,027

</TABLE>

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

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

(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charges 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) Annualized.

<PAGE>

THE FUND'S FINANCIAL HISTORY (CONT'D)

<TABLE>
<CAPTION>
Class C
Class B Period ended
Year ended November 30 November 30
---------------------------------------------------------------------- ------------------
1997 1996 1995 1994 1993 1992(a) 1997(b)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of period $10.160 $10.230 $9.330 $10.320 $10.070 $10.000 $10.320
------- ------- ------- ------- ------- ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.516 0.548 0.583 0.605 0.609 0.338 (c) 0.176
Net realized and unrealized
gain (loss) 0.188 (0.051) 0.912 (1.016) 0.277 0.041 0.018 (d)
------ ------- ------ ------- ------ ------ ------
Total from Investment 0.704 0.497 1.495 (0.411) 0.886 0.379 0.194
------ ------ ------ ------- ------ ------ -----
Operations
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.518) (0.567) (0.595) (0.579) (0.636) (0.309) (0.174)
------- ------- ------- ------- ------- -------
In excess of net investment income (0.006) -- -- -- -- -- --
------- -- -- -- -- -- --
Total Distributions Declared to (0.524) (0.567) (0.595) (0.579) (0.636) (0.309) (0.174)
------- ------- ------- ------- ------- ------- -------
Shareholders
Net asset value - End of period $10.340 $10.160 $10.230 $9.330 $10.320 $10.070 $10.340
------- ------- ------- ------- ------- ------- -------
Total return (e) 7.15% 5.07% 16.42% (4.10)% 9.00% 3.80% (f) (g) 1.90% (f)
------- ------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.86% (h) 1.85% (h) 1.92% (h) 1.90% 1.94% 2.00% (i) 1.72% (h) (i)
Fees waived by the Adviser -- -- -- -- -- 0.01% (i) --
Net investment income 5.08% (h) 5.44% (h) 5.92% (h) 6.44% 5.95% 6.83% (i) 5.14% (h) (i)
Portfolio turnover 23% 8% 26% 25% 31% 13% (i) 23%
Net assets at end of period (000) $142,287 $145,200 $137,893 $113,549 $120,523 $63,390 $341

</TABLE>
- ------------------------------------

(a) The Fund commenced investment operations on June 8, 1992.
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Net of fees and expenses waived or borne by the Adviser which amounted to
$0.000.
(d) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(i) Annualized.

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

<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). Under normal
market conditions, the Fund invests primarily in securities rated BBB through C
by Standard & Poor's Corporation (S&P), Baa through D by Moody's Investors
Service, Inc. (Moody's), comparably rated by another national rating service or
unrated but considered by the Adviser to be of similar quality.

The Fund may invest any or all of its assets in higher quality tax-exempt
securities when the difference in returns between quality classifications is
very narrow or when the Adviser expects increased volatility in interest rates.
This may reduce the Fund's current income. The yield differential between higher
and lower quality securities has declined substantially since 1996, permitting
little additional yield benefit to investing in lower quality tax-exempt bonds.
As a result, in recent years, the Adviser has caused the Fund to invest in
higher quality tax-exempt bonds. As of November 30, 1997, approximately 68% of
the Fund's assets was invested in securities rated BBB or below by S&P, Baa or
below by Moody's or comparably rated by another national rating service or
unrated but considered by the Adviser to be of similar quality. In addition to
that 68%, 3% were rated lower grade at the time of purchase and have been since
upgraded.

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 high
quality taxable 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 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 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 of or all the income of the Fund 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

<PAGE>

Lower Rated Debt Securities. The Fund invests in lower rated debt securities
(commonly referred to as junk bonds) which are not considered to be investment
grade (that is, they are rated below BBB by S&P or below Baa by Moody's,
comparably rated by another national rating service or unrated but considered by
the Adviser to be of comparable credit quality). For a description of S&P's and
Moody's rating systems, see "Appendix." Lower rated bonds are generally
considered more speculative and likely to default than higher quality bonds.
Because of the increased risk of default, lower rated debt securities generally
have higher yields than higher quality debt securities. Regarding lower rated
debt securities: (i) an economic downturn or increased interest rates may have a
more significant effect on the yield, price and potential for default as
compared to debt securities of higher quality, (ii) the secondary market for
such securities may at times be less liquid or respond more adversely to
negative publicity or investor perceptions, making it more difficult to value or
dispose of the securities; (iii) the likelihood that these securities will help
the Fund achieve its investment objective is more dependent on the Adviser's own
credit analysis and (iv) lower rated debt securities may be less sensitive to
interest rate changes.

Composition of the Fund's portfolio at November 30, 1997, was:

Rated Unrated

Investment grade 55.0% 8.0%
B-BB and equivalent 4.6% 29.7%
Below B 0.0% 2.7%
---- ----
Total 59.6% 40.4%
==== ====

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

Inverse Floating Rate Obligations. The Fund may invest in inverse floating rate
obligations representing 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. 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 Fund's shares.

<PAGE>

Asset-Backed Securities. The Fund may invest in asset-backed securities which
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 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. The Fund may invest in zero coupon securities which are
debt securities which do not pay interest in cash on a current basis, 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.

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 seven 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.

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 or marketable securities within a value 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

<PAGE>

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 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 securities 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. A futures contract creates an obligation by the seller to deliver and
the buyer to take delivery of the type of instrument at the time and in the
amount specified in the contract. Although futures contracts call for delivery
(or acceptance) of the specified instrument, futures contracts are usually
closed out before the settlement date through the offsetting 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 loss (or a
gain). 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 or index, (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
interest rate expectations are incorrect, 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.

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'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

<PAGE>

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.

HOW THE FUND IS MANAGED

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

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

The Adviser furnishes the Fund with investment management, accounting and
administrative personnel and services, office space and other equipment and
services at the Adviser's expense. For these services, the Fund paid the Adviser
0.56% of the Fund's average daily net assets for fiscal year 1997.

Maureen G. Newman, Vice President of the Adviser, has managed the Fund since
December 1997. Ms. Newman has managed various other Colonial tax-exempt funds
since May 1996. Prior to joining the Adviser, Ms. Newman was a portfolio manager
and bond analyst at Fidelity Investments from May 1985 until May 1996.

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 0.13% 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

<PAGE>

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 at net
asset value. If a shareholder has elected to receive dividends and/or capital
gain distributions in cash and the postal or other delivery service selected by
the Transfer Agent is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically be converted
to having all dividend and other distributions reinvested in additional shares.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks. To change your election, call the Transfer Agent for
information. Whether you receive capital gains or other taxable distributions in
cash or in additional Fund shares, you must report them as taxable income unless
you are a tax-exempt institution. Although the Fund's 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. 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%

<PAGE>

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 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 portion of the shares purchased that caused the account's value to
exceed $1 million will be subject to a 1.00% contingent deferred sales charge,
payable to the Distributor, if redeemed within 18 months 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% 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% annual distribution fee and a 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which the
purchase was accepted. The Distributor has voluntarily agreed to waive a portion
of the distribution fee so that it will not exceed 0.60% annually. This waiver
may be terminated by the Distributor at any time without shareholder approval.

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

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 made, generally older
shares will be redeemed first. See the Statement of Additional Information for
more information.

<PAGE>

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

HOW TO SELL SHARES

Shares of the Fund may be sold on any day the Exchange is open either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will delay sending proceeds for up to 15 days in order to protect the Fund
against financial losses and dilution in net asset value caused by dishonored
purchase payment checks. To avoid delay in payment, investors are advised to
purchase shares unconditionally, such as by certified check or other immediately
available funds.

Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from 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. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.

<PAGE>

HOW TO EXCHANGE SHARES

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 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 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 his or her financial adviser provide certain identifying
information. Shareholders and/or their financial advisers wishing to redeem or
exchange shares by telephone may experience difficulty in reaching the Fund at
its toll-free telephone number during periods of drastic economic or market
changes. In that event, shareholders and/or their financial advisers should
follow the procedures for redemption or exchange by mail as described above
under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund reserve
the right to change, modify or terminate the telephone redemption or exchange
services at any time upon prior written notice to shareholders. Shareholders
and/or their financial advisers are not obligated to transact by telephone.

12B-1 PLAN

Under its 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the Fund's net assets attributed to

<PAGE>

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 Plan also authorizes other payments to the Distributor and its
affiliates (including the Adviser) which may be construed to be indirect
financing of sales of Fund shares.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized in 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 Fund and of any other series of the Trust that
may be in existence from time to time generally 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>

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.

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

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.

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

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

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

Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:

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

<PAGE>

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+.

<PAGE>

MOODY'S

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

Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of 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.

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

Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

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

MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:

VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

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

VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:

<PAGE>

Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality

If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.

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

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK.]

<PAGE>

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

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

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

Custodian
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245

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 30, 1998

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 30, 1998 Statement of Additional Information.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

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 30, 1998

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 30, 1998 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Adviser at 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.

Contents Page
Summary of Expenses 2
The Fund's Financial History 3
The Fund's Investment Objective 5
How the Fund Pursues its Objective and
Certain Risk Factors 5

How the Fund Measures its Performance 7
How the Fund is Managed 7
How the Fund Values its Shares 8
Distributions and Taxes 8
How to Buy Shares 8
How to Sell Shares 10
How to Exchange Shares 11
Telephone Transactions 12
12b-1 Plan 12
Organization and History 12

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

<PAGE>

SUMMARY OF EXPENSES

Shareholder Transaction Expenses (1)(2)

<TABLE>
<CAPTION>
Class A Class B Class C

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

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See "How
to Buy Shares."
(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the distribution fee applicable to Class B and Class C shares,
long-term Class B and Class C shareholders may pay more in aggregate sales
charges than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because Class B shares
automatically convert to Class A shares after approximately 8 years, this is
less likely for Class B shares than for a class without a conversion
feature.
(5) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."

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

Class A Class B Class C

Management fee 0.65% 0.65% 0.65%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.32 0.32 0.32(6)
---- ---- ----
Total operating expenses 1.22% 1.97% 1.97%
==== ==== ====

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

Example

The following Example shows the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in each Class of shares of the
Fund for the periods specified, assuming a 5% annual return and, unless
otherwise noted, redemption at period end. The 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
(7) (8) (7) (8)
1 year $ 59 $ 20 $ 70 $ 20 $ 30
3 years 84 62 92 62 62(9)
5 years 111 106 126 106 106
10 years 188 210(10) 210(10) 230 230

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

2
<PAGE>

THE FUND'S FINANCIAL HISTORY

The following financial highlights for a share outstanding throughout each
period have been audited by Price Waterhouse LLP, independent accountants. Their
unqualified report is included in the Fund's 1997 Annual Report and is
incorporated by reference into the Statement of Additional Information. The
financial highlights have been restated for periods prior to 1992 to reflect the
4:1 share 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" and adopted its
current objective on August 1, 1997. The data presented below for periods prior
to March 4, 1992, does not necessarily reflect results that would have been
achieved had the Fund's current objective and policies then been in effect.

<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------
Year ended November 30
----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $15.210 $14.370 $11.720 $13.600 $12.960 $11.440
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.599 0.612 0.640 0.681 0.713 0.741
Net realized and unrealized gain (loss) 2.852 0.831 2.659 (1.896) 0.616 1.517
------- ------- ------- ------- ------- -------
Total from Investment Operations 3.451 1.443 3.299 (1.215) 1.329 2.258
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.601) (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 (0.601) (0.603) (0.649) (0.665) (0.689) (0.738)
------- ------- ------- ------- ------- -------
Net asset value - End of period $18.060 $15.210 $14.370 $11.720 $13.600 $12.960
======= ======= ======= ======= ======= =======
Total return (c) 23.26% 10.27% 28.90% (9.04)% 10.20% 20.21%
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS

Expenses 1.22% (d) 1.20% (d) 1.21% (d) 1.23% 1.19% 1.16%
Net investment income 3.76% (d) 4.16% (d) 5.00% (d) 5.49% 4.92% 5.52%
Portfolio turnover 7% 8% 7% 16% 6% 35%
Average commission rate (e) $0.0442 $0.0484 -- -- -- --
Net assets at end of period (in millions) $327 $348 $400 $373 $503 $232
</TABLE>

<TABLE>
<CAPTION>
Class A
--------------------------------------------
Year ended November 30
--------------------------------------------
1991(a) 1990(a) 1989(a) 1988(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $10.090 $11.600 $10.710 $10.300
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.917 0.930 0.939 0.851
Net realized and unrealized gain (loss) 1.377 (1.472) 0.927 0.529
------- ------- ------- -------
Total from Investment Operations 2.294 (0.542) 1.866 1.380
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.941) (0.968) (0.932) (0.850)
From net realized gains -- -- (0.044) (0.120)
From capital paid in (0.003) (b) -- -- --
Total Distributions Declared to Shareholders (0.944) (0.968) (0.976) (0.970)
------- ------- ------- -------
Net asset value - End of period $11.440 $10.090 $11.600 $10.710
======= ======= ======= =======
Total return (c) 23.56% (4.74)% 17.94% 13.75%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS

Expenses 1.11% 1.17% 1.12% 1.15%
Net investment income 8.50% 8.69% 8.10% 7.94%
Portfolio turnover 1% 2% 24% 11%
Average commission rate (e) -- -- -- --
Net assets at end of period (in millions) $135 $162 $141 $183
</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.

3
<PAGE>

THE FUND'S FINANCIAL HISTORY (CONT'D)

<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------

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 0.481 0.502 0.544 0.587 0.612 0.296
Net realized and unrealized gain (loss) 2.852 0.831 2.659 (1.896) 0.616 0.691
------- ------- ------- ------- ------- -------
Total from Investment Operations 3.333 1.333 3.203 (1.309) 1.228 0.987
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:

From net investment income (0.483) (0.493) (0.553) (0.571) (0.588) (0.337)
------- ------- ------- ------- ------- -------
Net asset value - End of period $18.060 $15.210 $14.370 $11.720 $13.600 $12.960
======= ======= ======= ======= ======= =======
Total return (d) 22.36% 9.45% 27.96% (9.73)% 9.42% 6.06% (e)
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS

Expenses 1.97% (f) 1.95% (f) 1.96% (f) 1.98% 1.94% 1.91% (g)
Net investment income 3.01% (f) 3.41% (f) 4.25% (f) 4.74% 4.17% 4.77% (g)
Portfolio turnover 7% 8% 7% 16% 6% 35%
Average commission rate (h) $0.0442 $0.0484 -- -- -- --
Net assets at end of period (in millions) $684 $729 $821 $744 $971 $156
</TABLE>

Class C
------------
Period ended
November 30
------------
1997(b)
-------
Net asset value - Beginning of period $16.260
-------
INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.166
Net realized and unrealized gain (loss) 1.794 (c)
-------
Total from Investment Operations 1.960
-------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:

From net investment income (0.160)
-------
Net asset value - End of period $18.060
=======
Total return (d) 12.12% (e)
-------
RATIOS TO AVERAGE NET ASSETS

Expenses 1.97% (g)
Net investment income 2.96% (g)
Portfolio turnover 7%
Average commission rate (h) $0.0442
Net assets at end of period (in millions) $1

(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of sales
and repurchases of fund shares in relation to fluctuating market values of
the investments of the Fund.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized.
(h) 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 1997 Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.

