Registration Numbers: 2-66976
811-3009
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. 29 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 29 [ X ]
COLONIAL TRUST II
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
(617) 426-3750
(Registrant's Telephone Number, Including Area Code)
Name and Address of Agent for Service: Copy to:
Michael H. Koonce, Esquire Peter MacDougall, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1) of Rule 485
[ X ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485
If appropriate check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
DECLARATION
The Registrant has registered an indefinite number of its shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and on or about October 29, 1996, the Registrant
filed the Rule 24f-2 Notice for the Registrant's most recent fiscal year ended
August 31, 1996.
<PAGE>
This Post-Effective Amendment relates solely to Colonial Newport Greater China
Fund. No information relating to any other series of the Registrant is amended
or superseded hereby.
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COLONIAL TRUST II
Cross Reference Sheet (Colonial Newport Greater China
Fund-Classes A, B and D)
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Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Cover page
2. Summary of expenses
3. Not applicable
4. Organization and history; The Fund's
investment objective; How the Fund pursues
its objective and certain risk factors
5. Cover page; How the Fund is managed;
Organization and history; The Funds
investment objective; Back cover
6. Organization and history; Distributions
and taxes; How to buy shares
7. Summary of expenses; How to buy shares;
How the Fund values its shares; 12b-1
plans; Back cover
8. How to sell shares; How to exchange
shares; Telephone transactions
9. Not applicable
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COLONIAL NEWPORT GREATER CHINA FUND
Load-Waived Class A Shares
Issuable upon Exercise of
Subscription Privileges for such Shares
This Prospectus Supplement contains information in addition to that contained in
the Prospectus dated ________, 1997 for the Colonial Newport Greater China Fund
(the "Fund"). The purpose of this Prospectus Supplement is to describe the offer
of Load-Waived Class A Shares of the Fund to shareholders of certain funds
managed or sponsored by Colonial Management Associates, Inc. or Liberty Asset
Management Company.
The Offer
As described in the Fund's Prospectus, Class A Shares generally will be offered
to the public at their net asset value plus a maximum up-front sales charge of
5.25%. However, during the period from the date of this Prospectus Supplement
through ____________, 1997 (the "Subscription Period"), the Fund is offering
(the "Offer") the shareholders (the "Eligible Shareholders") of record as of the
close of business on ________, 1997 (the "Record Date") of the funds listed
below (the "Participating Funds") the opportunity to subscribe (the
"Subscription Privilege") for an aggregate of up to __________ Class A shares of
the Fund without paying an up-front sales charge (the "Load-Waived Class A
Shares"). The Participating Funds are: Colonial Investment Grade Municipal
Trust, Colonial Municipal Income Fund, Colonial High Income Municipal Trust,
Colonial Intermediate High Income Fund, Colonial Intermarket Income Trust I,
Colonial Newport Tiger Fund, Liberty All-Star Equity Fund and Liberty All-Star
Growth Fund.
The Subscription Privilege consists of the Primary Subscription Privilege and
the Over-Subscription Privilege. Pursuant to the Primary Subscription Privilege,
Eligible Shareholders may subscribe for one Load-Waived Class A Share of the
Fund for each ___ Participating Fund shares (the "Participating Shares") held on
the Record Date. Pursuant to the Over-Subscription Privilege, Eligible
Shareholders who fully exercise there Subscription Privilege in the Primary
Subscription Privilege may subscribe for additional Load-Waived Class A Shares
of the Fund. Shares will be issued pursuant to the Over-Subscription Privilege
only if not all Shares offered pursuant to the Primary Subscription Privilege
are subscribed for. If there are insufficient Shares available to fulfill all
subscriptions submitted pursuant to the Over-Subscription Privilege, the
available Shares will be pro rated based on the amount of Shares subscribed for
by each Eligible Shareholder in the Over-Subscription Privilege.
The Subscription Privilege is non-transferable and may not be purchased or sold.
The subscription price (the "Subscription Price") per Class A Share of the Fund
during the Offer will be equal to ___ per share without payment of an up-front
sales charge. The minimum purchase in the Offer is ___ Load-Waived Class A
Shares ($____). If Load-Waived Class A Shares issued pursuant to the Offer are
redeemed prior to ___________, 1999, they will be subject to a contingent
deferred sales charge ("CDSC") of 2% of the purchase price of the Shares so
redeemed.
THE OFFER TO ELIGIBLE SHAREHOLDERS WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON ________, 1997 (THE "EXPIRATION DATE").
Shares Held in Nominee Name
For purposes of determining the maximum number of Load-Waived Class A Shares an
Eligible Shareholder may subscribe for pursuant to the Primary Subscription
Privilege, broker-dealers whose Participating Shares are held of record by Cede
& Co. Inc. ("Cede") or by any other depository or nominee will be deemed to be
the holders of the Subscription Privileges delivered to Cede or such other
depository or nominee on their behalf.
Exchanging Load-Waived Shares
Load-Waived Class A Shares purchased in the Offer may not be exchanged into
Class A Shares of any other Colonial Mutual Fund prior to _____, 199_.
How to Exercise Your Subscription Privileges
Subscription Privileges are evidenced by Subscription Privilege Certificates
which are being mailed with the Fund's Prospectus and other related material to
Eligible Shareholders or their nominees. To exercise the Subscription Privilege,
an Eligible Shareholder must first complete and sign the Subscription Privilege
Certificate and mail it in the envelope provided, or otherwise deliver the
completed Subscription Privilege Certificate to __________________ (the
"Subscription Agent"), in either case together with payment in full of the
Subscription Price of the Load-Waived Class A Shares being subscribed for in the
Primary Subscription Privilege and pursuant to the Over-Subscription Privilege.
Subscription Privileges may also be exercised by contacting a broker, banker or
trust company, which may arrange, on your behalf, to guarantee delivery of
payment and of a properly completed Subscription Privilege Certificate ("Notice
of Guaranteed Delivery"). A fee may be charged for this service. Completed
Subscription Privilege Certificates must be received by the Subscription Agent
prior to 5:00 p.m. New York City time on the Expiration Date (unless the
guaranteed delivery procedures are complied with as described below under "How
to Pay for Your Shares") at the offices of the Subscription Agent at the address
et forth below under "Subscription Agent."
Shareholder Who Are Record Owners. Eligible Shareholders who are record owners
can choose between either option set forth under "How to Pay for Your Shares"
below. If time is of the essence, under special circumstances, option (2) may
permit delivery of the Subscription Privilege Certificate and payment after the
Expiration Date.
Investors Whose Shares Are Held by a Nominee. Eligible Shareholders whose
Participating Shares are held by a nominee, such as a broker or trustee, must
contact that nominee to exercise their Subscription Privileges. In that case,
the nominee will complete the Subscription Privilege Certificate on behalf of
the Shareholder and arrange for proper payment by one of the methods set forth
under "How to Pay for Your Shares" below.
Nominees. Nominees who hold Participating Shares for the account of others must
notify the beneficial owners of such Shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Subscription Privileges. If the beneficial owner so instructs, the nominee
should complete the Subscription Privilege Certificate and deliver it to the
Subscription Agent with the proper payment described under "How to Pay for Your
Shares" below.
Subscription Agent
The Subscription Agent is _____________________________. [The Subscription Agent
is also the Fund's Custodian.] SIGNED SUBSCRIPTION PRIVILEGE CERTIFICATES
TOGETHER WITH FULL PAYMENT OF THE SUBSCRIPTION PRICE MUST BE SENT TO THE
SUBSCRIPTION AGENT by one of the methods described below. The Fund will accept
only Subscription Privilege Certificates actually received on a timely basis at
any of the addresses listed below.
(1) BY FIRST CLASS MAIL
[Name of Subscription Agent]
[Address]
(2) BY EXPRESS MAIL, BY OVERNIGHT COURIER OR BY HAND
[Name of Subscription Agent]
[Address]
(3) BY FACSIMILE (TELECOPIER), with the original Subscription Privilege
Certificate to be sent by one of the methods described above:
[Name of Subscription Agent]
Facsimile numbers: ___-___-____
------------
Confirm by telephone:___-___-____
Delivery to an address other than those listed above will not constitute valid
delivery.
How to Pay for Your Shares
The total payment owed for the Load-Waived Class A Shares will equal the number
of Shares subscribed for in the Primary Subscription Privilege and pursuant to
the Over-Subscription Privilege multiplied by the Subscription Price of $___ per
Share. Eligible Shareholders may choose between the following two methods to pay
for the Load-Waived Class A Shares.
(1) An Eligible Shareholder can send the Subscription Privilege Certificate
together with full payment for the Load-Waived Class A Shares subscribed for in
the Primary Subscription Privilege and for additional Load-Waived Class A Shares
subscribed for pursuant to the Over-Subscription Privilege to the Subscription
Agent, calculating the total payment on the basis of the Subscription Price of
$___ per Load-Waived Class A Share. To be accepted, such payment, together with
the completed Subscription Privilege Certificate, must be received by the
Subscription Agent at the Subscription Agent's office at the address set forth
above prior to 5:00 p.m., New York City time, on the Expiration Date. A payment
pursuant to this payment method must be in United States dollars by money order
or check drawn on a bank located in the United States, must be payable to the
"Colonial Greater China Fund" and must accompany an executed Subscription
Privilege Certificate to be accepted.
(2) Alternatively, a subscription will be accepted by the Subscription Agent if,
prior to 5:00 p.m., New York City time, on the Expiration Date, the Subscription
Agent has received a Notice of Guaranteed Delivery by facsimile (telecopy) or
otherwise from a bank, a trust company, or a New York Stock Exchange member
guaranteeing delivery of (i) payment of the Subscription Price of $___ per
Load-Waived Class A Share subscribed for in the Primary Subscription Privilege
and for any additional Load-Waived Class A Shares subscribed for in the
Over-Subscription Privilege and (ii) a properly completed Subscription Privilege
Certificate. The Subscription Agent will not honor a Notice of Guaranteed
Delivery unless a properly completed Subscription Privilege Certificate (or
similar notification from nominee holders) together with full payment for the
Load-Waived Class A Shares are received by the Subscription Agent by the close
of business on the third day after the Expiration Date (______________, 1996).
The Subscription Agent will deposit all checks received by it prior to the
Expiration Date into a segregated interest bearing account pending distribution
of the Load-Waived Class A Shares. All interest on such amounts will accrue to
the benefit of the Fund. Whichever, of the two methods described above is used,
issuance of the Load-Waived Class A Shares is subject to collection of checks
and actual payment pursuant to any Notice of Guaranteed Delivery.
Eligible Shareholders will have no right to rescind their subscription after
receipt of their payment for Load-Waived Class A Shares by the Subscription
Agent.
The method of delivery of subscription privilege certificates and payment of the
subscription price to the Fund will be at the election and risk of the
subscribing Eligible Shareholders. A sufficient number of days should be allowed
to ensure mail delivery to the Fund prior to 5:00p.m., New York City time, on
the Expiration Date.
All questions concerning the timeliness, validity, proration, form and
eligibility of any exercise of Subscription Privileges will be determined by the
Fund, whose determinations will be final and binding. The Fund in its sole
discretion may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
purported exercise of any Subscription Privilege. Subscriptions will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Fund determines in its sole discretion.
The Fund will not be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Privilege
Certificates or incur any liability for failure to give such notification.
The Fund reserves the right to reject exercise of Subscription Privileges where
the proceeds for payment of the Subscription Price are from the sale of shares
of the Participating Funds, and the Principal Underwriter may withhold payment
of any concessions to brokers with any such exercise, and may take other
appropriate actions.
Confirmation of Your Purchases
The Subscription Agent or someone on its behalf will send to each subscribing
Eligible Shareholder (or, if the Participating Shares are held by Cede or any
other depository or nominee, to Cede or such depository or nominee), a
confirmation statement within one business day following _______________, 1996
(the "Confirmation Date") . The confirmation will show (i) the number of
Load-Waived Class A Shares acquired in primary Subscription Privilege, (ii) the
number of Load-Waived Class A Shares, if any, acquired pursuant to the
Over-Subscription Privilege and (iii) any excess payment to be refunded to such
Eligible Shareholder in connection with a proration of Load-Waived Class A
Shares subscribed for pursuant to the Over-Subscription Privilege. If
applicable, the Subscription Agent will mail any refund, without interest, due
an Eligible Shareholder as promptly as possible.
Who to Call for Further Information
If you have any questions or need any assistance with respect to the Offer,
please call ________________ (the "Information Agent") at 800-___-____ or write
to the Information Agent at ______________. Eligible Shareholders may also
contact their brokers or nominees for more information with respect to the
Offer.