4
<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks 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 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

5
<PAGE>

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.

Emerging Markets. The Fund's foreign investments may consist of securities
issued by companies located in countries whose economies or securities markets
are not yet highly developed. Special risks associated with these investments
(in addition to the risks associated with foreign investments generally) may
include, among others, greater political uncertainties, an economy's dependence
on revenues from particular commodities or on international aid or development
assistance, highly limited numbers of potential buyers for such securities,
heightened volatility of security prices, restrictions on repatriation of
capital invested abroad and delays and disruptions in securities settlement
procedures. No more than 15% of the Fund's assets will be invested in such
securities.

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

6
<PAGE>

collateral in a bankruptcy proceeding. Not more than 10% of the Fund's net
assets will be invested in repurchase agreements maturing in more than seven
days and other illiquid securities.

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.

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.

Liberty Financial Investments, Inc. (Distributor), a subsidiary of the Adviser,
serves as the distributor for the Fund's shares. Colonial Investors Service
Center, Inc. (Transfer Agent), an affiliate of the Adviser, serves as the
shareholder services and transfer agent for the Fund. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect subsidiary of Liberty
Financial Companies, Inc. which in turn is an indirect majority-owned subsidiary
of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is
considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter

7
<PAGE>

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 1997.

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.

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
mutual funds advised by the Adviser and its affiliates, Stein Roe & Farnham
Incorporated and Newport Fund Management, Inc.) in selecting broker-dealers for
portfolio security transactions.

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

HOW THE FUND VALUES ITS SHARES

Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
generally valued as of the close of regular trading (normally 4:00 p.m. Eastern
time) on the New York Stock Exchange (Exchange) each day the Exchange is open.
Portfolio securities for which market quotations are readily available are
valued at current market value. Short-term investments maturing in 60 days or
less are valued at amortized cost when the Adviser determines, pursuant to
procedures adopted by the Trustees, that such cost approximates current market
value. 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. 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. If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service selected by the
Transfer Agent is unable to deliver checks to the shareholder's address of
record, such

8
<PAGE>

shareholder's distribution option will automatically be converted to having all
dividend and other distributions reinvested in additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks. To change your election, call the Transfer Agent for information.
Whether you receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution. Each
January, information on the amount and nature of 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

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 retirement account sponsored by
the Distributor is $25. Certificates will not be issued for Class B or Class C
shares and there are some limitations on the issuance of Class A share
certificates. The Fund may refuse any purchase order for its shares. See the
Statement of Additional Information for more information.

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

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

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

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

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

9
<PAGE>

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.

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 5.00% 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 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
by the Distributor at any time.

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

Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B 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.

10
<PAGE>

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.

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

HOW TO SELL SHARES

Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will delay sending proceeds for up to 15 days in order to protect the Fund
against financial losses and dilution in net asset value caused by dishonored
purchase payment checks. To avoid delay in payment, investors are advised to
purchase shares unconditionally, such as by certified check or other immediately
available funds.

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

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

General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.

11
<PAGE>

HOW TO EXCHANGE SHARES

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.

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 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 his or her financial adviser provide certain identifying
information. Shareholders and/or their financial advisers wishing to redeem or
exchange shares by telephone may experience

12
<PAGE>

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 its 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the Fund's net assets attributed to each Class of
shares. The 12b-1 Plan also requires the Fund to pay the Distributor monthly a
distribution fee at the annual rate of 0.75% of the average daily net assets
attributed to its Class B and Class C shares. 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 may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Fund and of any other series of the Trust that
may be in existence from time to time generally vote together except when
required by law to vote separately by fund or by class. Shareholders owning in
the aggregate ten percent of Trust shares may call meetings to consider removal
of Trustees. Under certain circumstances, the Trust will provide information to
assist shareholders in calling such a meeting. See the Statement of Additional
Information for more information.

13
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

14
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

15
<PAGE>

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

Distributor

Liberty Financial Investments, Inc.

One Financial Center
Boston, MA 02111-2621

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

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 30, 1998

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 30, 1998 Statement of Additional Information.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------
<PAGE>

COLONIAL HIGH YIELD SECURITIES FUND
COLONIAL INCOME FUND
COLONIAL STRATEGIC INCOME FUND
COLONIAL TAX-MANAGED GROWTH FUND
COLONIAL GOVERNMENT MONEY
MARKET FUND
COLONIAL INTERMEDIATE U.S.
GOVERNMENT FUND
COLONIAL SHORT DURATION U.S.
GOVERNMENT FUND
COLONIAL NEWPORT TIGER CUB FUND
NEWPORT GREATER CHINA FUND
NEWPORT JAPAN OPPORTUNITIES FUND
COLONIAL SELECT VALUE FUND
THE COLONIAL FUND
COLONIAL FEDERAL SECURITIES FUND
COLONIAL GLOBAL EQUITY FUND
COLONIAL INTERNATIONAL HORIZONS FUND
COLONIAL STRATEGIC BALANCED FUND
COLONIAL GLOBAL UTILITIES FUND
COLONIAL UTILITIES FUND
COLONIAL INTERNATIONAL
FUND FOR GROWTH
COLONIAL U.S. STOCK FUND
COLONIAL SMALL CAP VALUE FUND
COLONIAL NEWPORT TIGER FUND

Supplement to Prospectuses

During the period January 2, 1998 through April 15, 1998 (Sales
Period), unless extended by Liberty Financial Investments, Inc.
(Distributor), the Distributor will pay to A.G. Edwards & Sons, Inc.
(A.G. Edwards) additional commissions on sales of Class A and Class B
shares of the Funds listed above for investment in accounts in any
Colonial self-directed or prototype IRA, SEP IRA, SARSEP, Roth IRA and
SIMPLE IRA. The Distributor will pay to A.G. Edwards 100% of the
applicable Class A sales charge and an additional commission equal to
0.50% of the net asset value of Class B shares sold during the Sales
Period for investment in the retirement accounts referenced above.

IR-43/698E-0198 January 15, 1998

<PAGE>

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 30, 1998

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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 30, 1998. This SAI should be read
together with the Prospectus and the Funds' most recent Annual Reports dated
November 30, 1997. Investors may obtain a free copy of the Prospectus and Annual
Report from Liberty Financial Investments, 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

Part 1 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-16/971E-0398

<PAGE>

Part 1

COLONIAL TAX-EXEMPT FUND
COLONIAL TAX-EXEMPT INSURED FUND
COLONIAL INTERMEDIATE TAX-EXEMPT FUND
Statement of Additional Information

March 30, 1998

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
"LFII" Liberty Financial Investments, 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
Lower Rated Bonds(Tax-Exempt Fund)
Forward Commitments
Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Inverse Floating Obligations
Pay-In-Kind (PIK) Securities
Participation Interests
Stand-by Commitments

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;

b
<PAGE>

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;

7. And will, under normal circumstances, invest at least 80% of its total
assets in tax-exempt bonds;

In addition to the above listed fundamental investment policies, the Tax-Exempt
Fund and the Insured Fund also may:

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

9. Invest up to 10% of net assets in illiquid assets.

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

In addition to the above listed non-fundamental investment policies, the
Intermediate Fund also may not:

3. Invest more than 15% of its net assets in illiquid assets.

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 (subject to reductions that the
Adviser may agree to periodically.):

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:

Cumulative
Effective Date Annualized Reduction
-------------- --------------------

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

Under the 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).

<PAGE>

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

Tax-Exempt Fund
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Management fee $ 15,212 $17,385 $19,170
Bookkeeping fee 758 763 765
Shareholder service and transfer agent fee 4,747 5,532 5,668
12b-1 fees:
Service fee (Classes A, B and C)(a) 7,576 8,365 8,770
Distribution fee (Class B) 2,984 3,317 3,436
Distribution fee (Class C) (b) -- --

Insured Fund
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Management fee $ 1,294 $1,475 $1,544
Bookkeeping fee 91 103 108
Shareholder service and transfer agent fee 368 430 452
12b-1 fees:
Service fee (Classes A, B and C)(a) 579 666 699
Distribution fee (Class B) 309 350 364
Distribution fee (Class C) (b) -- --

Intermediate Fund
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Management fee $ 123 $145 $157
Bookkeeping fee 27 27 27
Shareholder services and transfer agent fee 37 42 50
12b-1 fees:
Service fee (Classes A, B and C)(a) 44 53 56
Distribution fee (Class B) 75 89 95
Distribution fee (Class C) (b) -- --
Fees and expenses
waived or borne by the Adviser (188) (190) (273)

(a) Class C shares were first offered on August 1, 1997.

(b) Rounds to less than one.

Brokerage Commissions (dollars in thousands)

Tax-Exempt Fund
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Total Commissions $155 $49 $73

Insured Fund
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Total commissions $12 $2 $7

<PAGE>

Intermediate Fund
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Total commissions $484 $144 $689

Trustees and Trustees' Fees

For the fiscal year ended November 30, 1997 and the calendar year ended December
31, 1997, the Trustees received the following compensation for serving as
Trustees (c):

<TABLE>
<CAPTION>
Aggregate
Compensation Aggregate Aggregate Total Compensation From
From Tax-Exempt Compensation Compensation Trust and Fund Complex
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
Trustee November 30, 1997 Ended November 30, 1997 November 30, 1997 December 31, 1997(d)
- ------- ----------------- ------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Robert J. Birnbaum $12,271 $1,634 $ 837 $ 93,949
Tom Bleasdale 13,858(e) 1,852(f) 948(g) 106,432(h)
Lora S. Collins 12,270 1,632 838 93,949
James E. Grinnell 12,981(i) 1,732(j) 884(k) 94,698(l)
William D. Ireland, Jr. 13,244 1,765 904 101,445
Richard W. Lowry 12,368 1,650 843 94,698
William E. Mayer 11,755 1,566 805 89,949
James L. Moody, Jr. 12,880(m) 1,712(n) 879(o) 98,447(p)
John J. Neuhauser 12,402 1,651 845 94,948
George L. Shinn 13,499 1,801 921 103,443
Robert L. Sullivan 13,039 1,738 888 99,945
Sinclair Weeks, Jr. 13,245 1,767 903 101,445
</TABLE>

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

(e) Includes $7,478 payable in later years as deferred compensation.

(f) Includes $1,000 payable in later years as deferred compensation.

(g) Includes $511 payable in later years as deferred compensation.

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

(i) Includes $612 payable in later years as deferred compensation.

(j) Includes $81 payable in later years as deferred compensation.

(k) Includes $42 payable in later years as deferred compensation.

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

(m) Includes $12,880 payable in later years as deferred compensation.

(n) Includes $1,712 payable in later years as deferred compensation.

(o) Includes $879 payable in later years as deferred compensation.

(p) Total compensation of $98,447 for the calendar year ended December 31, 1997
will be payable in later years as deferred compensation.

<PAGE>

The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(together, Liberty Funds) for service during the calendar year ended December
31, 1997:

Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1997 (q)
- ------- ---------------------
Robert J. Birnbaum $26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800

(q) The Liberty Funds are advised by Liberty Asset Management Company (LAMCO).
LAMCO is an indirect wholly-owned subsidiary of Liberty Financial
Companies, Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

As of record on February 28, 1998, 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 February 28, 1998, 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., For the Sole Benefit of its
Customers, Attn: Fund Administration, 4800 Deer Lake Dr. East 3rd Floor,
Jacksonville, FL 32246, owned 6.92%.

Kieler Feed & Seed Co. account held by Susan Marchman, Cust. and Robert E. Lee
Marc V, Uniform Transfer to Minors Act - NC, Rt.3, Box 581, Hillsborough, NC
27278 owned 17.22%.

Class C shares of the Tax-Exempt Fund:

Merrill Lynch, Pierce, Fenner & Smith, Inc., For the Sole Benefit of its
Customers, Attn: Fund Administration, 4800 Deer Lake Dr. East 3rd Floor,
Jacksonville, FL 32246, owned 32.18%.

Marilyn M. Johnson, 1465 Country Club Drive, Burlington, WA 98233 owned 13.97%.

Colonial Management Associates, Inc., Attn. Phil Iudice, One Financial Center,
11th Floor, Boston, MA 02111-2621 owned 37.73%.

Class C shares of the Insured Fund:

Colonial Management Associates, Inc., Attn. Phil Iudice, One Financial Center,
11th Floor, Boston, MA 02111-2621 owned 100.00%.

Class A shares of the Intermediate Fund:

Merrill Lynch, Pierce, Fenner & Smith, Inc., For the Sole Benefit of its
Customers, Attn: Fund Administration, 4800 Deer Lake Dr. East 3rd Floor,
Jacksonville, FL 32246, owned 9.22%.

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 7.62%.

Class C shares of the Intermediate Fund:

Merrill Lynch, Pierce, Fenner & Smith, Inc., For the Sole Benefit of its
Customers, Attn: Fund Administration, 4800 Deer Lake Dr. East 3rd Floor,
Jacksonville, FL 32246, owned 32.02%.

Colonial Management Associates, Inc.,
Attn. Phil Iudice, One Financial Center, 11th Floor, Boston, MA 02111-2621 owned
33.21%.

As of record on February 28, 1998, there were the following number of
recordholders of each Fund:

Class A Shares Class B Shares Class C Shares
Tax-Exempt Fund 62,973 10,158 5
Insured Fund 4,473 890 1
Intermediate Fund 290 293 3

Sales Charges (dollars in thousands)

f
<PAGE>

Tax-Exempt Fund
Class A Shares
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Aggregate initial sales charges on Fund share sales $1,180 $1,804 $2,093
Initial sales charges retained by LFII 144 218 243

Insured Fund
Class A Shares
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Aggregate initial sales charges on Fund share sales $88 $150 $214
Initial sales charges retained by LFII 11 19 27

Intermediate Fund
Class A Shares
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----

Aggregate initial sales charges on Fund share sales $6 $14 $39
Initial sales charges retained by LFII (r) 1 6

(r) Rounds to less than one.

Tax-Exempt Fund
Class B Shares
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by LFII $1,116 $1,201 $1,472

Insured Fund
Class B Shares
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----

Aggregate CDSC on Fund redemptions retained by LFII $126 $142 $161

Intermediate Fund
Class B Shares
Years ended November 30
-----------------------
1997 1996 1995
---- ---- ----

Aggregate CDSC on Fund redemptions retained by LFII $31 $36 $46

At November 30, 1997, no CDSCs had been collected by LFII on redemptions of
Class C shares of each of the Tax-Exempt Fund, Insured Fund and Intermediate
Fund.

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 LFII 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 LFII a monthly service fee at the annual
rate of 0.20% of the net assets attributed to each Class of shares. Each Fund
also pays LFII 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. LFII may use the entire amount of
such fees to defray the costs of commissions and service fees paid to financial

g
<PAGE>

service firms (FSFs) and for certain other purposes. Since the distribution and
service fees are payable regardless of the amount of LFII's expenses, LFII may
in some cases realize a profit from the fees.

The Plan authorizes any other payments by the Funds to LFII 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 not interested persons of the Trust is effected by such
disinterested Trustees.

Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase 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.

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

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

Tax-Exempt Fund
Year ended November 30, 1997
------------------------------
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Fees to FSFs $6,403 $1,349 (s)
Cost of sales material relating to the Fund
(including printing and mailing expenses) 181 50 (s)
Allocated travel, entertainment and other
promotional expenses (including advertising) 149 41 (s)

Insured Fund
Year ended November 30, 1997
------------------------------
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Fees to FSFs $467 $133 $--
Cost of sales material relating to the Fund
(including printing and mailing expenses) 15 6 --
Allocated travel, entertainment and other
promotional expenses (including advertising) 12 4 --

Intermediate Fund
Year ended November 30, 1997
------------------------------
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Fees to FSFs $ 20 $28 $--
Cost of sales material relating to the Fund
(including printing and mailing expenses) 10 2 --
Allocated travel, entertainment and other
promotional expenses (including advertising) 5 1 --

(s) Rounds to less than one.

h
<PAGE>

INVESTMENT PERFORMANCE

The Funds' yields for the seven days ended November 30, 1997 were:

Tax-Exempt Fund
November 30, 1997
-----------------
Class A Class B Class C
------- ------- -------
Yield 5.03% 4.53% 4.68%
Tax-equivalent Yield 8.33% 7.50% 7.75%

Insured Fund
November 30, 1997
-----------------
Class A Class B Class C
------- ------- -------
Yield 3.79% 3.22% 3.53%
Tax-equivalent Yield 6.27% 5.33% 5.84%

Intermediate Fund
November 30, 1997
-----------------
Class A Class B Class C
------- ------- -------
Yield 4.17% 3.65% 4.07%
Tax-equivalent Yield 6.90% 6.04% 6.74%
Adjusted Yield 3.34% 2.79% 3.21%

Each Fund's Class A and Class B share average annual total returns at
November 30, 1997 were:

Tax-Exempt Fund
Class A Shares
--------------
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 2.07% 5.36% 7.13%
Without sales charge 7.16% 6.39% 7.66%

Insured Fund
Class A Shares
--------------
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 1.56% 5.26% 7.14%
Without sales charge 6.63% 6.29% 7.66%

i
<PAGE>

Intermediate Fund
Class A Shares
--------------
February 1, 1993
(commencement of
investment operations)
1 Year through November 30, 1997
------ -------------------------
With sales charge of 3.25%(t) 2.83% 5.58%
Without sales charge(t) 6.29% 6.30%

Tax-Exempt Fund
Class B Shares
--------------
May 5, 1992
(commencement of
investment operations)
1 year 5 years through November 30, 1997
------ ------- -------------------------
With applicable CDSC 1.37% 5.28% 5.87% (1.00% CDSC)
(5.00% CDSC) (2.00% CDSC)
Without CDSC 6.37% 5.60% 6.01%

Insured Fund
Class B Shares
--------------
May 5, 1992
(commencement of
investment operations)
1 year 5 years through November 30, 1997
------ ------- -------------------------
With applicable CDSC 0.83% 5.18% 5.74%(1.00% CDSC)
(5.00% CDSC) (2.00% CDSC)
Without CDSC 5.83% 5.50% 5.88%

Intermediate Fund
Class B Shares
--------------
February 1, 1993
(commencement of
investment operations)
1 Year through November 30, 1997
------ -------------------------
With applicable CDSC(t) 1.60% (4.00% CDSC) 5.62% (0.00% CDSC)
Without CDSC(t) 5.60% 5.62%

Each Fund's Class C share total returns at November 30, 1997 were:

Period August 1, 1997
(commencement of Investment operations)
through November 30, 1997
-------------------------
Tax-Exempt Fund Insured Fund Intermediate Fund
-------------------- -------------------- ------------------
With applicable
CDSC(t) (0.23)% (1.00% CDSC) (0.31)% (1.00% CDSC) 0.29% (1.00% CDSC)
Without CDSC(t) 0.77% 0.68% 1.29%

(t) Performance results reflect any voluntary reimbursement by the Adviser or
its affiliates of Fund expenses. Absent this reimbursement arrangement,
performance results would have been lower.

Each Fund's Class A, Class B and Class C share distribution rates at November
28, 1997, which are based on the most recent month's distributions, annualized,
and the maximum offering price at the end of the month were:

Class A Shares Class B Shares Class C Shares
Tax-Exempt Fund 5.25% 4.50% 4.66%
Insured Fund 4.59% 3.84% 4.14%
Intermediate Fund 4.81% 4.17% 4.62%

j
<PAGE>

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

CUSTODIAN

The Chase Manhattan Bank 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 incorporated by reference in this SAI have been so
incorporated, and the financial highlights included in the Prospectus have been
so included, in reliance upon the report of Price Waterhouse LLP given on the
authority of said firm as experts in accounting and auditing.

The financial statements and Report of Independent Accountants appearing in each
Fund's November 30, 1997 Annual Report are incorporated into this SAI by
reference.

k
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION

PART 2

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

MISCELLANEOUS INVESTMENT PRACTICES

Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.

Short-Term Trading

In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.

Lower Rated Bonds

Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated debt securities. Relative to debt securities of higher
quality,

1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for lower
rated 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. the Adviser's credit analysis of lower rated bonds may have a greater
impact on the fund's achievement of its investment objective and

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

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

Small Companies

Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.

Foreign Securities

1
<PAGE>

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

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

The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (but not depreciation) on its holdings of PFICs as of the end of
its fiscal year. See "Taxation" below.

Stripped Securities (Strips)

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

Step Coupon Bonds (Steps)

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

Tender Option Bonds

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

Pay-In-Kind (PIK) Securities

The fund may invest in securities which pay interest either in cash or
additional securities. These securities are generally high yield securities and
in addition to the other risks associated with investing in high yield
securities, are subject to the risks that the interest payments which consist of
additional securities are also subject to the risks of high yield securities.

Money Market Instruments

Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory 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.

2
<PAGE>

Securities Loans

The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.

Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)

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

Mortgage Dollar Rolls

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

Repurchase Agreements

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

Reverse Repurchase Agreements

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

3
<PAGE>

Options on Securities

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

The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.

The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.

The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.

If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.

Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.

Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.

Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to enter into OTC options transactions only with primary dealers in U.S.
Government Securities and, in the case of OTC options written by the fund, only
pursuant to agreements that will assure that the fund will at all times have the
right to repurchase the option written by it from the dealer at a specified
formula price. The fund will treat the amount by which such formula price
exceeds the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the fund not to enter into any
OTC option transaction if, as a result, more than 15% (10% in some cases, refer
to your fund's Prospectus) of the fund's net assets would be invested in (i)
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the fund, (ii) OTC options purchased by the fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.

4
<PAGE>

Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Adviser to forecast interest rate and
market movements correctly.

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

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

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

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

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

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

Futures Contracts and Related Options

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

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

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

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 interest rate and U.S. Treasury security futures
contracts and options. The funds investing in tax-exempt securities issued by a
governmental entity may purchase and sell futures contracts and related options
on interest rate and U.S.

6
<PAGE>

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

In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in interest rate and U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for tax-exempt securities.

Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.

There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.

Successful use of index futures by the fund for hedging purposes is also subject
to the Adviser's ability to predict correctly movements in the direction of the
market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.

In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.

Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.

Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.

7
<PAGE>

Foreign Currency Transactions

The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.

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

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

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

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

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

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

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

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

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

Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in

8
<PAGE>

a given month. Forward contracts may be in any amounts agreed upon by the
parties rather than predetermined amounts. Also, forward contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.

At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.

Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.

Currency options. In general, options on currencies operate similarly to
options on securities and are subject to many similar risks. Currency options
are traded primarily in the over-the-counter market, although options on
currencies have recently been listed on several exchanges. Options are traded
not only on the currencies of individual nations, but also on the European
Currency Unit ("ECU"). The ECU is composed of amounts of a number of currencies,
and is the official medium of exchange of the European Economic Community's
European Monetary System.

The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.

The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.

The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.

There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.

Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.

Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.

Municipal Lease Obligations

Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which

9
<PAGE>

provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. In addition, the tax treatment of such obligations in the
event of non-appropriation is unclear.

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

Participation Interests

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

Stand-by Commitments

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

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

Inverse Floaters

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

Rule 144A Securities

The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.

10
<PAGE>

TAXES

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

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

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

Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.

Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.

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

Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least
50% of its total assets invested in tax-exempt bonds at the end of each quarter
so that dividends from net interest income on tax-exempt bonds will be exempt
from Federal income tax when received by a shareholder. The tax-exempt portion
of dividends paid will be designated within 60 days after year-end based upon
the ratio of net tax-exempt income to total net investment income earned during
the year. That ratio may be substantially different from the ratio of net
tax-exempt income to total net investment income earned during any particular
portion of the year. Thus, a shareholder who holds shares for only a part of the
year may be allocated more or less tax-exempt dividends than would be the case
if the allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.

The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.

Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.

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

11
<PAGE>

Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.

Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.

Sales of Shares. The sale, exchange or redemption of fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares will be treated as 28% rate gain if the shares have been held for more
than 12 months but not more than 18 months, and as adjusted net capital gains if
the shares have been held for more than 18 months. Otherwise the gain on the
sale, exchange or redemption of fund shares will be treated as short-term
capital gain. In general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held more than 12
months, and otherwise as short-term loss.. However, any loss realized upon a
taxable disposition of shares held for six months or less will be treated as
long-term, rather than short-term, capital loss to the extent of any long-term
capital gain distributions received by the shareholder with respect to those
shares. All or a portion of any loss realized upon a taxable disposition of
shares will be disallowed if other shares are purchased within 30 days before or
after the disposition. In such a case, the basis of the newly purchased shares
will be adjusted to reflect the disallowed loss.

Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.

Excise Tax. To the extent that the fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.

Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of certain assets held less than three months for tax years
beginning on or before August 5, 1997; (c) diversify its holdings so that, at
the close of each quarter of its taxable year, (i) at least 50% of the value of
its total assets consists of cash, cash items, U.S. Government securities, and
other securities limited generally with respect to any one issuer to not more
than 5% of the total assets of the fund and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any issuer (other than U.S.
Government securities).

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

Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.

If more than 50% of the fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the fund may make
an election permitting its shareholders to take a deduction or credit for
federal tax purposes for their portion of certain qualified foreign taxes paid
by the fund. The Adviser will consider the value of the benefit to a typical
shareholder, the cost to the fund of compliance with the election, and
incidental costs to shareholders in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit will be subject to
certain limitations imposed by the Code (including a holding period requirement
imposed pursuant to the 1997 Act), as a result of which a shareholder may not
get a full credit for the amount of foreign taxes so paid by the fund.
Shareholders who do not itemize on their federal income tax returns may claim a
credit (but no deduction) for such foreign taxes.

12
<PAGE>

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

MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
"Investment decisions," and "Brokerage and research services," the "Adviser"
refers to Colonial Management Associates, Inc.)

The Adviser is the investment adviser to each of the Colonial funds (except for
Colonial Money Market Fund, Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Colonial Newport Tiger Fund, Colonial Newport Tiger Cub
Fund, Newport Japan Opportunities Fund and Newport Greater China Fund - see Part
I of each Fund's respective SAI for a description of the investment adviser).
The Adviser is a subsidiary of The Colonial Group, Inc. (TCG), One Financial
Center, Boston, MA 02111. TCG is a direct majority-owned subsidiary of Liberty
Financial Companies, Inc. (Liberty Financial), which in turn is a direct
subsidiary of majority-owned LFC Holdings, Inc., which in turn is a direct
subsidiary of Liberty Mutual Equity Corporation, which in turn is a wholly-owned
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is an underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S. Liberty Financial's address is 600 Atlantic Avenue, Boston,
MA 02210. Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117.

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

<TABLE>
<CAPTION>
Position
with
Name and Address Age Fund Principal Occupation
- ---------------- --- -------- --------------------

<S> <C> <C> <C>
Robert J. Birnbaum 70 Trustee Retired (formerly Special Counsel, Dechert Price & Rhoads
313 Bedford Road from September, 1988 to December, 1993).
Ridgewood, NJ 07450

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

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

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

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

13
<PAGE>

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

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

John J. Neuhauser 54 Trustee Dean, Boston College School of Management since
140 Commonwealth Avenue September, 1977.
Chestnut Hill, MA 02167

George L. Shinn 74 Trustee Financial Consultant since 1989.
Credit Suisse First Boston
Corp.
Eleven Madison Avenue,
25th Floor
New York, NY 10010-3629

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

Sinclair Weeks, Jr. 74 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 62 President President of Colonial funds since March, 1996 (formerly
Vice President from July, 1993 to March, 1996); is
Director, since March, 1984 and Chairman of the Board
since March, 1996 of the Adviser (formerly President
from July, 1993 to December, 1996, Chief Executive
Officer from March, 1995 to December, 1996 and
Executive Vice President from October, 1989 to July,
1993); Director since October, 1991 and Chairman of the
Board since March, 1996 of TCG (formerly President from
October, 1994 to December, 1996 and Chief Executive
Officer from March, 1995 to December, 1996); Executive
Vice President and Director since March, 1995, Liberty
Financial; Director since November, 1996 of Stein Roe &
Farnham Incorporated.