Important Dates to Remember
Event Date
Record Date................................................. ____________, 1997
Subscription Period......................................... ____________, 1997
to ____________, 1997
Expiration Date............................................. ____________, 1997
Payment for Shares.......................................... ____________, 1997
Notice of Guaranteed Delivery Due........................... ____________, 1997
Payment for Guaranteed Due.................................. ____________, 1997
Confirmation to Participants................................ ____________, 1997
Distribution Arrangements for the Offer
_______________ and ________________ (collectively, the "Representatives"); and
_______________, ________________, and ________________ will act, together with
the Representatives, as dealer managers (the "Dealer Managers") for the Offer of
Subscription Privileges to Eligible Shareholders. Under the Dealer Manager
Agreement dated ______________, the Dealer Managers will provide financial
advisory services and marketing assistance in connection with the Offer and will
solicit the exercise of the Subscription Privileges by Eligible Shareholders.
After the date of this Prospectus Supplement, additional Dealer Managers may be
added to the offering, in which case this Prospectus Supplement will be amended
to include such firms. The Offer is not contingent upon any amount of
Subscription Privileges being exercised. The Principal Underwriter of the Fund
has agreed to pay the Dealer Managers for their services up to ___% of the
Subscription Price per Class A Share sold pursuant to the exercise of
Subscription Privileges by the Eligible Shareholders. From such amount, the
Representatives may receive fees for acting as Representatives, and
broker-dealers and financial institutions other than the Dealer Managers will be
paid for solicitation efforts an amount equal to __% of the Subscription Price
per Class A Shares sold pursuant to the exercise of Subscription Privileges by
Eligible Shareholders. In order to receive such amounts broker-dealers must
execute a Soliciting Dealer Agreement. Such solicitation fees will be paid to
the broker-dealer or financial institution designated on the applicable portion
of the Subscription Privilege Certificate or other related document in
connection with such exercise of Subscription Privileges. All such fees payable
to the Dealer Managers and to other broker-dealers will be paid by the Principal
Underwriter and not by the Fund or the Class A Shareholders.
In addition, the Principal Underwriter has agreed to reimburse the Dealer
Manager up to $_______ for their reasonable expenses incurred in connection with
the Offer. The Fund and Principal Underwriter have each agreed to indemnify the
Dealer Managers or contribute to losses arising under the Securities Act of
1933, as amended, due to performance of their duties under the Dealer Management
Agreement. The Dealer Manager Agreement also provides that the Dealer Managers
will not be subject to any liability to the Fund in rendering the services
contemplated by the Agreement so long as the Dealer Managers did not act with
bad faith, willful misconduct or gross negligence or in reckless disregard of
their obligations and duties under the Agreement.
The Fund has agreed not to offer or sell any Load-Waived Class A Shares of the
Fund to the public until _________, 1997 without the prior consent of the
Representatives, except for Load-Waived Class A Shares issued upon the exercise
of Subscription Privileges and any Class A Shares issued in connection with the
reinvestment of dividends and distributions with respect to the foregoing
Load-Waived Class A Shares.
May ___, 1997
COLONIAL NEWPORT
GREATER CHINA FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) and your full-service
financial adviser want you to understand both the risks and benefits of mutual
fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Colonial Newport Greater China Fund (Fund), a non-diversified portfolio of
Colonial Trust II (Trust), an open-end management investment company, seeks
long-term growth of capital by investing primarily in equity securities of
companies located in, or which derive a substantial portion of revenue from
business activity with or in, the Greater China Region (i.e., Hong Kong, the
People's Republic of China and Taiwan).
The Fund is managed by Newport Fund Management, Inc. (Adviser), an investment
adviser since 1984 and an affiliate of the Administrator.
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 May __, 1997 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Administrator at 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
XX/XXXX-0597
The Fund offers multiple classes of shares. Class A shares are offered at net
asset value plus a sales charge imposed at the time of purchase; Class B shares
are offered at net asset value and, are subject to an annual distribution fee
and a declining contingent deferred sales charge on redemptions made within six
years after purchase; and Class D shares are offered at net asset value plus a
small initial sales charge and are subject to an annual distribution fee and a
contingent deferred sales charge on redemptions made within one year after
purchase. Class B shares automatically convert to Class A shares after
approximately eight years. See "How to Buy Shares."
Contents Page
Summary of Expenses
The Fund's Investment Objective
How the Fund Pursues its Objective
and Certain Risk Factors
How the Fund Measures its Performance
Adviser Performance Information
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plans
Organization and History
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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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 estimated
annual expenses for an investment in each Class of Fund shares. "Other expenses"
are based on estimated amounts for the current fiscal year. See "How the Fund is
Managed" and "12b-1 Plans" for more complete descriptions of the Fund's various
costs and expenses.
Shareholder Transaction Expenses (1)(2)
Class A Class B Class D
Maximum Sales Charge
(as a % of offering price) (3) 5.75% 5.00%(5) 1.99%(5)
Maximum Initial Sales Charge Imposed on a
Purchase (as a % of offering price)(3) 5.75% 0.00%(5) 1.00%(5)
Maximum Contingent Deferred Sales Charge
(as a % of offering price) (3) 1.00%(4) 5.00% 0.99%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to Buy Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will
be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase. See
"How to Buy Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and Class D
shares, long-term Class B and Class D shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted
by the National Association of Securities Dealers, Inc. However, because
the Fund's Class B shares automatically convert to Class A shares after
approximately 8 years, this is less likely for Class B shares than for a
class without a conversion feature.
Estimated Annual Operating Expenses (as a % of average net assets)
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Class A Class B Class D
Management and administration fees (after expense reimbursement) ---% ---% ---%
12b-1 fees --- --- ---
Other expenses (after expense reimbursement) --- --- ---
Total operating expenses (6) ---% ---% ---%
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(6) The Adviser/Administrator have voluntarily agreed to waive or bear
certain Fund expenses until further notice to the Fund.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of Fund shares for the periods
specified, assuming a 5% annual return and, unless otherwise noted, redemption
at period end. The 5% return and expenses in this Example should not be
considered indicative of actual or expected Fund performance or expenses, both
of which will vary:
Class A Class B Class D
Period:
(7) (8) (7) (8)
1 year $XX $XX $XX $XX $XX
3 years $XX $XX $XX $XX $XX(9)
Without voluntary fee reductions:
Class A Class B Class D
Period:
(7) (8) (7) (8)
1 year $XX $XX $XX $XX $XX
3 years $XX $XX $XX $XX $XX(9)
(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class D shares do not incur a contingent deferred sales charge on
redemptions made after one year.
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THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital by investing primarily in equity
securities of companies located in, or which derive a substantial portion of
revenue from business activity with or in, the Greater China Region (i.e., Hong
Kong, the People's Republic of China and Taiwan).
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund normally invests substantially all of its assets in companies that are
expected to benefit from anticipated economic growth within the Greater China
Region. The Fund invests in companies with both large and small market
capitalizations, as well as both seasoned companies and those with limited
operating histories. The equity securities in which the Fund invests include
common and preferred stock, warrants (rights) to purchase stock, debt securities
convertible into stock, sponsored and unsponsored American Depository Receipts
(receipts issued in the U.S. by banks or trust companies evidencing ownership of
underlying foreign securities), Global Depository Receipts (receipts issued by
foreign banks or trust companies) and shares of closed-end investment companies
that invest primarily in the foregoing securities. Dividend income will not be
considered in choosing the investments of the Fund.
An investment in the Fund involves a high degree of risk arising out of its
concentration of investments in companies located in or economically tied to the
Greater China Region. This Region currently is undergoing significant economic
and political change. The uncertainty surrounding such change, as well as any
adverse developments that may occur, may negatively impact the Fund's return and
the value of the Fund's shares. See "The Greater China Region" below. An
investment in the Fund also involves special risks generally associated with
foreign investing and with investing in smaller, less-established companies. See
"Foreign Investing Generally" and "Small Companies" below.
The Greater China Region. Although Hong Kong, the People's Republic of China and
Taiwan are closely tied economically, they have different political and economic
systems and their markets and regulatory structures are at different stages of
development. Following is a summary of the major risks and uncertainties
associated with investing in each country.
Hong Kong. Although Hong Kong has the most developed securities markets of the
three countries in the Greater China Region, a substantial portion of its
economy is dependent on investments in or trade with China and other
less-developed Asian countries. Political and economic developments in those
countries could adversely impact the Fund's Hong Kong investments.
As of July 1, 1997, sovereignty over Hong Kong will be transferred from Great
Britain to China and Hong Kong will become a Special Administrative Region of
China. In connection with this transfer, China has agreed to maintain for 50
years Hong Kong's current economic and social systems, as well as most of the
personal freedoms currently enjoyed by Hong Kong residents. Nevertheless, it is
impossible to predict with certainty the ultimate effect Chinese sovereignty
will have on Hong Kong's business environment. Further, uncertainty surrounding
the transfer could hurt the value of the Fund's investments or make them more
volatile in the short-run.
China. Since 1978, China's leaders have implemented economic reforms which have
transformed China from a socialist economy to one that is increasingly
market-based. These changes have included the creation of two domestic stock
exchanges and have stimulated strong economic growth. The continued development
of China's industrial and service sectors will depend on the extent to which
governmental policies continue to support such development and the pace at which
economic reforms are implemented. The recent death of Deng Xiaoping has created
additional uncertainty regarding the future direction and rate of change of
Chinese domestic economic policy.
Investments in China also are significantly affected by domestic political
developments. Deng Xiaoping's death has created some uncertainty regarding
China's political leadership. While Deng's successor, Jiang Zemin, has
been identified, he is in the process of consolidating his power base. This
process may require Jiang to agree to slow the pace of economic reform. In any
event, as evidenced by the government's actions during the 1989 crisis in
Tiananmen Square, the Chinese government's reaction to domestic and
international events is unpredictable. Uncertainty exists particularly with
respect to China's relationship with Taiwan and the ultimate impact on Hong Kong
of the assumption of sovereignty by China. Dramatic action by China's leaders
could cause extreme short-run volatility in the value of the Fund's investments
and the Fund's shares, and also could significantly and adversely affect the
Fund's returns in the long run. Similarly, China's relations with its important
trading partners in the West (including the United States) could be adversely
affected if the Chinese government's human rights policies are perceived to be
deteriorating. Even if trading relations are not actually affected, threats to
impose trading restrictions could cause substantial short-term volatility in the
value of the Fund's China investments and of the Fund's shares.
Taiwan. The Taiwan Stock Exchange is owned by government-controlled enterprises
and private banks and has only recently begun to allow direct foreign investment
in listed Taiwan securities. Substantial restrictions on such investment remain,
including limitations on the percentage of shares of a company that may be
foreign-owned and prohibitions on foreign ownership of companies in certain
industries.
Taiwan's economy is heavily dependent on exports. Any deterioration in Taiwan's
relationships with its trading partners could adversely impact Taiwan's economy
and the Fund's Taiwan investments. In particular, Taiwan has become increasingly
dependent on direct and indirect trade with China and other Asian countries.
Adverse economic or political developments in those countries could negatively
impact the Fund's Taiwan investments.
Investments in Taiwan could be affected by Taiwan's political relationship with
China. Uncertainty exists between Taiwan and China over the issue of political
reunification between those two countries. Uncertainty over the prospects for
such reunification could make the value of the Fund's Taiwan investments and of
its shares particularly volatile and could negatively impact returns, especially
if China threatens political or military action. Such reunification, if it were
to occur, also could negatively impact the Fund's Taiwan investments.
Foreign Investing Generally. In addition to the specific risks described above,
investing in foreign securities generally entails special risks not associated
with investing in U.S. securities. As a result, the prices of foreign securities
and, therefore, the value of Fund shares, may fluctuate substantially more than
the prices of securities of issuers based in the U.S. Special risks associated
with foreign investing include, among others, the possibility of unfavorable
movements in currency exchange rates, difficulties in enforcing judgments
abroad, the existence of less liquid and less regulated markets, the
unavailability of reliable information about issuers, the existence of different
accounting, auditing and legal standards in foreign countries, the existence (or
potential imposition) of exchange control regulations (including currency
blockage or other restrictions on repatriation of capital), and political and
economic instability. In addition, transactions in foreign securities may be
more costly due to currency conversion costs and higher brokerage and custodial
costs and may be subject to delays and disruptions in securities settlement
procedures. See "Foreign Securities" and "Foreign Currency Transactions" in the
Statement of Additional Information for more information about foreign
investments.
Small Companies. The smaller, less well-established companies in which the Fund
may invest may offer greater opportunities for capital appreciation than larger,
better-established companies, but may also involve certain special risks. Such
companies often have limited product lines, markets or financial resources and
depend heavily on a small management group. Their securities may trade less
frequently, in smaller volumes, and fluctuate more sharply in value than
exchange-listed securities of larger companies.