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

14
<PAGE>

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

Michael H. Koonce 37 Secretary Secretary of Colonial funds since August, 1997
(formerly Assistant Secretary from June, 1992 to July,
1997), is Director, Senior Vice President, General
Counsel, Clerk and Secretary of the Adviser since
August, 1997 (formerly Vice President, Counsel,
Assistant Secretary and Assistant Clerk from June, 1992
to July, 1997), Vice President - Legal and Clerk of TCG
since August, 1997 (formerly Assistant Clerk from
April, 1993 to July, 1997).

Davey S. Scoon 51 Vice President Vice President of Colonial funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995).
</TABLE>

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

The business address of the officers of each Colonial Fund is One Financial
Center, Boston, MA 02111.

The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $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 39 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 open-end management investment
company portfolios (collectively, Colonial funds). Trustees and officers of the
Trust, who are also officers of the Adviser or its affiliates, will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $16.3 billion in assets.

The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.

The Management Agreement (this section does not apply to the Colonial Money
Market Fund, Colonial Municipal Money Market Fund, Colonial Global Utilities
Fund, Colonial Newport Tiger Fund, Newport Japan Opportunities Fund, Colonial
Newport Tiger Cub Fund or Newport Greater China Fund)

15
<PAGE>

Under a Management Agreement (Agreement), the Adviser has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each Colonial fund pays a monthly fee based on the average of the daily closing
value of the total net assets of each fund for such month. Under the Agreement,
any liability of the Adviser to the Trust, a fund and/or its shareholders is
limited to situations involving the Adviser's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties.

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

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

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

Under an Administration Agreement with each Fund named above, the Adviser, in
its capacity as the Administrator to each Fund, has contracted to perform the
following administrative services:

(a) providing office space, equipment and clerical personnel;

(b) arranging, if desired by the respective Trust, for its Directors,
officers and employees to serve as Trustees, officers or agents of
each Fund;

(c) preparing and, if applicable, filing all documents required for
compliance by each Fund with applicable laws and regulations;

(d) preparation of agendas and supporting documents for and minutes of
meetings of Trustees, committees of Trustees and shareholders;

(e) coordinating and overseeing the activities of each Fund's other
third-party service providers; and

(f) maintaining certain books and records of each Fund.

With respect to the Colonial Money Market Fund and Colonial Municipal Money
Market Fund, the Administration Agreement for these funds provides for the
following services in addition to the services referenced above:

(g) monitoring compliance by the Fund with Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act") and reporting to the Trustees
from time to time with respect thereto; and

(h) monitoring the investments and operations of the following Portfolios:

SR&F Municipal Money Market Portfolio (Municipal Money Market
Portfolio) in which Colonial Municipal Money Market Fund is invested;

SR&F Cash Reserves Portfolio in which Colonial Money Market Fund is
invested;

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

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

The Pricing and Bookkeeping Agreement

The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Adviser, in its capacity as
the Administrator to each of Colonial Money Market Fund, Colonial Municipal
Money Market Fund and

16
<PAGE>

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, Newport Japan
Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport Greater China
Fund), the Adviser is paid monthly a fee of $2,250 by each fund, plus a monthly
percentage fee based on net assets of the fund equal to the following:

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

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

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

Portfolio Transactions

The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Money Market Fund, Colonial
Municipal Money Market Fund, and Colonial Global Utilities Fund. For each of
these funds, see Part 1 of its respective SAI. The Adviser of Colonial Newport
Tiger Fund, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund
and Newport Greater China Fund follows the same procedures as those set forth
under "Brokerage and research services."

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

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

Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Colonial funds as a
factor in the selection of broker-dealers to execute securities transactions for
a Colonial fund.

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

It is the Adviser's policy generally to seek best execution, which is to place
the Colonial funds' transactions where the Colonial funds can obtain the most
favorable combination of price and execution services in particular transactions
or provided on a continuing basis by a

17
<PAGE>

broker-dealer, and to deal directly with a principal market maker in connection
with over-the-counter transactions, except when it is believed that best
execution is obtainable elsewhere. In evaluating the execution services of,
including the overall reasonableness of brokerage commissions paid to, a
broker-dealer, consideration is given to, among other things, the firm's general
execution and operational capabilities, and to its reliability, integrity and
financial condition.

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

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

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

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

Principal Underwriter

LFII is the principal underwriter of the Trust's shares. LFII has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds' shares only
upon receipt of orders from authorized FSFs or investors.

Investor Servicing and Transfer Agent

CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund to CISC or generally by 6 months' notice by CISC to the Fund.
The agreement limits the liability of CISC to the Fund for loss or damage
incurred by the Fund to situations involving a failure of CISC to use reasonable
care or to act in good faith in performing its duties under the agreement. It
also provides that the Fund will indemnify CISC against, among other things,
loss or damage incurred by CISC on account of any claim, demand, action or suit
made on or against CISC not resulting from CISC's bad faith or negligence and
arising out of, or in connection with, its duties under the agreement.

DETERMINATION OF NET ASSET VALUE

Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m.
Eastern time, 3:00 p.m. Central time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
the Fourth of July, Labor Day, Thanksgiving and Christmas. Funds with portfolio
securities which are primarily listed on foreign exchanges may experience
trading and changes in NAV on days on which such Fund does not determine NAV due
to differences in closing policies among exchanges. This may significantly
affect the NAV of the Fund's redeemable securities on days when an investor
cannot redeem such securities. The net asset value of the Municipal Money Market
Portfolio will not be determined on days when the Exchange is closed unless, in
the judgment of the Municipal Money Market Portfolio's Board of Trustees, the
net asset value of the Municipal Money Market Portfolio should be determined on
any such day, in which case the determination will be made at 3:00 p.m.,

18
<PAGE>

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, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and
Newport Greater China Fund - "Adviser" in these two paragraphs refers to each
fund's Adviser, Newport Fund Management, Inc.)

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

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

Amortized Cost for Money Market Funds (this section currently does not apply to
the Colonial Money Market funds, - see "Amortized Cost for Money Market Funds"
under "Other Information Concerning the Portfolio" in Part 1 of the SAI of
Colonial Money Market Fund and Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)

Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.

Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting to the market value method (in which
case the NAV per share may differ from $1.00). All investments will be
determined pursuant to procedures approved by the Trust's Trustees to present
minimal credit risk.

See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Money Market Fund for a specimen price sheet showing the computation of
maximum offering price per share of Class A shares.

HOW TO BUY SHARES

The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.

19
<PAGE>

The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.

The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFII's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFII retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFII generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFII for any up-front and/or ongoing commissions paid to FSFs.

Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.

CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with LFII.

Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, T or Z
shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.

SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.

Fundamatic Program. As a convenience to investors, shares of most Colonial
funds advised by Colonial, Newport Fund Management, Inc. and Stein Roe & Farnham
Incorporated may be purchased through the Colonial Fundamatic Program.
Preauthorized monthly bank drafts or electronic funds transfer for a fixed
amount of at least $50 are used to purchase a Colonial fund's shares at the
public offering price next determined after LFII receives the proceeds from the
draft (normally the 5th or the 20th of each month, or the next business day
thereafter). If your Fundamatic purchase is by electronic funds transfer, you
may request the Fundamatic purchase for any day. Further information and
application forms are available from FSFs or from LFII.

Automated Dollar Cost Averaging (Classes A, B and C). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund advised by Colonial, Newport Fund Management, Inc.
and Stein Roe & Farnham Incorporated in which you have a current balance of at
least $5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same Class of shares of funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.

Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.

An exchange is a capital sale transaction for federal income tax purposes.

You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.

20
<PAGE>

You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.

LFII offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.

Tax-Sheltered Retirement Plans. LFII offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. BankBoston, N.A. is the
Trustee of LFII prototype plans and charges a $10 annual fee. Detailed
information concerning these Retirement Plans and copies of the Retirement Plans
are available from LFII.

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

Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.

Telephone Address Change Services. By calling CISC, shareholders or their FSF
of record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.

Colonial Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.

Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing open account with the particular fund. Call CISC for more
information at 1-800-422-3737.

PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES

Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of 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 advised by Colonial, Newport
Fund Management, Inc. and Stein Roe & Farnham Incorporated. The applicable sales
charge is based on the combined total of:

1. the current purchase; and

2. the value at the public offering price at the close of business on the
previous day of all Colonial funds' Class A shares held by the shareholder
(except shares of any Colonial money market fund, unless such shares were
acquired by exchange from Class A shares of another Colonial fund other
than a money market fund and Class B, C, T and Z shares).

LFII must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.

Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.

21
<PAGE>

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

If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFII the excess commission previously paid
during the thirteen-month period.

If the amount of the Statement is not purchased, the shareholder shall remit to
LFII an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.

Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800-345-6611.

Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a Statement of Intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:

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. LFII may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.

Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.

Reinstatement Privilege. An investor who has redeemed Class A, B, C or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.

22
<PAGE>

Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to the Colonial Funds). Class A shares of certain
funds may be sold at NAV to the following individuals whether currently employed
or retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, LFII and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with LFII; and such persons' families and their beneficial accounts.

Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of 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 LFII pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements,
and by participants in certain retirement plans.

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

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

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

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

4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.

5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by Colonial.

23
<PAGE>

6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following normal
retirement (as stated in the Plan document). CDSCs also will be waived on
SWP redemptions made to make required minimum distributions from qualified
retirement plans that have invested in funds distributed by LFII for at
least two years.

The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.

HOW TO SELL SHARES

Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will delay
sending proceeds for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.

To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.

FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.

Systematic Withdrawal Plan

If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any Colonial fund designated by
the shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election, of the shareholder's investment. Withdrawals from Class B
and Class C shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class C
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn in excess of 12% annually. If a shareholder wishes to
participate in a SWP, the shareholder must elect to have all of the
shareholder's income dividends and other fund distributions payable in shares of
the fund rather than in cash.

A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.

A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.

SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.

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

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

24
<PAGE>

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

Telephone Redemptions. All Colonial fund shareholders and/or their FSFs (except
for Colonial Newport Tiger Cub Fund, Newport Japan Opportunities Fund and
Newport Greater China Fund) are automatically eligible to redeem up to $50,000
of the fund's shares by calling 1-800-422-3737 toll-free any business day
between 9:00 a.m. and the close of trading of the Exchange (normally 4:00 p.m.
Eastern time). Transactions received after 4:00 p.m. Eastern time will receive
the next business day's closing price. Telephone redemption privileges for
larger amounts and for the Colonial Newport Tiger Cub Fund, Newport Japan
Opportunities Fund and the Newport Greater China Fund may be elected on the
Application. CISC will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Telephone redemptions are not available
on accounts with an address change in the preceding 30 days and proceeds and
confirmations will only be mailed or sent to the address of record unless the
redemption proceeds are being sent to a pre-designated bank account.
Shareholders and/or their FSFs will be required to provide their name, address
and account number. FSFs will also be required to provide their broker number.
All telephone transactions are recorded. A loss to a shareholder may result from
an unauthorized transaction reasonably believed to have been authorized. No
shareholder is obligated to execute the telephone authorization form or to use
the telephone to execute transactions.

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

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

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

DISTRIBUTIONS

Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. Shareholders may reinvest all or
a portion of a recent cash distribution without a sales charge. A shareholder
request must be received within 30 calendar days of the distribution. A
shareholder may exercise this privilege only once. No charge is currently made
for reinvestment.

Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Money Market Fund and Colonial
Municipal Money Market Fund will be earned starting with the day after that fund
receives payments for the shares.

HOW TO EXCHANGE SHARES

Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. Class T and Z shares may be
exchanged for Class A shares of the other Colonial funds. The prospectus of each
Colonial fund describes its investment objective and policies, and shareholders
should

25
<PAGE>

obtain a prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain Colonial funds are not available to
residents of all states. Consult CISC before requesting an exchange.

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

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

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

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

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

SUSPENSION OF REDEMPTIONS

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

SHAREHOLDER LIABILITY

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

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

SHAREHOLDER MEETINGS

As described under the caption "Organization and History" in the Prospectus of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for
the purpose of obtaining the signatures necessary to demand a shareholders'
meeting to consider removal of a Trustee, request information regarding the
Trust's shareholders, the Trust will provide appropriate materials (at the
expense of the requesting shareholders). Except as otherwise disclosed in the
Prospectus and this SAI, the Trustees shall continue to hold office and may
appoint their successors.

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

26
<PAGE>

PERFORMANCE MEASURES

Total Return

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

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

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

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

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

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

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

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

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

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

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

27
<PAGE>

supplemental insurance); issues regarding financial and health care management
for elderly family members; and similar or related matters.

28
<PAGE>

APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)

The following descriptions are applicable to municipal bond funds:

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

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

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

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.

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.

29
<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:

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).

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.

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

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

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

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

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

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

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

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

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

CC bonds are currently highly vulnerable to nonpayment.

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

D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
30
<PAGE>

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

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

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

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

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

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

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

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

Municipal Notes:

MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

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

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:

31
<PAGE>

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

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.

32
<PAGE>

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

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

DUFF & PHELPS CREDIT RATING CO.