Other Investment Companies. Up to 10% of the Fund's total assets may be invested
in other investment companies. Such investments will involve the payment of
duplicative fees through the indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies.
Foreign Currency Transactions. In connection with its investments in equity
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.
Futures Contracts and Options. The Fund may purchase and sell foreign stock
index futures contracts and options on such contracts. Such transactions will be
entered into to gain exposure to a particular foreign equity market pending
investment in individual securities or to hedge against market declines. A
futures contract creates an obligation by the seller to deliver and the buyer to
take delivery of a type of instrument at the time and in the amount specified in
the contract. A sale of a futures contract can be terminated in advance of the
specified delivery date by subsequently purchasing a similar contract; a
purchase of a futures contract can be terminated by a subsequent sale. Gain or
loss on a contract generally is realized upon such termination. An option on a
futures contract generally gives the option holder the right, but not the
obligation, to purchase or sell the futures contract prior to the option's
specified expiration date. If the option expires unexercised, the holder will
lose any amount it paid to acquire the option. Transactions in futures and
related options may not precisely achieve the goals of hedging or gaining market
exposure to the extent there is an imperfect correlation between the price
movements of the contracts and of the underlying securities. In addition,
hedging against a market decline will limit the Fund's return if the market
instead appreciates.
Borrowing of Money. The Fund may borrow money 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.
Temporary/Defensive Investments. Temporarily available cash may be invested in
U.S. dollar or foreign currency denominated demand deposits, certificates of
deposit, bankers' acceptances and high-quality, short-term debt securities, as
well as in Treasury bills and repurchase agreements. Some or all of the Fund's
assets may be invested in such investments during periods of unusual market
conditions. Under a repurchase agreement, the Fund buys a security from a bank
or dealer, which is obligated to buy it back at a fixed price and time. The
security is held in a separate account at the Fund's custodian and, constitutes
the Fund's collateral for the bank's or dealer's repurchase obligation.
Additional collateral will be added so that the obligation will at all times be
fully collateralized. However, if the bank or dealer defaults or enters
bankruptcy, the Fund may experience costs and delays in liquidating the
collateral and may experience a loss if it is unable to demonstrate its right to
the collateral in a bankruptcy proceeding. Not more than 15% of the Fund's net
assets will be invested in repurchase agreements maturing in more than 7 days
and other illiquid assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors prior to any
material change in the Fund's investment objective. If there is a change in the
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in investment objective. 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.
ADVISER PERFORMANCE INFORMATION
The Fund is newly-organized and has no performance history of its own. The
Adviser currently does not manage any other funds or accounts having the same
objective and investment policies as the Fund. The Adviser does, however, manage
a number of funds and accounts, totaling approximately $___ billion in assets as
of March 31, 1997, that invest primarily in equity securities of companies
located in nine Asian countries, including Hong Kong, China, Taiwan, Malaysia,
Singapore, Thailand, South Korea, Indonesia and the Philippines. Although not
exclusively dedicated to the Greater China Region, these funds and accounts each
invest a substantial amount of their assets in securities of companies in Hong
Kong, Taiwan and China.
Shown below are average annual and cumulative total returns for the one year,
five year and since inception periods through March 31, 1997 of the Class A
shares of the largest and oldest of such funds, the Colonial Newport Tiger Fund
(Tiger Fund). Also shown are (i) the average annual and cumulative total returns
of the Morgan Stanley Capital International Europe, Asia and Far East (GDP)
Index (MSCI EAFE Index), (ii) the average annual and cumulative total returns of
the average fund in the Lipper Pacific Basin ex-Japan category, and (iii) the
Tiger Fund's ranking within its Lipper category, in each case for the one year,
five year and since inception periods ending March 31, 1997.
It is important to note that the returns shown of the Tiger Fund, of funds in
the Lipper Pacific Region ex-Japan category and of the MSCI EAFE Index do not
represent past performance of the Fund, and are not necessarily indicative of
future performance of the Fund. In particular, as noted above, the Fund will
focus its investments in companies located in or economically tied to the
Greater China Region, whereas the Tiger Fund invests in nine Asian countries,
the funds in the Lipper Pacific Region ex-Japan category includes funds
investing in other Pacific Rim countries, and the MSCI EAFE Index includes
returns on stocks in other regions of the world. The Fund's focus on the Greater
China Region is likely to produce substantially different and more volatile
investment returns than funds with a broader investment focus. In addition, the
Tiger Fund seeks to invest in larger, more established companies in southeast
Asia, whereas a significant portion of the Fund's investments may be in smaller
companies and companies with limited operating histories. Moreover, because the
Fund likely will be smaller than the Tiger Fund for the foreseeable future, the
Fund's expenses are expected to be higher than those of the Tiger Fund. Finally,
the Tiger Fund is only one of the Asian portfolios managed by the Adviser. The
performance of other such portfolios is not shown and differs from that of the
Tiger Fund.
COLONIAL NEWPORT TIGER FUND
Average Annual Cumulative Total
Total Returns Returns
(NAV) (NAV)
One Year _____% _____%
Five Years _____% _____%
Since 5/31/89
(inception) _____% _____%
MSCI EAFE INDEX
Average Annual Cumulative Total
Total Returns Returns
One Year _____% _____%
Five Years _____% _____%
Since 5/31/89 _____% _____%
AVERAGE LIPPER PACIFIC REGION
EX-JAPAN FUND
Average Annual Cumulative Total
Total Returns Returns
One Year _____% _____%
Five Years _____% _____%
Since 5/31/89 _____% _____%
LIPPER PACIFIC REGION EX-JAPAN
CATEGORY RANKINGS* OF COLONIAL
NEWPORT TIGER FUND
One Year __/__
Five Years __/__
Since 5/31/89 __/__
*First number shows rank within category/second number shows total number of
funds in category.
The MSCI EAFE Index is a broad-based, unmanaged index that tracks the
performance of equity securities of companies located in Europe, Asia and the
Far East. Index returns represent the total returns, assuming reinvestment of
all dividends, earned on the stocks included in the Index. Index returns do not
reflect sales charges or expenses. The Lipper Pacific Region ex-Japan Fund
category includes all funds classified by Lipper Analytical Services, Inc., an
independent mutual fund ranking organization, as investing primarily in the
Pacific Region excluding Japan. Lipper returns also exclude initial and deferred
sales charges. You may obtain a prospectus for the Tiger Fund containing
additional information, including information about the risks, fees and expenses
associated with investing in the Tiger Fund, by calling your financial adviser
or Colonial at 1-800-426-3750. Please read it carefully before you invest.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares and
the maximum initial sales charge of 1.00% on Class D shares, and the contingent
deferred sales charge applicable to the time period quoted on Class B and Class
D shares. Other total returns differ from 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, 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 twelve months' distributions by the maximum offering
price of that Class at the end of the 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.
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.
The Adviser is an indirect subsidiary of Liberty Financial Companies, Inc.
(Liberty Financial) which in turn is an indirect subsidiary of Liberty Mutual
Insurance Company (Liberty Mutual). The Administrator is a subsidiary of The
Colonial Group, Inc. which in turn is a direct subsidiary of Liberty Financial.
Liberty Mutual is considered to be the controlling entity of the Adviser, the
Administrator and their affiliates. Liberty Mutual is an underwriter of workers'
compensation insurance and a property and casualty insurer in the U.S.
Colonial Investment Services, Inc. (Distributor), a subsidiary of the
Administrator, serves as the distributor for the Fund's shares. Colonial
Investors Service Center, Inc. (Transfer Agent), an affiliate of the
Administrator, serves as the shareholder services and transfer agent for the
Fund.
The Adviser furnishes the Fund with investment management services at the
Adviser's expense. For these services, the Fund pays the Adviser a monthly fee
at an annual rate of XX% of the Fund's average daily net assets. The fee is
comparable to that paid by many investment companies investing in foreign
securities, although it is higher than that paid by most other investment
companies.
Thomas R. Tuttle and Xiaodong (Tony) Zhang, Senior Vice President and Greater
China Analyst, respectively, of the Adviser co-manage the Fund. Messrs. Tuttle
and Zhang also are Senior Vice President and Greater China Analyst,
respectively, of Newport Pacific Management, Inc. (Newport Pacific), the
Adviser's immediate parent, and have been affiliated with the Adviser since 1983
and 1993, respectively. Prior to his affiliation with the Adviser Mr. Zhang was
Project Manager for Hongmei Electric Corporation from 1987 to 1992.
The Administrator provides certain administrative services to the Fund, for
which the Fund pays the Administrator a monthly fee at the annual rate of XX% of
the Fund's average daily net assets for such services. The Administrator 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 monthly fee at the annual rate of XX% of average daily net assets plus
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser and its affiliates may agree.
The Adviser places all orders for 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.
Subject to seeking best execution, the Adviser may consider sales of shares of
the Fund (and of certain other Colonial funds) in selecting broker-dealers for
portfolio security transactions.
Fund expenses consist of management, administration, pricing and bookkeeping,
shareholder service and transfer agent fees discussed above, 12b-1 service and
distribution fees discussed under the caption "12b-1 Plans," and all other
expenses, fees, charges, taxes, organization costs and liabilities incurred or
arising in connection with the Fund or Trust or in connection with the
management thereof, including but not limited to, trustees' compensation and
expenses and auditing, counsel, custodian and other expenses deemed necessary
and proper by the Trustees.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close of the New York Stock Exchange (Exchange) (normally 4:00
p.m. Eastern time) each day the Exchange is open. Portfolio securities for which
market quotations are readily available are valued at current market value.
Short-term investments maturing in 60 days or less are valued at amortized cost
when the Adviser determines, pursuant to procedures adopted by the Trustees,
that such cost approximates current market value. In certain countries, the Fund
may hold shares designated for foreign ownership. If the foreign share prices
are not readily available as a result of limited share activity, the securities
are valued at the last sale price of the local shares in the principal market in
which such securities are normally traded. All other securities and assets
are valued at their fair value following procedures adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income and any net
realized gain, at least annually.
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 net asset value. To change your election, call the Transfer Agent for
information. Whether you receive distributions in cash or in additional Fund
shares, you must report them as taxable income unless you are a tax-exempt
institution. If you buy shares shortly before a distribution is declared, the
distribution will be taxable although it is, in effect, a partial return of the
amount invested. Each January, information on the amount and nature of
distributions for the prior year is sent to shareholders.
HOW TO BUY SHARES
Shares 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 the financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class D shares and there are
some limitations on the issuance of Class A 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
Firm as
as % of % of
--------------------- ---------
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than
$100,000 4.71% 4.50% 3.75%
$100,000 to less than
$250,000 3.63% 3.50% 2.75%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the shares remain outstanding.
In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held. If a purchase
results in an account having a value from $1 million to $5 million, then the
shares purchased will be subject to a 1.00% contingent deferred sales charge,
payable to the Distributor, if redeemed within 18 months from the first day of
the month following the purchase. If the purchase results in an account having a
value in excess of $5 million, the contingent deferred sales charge will not
apply to the portion of the purchased shares comprising such excess amount.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee) and a declining contingent deferred sales
charge if redeemed within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the number of years after
purchase that the redemption occurs:
Contingent
Years Deferred
After Sales
Purchase Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.
Class D Shares. Class D shares are offered at net asset value plus a 1.00%
initial sales charge and are subject to a 0.75% annual distribution fee and
a 1.00% contingent deferred sales charge (0.99% of the offering price)
on redemptions made within one year from the first day of the month after
purchase.
The Distributor pays financial service firms an initial commission of 1.85% on
purchases of Class D shares and an ongoing commission of ___% 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 referred to above. The commission may be
reduced or eliminated if the distribution fee paid by the Fund is reduced or
eliminated for any reason.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments (including initial sales charges, if any) in the account,
reduced by prior redemptions on which a contingent deferred sales charge was
paid and any exempt redemptions). See the Statement of Additional Information
for more information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class D shares. Purchases of $250,000 or
more must be for Class A or Class D shares. Purchases of $500,000 or more must
be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. Initial
or contingent deferred sales charges may be reduced or eliminated for certain
persons or organizations purchasing Fund shares alone or in combination with
certain other Colonial funds. See the Statement of Additional Information for
more information.
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" and "How to Sell Shares."
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 account 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 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 send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.