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

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

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

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

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

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

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

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

33
<PAGE>

<TABLE>
<CAPTION>
APPENDIX II
1997
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
<S> <C> <C>
Donoghue Tax-Free Funds 4.93
Donoghue U.S. Treasury Funds 4.65
Dow Jones & Company Industrial Index 24.87
Morgan Stanley Capital International EAFE Index 1.78
Morgan Stanley Capital International EAFE GDP Index 5.77
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 5.82
Lipper California Municipal Bond Funds 9.15
Lipper Connecticut Municipal Bond Funds 8.53
Lipper Closed End Bond Funds 12.01
Lipper Florida Municipal Bond Funds 8.53
Lipper General Municipal Bonds 9.11
Lipper Global Funds 13.04
Lipper Growth Funds 25.30
Lipper Growth & Income Funds 27.14
Lipper High Current Yield Bond Funds 12.96
Lipper High Yield Municipal Bond Debt 10.11
Lipper Fixed Income Funds 8.67
Lipper Insured Municipal Bond Average 8.39
Lipper Intermediate Muni Bonds 7.16
Lipper Intermediate (5-10) U.S. Government Funds 8.08
Lipper Massachusetts Municipal Bond Funds 8.64
Lipper Michigan Municipal Bond Funds 8.50
Lipper Mid Cap Funds 19.76
Lipper Minnesota Municipal Bond Funds 8.15
Lipper U.S. Government Money Market Funds 4.90
Lipper New York Municipal Bond Funds 8.99
Lipper North Carolina Municipal Bond Funds 8.84
Lipper Ohio Municipal Bond Funds 8.16
Lipper Small Cap Funds 20.75
Lipper General U.S. Government Funds 8.84
Lipper Pacific Region Funds-Ex-Japan (35.52)
Lipper International Funds 5.44
Lipper Balanced Funds 19.00
Lipper Tax-Exempt Money Market 3.08
Lipper Multi-Sector 8.77
Lipper Corporate Debt BBB 10.08
Lipper High Yield Municipal - Closed Ends 9.66
Lipper High Current Yield - Closed Ends 14.31
Lipper General Municipal Debt - Closed Ends 10.26
Lipper Intermediate Investment Grade Debt 8.57
Lipper Utilities 26.01
Lipper Japan (14.07)
Lipper China (22.92)
Shearson Lehman Composite Government Index 9.59
Shearson Lehman Government/Corporate Index 9.76
Shearson Lehman Long-term Government Index 9.58
Shearson Lehman Municipal Bond Index 9.19
Shearson Lehman U.S. Government 1-3 6.65
S&P S&P 500 Index 33.35
S&P Utility Index 24.65
S&P Barra Growth 36.38
S&P Barra Value 29.99
S&P Midcap 400 19.00
First Boston High Yield Index 12.63

34
<PAGE>

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

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

*in U.S. currency

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 30, 1998

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial High
Yield 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 30, 1998. This SAI should be read together with the Prospectus and
the Fund's most recent Annual Report dated November 30, 1997. Investors may
obtain a free copy of the Prospectus and the Annual Report from Liberty
Financial Investments, Inc., One Financial Center, Boston, MA 02111-2621.

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

TABLE OF CONTENTS

Part 1 Page

Definitions b
Investment Objective and Policies b
Fundamental Investment Policies b
Other Investment Policies c
Fund Charges and Expenses c
Investment Performance f
Custodian g
Independent Accountants g

Part 2

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

HM-16/859E-0298

<PAGE>

Part 1

COLONIAL HIGH YIELD MUNICIPAL FUND
Statement of Additional Information

March 30, 1998

DEFINITIONS

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

INVESTMENT 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
Lower Rated Bonds
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options
Options
Zero Coupon Securities
Inverse Floaters

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 aggregate average daily net assets of the Fund, the Colonial
Tax-Exempt Fund and the Colonial Tax-Exempt Insured Fund at the following annual
rates (subject to reductions that the Adviser may agree to periodically): 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, LFII and CISC (dollars in thousands)

Years Ended November 30
-----------------------
1997 1996 1995
---- ---- ----

Management fee $1,059 $925 $759
Bookkeeping fee 76 68 58
Shareholder service and
transfer agent fee 297 271 227
12b-1 fees:
Service fee (Classes A, B 476 418 345
and C)(a)
Distribution fee (Class B) 1,079 1,057 948
Distribution fee (Class C) (b) -- --

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

Brokerage Commissions (dollars in thousands)

Years Ended November 30
-----------------------
1997 1996 1995
---- ---- ----

Total commissions (c) $0 $0

<PAGE>

Trustees and Trustees' Fees
For the fiscal year ended November 30, 1997 and the calendar year ended December
31, 1997, the Trustees received the following compensation for serving as
Trustees (d).

<TABLE>
<CAPTION>
Total Compensation
Aggregate From Trust And
Compensation Fund Complex Paid To The
From Fund For The Fiscal Trustees For The Calendar Year
Trustee Year Ended November 30, 1997 Ended December 31, 1997(e)
- ------- ---------------------------- ------------------------------
<S> <C> <C>
Robert J. Birnbaum $1,442 $ 93,949
Tom Bleasdale 1,635 (f) 106,432 (g)
Lora S. Collins 1,442 93,949
James E. Grinnell 1,517 (h) 94,698 (i)
William D. Ireland, Jr. 1,557 101,445
Richard W. Lowry 1,456 94,698
William E. Mayer 1,382 89,949
James L. Moody, Jr. 1,510 (j) 98,447 (k)
John J. Neuhauser 1,456 94,948
George L. Shinn 1,587 103,443
Robert L. Sullivan 1,536 99,945
Sinclair Weeks, Jr. 1,559 101,445

</TABLE>

(d) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(e) At December 31, 1997, the Colonial Funds complex consisted of 39 open-end
and 5 closed-end management investment company portfolios.
(f) Includes $882 payable in later years as deferred compensation.
(g) Includes $57,454 payable in later years as deferred compensation.
(h) Includes $72 payable in later years as deferred compensation.
(i) Includes $4,797 payable in later years as deferred compensation.
(j) Total compensation of $1,510 for the fiscal year ended November 30, 1997
will be payable in later years as deferred compensation.
(k) Total compensation of $98,447 for the calendar year ended December 31, 1997
will be payable in later years as deferred compensation.

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

Robert J. Birnbaum $26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800

(l) The Liberty Funds are advised by Liberty Asset Management Company (LAMCO).
LAMCO is an indirect wholly-owned subsidiary of Liberty Financial Companies,
Inc. (an intermediate parent of the Adviser).

Ownership of the Fund

As of record on February 28, 1998, 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 March 6, 1998, the following shareholders owned 5% or more of
the Fund's outstanding shares:

<PAGE>

Class B Shares

Merrill Lynch Pierce Fenner & Smith 12.71%
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E 3rd Floor
Jacksonville, FL 32246

Class C Shares

Colonial Management Associates, Inc. 15.72%
Attn: Phil Iudice
One Financial Center, 11th Floor
Boston, MA 02111-2621

Merrill Lynch Pierce Fenner & Smith 36.49%
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E 3rd Floor
Jacksonville, FL 32246

Anna Youngs & Terry P. Youngs Jtwros 8.25%
26 Cardinal Drive
Washingtonville, NY 10992-1719

At February 28, 1998, there were 1,371 Class A, 3,289 Class B and 16 Class C
record holders of the Fund.

Sales Charges (dollars in thousands)

Class A Shares

Years Ended November 30
1997 1996 1995
---- ---- ----
Aggregate initial sales charges on Fund share $228 $428 $228
sales
Initial sales charges retained by LFII 26 49 27

Class B Shares

Years Ended November 30
1997 1996 1995
---- ---- ----
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by LFII $348 $281 $265

At November 30, 1997, no CDSCs have been collected by LFII on redemptions of the
Fund's Class C shares.

12b-1 Plan, CDSC and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays LFII monthly a service fee at an annual rate of 0.25% of the Fund's net
assets attributed to each Class of shares issued and

<PAGE>

outstanding thereafter. The Fund also pays LFII 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. LFII
may terminate this waiver at any time without shareholder approval. LFII may use
the entire amount of such fees to defray the cost of commissions and service
fees paid to financial service firms (FSFs) and for certain other purposes.
Since the distribution and service fees are payable regardless of the amount of
LFII's expenses, LFII may realize a profit from the fees.

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

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 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 LFII relating to the Fund were:

Year Ended November 30, 1997
----------------------------
Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Fees to FSFs $95 $1,034 $0
Cost of sales material relating to the Fund (including
printing and mailing expenses) 32 97 1
Allocated travel, entertainment and other promotional
expenses (including advertising) 27 77 (m)

</TABLE>

<PAGE>

(m) Rounds to less than one.

INVESTMENT PERFORMANCE

The Fund's yields for the month ended November 30, 1997 were:

Class A Class B Class C

Tax Equivalent Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield Yield Yield
<S> <C> <C> <C> <C> <C>
4.80% 7.95% 4.28% 7.09% 4.40% 7.28%

</TABLE>

The Fund's Class A and Class B share average annual total returns and the Fund's
Class C share total returns at November 30, 1997 were:

Class A Shares

Period September 1, 1994
(Class A shares initially
offered) through
1 year November 30, 1997
------ ------------------------
With sales charge of 4.75% 2.82% 6.74%
Without sales charge 7.95% 8.35%

Class B Shares
Period June 8, 1992
(commencement of investment
operations) through
1 year 5 years November 30, 1997
------ ------- ---------------------------
<S> <C> <C> <C>
With applicable CDSC 2.15% (5.00% CDSC) 6.18% (2.00% CDSC) 6.49%(1.00% CDSC)
Without CDSC 7.15% 6.50% 6.63%

</TABLE>

<PAGE>

The Fund's Class C share total returns at November 30, 1997 were:

Class C Shares
Period August 1, 1997
(Class C shares initially
offered) through
November 30, 1997
With applicable CDSC (n) 0.90% (1.00% CDSC)
Without CDSC (n) 1.90%

The Fund's Class A, Class B and Class C share distribution rates at November 30,
1997, based on the most recent month's distribution, annualized, and the maximum
offering price at the end of the month, were 5.51%, 4.77% and 4.92% ,
respectively.

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

(n) Performance results reflect any voluntary reimbursement by the Adviser or
its affiliates of Fund expenses. Absent this reimbursement arrangement,
performance results would have been lower.

CUSTODIAN

The Chase Manhattan Bank is the Fund's custodian. The custodian is responsible
for safeguarding the Fund's cash and securities, receiving and delivering
securities and collecting the Fund's interest and dividends.

INDEPENDENT ACCOUNTANTS

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

The financial statements and Report of Independent Accountants appearing in the
November 30, 1997 Annual 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 30, 1998

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
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 30, 1998. This SAI should be read together with the Prospectus and
the Fund's most recent Annual Report dated November 30, 1997. Investors may
obtain a free copy of the Prospectus and the Annual Report from Liberty
Financial Investments, Inc., One Financial Center, Boston, MA 02111-2621.

TABLE OF CONTENTS

Part 1 Page

Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Special Tax Considerations
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountant

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 Charge
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
Appendix I
Appendix II

a
<PAGE>

Part 1
COLONIAL UTILITIES FUND
Statement of Additional Information

March 30, 1998

DEFINITIONS

"Trust" Colonial Trust IV
"Fund" Colonial Utilities Fund
"Adviser" Colonial Management Associates, Inc., the Fund's investment adviser
"LFII" Liberty Financial Investments, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's 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.

FUNDAMENTAL INVESTMENT POLICIES

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

The Fund may:

1. Issue senior securities only through borrowing 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, 1997, 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, LFII and CISC (dollars in thousands)

Year ended November 30
1997 1996 1995
---- ---- ----
Management fee $6,459 $7,437 $7,486
Bookkeeping fee 356 399 401
Shareholder service and transfer agent fee 2,463 2,809 2,955
12b-1 fees:
Service fee (Classes A, B and C) 2,499 2,882 2,905
Distribution fee (Class B) 5,047 5,869 5,843
Distribution fee (Class C)(a) 1 -- --

(a) Class C shares were first offered on August 1, 1997.

Brokerage Commissions (dollars in thousands)

Year ended November 30
1997 1996 1995
---- ---- ----
Total commissions $ 392 $509 $ 468
Directed transactions 48,584 -- 7,301
Commissions on directed transactions 71 -- 7

Trustees and Trustees' Fees
For the fiscal year ended November 30, 1997 and the calendar year ended December
31, 1997, the Trustees received the following compensation for serving as
Trustees (b):

<PAGE>

<TABLE>
<CAPTION>
Total Compensation From Fund and
Aggregate Compensation From Fund For Fund Complex Paid To The Trustees For
Trustee Fiscal Year Ended November 30, 1997 Calendar Year Ended December 31, 1997(c)
- ------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Robert J. Birnbaum $4,554 $ 93,949
Tom Bleasdale 6,478(d) 106,432(e)
Lora S. Collins 4,658 93,949
James E. Grinnell 4,816(f) 94,698(g)
William D. Ireland, Jr. 4,925 101,445
Richard W. Lowry 4,569 94,968
William E. Mayer 4,369 89,949
James L. Moody, Jr. 4,785(h) 98,447(i)
John J. Neuhauser 4,607 94,989
George L. Shinn 5,020 103,443
Robert L. Sullivan 4,846 99,945
Sinclair Weeks, Jr. 4,923 101,445
</TABLE>

(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(c) At December 31, 1997, the Colonial Funds complex consisted of 38 open-end
and 5 closed-end management investment company portfolios.
(d) Includes $4,096 payable in later years as deferred compensation.
(e) Includes $57,454 payable in later years as deferred compensation.
(f) Includes $226 payable in later years as deferred compensation.
(g) Includes $4,797 payable in later years as deferred compensation.
(h) Total compensation of $4,785 for the fiscal year ended November 30, 1997
will be payable in later years as deferred compensation.
(i) Total compensation of $98,447 for the calendar year ended December 31, 1997
will be payable in later years as deferred compensation.

Total Compensation
From Liberty Funds For
The Calendar Year Ended
Trustee December 31, 1997 (j)
- ------- ---------------------
Robert J. Birnbaum $26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800

(j) 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 February 28, 1998, the officers and Trustees of the Trust as a group owned of
record less than 1% of the then outstanding shares of the Fund.

At February 28, 1998, the following shareholders owned of record 5% or more of a
class of the Fund's outstanding shares:

Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive, East, 3rd
Floor, Jacksonville, FL 32216 (6.16% of Class A shares, 17.27% of Class B shares
and 2047% of Class C shares); Colonial Management Associates, Inc., One
Financial Center, Boston, MA 02111 (12.36% of Class C shares).

At February 28, 1998, there were 16,019 Class A, 35,439 Class B and 58 Class C
shareholders of record.

<PAGE>

Sales Charges (dollars in thousands)

Class A Shares
--------------
Year ended November 30

1997 1996 1995
---- ---- ----
Aggregate initial sales charges
on Fund share sales $162 $117 $706
Initial sales charges retained by LFII $ 19 $ 68 $ 74

Class B Shares
--------------
Year ended November 30

1997 1996 1995
---- ---- ----
Aggregate contingent deferred
sales charges (CDSC) on Fund
redemptions retained by LFII $2,451 $3,366 $3,597

At November 30, 1997, aggregate contingent deferred sales charges on Class C
share Fund redemptions retained by LFII amounted to $494.