HOW TO EXCHANGE SHARES
Except as described below with respect to money market funds, Fund shares may be
exchanged at net asset value among shares of the same class of most Colonial
funds. Shares will continue to age without regard to the exchange for purposes
of conversion and in determining the contingent deferred sales charge, if any,
upon redemption. Carefully read the prospectus of the fund into which the
exchange will go before submitting the request. Call 1-800-426-3750 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction. The exchange
service may be changed, suspended or eliminated on 60 days' written notice. The
Fund will terminate the exchange privilege as to a particular shareholder if it
is determined by the Adviser, in its sole and absolute discretion, that the
shareholder's exchange activity is likely to adversely impact the Adviser's
ability to manager the Fund's investments in accordance with its objectives or
otherwise harm the Fund or its remaining shareholders.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund in which the original investment was made.
Class D Shares. Exchanges of Class D 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.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange 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 transactions in the event reasonable procedures are not employed.
Such procedures include restrictions on where proceeds of telephone redemptions
may be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or their financial adviser provide certain identifying
information. Shareholders and/or their financial advisers wishing to redeem or
exchange shares by telephone may experience difficulty in reaching the Fund at
its toll-free telephone number during periods of drastic economic or market
changes. In that event, shareholders and/or their financial advisers should
follow the procedures for redemption or exchange by mail as described above
under "How to Sell Shares." The Adviser, the Administrator, the Transfer Agent
and the Fund reserve the right to change, modify or terminate the telephone
redemption or exchange services at any time upon prior written notice to
shareholders. Shareholders and/or their financial advisers are not obligated to
transact by telephone.
12B-1 PLANS
Under 12b-1 Plans, the Fund pays the Distributor monthly a service fee at an
annual rate of XX% of the Fund's net assets attributed to each Class of Fund
shares. The Fund also pays the Distributor monthly a distribution fee at an
annual rate of XX% of the average daily net assets attributed to its Class B and
Class D shares. Because the Class B and Class D shares bear additional
distribution fees, their dividends, if any, will be lower than the dividends of
Class A shares. Class B shares automatically convert to Class A shares,
approximately eight years after the Class B shares were purchased. Class D
shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares, and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing costs
and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser and the Administrator) which may be construed to be indirect financing
of sales of Fund shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1980. The Fund
commenced investment operations in 1997 as a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
<PAGE>
Investment Adviser
Newport Fund Management, Inc.
580 California Street, Suite 1960
San Francisco, CA 94104
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
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
May ___, 1997
COLONIAL NEWPORT
GREATER CHINA FUND
PROSPECTUS
Colonial Newport Greater China Fund seeks long-term growth of capital by
investing primarily in equity securities of companies located in, or which
derive a substantial portion of revenue from business activity with or in the
Greater China Region (i.e., Hong Kong, the People's Republic of China and
Taiwan).
For more detailed information about the Fund, call the Administrator at
1-800-426-3750 for the May , 1997 Statement of Additional Information.
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
[COLONIAL FLAG LOGO]
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 7.
To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S. citizen status.
__Joint Tenant: Print all names, the Social Security # for the first person,
and his/her U.S. citizen status.
__Uniform Gift to Minors: Names of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? ___Yes ___No
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or D shares. If no distribution
option is selected, distributions will be reinvested in additional Fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.
Fund Fund Fund
________________ ___________________ _____________________
$_______________ $__________________ $____________________
Amount Amount Amount
Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (Adjustable Rate
U.S. Government Fund only)
___ D Shares (less than $500,000, available on certain funds; see prospectus)
Method of Payment
Choose one
___Check payable to the Fund
___Bank wired on ____/____/____
(Date) Wire/Trade confirmation #__________________
Ways to Receive Your Distributions
Choose one
___Reinvest dividends and capital gains
___Dividends and capital gains in cash
___Dividends in cash; reinvest capital gains
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection Complete Bank Information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House (ACH).
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that his/her actions are
authorized.
I have received and read each appropriate Fund prospectus and understand that
its terms are incorporated by reference into this application. I understand
that this application is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales charge. It is agreed
that the Fund, all Colonial Companies and their officers, directors, agents,
and employees will not be liable for any loss, liability, damage, or expense
for relying upon this application or any instruction believed genuine.
I certify, under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is correct.
You must cross out Item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.
2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholdings.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following features. Complete only
the section(s) that apply to the features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks from your account in
any amount you select, with certain limitations. Your redemption checks can
be sent to you at the address of record for your account, to your bank
account, or to another person you choose. The value of the shares in your
account must be at least $5,000 and you must reinvest all of your
distributions. Checks will be processed on the 10th calendar day of the month
or the following business day. If you receive your SWP payment via electronic
funds transfer (EFT), you may request it to be processed any day of the month.
Withdrawals in excess of 12% annually of your current account value will not be
accepted. Redemptions made in addition to SWP payments may be subject to a
contingent deferred sales charge for Class B or Class D shares. Please consult
your financial or tax adviser before electing this option.
Funds for Withdrawal:
___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day, if indicating EFT,month).
___________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (day,if indicating EFT,month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via EFT. Please complete the Bank Information section below.
All EFT transactions will be made two business days after the processing date.
Your bank must be a member of the Automated Clearing House system.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
B. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.
1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or EFT. Telephone redemptions over $1,000 will be sent via federal fund wire,
usually on the next business day ($7.50 will be deducted). Redemptions of
$1,000 or less will be sent by check to your designated bank.
3. On-Demand EFT Redemption
__I would like the On-Demand EFT Redemption Privilege. Proceeds paid via EFT
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from your fund account
by telephone and send your money to your bank account. If you are adding this
service to an existing account, complete the Bank Information section below
and have all shareholder signatures guaranteed.
Colonial's and the Fund's liability is limited when following telephone
instructions; a shareholder may suffer a loss from an unauthorized transaction
reasonably believed by Colonial to have been authorized.
Bank Information (For Sections A and B Above)
I authorize deposits to the following bank account:
____________________________________________________________
Bank name City Bank account number
____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)
X__________________________________
Signature of account owner(s)
X__________________________________
Signature of account owner(s) Place signature guarantee here.
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing distributions from one fund into
another Colonial fund. These investments will be made in the same share class
and without sales charges. Accounts must be identically registered. I have
carefully read the prospectus for the fund(s) listed below.
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial fund in
which you have a balance of at least $5,000 exchanged into the same share
class of up to four other identically registered Colonial accounts, on a
monthly basis. The minimum amount for each exchange is $100. Please complete
the section below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
1____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
2____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
C. Fundamatic/On-Demand EFT Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial fund account by electronic funds transfer on
any specified day of the month. You will receive the applicable price two
business days after the receipt of your request. Your bank needs to be a
member of the Automated Clearing House System. Please attach a blank check
marked "VOID." Also, complete the section below.
1____________________________________
Fund name
_________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
2___________________________________
Fund name
________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
__On-Demand Purchase (will be automatically established if you choose
Fundamatic)
__Fundamatic Frequency
__Monthly or __Quarterly
Check one:
__EFT- Choose any day of the month_____________________
__Paper Draft-Choose either the:
__5th day of the month
__20th day of the month
Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. Do Not Detach. Make sure all depositors on the bank account sign to
the far right. Please attach a blank check marked "VOID" here. See reverse
for bank instructions.
I authorize Colonial to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial fund. Colonial and my bank are not
liable for any loss arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and Colonial may reverse
the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to Reduce Your Sales Charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial funds, you may be eligible for a reduced sales charge. The combined
value of your accounts must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from another Colonial fund.
The sales charge for your purchase will be based on the sum of the purchase(s)
added to the value of all shares in other Colonial funds at the previous
day's public offering price.
__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
_____________________________________
Name on account
_____________________________________
Account number
_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.
7-------------Financial Service Firm---------------------
To be completed by a Representative of your financial service firm.
This application is submitted in accordance with our selling agreement with
Colonial Investment Services, Inc. (CISI), the Fund's prospectus, and this
application. We will notify CISI, Inc., of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
8----------Request for a Combined Quarterly Statement Mailing-----------
Colonial can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my accounts. Please
indicate accounts to be linked.______________________
Fundamatic (See Reverse Side)
Applications must be received before the start date for processing.
This program's deposit privilege can be revoked by Colonial without prior
notice if any check is not paid upon presentation. Colonial has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service Center, Inc. to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of Colonial Investors
Service Center, Inc., Colonial Investment Services, Inc., hereby indemnifies
and holds you harmless from any loss (including reasonable expenses) you may
suffer from honoring such draw, except any losses due to your payment of any
draw against insufficient funds.
SH-938B-0396
<PAGE>
Checkwriting Signature Card
(Class A & Class C Shares Only)
Colonial Mutual Funds
Signature Card for the Bank of Boston ("Bank").
- -----------------------------------------------
Name of Fund
- -----------------------------------------------
Fund account number
Indicate the number of signatures required
- -----------------------------------------------
Account Name:
You must sign below exactly as your account is registered.
X
- -----------------------------------------------
Signature
X
- -----------------------------------------------
Signature
By signing this card, you are subject to the conditions printed on the reverse
side. If adding this privilege to an existing account, your signatures must be
guaranteed.
Checkwriting Privilege
By electing the checkwriting privilege and signing the signature card, I
acknowledge that I am subject to the rules and regulations of the Bank of
Boston ("Bank") as currently existing and as they may be amended from time
to time. I designate the Bank as my representative to present checks drawn
on my Fund account to the Fund or its Agent and deposit the proceeds in this
checking account. I understand that the shares for which share certificates
have been issued or requested cannot be redeemed in this manner.
If the account is registered in joint tenancy, all persons must sign this card,
and each person guarantees the genuineness of all other parties' signatures. I
understand that if only one person signs a check, that all other tenants have
authorized that signature.
Minimum and Maximum
I understand that checks may not be in amounts less than $500 nor more than
$100,000, and that the Fund reserves the right to change these limits in its
sole discretion. I agree that neither the Fund nor its Agent is responsible
for any loss, expense, or cost arising from these redemptions. Also, if I have
recently made additional investments, I understand that redemption proceeds
will not be available until the check used to purchase the investment
(including a certified or cashier's check) has been cleared by the bank on
which it is drawn, which could take up to 15 days or more.
D-138A-0795
COLONIAL TRUST II
Cross Reference Sheet (Colonial Newport Greater China Fund-Class Z)
<TABLE>
<CAPTION>
<S> <C>
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Cover page
2. Summary of expenses
3. Not applicable
4. Organization and history; The Fund's
investment objective; How the Fund pursues
its objective and certain risk factors
5. Cover page; How the Fund is managed;
Organization and history; The Funds
investment objective; Back cover
6. Organization and history; Distributions
and taxes; How to buy shares
7. Summary of expenses; How to buy shares;
How the Fund values its shares; Back cover
8. How to sell shares; How to exchange
shares; Telephone transactions
9. Not applicable
</TABLE>
May , 1997
COLONIAL NEWPORT GREATER CHINA FUND
CLASS Z SHARES
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) and your full-service
financial adviser want you to understand both the risks and benefits of mutual
fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Colonial Newport Greater China Fund (Fund), a non-diversified portfolio of
Colonial Trust II (Trust), an open-end management investment company, seeks
long-term growth of capital by investing primarily in equity securities of
companies located in, or which derive a substantial portion of revenue from
business activity with or in, the Greater China Region (i.e., Hong Kong, the
People's Republic of China and Taiwan).
The Fund is managed by Newport Fund Management, Inc. (Adviser), an investment
adviser since 1984 and an affiliate of the Administrator.
This Prospectus explains concisely what you should know before investing in the
Class Z shares of the Fund. Read it carefully and
XX-XXXX-0597
retain it for future reference. More detailed information about the Fund is in
the May __, 1997 Statement of Additional Information which has been filed with
the Securities and Exchange Commission and is obtainable free of charge by
calling the Administrator at 1-800-426-3750. The Statement of Additional
Information is incorporated by reference in (which means it is considered to be
a part of) this Prospectus.
Class Z shares may be purchased only by (i) certain institutions (including
certain insurance companies and banks investing for their own account, trusts,
endowment funds, foundations and investment companies) and defined benefit
retirement plans investing a minimum of $5 million in the Fund and (ii) the
Adviser and its affiliates.
Contents Page
Summary of Expenses
The Fund's Investment Objective
How the Fund Pursues its Objective
and Certain Risk Factors
How the Fund Measures its Performance
Adviser Performance Information
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
Organization and History
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your estimated
annual expenses for an investment in Class Z shares of the Fund. "Other
expenses" are based on estimated amounts for the current fiscal year. See "How
the Fund is Managed" for more complete descriptions of the Fund's various costs
and expenses.
Shareholder Transaction Expenses (1)(2)
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price) 0.00%
Maximum Contingent Deferred Sales Charge
(as a % of offerinG price) 0.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted.
See "How to Buy Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will
be subject to a $7.50 charge per transaction.