12b-1 Plan, CDSCs and Conversion of Shares
The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays LFII monthly a service fee at an annual rate of 0.25% of the net assets
attributed to each class of shares. The Fund also pays LFII 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. LFII may use the entire amount of such
fees to defray the costs of commissions and service fees paid to financial
service firms (FSFs) and for certain other purposes. Since the distribution fee
is payable regardless of the amount of LFII's expenses, LFII 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 CDSCs are described in the Prospectus.

<PAGE>

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

<TABLE>
<CAPTION>
Year ended November 30, 1997

Class A Shares Class B Shares Class C
-------------- -------------- -------
<S> <C> <C> <C>
Fees to FSFs $783 $2,079 $3
Cost of sales material relating to the Fund
(including printing and mailing expenses) 44 110 2
Allocated travel, entertainment and other promotional
expenses (including advertising) 22 51 1
</TABLE>

INVESTMENT PERFORMANCE

The Fund's Class A, Class B and Class C yields for the month ended November 30,
1997 were 2.94% and 2.36% and 2.31%, respectively.

The Fund's average annual total returns at November 30, 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
--------------
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 17.40% 10.84% 12.25%
Without sales charge 23.26% 11.92% 12.79%

<TABLE>
<CAPTION>
Class B Shares
--------------
May 5, 1992 (Class B
shares
1 year 5 years initially offered) to
------ ------- November 30, 1997
-----------------
<S> <C> <C> <C>
With applicable CDSC 17.36%(5.00% CDSC) 10.84%(2.00% CDSC) 11.32%(1.00% CDSC)
Without CDSC 22.36% 11.10% 11.43%
</TABLE>

Class C Shares
August 1, 1997 (Class C shares
initially offered) to
November 30, 1997
-----------------
With 1.00% CDSC 11.12%
Without CDSC 12.12%

The Fund's Class A, Class B and Class C share distribution rates at November 30,
1997, which were based on the latest month's distributions, annualized, and the
maximum offering price at the end of the month, were 3.32%, 2.63% and 2.63%,
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.

f
<PAGE>

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings. The
financial statements incorporated by reference in this SAI have been so
incorporated, and the schedule of financial highlights included in the
Prospectus have been so included, in reliance upon the report of Price
Waterhouse LLP given on the authority of said firm as experts in accounting and
auditing.

The financial statements and Report of Independent Accountants appearing in the
November 30, 1997 Annual Report are incorporated in this SAI by reference.

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, 1997, 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 0000021847-98-000017

Colonial Utilities Fund 0000883163-98-000014

Colonial Tax-Exempt Insured Fund 0000883163-98-000019

Colonial Intermediate Tax-Exempt Fund 0000883163-98-000017

Colonial High Yield Municipal Fund 0000883163-98-000015

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

Investment Portfolio

Statement of Assets and Liabilities

Statement of Operations

Statement of Changes in Net Assets

Notes to Financial Statements

Financial Highlights

Report of Independent Accountants

<PAGE>

(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(e)

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)

(b) Pricing and Bookkeeping Agreement (CTEF, CTEIF, CITEF,
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)

<PAGE>

6. (a) Distributor's Contract with Liberty Financial Investments,
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), filed with the Commission on or
about July 24, 1997, 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), filed with the Commission
on or about September 27, 1996, 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), filed
with the Commission on or about September 27, 1996, and is
hereby incorporated by reference and made a part of this
Registration Statement

(d) Form of Asset Retention Agreement - filed as Exhibit 6(d)
in Part C, Item 24(b) of Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A of Colonial Trust
VI (File Nos. 33-45117 & 811-6529), filed with the
Commission on or about September 27, 1996, 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, CITEF) (c)

<PAGE>

(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), filed with the Commission on or about
September 27, 1996, 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), filed with the Commission on or about
September 27, 1996, and is hereby incorporated by reference
and made a part of this Registration Statement (CUF)

(d) Custody Agreement with The Chase Manhattan Bank - filed as
Exhibit 8. to Part C, Item 24(b) of Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A
of Colonial Trust VI (File Nos. 33-45117 & 811-6529), filed
with the Commission on or about October 24, 1997, and is
hereby incorporated by reference and made a part of this
Registration Statement

9. (a) Amended and Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit 9(b) to Part
C, Item 24(b) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Colonial Trust VII
(File Nos. 33-41559 & 811-6347), filed with the Commission
on or about April 24, 1996, and is hereby incorporated by
reference and made a part of this Registration Statement

(b) Amendment No. 10 to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended - filed as Exhibit 9(a)(ii) in Part C, Item 24(b)
of Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A of Colonial Trust VI (File Nos.
33-45117 & 811-6529), filed with the Commission on or about
October 24, 1997, and is hereby incorporated by reference
and made a part of this Registration Statement

<PAGE>

(c) Amendment No. 15 to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended - filed as Exhibit 9(a)(iii) in Part C, Item 24(b)
of Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A of Colonial Trust VI (File Nos.
33-45117 & 811-6529), filed with the Commission on or about
October 24, 1997, and is hereby 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)

(h) Amendment No. 1 to the Credit Agreement - filed as Exhibit
9(h) in Part C, Item 24(b) to Post-Effective Amendment No.
99 to the Registration Statement on Form N-1a of Colonial
Trust III (File Nos. 2-15184 and 811-881), filed with the
Commission on or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement

(i) Amendment No. 2 to the Credit Agreement - filed as Exhibit
9(i) in Part C, Item 24(b) to Post-Effective Amendment No.
99 to the Registration Statement on Form N-1a of Colonial
Trust III (File Nos. 2-15184 and 811-881), filed with the
Commission on or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement

(j) Amendment No. 3 to the Credit Agreement - filed as Exhibit
9(j) in Part C, Item 24(b) to Post-Effective Amendment No.
99 to the Registration Statement on Form N-1a of Colonial
Trust III (File Nos. 2-15184 and 811-881), filed with the
Commission on or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement

10.(a) Opinion and Consent of Counsel (CTEF) (d)

<PAGE>

(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

12. Not Applicable

13. Not Applicable

14.(a) Form of Colonial Mutual Funds Money Purchase Pension and
Profit Sharing Plan Document and Employee Communications
Kit - filed as Exhibit 14(a) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the Registration
Statement on Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881), filed with the Commission on or about
December 19, 1997, and is hereby incorporated by reference
and made a part of this Registration Statement

(b) Form of Colonial Mutual Funds Money Purchase Pension and
Profit Sharing Establishment Book - filed as Exhibit 14(b)
in Part C, Item 24(b) of Post-Effective Amendment No. 99 to
the Registration Statement on Form N-1A of Colonial Trust
III (File Nos. 2-15184 & 811-881), filed with the
Commission on or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement

(c) Form of Colonial IRA Application, Forms, Custodial
Agreement and Disclosure Statement and Distribution Form -
filed as Exhibit 14(c) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the Registration
Statement on Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881), filed with the Commission on or about
December 19, 1997, and is hereby incorporated by reference
and made a part of this Registration Statement

<PAGE>

(d) IRA Application and Fact Kit - filed as Exhibit 14(d) in
Part C, Item 24(b) of Post-Effective Amendment No. 99 to
the Registration Statement on Form N-1A of Colonial Trust
III (File Nos. 2-15184 & 811-881), filed with the
Commission on or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement

(e) Form of Colonial Mutual Funds Simplified Employee Pension
Plan and Salary Reduction Simplified Employee Pension Plan
- filed as Exhibit 14(e) in Part C, Item 24(b) of
Post-Effective Amendment No. 99 to the Registration
Statement on Form N-1A of Colonial Trust III (File Nos.
2-15184 & 811-881), filed with the Commission on or about
December 19, 1997, and is hereby incorporated by reference
and made a part of this Registration Statement

14(f) Form of Colonial Mutual Funds 401(k) Plan Document, Trust
Agreement and IRS Opinion Letter (incorporated herein by
reference to Exhibit 14.(v) to Post-Effective Amendment No.
27 to the Registration Statement of Colonial Trust II,
Registration Nos. 2-66976 and 811-3009, filed with the
Commission on November 18, 1996)

14(g) Form of Colonial Mutual Funds 401(k) Plan Establishment
Booklet and Employee Communications Kit (incorporated
herein by reference to Exhibit 14.(vi) to Post-Effective
Amendment No. 27 to the Registration Statement of Colonial
Trust II, Registration Nos. 2-66976 and 811-3009, filed
with the Commission on November 18, 1996)

14(h) Form of Colonial 401(k) Beneficiary Designation and
Participant Enrollment Forms - filed as Exhibit 14(h) in
Part C, Item 24(b) of Post-Effective Amendment No. 99 to
the Registration Statement on Form N-1A of Colonial Trust
III (File Nos. 2-15184 & 811-881), filed with the
Commission on or about December 19, 1997, and is hereby
incorporated by reference and made a part of this
Registration Statement

14(i) Form of Liberty Simple IRA Plan (incorporated herein by
reference to Exhibit 14.(i) to Post-Effective Amendment No.
45 to the Registration Statement of Colonial Trust I,
Registration Nos. 2-41251 and 811-2214, filed with the
Commission on February, 1998)

<PAGE>

14(j) Form of Liberty Roth IRA (incorporated herein by reference
to Exhibit 14.(j) to Post-Effective Amendment No. 45 to the
Registration Statement of Colonial Trust I, Registration
Nos. 2-41251 and 811-2214, filed with the Commission on
February, 1998)

15. Distribution Plan adopted pursuant to Section 12b-1 of the
Investment Company Act of 1940, incorporated by reference
to the Distributor's Contract filed as Exhibit 6(a) hereto

16.(a)(1) Calculation of Performance Information
(Classes A & B)(CTEF) (b)

(a)(2) Calculation of Yield (Classes A & B)(CTEF) (b)

(a)(3) Calculation of Performance Information
(Class C)(CTEF)

(a)(4) Calculation of Yield (Class C)(CTEF)

(b)(1) Calculation of Performance Information
(Classes A & B) (CTEIF) (b)

(b)(2) Calculation of Yield (Classes A & B)(CTEIF) (b)

(b)(3) Calculation of Performance Information
(Class C)(CTEIF)

(b)(4) Calculation of Yield (Class C)(CTEIF)

(c)(1) Calculation of Performance Information
(Classes A & B) (CUF) (b)

(c)(2) Calculation of Yield (Classes A & B) (CUF) (b)

(c)(3) Calculation of Performance Information
(Class C)(CUF)

(c)(4) Calculation of Yield (Class C)(CUF)

(e)(1) Calculation of Performance Information
(Classes A & B) (CHYMF) (b)

(e)(2) Calculation of Yield (Classes A & B) (CHYMF) (b)

(e)(3) Calculation of Performance Information
(Class C)(CHYMF)

(e)(4) Calculation of Yield (Class C)(CHYMF)

(f)(1) Calculation of PerformanceInformation
(Classes A & B) (CITEF) (b)

(f)(2) Calculation of Yield (Classes A & B) (CITEF) (b)

(f)(3) Calculation of Performance Information
(Class C)(CITEF)

<PAGE>

(f)(4) Calculation of Yield (Class C)(CITEF)

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

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

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

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

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

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

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

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

(m) Financial Data Schedule (Class A)(CHYMF)

(n) Financial Data Schedule (Class B)(CHYMF)

(o) Financial Data Schedule (Class C)(CHYMF)

(p) Financial Data Schedule (Class A)(CITEF)

(q) Financial Data Schedule (Class B)(CITEF)

(r) Financial Data Schedule (Class C)(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. 99 to the
Registration Statement on Form N-1A of Colonial Trust III
(File Nos. 2-15184 & 811-881), filed with the Commission on
or about December 19, 1997, 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. 44 to the Registration
Statement on Form N-1A of Colonial Trust I (File Nos.
2-41251 & 811-2214), filed with the Commission on or about
July 24, 1997, 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.

<PAGE>

(b) Incorporated by reference to Post-Effective Amendment No.
42 filed on 3/22/96.

(d) Incorporated by reference to Post-Effective Amendment No.
45 filed on March 21, 1997.

(e) Incorporated by reference to Post-Effective Amendment No.
46 filed on July 31, 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 2/28/98
- -------------- --------------------------------------

Shares of beneficial interest 62,973 Class A record holders (CTEF)

10,158 Class B record holders

5 Class C record holders

Shares of beneficial interest 4,437 Class A record holders (CTEIF)

890 Class B record holders

1 Class C record holders

Shares of beneficial interest 16,019 Class A record holders (CUF)

35,439 Class B record holders

58 Class C record holders

Shares of beneficial interest 1,371 Class A record holders (CHYMF)

3,289 Class B record holders

16 Class C record holders

Shares of beneficial interest 290 Class A record holders (CITEF)

293 Class B record holders

3 Class C record holders

Item 27. Indemnification

See Article VIII of Amendment No. 4 to the Agreement and Declaration
of Trust filed as Exhibit 1 hereto.

<PAGE>

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 50 Colonial
mutual funds (including funds sub-advised by Colonial, the market value of
which investment companies was approximately $17,165.0 million. Liberty
Financial Investments, Inc., a subsidiary of Colonial Management Associates,
Inc., is the principal underwriter and the national distributor of all of
the funds in the Colonial Mutual Funds complex, including the Registrant.

The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:

(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 12/30/97. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Allard, Laurie V.P.

Archer, Joseph A. V.P.

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

Berliant, Allan V.P.

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

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

Bunten, Walter V.P.

Campbell, Kimberly V.P.

Carnabucci,
Dominick V.P.

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

Citrone, Frank V.P.

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

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

Daniszewski, V.P.
Joseph J.

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

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

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

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

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

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

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

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

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

Hanson, Loren Sr. V.P.

Harasimowicz, V.P.
Stephen

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

Hartford, Brian V.P.

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

Hernon, Mary V.P.

Hill, William V.P.

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

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

Johnson, Gordon V.P.

Knudsen, Gail V.P.

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

Lasher, Ben V.P.

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

Lenzi, Sharon V.P.

Lessard, Kristen V.P.

Loring, William C. V.P.

MacKinnon,
Donald S. Sr.V.P.

Marcus, Harold V.P.

Muldoon, Bob V.P.

Newman, Maureen V.P.

O'Brien, David V.P.

Ostrander, Laura V.P.

Peters, Helen F. Sr.V.P.; Colonial Advisory Services, Pres.,
IPC Mbr. Inc. CEO

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

Rao, Gita V.P.

Reading, John V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Liberty Financial Investments,
Inc. Asst. Clerk
AlphaTrade Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.V.P.