Estimated Annual Operating Expenses (as a % of average net assets)
Management and administration fees (after expense reimbursement) ---%
12b-1 fees ---
Other expenses (after expense reimbursement) ---
Total operating expenses ---(3)
(3) The Adviser/Administrator have voluntarily agreed to waive or bear
certain Fund expenses until further notice to the Fund.
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in the Class Z shares of the Fund for the periods
specified, assuming a 5% annual return with or without redemption at period end.
The 5% return and expenses in this Example should not be considered indicative
of actual or expected Fund performance or expenses, both of which will vary:
Period:
1 year $XX
3 years $XX
Without voluntary fee reductions:
Period:
1 year $XX
3 years $XX
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital by investing primarily in equity
securities of companies located in, or which derive a substantial portion of
revenue from business activity with or in, the Greater China Region (i.e., Hong
Kong, the People's Republic of China and Taiwan).
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund normally invests substantially all of its assets in companies that are
expected to benefit from anticipated economic growth within the Greater China
Region. The Fund invests in companies with both large and small market
capitalizations, as well as both seasoned companies and those with limited
operating histories. The equity securities in which the Fund invests include
common and preferred stock, warrants (rights) to purchase stock, debt securities
convertible into stock, sponsored and unsponsored American Depository Receipts
(receipts issued in the U.S. by banks or trust companies evidencing ownership of
underlying foreign securities), Global Depository Receipts (receipts issued by
foreign banks or trust companies) and shares of closed-end investment companies
that invest primarily in the foregoing securities. Dividend income will not be
considered in choosing the investments of the Fund.
An investment in the Fund involves a high degree of risk arising out of its
concentration of investments in companies located in or economically tied to the
Greater China Region. This Region currently is undergoing significant economic
and political change. The uncertainty surrounding such change, as well as any
adverse developments that may occur, may negatively impact the Fund's return and
the value of the Fund's shares. See "The Greater China Region" below. An
investment in the Fund also involves special risks generally associated with
foreign investing and with investing in smaller, less-established companies. See
"Foreign Investing Generally" and "Small Companies" below.
The Greater China Region. Although Hong Kong, the People's Republic of China and
Taiwan are closely tied economically, they have different political and economic
systems and their markets and regulatory structures are at different stages of
development. Following is a summary of the major risks and uncertainties
associated with investing in each country.
Hong Kong. Although Hong Kong has the most developed securities markets of the
three countries in the Greater China Region, a substantial portion of its
economy is dependent on investments in or trade with China and other
less-developed Asian countries. Political and economic developments in those
countries could adversely impact the Fund's Hong Kong investments.
As of July 1, 1997, sovereignty over Hong Kong will be transferred from Great
Britain to China and Hong Kong will become a Special Administrative Region of
China. In connection with this transfer, China has agreed to maintain for 50
years Hong Kong's current economic and social systems, as well as most of the
personal freedoms currently enjoyed by Hong Kong residents. Nevertheless, it is
impossible to predict with certainty the ultimate effect Chinese sovereignty
will have on Hong Kong's business environment. Further, uncertainty surrounding
the transfer could hurt the value of the Fund's investments or make them more
volatile in the short-run.
China. Since 1978, China's leaders have implemented economic reforms which have
transformed China from a socialist economy to one that is increasingly
market-based. These changes have included the creation of two domestic stock
exchanges and have stimulated strong economic growth. The continued development
of China's industrial and service sectors will depend on the extent to which
governmental policies continue to support such development and the pace at which
economic reforms are implemented. The recent death of Deng Xiaoping has created
additional uncertainty regarding the future direction and rate of change of
Chinese domestic economic policy.
Investments in China also are significantly affected by domestic political
developments. Deng Xiaoping's death has created some uncertainty regarding
China's political leadership. While Deng's successor, Jiang Zemin, has
been identified, he is in the process of consolidating his power base. This
process may require Jiang to agree to slow the pace of economic reform. In any
event, as evidenced by the government's actions during the 1989 crisis in
Tiananmen Square, the Chinese government's reaction to domestic and
international events is unpredictable. Uncertainty exists particularly with
respect to China's relationship with Taiwan and the ultimate impact on Hong Kong
of the assumption of sovereignty by China. Dramatic action by China's leaders
could cause extreme short-run volatility in the value of the Fund's investments
and the Fund's shares, and also could significantly and adversely affect the
Fund's returns in the long run. Similarly, China's relations with its important
trading partners in the West (including the United States) could be adversely
affected if the Chinese government's human rights policies are perceived to be
deteriorating. Even if trading relations are not actually affected, threats to
impose trading restrictions could cause substantial short-term volatility in the
value of the Fund's China investments and of the Fund's shares.
Taiwan. The Taiwan Stock Exchange is owned by government-controlled enterprises
and private banks and has only recently begun to allow direct foreign investment
in listed Taiwan securities. Substantial restrictions on such investment remain,
including limitations on the percentage of shares of a company that may be
foreign-owned and prohibitions on foreign ownership of companies in certain
industries.
Taiwan's economy is heavily dependent on exports. Any deterioration in Taiwan's
relationships with its trading partners could adversely impact Taiwan's economy
and the Fund's Taiwan investments. In particular, Taiwan has become increasingly
dependent on direct and indirect trade with China and other Asian countries.
Adverse economic or political developments in those countries could negatively
impact the Fund's Taiwan investments.
Investments in Taiwan could be affected by Taiwan's political relationship with
China. Uncertainty exists between Taiwan and China over the issue of political
reunification between those two countries. Uncertainty over the prospects for
such reunification could make the value of the Fund's Taiwan investments and of
its shares particularly volatile and could negatively impact returns, especially
if China threatens political or military action. Such reunification, if it were
to occur, also could negatively impact the Fund's Taiwan investments.
Foreign Investing Generally. In addition to the specific risks described above,
investing in foreign securities generally entails special risks not associated
with investing in U.S. securities. As a result, the prices of foreign securities
and, therefore, the value of Fund shares, may fluctuate substantially more than
the prices of securities of issuers based in the U.S. Special risks associated
with foreign investing include, among others, the possibility of unfavorable
movements in currency exchange rates, difficulties in enforcing judgments
abroad, the existence of less liquid and less regulated markets, the
unavailability of reliable information about issuers, the existence of different
accounting, auditing and legal standards in foreign countries, the existence (or
potential imposition) of exchange control regulations (including currency
blockage or other restrictions on repatriation of capital), and political and
economic instability. In addition, transactions in foreign securities may be
more costly due to currency conversion costs and higher brokerage and custodial
costs and may be subject to delays and disruptions in securities settlement
procedures. See "Foreign Securities" and "Foreign Currency Transactions" in the
Statement of Additional Information for more information about foreign
investments.
Small Companies. The smaller, less well-established companies in which the Fund
may invest may offer greater opportunities for capital appreciation than larger,
better-established companies, but may also involve certain special risks. Such
companies often have limited product lines, markets or financial resources and
depend heavily on a small management group. Their securities may trade less
frequently, in smaller volumes, and fluctuate more sharply in value than
exchange-listed securities of larger companies.
Other Investment Companies. Up to 10% of the Fund's total assets may be invested
in other investment companies. Such investments will involve the payment of
duplicative fees through the indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies.
Foreign Currency Transactions. In connection with its investments in equity
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.
Futures Contracts and Options. The Fund may purchase and sell foreign stock
index futures contracts and options on such contracts. Such transactions will be
entered into to gain exposure to a particular foreign equity market pending
investment in individual securities or to hedge against market declines. A
futures contract creates an obligation by the seller to deliver and the buyer to
take delivery of a type of instrument at the time and in the amount specified in
the contract. A sale of a futures contract can be terminated in advance of the
specified delivery date by subsequently purchasing a similar contract; a
purchase of a futures contract can be terminated by a subsequent sale. Gain or
loss on a contract generally is realized upon such termination. An option on a
futures contract generally gives the option holder the right, but not the
obligation, to purchase or sell the futures contract prior to the option's
specified expiration date. If the option expires unexercised, the holder will
lose any amount it paid to acquire the option. Transactions in futures and
related options may not precisely achieve the goals of hedging or gaining market
exposure to the extent there is an imperfect correlation between the price
movements of the contracts and of the underlying securities. In addition,
hedging against a market decline will limit the Fund's return if the market
instead appreciates.
Borrowing of Money. The Fund may borrow money 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.
Temporary/Defensive Investments. Temporarily available cash may be invested in
U.S. dollar or foreign currency denominated demand deposits, certificates of
deposit, bankers' acceptances and high-quality, short-term debt securities, as
well as in Treasury bills and repurchase agreements. Some or all of the Fund's
assets may be invested in such investments during periods of unusual market
conditions. Under a repurchase agreement, the Fund buys a security from a bank
or dealer, which is obligated to buy it back at a fixed price and time. The
security is held in a separate account at the Fund's custodian and, constitutes
the Fund's collateral for the bank's or dealer's repurchase obligation.
Additional collateral will be added so that the obligation will at all times be
fully collateralized. However, if the bank or dealer defaults or enters
bankruptcy, the Fund may experience costs and delays in liquidating the
collateral and may experience a loss if it is unable to demonstrate its right to
the collateral in a bankruptcy proceeding. Not more than 15% of the Fund's net
assets will be invested in repurchase agreements maturing in more than 7 days
and other illiquid assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors prior to any
material change in the Fund's investment objective. If there is a change in the
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares are redeemed
in response to a change in investment objective. 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.
ADVISER PERFORMANCE INFORMATION
The Fund is newly-organized and has no performance history of its own. The
Adviser currently does not manage any other funds or accounts having the same
objective and investment policies as the Fund. The Adviser does, however, manage
a number of funds and accounts, totaling approximately $___ billion in assets as
of March 31, 1997, that invest primarily in equity securities of companies
located in nine Asian countries, including Hong Kong, China, Taiwan, Malaysia,
Singapore, Thailand, South Korea, Indonesia and the Philippines. Although not
exclusively dedicated to the Greater China Region, these funds and accounts each
invest a substantial amount of their assets in securities of companies in Hong
Kong, Taiwan and China.
Shown below are average annual and cumulative total returns for the one year,
five year and since inception periods through March 31, 1997 of the Class A
shares of the largest and oldest of such funds, the Colonial Newport Tiger Fund
(Tiger Fund). Also shown are (i) the average annual and cumulative total returns
of the Morgan Stanley Capital International Europe, Asia and Far East (GDP)
Index (MSCI EAFE Index), (ii) the average annual and cumulative total returns of
the average fund in the Lipper Pacific Basin ex-Japan category, and (iii) the
Tiger Fund's ranking within its Lipper category, in each case for the one year,
five year and since inception periods ending March 31, 1997.
It is important to note that the returns shown of the Tiger Fund, of funds in
the Lipper Pacific Region ex-Japan category and of the MSCI EAFE Index do not
represent past performance of the Fund, and are not necessarily indicative of
future performance of the Fund. In particular, as noted above, the Fund will
focus its investments in companies located in or economically tied to the
Greater China Region, whereas the Tiger Fund invests in nine Asian countries,
the funds in the Lipper Pacific Region ex-Japan category includes funds
investing in other Pacific Rim countries, and the MSCI EAFE Index includes
returns on stocks in other regions of the world. The Fund's focus on the Greater
China Region is likely to produce substantially different and more volatile
investment returns than funds with a broader investment focus. In addition, the
Tiger Fund seeks to invest in larger, more established companies in southeast
Asia, whereas a significant portion of the Fund's investments may be in smaller
companies and companies with limited operating histories. Moreover, because the
Fund likely will be smaller than the Tiger Fund for the foreseeable future, the
Fund's expenses are expected to be higher than those of the Tiger Fund. Finally,
the Tiger Fund is only one of the Asian portfolios managed by the Adviser. The
performance of other such portfolios is not shown and differs from that of the
Tiger Fund.
COLONIAL NEWPORT TIGER FUND
Average Annual Cumulative Total
Total Returns Returns
(NAV) (NAV)
One Year _____% _____%
Five Years _____% _____%
Since 5/31/89
(inception) _____% _____%
MSCI EAFE INDEX
Average Annual Cumulative Total
Total Returns Returns
One Year _____% _____%
Five Years _____% _____%
Since 5/31/89 _____% _____%
AVERAGE LIPPER PACIFIC REGION
EX-JAPAN FUND
Average Annual Cumulative Total
Total Returns Returns
One Year _____% _____%
Five Years _____% _____%
Since 5/31/89 _____% _____%
LIPPER PACIFIC REGION EX-JAPAN
CATEGORY RANKINGS* OF COLONIAL
NEWPORT TIGER FUND
One Year __/__
Five Years __/__
Since 5/31/89 __/__
*First number shows rank within category/second number shows total number of
funds in category.
The MSCI EAFE Index is a broad-based, unmanaged index that tracks the
performance of equity securities of companies located in Europe, Asia and the
Far East. Index returns represent the total returns, assuming reinvestment of
all dividends, earned on the stocks included in the Index. Index returns do not
reflect sales charges or expenses. The Lipper Pacific Region ex-Japan Fund
category includes all funds classified by Lipper Analytical Services, Inc., an
independent mutual fund ranking organization, as investing primarily in the
Pacific Region excluding Japan. Lipper returns also exclude initial and deferred
sales charges. You may obtain a prospectus for the Tiger Fund containing
additional information, including information about the risks, fees and expenses
associated with investing in the Tiger Fund, by calling your financial adviser
or Colonial at 1-800-426-3750. Please read it carefully before you invest.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Average annual
total returns are calculated in accordance with the Securities and Exchange
Commission's formula and assume the reinvestment of all distributions. Other
total returns differ from average annual total return only in that they may
relate to different time periods and may represent aggregate as opposed to
average annual total returns.
Yield, which differs from total return because it does not consider changes in
net asset value, is calculated in accordance with the Securities and Exchange
Commission's formula. the distribution rate is calculated by dividing the most
recent twelve months' distributions by the net asset value at the end of the
period. 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.
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.
The Adviser is an indirect subsidiary of Liberty Financial Companies, Inc.
(Liberty Financial) which in turn is an indirect subsidiary of Liberty Mutual
Insurance Company (Liberty Mutual). The Administrator is a subsidiary of The
Colonial Group, Inc. which in turn is a direct subsidiary of Liberty Financial.
Liberty Mutual is considered to be the controlling entity of the Adviser, the
Administrator and their affiliates. Liberty Mutual is an underwriter of workers'
compensation insurance and a property and casualty insurer in the U.S.
Colonial Investment Services, Inc. (Distributor), a subsidiary of the
Administrator, serves as the distributor for the Fund's shares. Colonial
Investors Service Center, Inc. (Transfer Agent), an affiliate of the
Administrator, serves as the shareholder services and transfer agent for the
Fund.
The Adviser furnishes the Fund with investment management services at the
Adviser's expense. For these services, the Fund pays the Adviser a monthly fee
at an annual rate of XX% of the Fund's average daily net assets. The fee is
comparable to that paid by many investment companies investing in foreign
securities, although it is higher than that paid by most other investment
companies.
Thomas R. Tuttle and Xiaodong (Tony) Zhang, Senior Vice President and Greater
China Analyst, respectively, of the Adviser co-manage the Fund. Messrs. Tuttle
and Zhang also are Senior Vice President and Greater China Analyst,
respectively, of Newport Pacific Management, Inc. (Newport Pacific), the
Adviser's immediate parent, and have been affiliated with the Adviser since 1983
and 1993, respectively. Prior to his affiliation with the Adviser Mr. Zhang was
Project Manager for Hongmei Electric Corporation from 1987 to 1992.
The Administrator provides certain administrative services to the Fund, for
which the Fund pays the Administrator a monthly fee at the annual rate of XX% of
the Fund's average daily net assets for such services. The Administrator 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 monthly fee at the annual rate of XX% of average daily net assets plus
certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser and its affiliates may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
In doing so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors. When the Adviser
believes that more than one broker-dealer is capable of providing the best
combination of price and execution in a particular portfolio transaction, the
Adviser often selects a broker-dealer that furnishes it with research products
or services, and may consider sales of shares of the Fund as a factor in the
selection of the broker-dealer.
Fund expenses consist of management, administration, pricing and bookkeeping,
shareholder service and transfer agent fees discussed above, and all other
expenses, fees, charges, taxes, organization costs and liabilities incurred or
arising in connection with the Fund or Trust or in connection with the
management thereof, including but not limited to, trustees' compensation and
expenses and auditing, counsel, custodian and other expenses deemed necessary
and proper by the Trustees.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value attributable
to Class Z shares by the number of Class Z shares outstanding. Shares of the
Fund are valued as of the close of the New York Stock Exchange (Exchange)
(normally 4:00 p.m. Eastern time) each day the Exchange is open. Portfolio
securities for which market quotations are readily available are valued at
current market value. Short-term investments maturing in 60 days or less are
valued at amortized cost when the Adviser determines, pursuant to procedures
adopted by the Trustees, that such cost approximates current market value. In
certain countries, the Fund may hold shares designated for foreign ownership. If
the foreign share prices are not readily available as a result of limited share
activity, the securities are valued at the last sale price of the local shares
in the principal market in which such securities are normally traded. All
other securities and assets are valued at their fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income and any net
realized gain annually.
Distributions are invested in additional Class Z shares 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 Class Z shares at net asset value. To change
your election, call the Transfer Agent for information. Whether you receive
distributions in cash or in additional Fund shares, you must report them as
taxable income unless you are a tax-exempt institution. If you buy shares
shortly before a distribution is declared, the distribution will be taxable
although it is, in effect, a partial return of the amount invested. Each
January, information on the amount and nature of distributions for the prior
year is sent to shareholders.
HOW TO BUY SHARES
Class Z shares are offered continuously at net asset value without a sales
charge. Orders received in good form prior to the time at which the Fund values
its shares (or placed with the financial service firm before such time and
transmitted by the financial service firm before the Fund processes that day's
share transactions) will be processed based on that day's closing net asset
value. Certificates will not be issued for Class Z shares. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.
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 account 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 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.
Other Classes of Shares. In addition to Class Z shares, the Fund offers three
other classes of shares, Classes A, B and D, through a separate Prospectus.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. In general, anyone eligible to purchase Class Z
shares, which do not bear 12b-1 fees or contingent deferred sales charges,
should do so in preference over other classes.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. Initial
or contingent deferred sales charges may be reduced or eliminated for certain
persons or organizations purchasing Fund shares alone or in combination with
certain other Colonial funds. See the Statement of Additional Information for
more information.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value next calculated after the Fund
receives the request in proper form. Signatures must be guaranteed by a bank, a
member firm of a national stock exchange or another eligible guarantor
institution. Stock power forms are available from financial service firms, the
Transfer Agent and many banks. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and individual
retirement account holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests 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.
See the Statement of Additional Information for more information. Under unusual
circumstances, the Fund may suspend repurchases or postpone payment for up to
seven days or longer, as permitted by federal securities law.
HOW TO EXCHANGE SHARES
Class Z shares may be exchanged at net asset value for the Class A shares of any
other Colonial fund. 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 it
is determined by the Adviser, 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 objectives or
otherwise harm the Fund or its remaining shareholders.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares 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 transactions in the event reasonable procedures are not employed.
Such procedure include restrictions on where proceeds of telephone redemptions
may be sent, limitations on the ability to redeem by telephone lines and
requirements that the redeeming shareholder and/or their financial adviser
provide certain identifying information. Shareholders and/or their financial
advisers wishing to redeem or exchange shares by telephone may experience
difficulty in reaching the Fund at its toll-free telephone number during periods
of drastic economic or market changes. In that event, shareholders and/or their
financial advisers should follow the procedures for redemption or exchange by
mail as described above under "How to Sell Shares." The Adviser, the
Administrator, the Transfer Agent and the Fund reserve the right to change,
modify or terminate the telephone redemption or exchange services at any time
upon prior written notice to shareholders. Shareholders and/or their financial
advisers are not obligated to transact by telephone.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1980. The Fund
commenced investment operations in 1997 as a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
<PAGE>
Investment Adviser
Newport Fund Management, Inc.
580 California Street, Suite 1960
San Francisco, CA 94104
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
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
May , 1997
COLONIAL NEWPORT GREATER CHINA FUND
CLASS Z SHARES
PROSPECTUS
Colonial Newport Greater China Fund seeks long-term growth of capital by
investing primarily in equity securities of companies located in, or which
derive a substantial portion of revenue from business activity with or in the
Greater China Region (i.e., Hong Kong, the People's Republic of China and
Taiwan).
For more detailed information about the Fund, call the Administrator at
1-800-426-3750 for the May , 1997 Statement of Additional Information.
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
<PAGE>
COLONIAL TRUST II
Cross Reference Sheet (Colonial Newport Greater China Fund)
<TABLE>
<CAPTION>
<S> <C>
Item Number of Form N-1A Statement of Additional Information Location or Caption
Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies; Fundamental Investment
Policies; Other Investment Policies; Portfolio Turnover;
Miscellaneous Investment Practices
14. Fund Charges and Expenses; Management of the 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; Shareholder Liability
19. How to Buy Shares; Determination of Net Asset Value;
Suspension of Redemptions; Special Purchase
Programs/Investor Services; Programs for Reducing or
Eliminating Sales Charge; How to Sell Shares; How to
Exchange Shares
20. Taxes
21. Fund Charges and Expenses; Management of the Colonial Funds
22. Fund Charges and Expenses; Investment Performance;
Performance Measures
23. Independent Accountants
</TABLE>
COLONIAL NEWPORT GREATER CHINA FUND
Statement of Additional Information
May , 1997
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Newport Greater China 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 May , 1997. This SAI should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus from Colonial
Investment Services, Inc., One Financial Center, Boston, MA 02111-2621.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information about the Colonial funds generally and additional information about
certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
<TABLE>
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<S> <C>
Part 1 Page
Definitions
Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Portfolio Turnover
Fund Charges and Expenses
Custodian
Independent Accountants
Management of the Fund
Part 2
Miscellaneous Investment Practices 1
Taxes 11
Management of the Colonial Funds 12
Determination of Net Asset Value 18
How to Buy Shares 19
Special Purchase Programs/Investor Services 19
Programs for Reducing or Eliminating Sales Charges 20
How to Sell Shares 23
Distributions 24
How to Exchange Shares 24
Suspension of Redemptions 25
Shareholder Liability 25
Shareholder Meetings 25
Performance Measures 26
Appendix I 27
Appendix II 31
</TABLE>
XX/XXXX-0597
<PAGE>
Part 1
COLONIAL NEWPORT GREATER CHINA FUND
Statement of Additional Information
May , 1997
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
"Trust" Colonial Trust II
"Fund" Colonial Newport Greater China Fund
"Adviser" Newport Fund Management, Inc., the Fund's investment adviser
"Administrator" Colonial Management Associates, Inc., the Fund's administrator
"CISI" Colonial Investment Services, Inc., the Fund's distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's shareholder services and
transfer agent
</TABLE>
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
that are described or referred to in the Prospectus:
Small Companies
Foreign Securities
Repurchase Agreements
Foreign Currency Transactions
Futures Contracts and Related Options
Other securities and investment techniques described in Part 2 are not
applicable to the Fund. Except as described 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.
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.
The Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets;
2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets;
3. Purchase and sell futures contracts and related options as long as the
total initial margin and premiums on contracts do not exceed 5% of total
assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans through lending of securities not exceeding 30% of total
assets, through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and
through repurchase agreements; and
6. Not concentrate more than 25% of its total assets in any one industry
or, with respect to 50% 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.
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;
PORTFOLIO TURNOVER
The Fund cannot accurately predict portfolio turnover, but the Adviser
anticipates that it will not exceed XX% annually.
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 of the Fund at the annual rate of XX%.
Under the Fund's administration agreement, the Fund pays the Administrator a
monthly fee at the annual rate of XX% of the average daily net assets and a
monthly pricing and bookkeeping fee of $2,250 plus the following percentages of
the Fund's average daily net assets over $50 million:
XX% on the next $950 million
XX% on the next $1 billion
XX% on the next $1 billion
XX% on the excess over $3 billion
Under the Fund's transfer agency and shareholder servicing agreement, the Fund
pays CISC a monthly fee at the annual rate of XX% of average daily net assets,
plus certain out-of-pocket expenses.
Trustees' Fees
For the calendar year ended December 31, 1996, the Trustees received the
following compensation for serving as Trustees:
Total Compensation
From Trust and Fund
Complex Paid To The
Aggregate Trustees For The
Compensation Calendar Year Ended
Trustee From Fund December 31, 1996(a)
Robert J. Birnbaum $ 0 $ 92,000
Tom Bleasdale 0 104,500(b)
Lora S. Collins 0 92,000
James E. Grinnell 0 93,000
William D. Ireland, Jr. 0 109,000
Richard W. Lowry 0 95,000
William E. Mayer 0 91,000
James L. Moody, Jr. 0 106,500(c)
John J. Neuhauser 0 94,500
George L. Shinn 0 105,500
Robert L. Sullivan 0 102,000
Sinclair Weeks, Jr. 0 110,000
(a) At December 31, 1996, the Colonial Funds complex consisted of 37
open-end and 5 closed-end management investment company portfolios.
(b) Includes $51,500 payable in later years as deferred compensation.