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

Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
LFC Utilities Trust V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Liberty Financial Investments,
Inc. Director
AlphaTrade Inc. Director

Seibel, Sandra L. V.P.

Spanos, Gregory Sr. V.P.

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

Steck, Nicholas V.P.

Stevens, Richard V.P.

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

Wallace, John V.P.
Asst.Treasurer

Ware, Elizabeth V.P.

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

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

(a) Liberty Financial Investments, Inc. (LFII), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFII acts in such capacity for Colonial Trust I, Colonial
Trust II, Colonial Trust III, Colonial Trust IV, Colonial Trust V,
Colonial Trust VI and Colonial Trust VII, Stein Roe Advisor Funds and
Stein Roe NO-LOAD Funds. LFII is also the sponsor
for Colony Growth Plans (public offering of which were discontinued
June 14, 1971).

(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.

(1) (2) (3)

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

Anderson, Judith V.P. None

Armour, Timothy K. V.P. None

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

Ballou, Rich Regional V.P. None

Balzano, Christine R. V.P. None

Bartlett, John Managing Director None

Blumenfeld, Alex Regional V.P. None

Brown, Beth V.P. None

Burtman, Tracy V.P. None

Campbell, Patrick V.P. None

Chrzanowski, Regional V.P. None
Daniel

Claiborne, Regional V.P. None
Douglas

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

Daniszewski, V.P. None
Joseph J.

Davey, Cynthia Regional Sr. V.P. None

Desilets, Marian V.P. None

Devaney, James Regional V.P. None

DiMaio, Steve V.P. None

Donovan, John Regional V.P. None

Downey, Christopher V.P. None

Eckelman, Bryan Sr. V.P. None

Emerson, Kim P. Regional V.P. None

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

Evans, C. Frazier Managing Director None

Feldman, David Sr. V.P. None

Fifield, Robert Regional V.P. None

Gauger, Richard V.P. None

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

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

Goldberg, Matthew Regional V.P. None

Guenard, Brian Regional V.P. None

Harrington, Tom Sr. Regional V.P. None

Hodgkins, Joseph Sr. Regional V.P. None

Iudice, Jr., Philip Treasurer and CFO None

Jones, Cynthia V.P. None

Karagiannis, Managing Director None
Marilyn

Kelley, Terry M. Regional V.P. None

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

Koonce, Michael H. Dir.; Clerk Secretary

Libutti, Chris Regional V.P. None

McCombs, Gregory Regional Sr. V.P. None

McKenzie, Mary V.P. None

Menchin, Catherine V.P. None

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

Morner, Patrick V.P. None

Morse, Jonathan Regional V.P. None

Nerney, Andrew Regional V.P. None

O'Shea, Kevin Managing Director None

Piken, Keith V.P. None

Predmore, Tracy Regional V.P. None

Quirk, Frank V.P. None

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

Riegel, Joyce V.P. None

Robb, Douglas Regional V.P. None

Sandberg, Travis Regional V.P. None

Scarlott, Rebecca V.P. None

Schulman, David Regional V.P. None

Scoon, Davey Director V.P.

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

Sideropoulos, Lou V.P. None

Smith, Darren Regional V.P. None

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

Studer, Eric Regional V.P. None

Sutton, R. Andrew Regional V.P. None

Tambone, James CEO None

Tasiopoulos, Lou President None

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

Villanova, Paul Regional V.P. None

Wallace, John V.P. None

Walter, Heidi V.P. None

Welsh, Stephen Treasurer Asst. Treasurer

Wess, Valerie Regional V.P. None

Young, Deborah V.P. None

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

<PAGE>

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, Liberty Financial Investments, 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. Effective November 1997, the custodian
will be The Chase Manhattan Bank. 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. The address for The Chase Manhattan Bank is 4
Chase MetroTech Center, Brooklyn, NY 11245.

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. 48 to its Registration Statement under the Securities Act of 1933
and Amendment No. 46 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 day of March, 1998.

COLONIAL TRUST IV

By: /s/ HAROLD W. COGGER
--------------------
Harold W. Cogger, President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in their
capacities and on the date indicated.

SIGNATURES TITLE DATE
- ---------- ----- ----

/s/ HAROLD W. COGGER President (chief March , 1998
- ---------------------- executive officer)
Harold W. Cogger

/s/ TIMOTHY J. JACOBY Treasurer and Chief March , 1998
- ----------------------- Financial Officer
Timothy J. Jacoby

/s/ J. KEVIN CONNAUGHTON Controller and Chief March , 1998
- -------------------------- Accounting Officer
J. Kevin Connaughton

<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/* MICHAEL H. KOONCE
- ------------------------------ -----------------------
William D. Ireland, Jr. Michael H. Koonce
Attorney-in-fact
/s/ RICHARD W. LOWRY* Trustee For each Trustee
- ------------------------ March , 1998
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.

<PAGE>

EXHIBIT INDEX

11.(a) Consent of Independent Accountants

16.(a)(3) Calculation of Performance Information
(Class C)(CTEF)

(a)(4) Calculation of Yield (Class C)(CTEF)

(b)(3) Calculation of Performance Information
(Class C)(CTEIF)

(b)(4) Calculation of Yield (Class C)(CTEIF)

(c)(3) Calculation of Performance Information
(Class C)(CUF)

(c)(4) Calculation of Yield (Class C)(CUF)

(e)(3) Calculation of Performance Information
(Class C)(CHYMF)

(e)(4) Calculation of Yield (Class C)(CHYMF)

(f)(3) Calculation of Performance Information
(Class C)(CITEF)

(f)(4) Calculation of Yield (Class C)(CITEF)

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

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

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

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

<PAGE>

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

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

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

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

(m) Financial Data Schedule (Class A)(CHYMF)

(n) Financial Data Schedule (Class B)(CHYMF)

(o) Financial Data Schedule (Class C)(CHYMF)

(p) Financial Data Schedule (Class A)(CITEF)

(q) Financial Data Schedule (Class B)(CITEF)

(r) Financial Data Schedule (Class C)(CITEF)

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Statements of
Additional Information constituting parts of this Post-Effective Amendment
No.48 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated January 9, 1998, relating to the financial
statements and financial highlights appearing in the November 30, 1997
Annual Report 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 are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "The Fund's
Financial History" in the Prospectuses and "Independent Accountants" and
"Independent Accountants of the Fund" in the Statements of Additional
Information."

Price Waterhouse LLP
Boston, Massachusetts
March 27, 1998

PERFORMANCE CALCULATION

COLONIAL TAX-EXEMPT FUND - CLASS C

Inception Date: 8/1/97

SINCE INCEPTION
8/1/97 TO 11/30/97

Standard Non-Standard
-------- ------------

Initial Inv. $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00
Initial NAV $13.86 $13.86
Initial Shares 72.150 72.150

Shares From Dist. 1.134 1.134
End of Period NAV $13.75 $13.75

CDSC 1.00%
Total Return -0.23% 0.77%

Average Annual
Total Return N/A N/A

COLONIAL TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 11/30/97

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
a = dividends and interest earned during
the month ................................ $13,121,997 $1,954,362 $1,089

b = expenses accrued during the month 1,948,749 527,782 267

c = average dividend shares outstanding
during the month ......................... 186,361,882 27,756,321 15,462

d = class maximum offering price per share
on the last day of the month ............. $14.44 $13.75 $13.75

YIELD ............................ 5.03% 4.53% 4.68%

TAX-EQUIVALENT YIELD: ............ 8.33% 7.50% 7.75%
---- ---- ----
</TABLE>

PERFORMANCE CALCULATION

COLONIAL TAX-EXEMPT INSURED FUND - CLASS C

Inception Date: 8/1/97

SINCE INCEPTION
8/1/97 TO 11/30/97

Standard Non-Standard
-------- ------------

Initial Inv. $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00
Initial NAV $8.53 $8.53
Initial Shares 117.233 117.233

Shares From Dist. 1.631 1.631
End of Period NAV $8.47 $8.47

CDSC 1.00%
Total Return -0.31% 0.68%

Average Annual
Total Return N/A N/A

COLONIAL TAX-EXEMPT INSURED FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 11/30/97

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
a = dividends and interest earned during
the month ................................ $763,903 $163,105 $419

b = expenses accrued during the month 161,775 58,851 126

c = average dividend shares outstanding
during the month ......................... 21,604,728 4,612,861 11,840

d = class maximum offering price per share
on the last day of the month ............. $8.89 $8.47 $8.47

YIELD ............................ 3.79% 3.22% 3.53%

TAX-EQUIVALENT YIELD: ............ 6.27% 5.33% 5.84%
---- ---- ----

</TABLE>

COLONIAL UTILITIES FUND - CLASS C

Inception Date: 8/1/97

SINCE INCEPTION
8/1/97 TO 11/30/97

Standard Non-Standard
-------- ------------

Initial Inv. $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00
Initial NAV $16.26 $16.26
Initial Shares 61.501 61.501

Shares From Dist. 0.583 0.583
End of Period NAV $18.06 $18.06

CDSC Rate 1.00%
Total Return 11.12% 12.12%

Average Annual
Total Return N/A N/A

COLONIAL UTILITIES FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 11/30/97

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
a = dividends and interest earned during
the month ................................ $1,166,840 $2,431,470 $1,309

b = expenses accrued during the month 321,123 1,080,654 598

c = average dividend shares outstanding
during the month ......................... 18,308,199 38,150,824 20,524

d = class maximum offering price per share
on the last day of the month ............. $18.96 $18.06 $18.06

YIELD ........................... 2.94% 2.36% 2.31%
---- ---- ----
</TABLE>

PERFORMANCE CALCULATION

COLONIAL HIGH YIELD MUNICIPAL FUND - CLASS C

Inception Date: 8/1/97

INCEPTION TO DATE
8/1/97 TO 11/30/97

Standard Non-Standard
-------- ------------

Initial Inv. $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00
Initial NAV $10.32 $10.32
Initial Shares 96.899 96.899

Shares From Dist. 1.649 1.649
End of Period NAV $10.34 $10.34

CDSC 1.00%
Total Return 0.90% 1.90%

Average Annual
Total Return N/A N/A

COLONIAL HIGH YIELD MUNICIPAL FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 11/30/97

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
a = dividends and interest earned during
the month ................................ $266,036 $719,006 $1,645

b = expenses accrued during the month 46,955 215,640 462

c = average dividend shares outstanding
during the month ......................... 5,093,024 13,764,613 31,499

d = class maximum offering price per share
on the last day of the month ............. $10.86 $10.34 $10.34

YIELD ............................ 4.80% 4.28% 4.40%
---- ---- ----

TAX-EQUIVALENT YIELD: ........... 7.95% 7.09% 7.28%
---- ---- ----
</TABLE>

PERFORMANCE CALCULATION

COLONIAL INTERMEDIATE TAX-EXEMPT FUND - CLASS C

Inception Date: 8/1/97

SINCE INCEPTION
8/1/97 TO 11/30/97

Standard Non-Standard
-------- ------------

Initial Inv. $1,000.00 $1,000.00

Amt. Invested $1,000.00 $1,000.00
Initial NAV $8.00 $8.00
Initial Shares 125.000 125.000

Shares From Dist. 1.925 1.925
End of Period NAV $7.98 $7.98

CDSC 1.00%
Total Return 0.29% 1.29%

Average Annual
Total Return N/A N/A

COLONIAL INTERMEDIATE TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 11/30/97

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

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
a = dividends and interest earned during
the month ................................ $41,706 $42,279 $408

b = expenses accrued during the month 5,054 10,742 69

c = average dividend shares outstanding
during the month ......................... 1,290,426 1,308,223 12,629

d = class maximum offering price per share
on the last day of the month ............. $8.25 $7.98 $7.98