(c) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(formerly known as The Charles Allmon Trust, Inc.) (together, Liberty Funds) for
service during the calendar year ended December 31, 1996:
Total Compensation From Liberty
Funds For The Calendar Year
Trustee Ended December 31, 1996(d)
Robert J. Birnbaum $ 25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
(d) At December 31, 1996, the Liberty Funds were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary
of Liberty Financial Companies, Inc. (Liberty Financial) (an
intermediate parent of the Adviser).
Ownership of the Fund
At inception, the Adviser owned 100% of each Class of shares of the Fund and,
therefore, may be deemed to "control" the Fund.
12b-1 Plans, Initial Sales Charges, CDSCs and Conversion of Shares
The Fund offers four classes of shares - Class A, Class B, Class D and Class Z.
The Fund may in the future offer other classes of shares. The Trustees have
approved 12b-1 Plans (Plans) pursuant to Rule 12b-1 under the Act. Under the
Plans, the Fund pays CISI monthly a service fee at an annual rate of XX% of net
assets attributed to Class A, Class B and Class D shares. The Fund also pays
CISI monthly a distribution fee at an annual rate of XX% of average daily net
assets attributed to Class B and Class D shares. CISI may use the entire amount
of such fees to defray the cost of commissions and service fees paid to
financial service firms (FSFs) and for certain other purposes. Since the
distribution and service fees are payable regardless of CISI's expenses, CISI
may realize a profit from the fees. The Plans authorize any other payments by
the Fund to CISI and its affiliates (including the Adviser and the
Administrator) to the extent that such payments might be construed to be
indirect financing of the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. The Plans may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plans will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a contingent deferred sales charge (CDSC). Class B shares are
offered at net asset value and are subject to a CDSC if redeemed within six
years after purchase. Class D shares are offered at net asset value plus a 1.00%
initial sales charge and are subject to a 1.00% CDSC on redemptions within one
year after purchase. Class Z shares are offered at net asset value and are not
subject to a CDSC. The sales charges 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.
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.
CUSTODIAN
__________________________ 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.
MANAGEMENT OF THE FUND
Officers of the Fund (in addition to those listed in Part 2 of this SAI).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Position with Fund Principal Occupation During Past Five Years
Robert B. Cameron(e) 43 Vice President Senior Vice President of the Adviser and Newport
Pacific since 1996 (formerly branch manager -
equity sales at CS First Boston, Swiss Bank
Corp., and Baring Securities)
Lynda Couch(e) 54 Vice President Senior Vice President of the Adviser and Newport
Pacific since 1996 (formerly Vice President of
the Adviser and Newport Pacific and Vice
President - Research at Global Strategies and at
Smith Bellingham International, Inc.)
Pamela Frantz(e) 49 Vice President Executive Vice President, Treasurer and Secretary
of the Adviser and Newport Pacific since 1988 and
1983, respectively
John M. Mussey(e) 55 Vice President President of the Adviser since 1988 and President
and Director of Newport Pacific since 1983
David Smith(e) 55 Vice President Senior Vice President of the Adviser since 1996
and Director of North Asian Strategies of Newport
Pacific since 1994 (formerly analyst at Newport
Pacific, Executive Vice President at Carnegie
Investor Services and a Vice President at Global
Strategies, Redwood Securities and Smith
Bellingham International, Inc.)
Thomas R. Tuttle(e) 55 Vice President Senior Vice President of the Adviser and Newport
Pacific since 1994 and 1983, respectively
</TABLE>
The other officers and the trustees of the Fund are described under "Management
of the Colonial Funds" in Part 2 of this SAI.
(e) The address of each officer is 580 California Street, Suite 1960,
San Francisco, CA 94104.
ADDITIONAL INFORMATION CONCERNING THE GREATER CHINA REGION
Hong Kong. Hong Kong has one of the world's largest stock markets. It also is a
financial center with 500 banks from 43 nations. Hong Kong serves as a gateway
to China, with approximately 30% of China's foreign exchange earnings and 65% of
its foreign direct investments coming through Hong Kong. China is scheduled to
assume sovereignty over Hong Kong from the United Kingdom in 1997. The effect on
Hong Kong and the Fund's Hong Kong investments of such event cannot be
predicted.
Taiwan. Taiwan's manufacturing economy has shifted from relatively easy-to-make
products to high value electronic items. It is the second largest investor in
mainland China and has a high level of foreign reserves.
China. China is gradually evolving toward a free-market economy. It has a large
consumer population and has had average annual GDP growth of more than 9.5% over
the last 10 years.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated securities. Relative to comparable securities of higher
quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default;
b. the secondary market may at times become less liquid or respond to
adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
c. existing legislation limits and future legislation may further
limit (i) investment by certain institutions or (ii) tax
deductibility of the interest by the issuer, which may adversely
affect value; and
d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate
cash for distributions.
2. the fund's achievement of its investment objective is more
dependent on the Adviser's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes, but
are more sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (but not depreciation) on its holdings of PFICs as of the end of
its fiscal year.
Zero Coupon Securities (Zeros)
The fund may invest in debt securities which do not pay interest, but instead
are issued at a deep discount from par. The value of the security increases over
time to reflect the interest accrued. The value of these securities may
fluctuate more than similar securities which are issued at par and pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the fund and
distributed to its shareholders. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which do not pay interest for a stated
period of time and then pay interest at a series of different rates for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities are subject to the volatility risk of zero coupon
bonds for the period when no interest is paid.
Tender Option Bonds
A tender option bond is a Municipal Security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal Security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Adviser will consider on an ongoing basis the creditworthiness of the issuer of
the underlying Municipal Securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying Municipal Securities and for other
reasons.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory notes issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the fund enters into offsetting contracts for the forward
sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the fund of an
advantageous yield or price. Although the fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to enter into OTC options transactions only with primary dealers in U.S.
Government Securities and, in the case of OTC options written by the fund, only
pursuant to agreements that will assure that the fund will at all times have the
right to repurchase the option written by it from the dealer at a specified
formula price. The fund will treat the amount by which such formula price
exceeds the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the fund not to enter into any
OTC option transaction if, as a result, more than 15% (10% in some cases, refer
to your fund's Prospectus) of the fund's net assets would be invested in (i)
illiquid investments (determined under the foregoing formula) relating to OTC
options written by the fund, (ii) OTC options purchased by the fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Adviser to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the Securities and
Exchange Commission's requirements, cash, cash equivalents or high-grade debt
securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government Securities. This
amount is known as "initial margin". The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin", to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
equivalents equal in value to the commodity value (less any applicable margin
deposits) have been deposited in a segregated account of the fund's custodian.
The fund may purchase and write call and put options on futures contracts it may
buy or sell and enter into closing transactions with respect to such options to
terminate existing positions. The fund may use such options on futures contracts
in lieu of writing options directly on the underlying securities or purchasing
and selling the underlying futures contracts. Such options generally operate in
the same manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser`s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of U.S. Treasury security futures contracts and options.
The funds investing in tax-exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on U.S. Treasury
securities when, in the opinion of the Adviser, price movements in Treasury
security futures and related options will correlate closely with price movements
in the tax-exempt securities which are the subject of the hedge. U.S. Treasury
securities futures contracts require the seller to deliver, or the purchaser to
take delivery of, the type of U.S. Treasury security called for in the contract
at a specified date and price. Options on U.S. Treasury security futures
contracts give the purchaser the right in return for the premium paid to assume
a position in a U.S. Treasury futures contract at the specified option exercise
price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in U.S. Treasury security futures contracts and
related options will not correlate closely with price movements in markets for
tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of index futures by the fund for hedging purposes is also subject
to the Adviser's ability to predict correctly movements in the direction of the
market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging". When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash, cash equivalents or high-grade
debt securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
Municipal Lease Obligations
Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the 1933 Act. That Rule
permits certain qualified institutional buyers, such as the fund, to trade in
privately placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of Trustees, will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the fund's investment restriction on illiquid securities. A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the trading
markets for the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
All discussions of taxation at the shareholder level relate to federal taxes
only. Consult your tax adviser for state and local tax considerations and for
information about special tax considerations that may apply to shareholders that
are not natural persons.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate alternative minimum tax (AMT).
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. In general, any gain or loss realized upon a taxable
disposition of shares by a shareholder will be treated as long-term capital gain
or loss if the shares have been held for more than twelve months, and otherwise
as short-term capital gain or loss assuming such shares are held as a capital
asset. However, any loss realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares will be disallowed if other shares are
purchased within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities or foreign currencies or other income (including but
not limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months; (c) diversify its holdings so that,
at the close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets consists of cash, cash items, U.S. Government securities,
and other securities limited generally with respect to any one issuer to not
more than 5% of the total assets of the fund and not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any issuer (other than U.S.
Government securities).
Futures Contracts. Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on the closing out of a futures contract will result in a capital gain or
loss for tax purposes. In addition, certain futures contracts held by the fund
(so-called "Section 1256 contracts") will be required to be "marked-to-market"
(deemed sold) for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales or on
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
However, if a futures contract is part of a "mixed straddle" (i.e., a straddle
comprised in part of Section 1256 contracts), a fund may be able to make an
election which will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of such gains or
losses. In any event, the straddle provisions described below will be applicable
to such mixed straddles.
Special Tax Rules Applicable to "Straddles". The straddle provisions of the Code
may affect the taxation of the fund's options and futures transactions and
transactions in securities to which they relate. A "straddle" is made up of two
or more offsetting positions in "personal property," including debt securities,
related options and futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities, and foreign
currencies and related options and futures.
The straddle rules may operate to defer losses realized or deemed realized on
the disposition of a position in a straddle, may suspend or terminate the fund's
holding period in such positions, and may convert short-term losses to long-term
losses in certain circumstances.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currency-denominated debt securities, certain
foreign currency options, futures contracts and forward contracts may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in securities of foreign corporate issuers, the fund may make an
election permitting its shareholders to take a deduction or credit for federal
tax purposes for their portion of certain foreign taxes paid by the fund. The
Adviser will consider the value of the benefit to a typical shareholder, the
cost to the fund of compliance with the election, and incidental costs to
shareholders in deciding whether to make the election. A shareholder's ability
to claim such a foreign tax credit will be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not get a full
credit for the amount of foreign taxes so paid by the fund. Shareholders who do
not itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Certain securities are considered to be Passive Foreign Investment Companies
(PFICS) under the Code, and the fund is liable for any PFIC-related taxes.
MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
"Investment decisions," and "Brokerage and research services," the "Adviser"
refers to Colonial Management Associates, Inc.) The Adviser is the investment
adviser to each of the Colonial funds (except for Colonial Municipal Money
Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Tiger Cub Fund and Colonial Newport Japan Fund - see Part I of
each Fund's respective SAI for a description of the investment adviser). The
Adviser is a subsidiary of The Colonial Group, Inc. (TCG), One Financial Center,
Boston, MA 02111. TCG is a direct subsidiary of Liberty Financial Companies,
Inc. (Liberty Financial), which in turn is a direct subsidiary of LFC Holdings,
Inc., which in turn is a direct subsidiary of Liberty Mutual Equity Corporation,
which in turn is a wholly-owned subsidiary of Liberty Mutual Insurance Company
(Liberty Mutual). Liberty Mutual is an underwriter of workers' compensation
insurance and a property and casualty insurer in the U.S. Liberty Financial's
address is 600 Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is
175 Berkeley Street, Boston, MA 02117.
Trustees and Officers (this section applies to all of the Colonial funds)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address Age Position with Principal Occupation
Fund
Robert J. Birnbaum 69 Trustee Retired (formerly Special Counsel, Dechert Price & Rhoads
313 Bedford Road from September, 1988 to December, 1993).
Ridgewood, NJ 07450
Tom Bleasdale 66 Trustee Retired (formerly Chairman of the Board and Chief
102 Clubhouse Drive #275 Executive Officer, Shore Bank & Trust Company from
Naples, FL 34105 1992-1993), is a Director of The Empire Company since
June, 1995.
Lora S. Collins 61 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis,
1175 Hill Road Nessen, Kamin & Frankel from September, 1986 to
Southold, NY 11971 November, 1996).
James E. Grinnell 67 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
William D. Ireland, Jr. 72 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 60 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 56 Trustee Partner, Development Capital, L.L.C. (formerly Dean,
500 Park Avenue, 5th Floor College of Business and Management, University of
New York, NY 10022 Maryland from October, 1992 to November, 1996, Dean,
Simon Graduate
School of Business,
University of
Rochester from
October, 1991 to
July, 1992).
James L. Moody, Jr. 65 Trustee Chairman of the Board and Director, Hannaford Bros., Co.
P.O. Box 1000 since May, 1984 (formerly Chief Executive Officer,
Portland, ME 04104 Hannaford Bros. Co. from May, 1973 to May, 1992).