YIELD ............................ 4.17% 3.65% 4.07%

YIELD WITHOUT WAIVER............. 3.34% 2.79% 3.21%

TAX-EQUIVALENT YIELD: ........... 6.90% 6.04% 6.74%
---- ---- ----
</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 FUND, CLASS A YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
TAX-EXEMPT FUND, CLASS A YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 1
<NAME> COLONIAL 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> 2871702
<INVESTMENTS-AT-VALUE> 2976996
<RECEIVABLES> 82672
<ASSETS-OTHER> 137
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 82809
<PAYABLE-FOR-SECURITIES> 41564
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19241
<TOTAL-LIABILITIES> 60805
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2947361
<SHARES-COMMON-STOCK> 195341
<SHARES-COMMON-PRIOR> 207923
<ACCUMULATED-NII-CURRENT> 1851
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (55506)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105294
<NET-ASSETS> 2999000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 100049
<OTHER-INCOME> 0
<EXPENSES-NET> (16568)
<NET-INVESTMENT-INCOME> 83481
<REALIZED-GAINS-CURRENT> (2650)
<APPREC-INCREASE-CURRENT> (48502)
<NET-CHANGE-FROM-OPS> 32329
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (75319)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12142
<NUMBER-OF-SHARES-REDEEMED> (27883)
<SHARES-REINVESTED> 3159
<NET-CHANGE-IN-ASSETS> (246540)
<ACCUMULATED-NII-PRIOR> 2545
<ACCUMULATED-GAINS-PRIOR> (51806)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7712
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16568
<AVERAGE-NET-ASSETS> 2672424
<PER-SHARE-NAV-BEGIN> 13.550
<PER-SHARE-NII> 0.372
<PER-SHARE-GAIN-APPREC> (0.217)
<PER-SHARE-DIVIDEND> (0.375)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.330
<EXPENSE-RATIO> 0.97
<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 TAX-EXEMPT FUND, CLASS B YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
TAX-EXEMPT FUND, CLASS B YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 1
<NAME> COLONIAL 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> 2871702
<INVESTMENTS-AT-VALUE> 2976996
<RECEIVABLES> 82672
<ASSETS-OTHER> 137
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 82809
<PAYABLE-FOR-SECURITIES> 41564
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19241
<TOTAL-LIABILITIES> 60805
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2947361
<SHARES-COMMON-STOCK> 29564
<SHARES-COMMON-PRIOR> 31521
<ACCUMULATED-NII-CURRENT> 1851
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (55506)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105294
<NET-ASSETS> 2999000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 100049
<OTHER-INCOME> 0
<EXPENSES-NET> (16568)
<NET-INVESTMENT-INCOME> 83481
<REALIZED-GAINS-CURRENT> (2650)
<APPREC-INCREASE-CURRENT> (48502)
<NET-CHANGE-FROM-OPS> 32329
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9921)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 513
<NUMBER-OF-SHARES-REDEEMED> (2880)
<SHARES-REINVESTED> 410
<NET-CHANGE-IN-ASSETS> (246540)
<ACCUMULATED-NII-PRIOR> 2545
<ACCUMULATED-GAINS-PRIOR> (51806)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7712
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16568
<AVERAGE-NET-ASSETS> 406260
<PER-SHARE-NAV-BEGIN> 13.550
<PER-SHARE-NII> 0.322
<PER-SHARE-GAIN-APPREC> (0.217)
<PER-SHARE-DIVIDEND> (0.325)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.330
<EXPENSE-RATIO> 1.72
<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 TAX-EXEMPT FUND, CLASS C YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
TAX-EXEMPT FUND, CLASS C YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME>
<SERIES>
<NUMBER> 1
<NAME> COLONIAL TAXEXEMPT FUND CLASS C
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 2754016
<INVESTMENTS-AT-VALUE> 2926051
<RECEIVABLES> 58433
<ASSETS-OTHER> 63
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2984547
<PAYABLE-FOR-SECURITIES> 37429
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16064
<TOTAL-LIABILITIES> 53493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2788261
<SHARES-COMMON-STOCK> 15
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3608
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33009)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 172194
<NET-ASSETS> 2931054
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 194809
<OTHER-INCOME> 0
<EXPENSES-NET> 32586
<NET-INVESTMENT-INCOME> 162223
<REALIZED-GAINS-CURRENT> 20827
<APPREC-INCREASE-CURRENT> 18398
<NET-CHANGE-FROM-OPS> 201448
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 250
<NUMBER-OF-SHARES-REDEEMED> 42
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> (314486)
<ACCUMULATED-NII-PRIOR> 2545
<ACCUMULATED-GAINS-PRIOR> (51806)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 15212
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32586
<AVERAGE-NET-ASSETS> 3032176
<PER-SHARE-NAV-BEGIN> 13.86
<PER-SHARE-NII> 0.218
<PER-SHARE-GAIN-APPREC> (0.114)
<PER-SHARE-DIVIDEND> (0.214)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.75
<EXPENSE-RATIO> 1.59
<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 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
TAX-EXEMPT INSURED FUND, CLASS A YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 2
<NAME> COLONIAL TAX-EXEMPT INSURED 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> 216504
<INVESTMENTS-AT-VALUE> 230516
<RECEIVABLES> 7932
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 238548
<PAYABLE-FOR-SECURITIES> 6678
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1643
<TOTAL-LIABILITIES> 8321
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 219162
<SHARES-COMMON-STOCK> 23122
<SHARES-COMMON-PRIOR> 24821
<ACCUMULATED-NII-CURRENT> 93
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3040)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14012
<NET-ASSETS> 230227
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7036
<OTHER-INCOME> 0
<EXPENSES-NET> (1434)
<NET-INVESTMENT-INCOME> 5602
<REALIZED-GAINS-CURRENT> 2181
<APPREC-INCREASE-CURRENT> (6281)
<NET-CHANGE-FROM-OPS> 1502
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4798)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 448
<NUMBER-OF-SHARES-REDEEMED> (2499)
<SHARES-REINVESTED> 352
<NET-CHANGE-IN-ASSETS> (21107)
<ACCUMULATED-NII-PRIOR> 63
<ACCUMULATED-GAINS-PRIOR> (5124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 661
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1434
<AVERAGE-NET-ASSETS> 237331
<PER-SHARE-NAV-BEGIN> 8.330
<PER-SHARE-NII> 0.198
<PER-SHARE-GAIN-APPREC> (0.138)
<PER-SHARE-DIVIDEND> (0.200)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.190
<EXPENSE-RATIO> 1.08
<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 TAX-EXEMPT INSURED FUND, CLASS B YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
TAX-EXEMPT INSURED FUND, CLASS B YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 2
<NAME> COLONIAL TAX-EXEMPT INSURED 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> 216504
<INVESTMENTS-AT-VALUE> 230516
<RECEIVABLES> 7932
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 238548
<PAYABLE-FOR-SECURITIES> 6678
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1643
<TOTAL-LIABILITIES> 8321
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 219162
<SHARES-COMMON-STOCK> 4983
<SHARES-COMMON-PRIOR> 5358
<ACCUMULATED-NII-CURRENT> 93
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3040)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14012
<NET-ASSETS> 230227
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7036
<OTHER-INCOME> 0
<EXPENSES-NET> (1434)
<NET-INVESTMENT-INCOME> 5602
<REALIZED-GAINS-CURRENT> 2181
<APPREC-INCREASE-CURRENT> (6281)
<NET-CHANGE-FROM-OPS> 1502
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (874)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 74
<NUMBER-OF-SHARES-REDEEMED> (511)
<SHARES-REINVESTED> 62
<NET-CHANGE-IN-ASSETS> (21107)
<ACCUMULATED-NII-PRIOR> 63
<ACCUMULATED-GAINS-PRIOR> (5124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 661
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1434
<AVERAGE-NET-ASSETS> 237331
<PER-SHARE-NAV-BEGIN> 8.330
<PER-SHARE-NII> 0.168
<PER-SHARE-GAIN-APPREC> (0.138)
<PER-SHARE-DIVIDEND> (0.170)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.190
<EXPENSE-RATIO> 1.83
<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 TAX-EXEMPT INSURED FUND, CLASS C YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
TAX-EXEMPT INSURED FUND, CLASS C YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 2
<NAME> COLONILA TAXEXEMPT INSURED FUND CLASS C
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 195878
<INVESTMENTS-AT-VALUE> 215027
<RECEIVABLES> 6619
<ASSETS-OTHER> 54
<OTHER-ITEMS-ASSETS> 2300
<TOTAL-ASSETS> 224000
<PAYABLE-FOR-SECURITIES> 2395
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1382
<TOTAL-LIABILITIES> 3777
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 201888
<SHARES-COMMON-STOCK> 12
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 168
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (982)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19149
<NET-ASSETS> 220223
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13518
<OTHER-INCOME> 0
<EXPENSES-NET> 2782
<NET-INVESTMENT-INCOME> 10736
<REALIZED-GAINS-CURRENT> 4577
<APPREC-INCREASE-CURRENT> (1144)
<NET-CHANGE-FROM-OPS> 14169
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> (31111)
<ACCUMULATED-NII-PRIOR> 63
<ACCUMULATED-GAINS-PRIOR> (5124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1294
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1488
<AVERAGE-NET-ASSETS> 231814
<PER-SHARE-NAV-BEGIN> 8053
<PER-SHARE-NII> 0.118
<PER-SHARE-GAIN-APPREC> (0.061)
<PER-SHARE-DIVIDEND> (0.117)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.47
<EXPENSE-RATIO> 1.51
<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 UTILITIES FUND, CLASS A YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
UTILTIES FUND, CLASS A YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 5
<NAME> COLONIAL UTILTIES 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> 828014
<INVESTMENTS-AT-VALUE> 979142
<RECEIVABLES> 3916
<ASSETS-OTHER> 229
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 983287
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6626
<TOTAL-LIABILITIES> 6626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 911649
<SHARES-COMMON-STOCK> 20211
<SHARES-COMMON-PRIOR> 22909
<ACCUMULATED-NII-CURRENT> 1156
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (87272)
<ACCUM-APPREC-OR-DEPREC> 151128
<NET-ASSETS> 976661
<DIVIDEND-INCOME> 25887
<INTEREST-INCOME> 187
<OTHER-INCOME> 0
<EXPENSES-NET> (8802)
<NET-INVESTMENT-INCOME> 17272
<REALIZED-GAINS-CURRENT> 14942
<APPREC-INCREASE-CURRENT> 15233
<NET-CHANGE-FROM-OPS> 47447
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6462)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 794
<NUMBER-OF-SHARES-REDEEMED> (3806)
<SHARES-REINVESTED> 314
<NET-CHANGE-IN-ASSETS> (100,746)
<ACCUMULATED-NII-PRIOR> 1273
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (102210)
<GROSS-ADVISORY-FEES> 3311
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8802
<AVERAGE-NET-ASSETS> 1020312
<PER-SHARE-NAV-BEGIN> 15.210
<PER-SHARE-NII> 0.301
<PER-SHARE-GAIN-APPREC> 0.459
<PER-SHARE-DIVIDEND> (0.300)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.670
<EXPENSE-RATIO> 1.22
<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 UTILITIES FUND, CLASS B YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
UTILTIES FUND, CLASS B YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 5
<NAME> COLONIAL UTILTIES 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> 828014
<INVESTMENTS-AT-VALUE> 979142
<RECEIVABLES> 3916
<ASSETS-OTHER> 229
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 983287
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6626
<TOTAL-LIABILITIES> 6626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 911649
<SHARES-COMMON-STOCK> 42107
<SHARES-COMMON-PRIOR> 47940
<ACCUMULATED-NII-CURRENT> 1156
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (87272)
<ACCUM-APPREC-OR-DEPREC> 151128
<NET-ASSETS> 976661
<DIVIDEND-INCOME> 25887
<INTEREST-INCOME> 187
<OTHER-INCOME> 0
<EXPENSES-NET> (8802)
<NET-INVESTMENT-INCOME> 17272
<REALIZED-GAINS-CURRENT> 14942
<APPREC-INCREASE-CURRENT> 15233
<NET-CHANGE-FROM-OPS> 47447
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10929)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 635
<NUMBER-OF-SHARES-REDEEMED> (7035)
<SHARES-REINVESTED> 567
<NET-CHANGE-IN-ASSETS> (100,746)
<ACCUMULATED-NII-PRIOR> 1273
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (102210)
<GROSS-ADVISORY-FEES> 3311
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8802
<AVERAGE-NET-ASSETS> 1020312
<PER-SHARE-NAV-BEGIN> 15.210
<PER-SHARE-NII> 0.243
<PER-SHARE-GAIN-APPREC> 0.459
<PER-SHARE-DIVIDEND> (0.242)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.670
<EXPENSE-RATIO> 1.97
<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 UTILITIES FUND, CLASS C YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
UTILTIES FUND, CLASS C YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL TRUST IV
<SERIES>
<NUMBER> 5
<NAME> COLONIAL UTILITIES FUND CLASS C
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 759520
<INVESTMENTS-AT-VALUE> 1011924
<RECEIVABLES> 4277
<ASSETS-OTHER> 32
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1016233
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4401
<TOTAL-LIABILITIES> 4401
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 815209
<SHARES-COMMON-STOCK> 30
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 910
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (56691)
<ACCUM-APPREC-OR-DEPREC> 252404
<NET-ASSETS> 1011832
<DIVIDEND-INCOME> 49108
<INTEREST-INCOME> 394
<OTHER-INCOME> 0
<EXPENSES-NET> 17139
<NET-INVESTMENT-INCOME> 32363
<REALIZED-GAINS-CURRENT> 52100
<APPREC-INCREASE-CURRENT> 116509
<NET-CHANGE-FROM-OPS> 200972
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 644
<NUMBER-OF-SHARES-REDEEMED> (131)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> (65575)
<ACCUMULATED-NII-PRIOR> 1273
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6459
<INTEREST-EXPENSE> 3
<GROSS-EXPENSE> 17139
<AVERAGE-NET-ASSETS> 994295
<PER-SHARE-NAV-BEGIN> 16.26
<PER-SHARE-NII> 0.166
<PER-SHARE-GAIN-APPREC> 1.794
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.160)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.060
<EXPENSE-RATIO> 1.97
<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>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF COLONIAL HIGH YIELD MUNICIPAL FUND, CLASS C YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
HIGH YIELD MUNICIPAL FUND, CLASS C YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME> COLONIAL HIGH YIELD MUNICIPAL FUND CLASS C
<SERIES>
<NUMBER> 3
<NAME> COLONIAL TRUST IV
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 181134
<INVESTMENTS-AT-VALUE> 192058
<RECEIVABLES> 4357
<ASSETS-OTHER> 52
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 196467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 992
<TOTAL-LIABILITIES> 992
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190453
<SHARES-COMMON-STOCK> 33
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (93)
<ACCUMULATED-NET-GAINS> (5874)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10989
<NET-ASSETS> 195475
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13177
<OTHER-INCOME> 0
<EXPENSES-NET> 3195
<NET-INVESTMENT-INCOME> 9982
<REALIZED-GAINS-CURRENT> (1550)
<APPREC-INCREASE-CURRENT> 5265
<NET-CHANGE-FROM-OPS> 13697
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 354
<NUMBER-OF-SHARES-REDEEMED> (17)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 12855
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 00
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3195
<AVERAGE-NET-ASSETS> 189822
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> 0.176
<PER-SHARE-GAIN-APPREC> .018
<PER-SHARE-DIVIDEND> (0.174)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 1.72
<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>
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 C YEAR END NOV-30-1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS OF COLONIAL
INTERMEDIATE TAX-EXEMPT FUND, CLASS C YEAR END NOV-30-1997
</LEGEND>
<CIK> 0000276716
<NAME>
<SERIES>
<NUMBER> 6
<NAME> COLONIAL INTERMEDIATE TAX EXEMPT FUND CLASS C
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 19775
<INVESTMENTS-AT-VALUE> 20804
<RECEIVABLES> 361
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 11
<TOTAL-ASSETS> 21204
<PAYABLE-FOR-SECURITIES> 385
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119
<TOTAL-LIABILITIES> 504
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20042
<SHARES-COMMON-STOCK> 13
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 57
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 418
<ACCUM-APPREC-OR-DEPREC> 1019
<NET-ASSETS> 20700
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1212
<OTHER-INCOME> 0
<EXPENSES-NET> 209
<NET-INVESTMENT-INCOME> 1003
<REALIZED-GAINS-CURRENT> 228
<APPREC-INCREASE-CURRENT> (24)
<NET-CHANGE-FROM-OPS> 1207
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 222
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 131
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4859)
<ACCUMULATED-NII-PRIOR> 49
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 123
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 397
<AVERAGE-NET-ASSETS> 22289
<PER-SHARE-NAV-BEGIN> 8.00
<PER-SHARE-NII> 0.121
<PER-SHARE-GAIN-APPREC> (0.019)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.122)
<RETURNS-OF-CAPITAL> 0.98
<PER-SHARE-NAV-END> 7.98
<EXPENSE-RATIO> 0.8
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>