John J. Neuhauser 53 Trustee Dean, Boston College School of Management since 1978.
140 Commonwealth Avenue
Chestnut Hill, MA 02167
George L. Shinn 73 Trustee Financial Consultant since 1989.
Credit Suisse First Boston
Corp.
Eleven Madison Avenue,
25th Floor
New York, NY 10010-3629
Robert L. Sullivan 69 Trustee Retired Partner, Peat Marwick Main & Co. (formerly
7121 Natelli Woods Lane Self-employed Management Consultant since January, 1989.)
Bethesda, MD 20817
Sinclair Weeks, Jr. 73 Trustee Chairman of the Board, Reed & Barton Corporation since
Bay Colony Corporate Ctr. 1987.
Suite 4550
1000 Winter Street
Waltham, MA 02154
Harold W. Cogger 61 President President of Colonial funds since March, 1996 (formerly
(formerly Vice Vice President from July, 1993 to March, 1996); is
President) Director, since March, 1984 and Chairman of the Board
since March, 1996 of
the Adviser
(formerly President
from July, 1993 to
December, 1996,
Chief Executive
Officer from March,
1995 to December,
1996 and Executive
Vice President from
October, 1989 to
July, 1993);
Director since
October, 1991 and
Chairman of the
Board since March,
1996 of TCG
(formerly President
from October, 1994
to December, 1996
and Chief Executive
Officer from March,
1995 to December,
1996); Executive
Vice President and
Director since
March, 1995, Liberty
Financial; Director
since November, 1996
of Stein Roe &
Farnham
Incorporated.
Timothy J. Jacoby 44 Treasurer and Treasurer and Chief Financial Officer of Colonial funds
Chief Financial since October, 1996, is Senior Vice President of the
Officer Adviser since September, 1996 (formerly Senior Vice
President, Fidelity
Accounting and
Custody Services
from September, 1993
to September, 1996
and Assistant
Treasurer to the
Fidelity Group of
Funds from August,
1990 to September,
1993).
Peter L. Lydecker 43 Chief Accounting Chief Accounting Officer and Controller of Colonial
Officer and funds since June, 1993 (formerly Assistant Controller
Controller from March, 1985 to June, 1993); is Vice President of
(formerly the Adviser since June, 1993 (formerly Assistant Vice
Assistant President of the Adviser from August, 1988 to June,
Controller) 1993).
Davey S. Scoon 50 Vice President Vice President of Colonial funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995).
Arthur O. Stern 58 Secretary Secretary of Colonial funds since 1985, is Director
since 1985, Executive Vice President since July, 1993,
General Counsel, Clerk and Secretary since March, 1985
of the Adviser; Executive Vice President, Legal since
March, 1995 and Clerk since March, 1985 of TCG
(formerly Executive Vice President, Compliance from
March, 1995 to March, 1996 and Vice President - Legal
of TCG from March, 1985 to March, 1995).
</TABLE>
* A Trustee who is an "interested person" (as defined in the Investment
Company Act of 1940) of the fund or the Adviser.
The address of the officers of each Colonial Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint meeting. Committee
chairs receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the Colonial funds based on each fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 38 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 open-end management investment
company portfolios (collectively, Colonial funds). Trustees and officers of the
Trust, who are also officers of the Adviser or its affiliates, will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $16.3. billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund or Colonial Newport Tiger Cub Fund) Under a
Management Agreement (Agreement), the Adviser has contracted to furnish each
fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each Colonial fund pays a monthly fee based on the average of the daily closing
value of the total net assets of each fund for such month. Under the Agreement,
any liability of the Adviser to the fund and its shareholders is limited to
situations involving the Adviser's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders. CISI pays the cost of printing and distributing all other
Prospectuses.
The Agreement provides that the Adviser shall not be subject to any liability to
the Trust or to any shareholder of the Trust for any act or omission in the
course of or connected with rendering services to the Trust in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund and their
respective Trusts).
Under an Administration Agreement with each Fund, the Adviser, in its capacity
as the Administrator to each Fund, has contracted to perform the following
administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
Directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents
required for compliance by each Fund with applicable laws
and regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders;
(e) coordinating and overseeing the activities of each Fund's
other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to the Colonial Municipal Money Market Fund, the Administration
Agreement for this Fund provides for the following services in addition to the
services referenced above:
(g) monitoring compliance by the Fund with Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act") and
reporting to the Trustees from time to time with respect
thereto; and
(h) monitoring the investments and operations of the SR&F
Municipal Money Market Portfolio (Municipal Money Market
Portfolio) in which Colonial Municipal Money Market Fund
is invested and the LFC Portfolio and reporting to the
Trustees from time to time with respect thereto.
The Adviser is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping
Agreement has a one-year term. The Adviser, in its capacity as the Administrator
to each of Colonial Municipal Money Market Fund and Colonial Global Utilities
Fund, is paid an annual fee of $18,000, plus 0.0233% of average daily net assets
in excess of $50 million. For each of the other Colonial funds (except for
Colonial Newport Tiger Fund, Colonial Newport Japan Fund and Colonial Newport
Tiger Cub Fund), the Adviser is paid monthly a fee of $2,250 by each fund, plus
a monthly percentage fee based on net assets of the fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund for an
annual fee of $27,000, plus 0.035% of each Fund's average daily net assets over
$50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund, and
Colonial Global Utilities Fund. For each of these funds, see Part 1 of its
respective SAI. The Adviser of Colonial Newport Tiger Fund, Colonial Newport
Japan Fund and Colonial Newport Tiger Cub Fund follows the same procedures as
those set forth under "Brokerage and research services."
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Colonial Newport Tiger Fund, Colonial Newport Japan Fund
and Colonial Newport Tiger Cub Fund, each of which is administered by the
Adviser. 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 broker-dealer, and to deal directly with
a principal market maker in connection with over-the-counter transactions,
except when it is believed that best execution is obtainable elsewhere. In
evaluating the execution services of, including the overall reasonableness of
brokerage commissions paid to, a broker-dealer, consideration is given to, among
other things, the firm's general execution and operational capabilities, and to
its reliability, integrity and financial condition.
Securities transactions of the Colonial funds may be executed by broker-dealers
who also provide research services (as defined below) to the Adviser and the
Colonial funds. The Adviser may use all, some or none of such research services
in providing investment advisory services to each of its investment company and
other clients, including the fund. To the extent that such services are used by
the Adviser, they tend to reduce the Adviser's expenses. In the Adviser's
opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Adviser to cause the Colonial funds to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction, including the sale
of an option or a closing purchase transaction, for the Colonial funds in excess
of the amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends and portfolio strategy and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The Adviser must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Adviser's
overall responsibilities to the Colonial funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by Colonial funds that write
options and to pay such clearing agent commissions of a fixed amount per share
(currently 1.25 cents) on the sale of the underlying security upon the exercise
of an option written by a fund.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds' shares only
upon receipt of orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund to CISC or generally by 6 months' notice by CISC to the Fund.
The agreement limits the liability of CISC to the Fund for loss or damage
incurred by the Fund to situations involving a failure of CISC to use reasonable
care or to act in good faith in performing its duties under the agreement. It
also provides that the Fund
will indemnify CISC against, among other things, loss or damage incurred by CISC
on account of any claim, demand, action or suit made on or against CISC not
resulting from CISC's bad faith or negligence and arising out of, or in
connection with, its duties under the agreement.
DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m.
Eastern time, 3:00 p.m. Chicago time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. Funds with portfolio securities which are primarily
listed on foreign exchanges may experience trading and changes in NAV on days on
which such Fund does not determine NAV due to differences in closing policies
among exchanges. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. The net asset
value of the Municipal Money Market Portfolio will not be determined on days
when the Exchange is closed unless, in the judgment of the Municipal Money
Market Portfolio's Board of Trustees, the net asset value of the Municipal Money
Market Portfolio should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time. Debt securities generally
are valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or where the
Adviser deems it appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on NASDAQ are valued at
the last sale price. Listed securities for which there were no sales during the
day and unlisted securities are valued at the last quoted bid price. Options are
valued at the last sale price or in the absence of a sale, the mean between the
last quoted bid and offering prices. Short-term obligations with a maturity of
60 days or less are valued at amortized cost pursuant to procedures adopted by
the Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Portfolio
positions for which there are no such valuations and other assets are valued at
fair value as determined by the Adviser in good faith under the direction of the
Trust's Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each Colonial fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
(The following two paragraphs are applicable only to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund -
"Adviser" in these two paragraphs refers to each fund's Adviser, Newport Fund
Management, Inc.)
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II - see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting to the market value method (in which
case the NAV per share may differ from $1.00). All investments will be
determined pursuant to procedures approved by the Trust's Trustees to present
minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Government Money Market Fund for a specimen price sheet showing the
computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, CISI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that CISI retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). CISI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse CISI for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with CISI.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, D, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your Fundamatic
purchase is by electronic funds transfer, you may request the Fundamatic
purchase for any day. Further information and application forms are available
from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B and D). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same Class of shares of funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.
Any additional payments or exchanges into your Colonial fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
CISI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. CISI offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. The First National Bank of
Boston is the Trustee of CISI prototype plans and charges a $10 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from CISI.
Participants in non-Colonial prototype Retirement Plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
CISC. Participants in Colonial prototype Plans (other than IRAs) who liquidate
the total value of their account will also be charged a $15 close-out processing
fee payable to CISC. The fee is in addition to any applicable CDSC. The fee will
not apply if the participant uses the proceeds to open a Colonial IRA Rollover
account in any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Colonial Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing open account with the particular fund. Call CISC for more
information at 1-800- 422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, D, T and Z shares of the Colonial funds. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all Colonial funds' Class A shares held by the
shareholder (except shares of any Colonial money market fund, unless
such shares were acquired by exchange from Class A shares of another
Colonial fund other than a money market fund and Class B, C, D, T
and Z shares).
CISI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, D, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to CISI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
CISI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800-345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a Statement of Intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
Statement of Intent
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. CISI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, D or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to the Colonial Funds). Class A shares of certain
funds may be sold at NAV to the following individuals whether currently employed
or retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, CISI and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with CISI; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements,
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 D) CDSCs may
be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year
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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
distributions reinvested for a period at least equal to the period
of the SWP (e.g., if it is a quarterly SWP, distributions must have
been reinvested at least for the three month period prior to the
first SWP redemption); otherwise CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement does
not apply if the SWP is set up at the time the account is
established, and distributions are being reinvested. See below
under "Investor Services - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as
defined in Section 72(m)(7) of the Internal Revenue Code). To be
eligible for such waiver, (i) the disability must arise after the
purchase of shares and (ii) the disabled shareholder must have been
under age 65 at the time of the initial determination of
disability. If the account is transferred to a new registration and
then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring
upon dissolution of a revocable living or grantor trust following
the death of the sole trustee where (i) the grantor of the trust is
the sole trustee and the sole life beneficiary, (ii) death occurs
following the purchase and (iii) the trust document provides for
dissolution of the trust upon the trustee's death. If the account
is transferred to a new registration (including that of a successor
trustee), the applicable CDSC will be charged upon any subsequent
redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return
the applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions
required to make distributions from qualified retirement plans
following (i) normal retirement (as stated in the Plan document) or
(ii) separation from service. CDSCs also will be waived on SWP
redemptions made to make required minimum distributions from
qualified retirement plans that have invested in Colonial funds for
at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any Colonial fund designated by
the shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election, of the shareholder's investment. Withdrawals from Class B
and Class D shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class D
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn. If a shareholder wishes to participate in a SWP, the
shareholder must elect to have all of the shareholder's income dividends and
other fund distributions payable in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All Colonial fund shareholders and/or their FSFs (except
for Colonial Newport Tiger Cub Fund and Colonial Newport Japan Fund) are
automatically eligible to redeem up to $50,000 of the fund's shares by calling
1-800-422-3737 toll- free any business day between 9:00 a.m. and the close of
trading of the Exchange (normally 4:00 p.m. Eastern time). Transactions received
after 4:00 p.m. Eastern time will receive the next business day's closing price.
Telephone redemption privileges for larger amounts and for the Colonial Newport
Tiger Cub Fund and the Colonial Newport Japan Fund may be elected on the
Application. CISC will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Telephone redemptions are not available
on accounts with an address change in the preceding 30 days and proceeds and
confirmations will only be mailed or sent to the address of record unless the
redemption proceeds are being sent to a pre-designated bank account.
Shareholders and/or their 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 and Class C shares of certain Colonial
funds) Shares may be redeemed by check if a shareholder has previously completed
an Application and Signature Card. CISCwill provide checks to be drawn on The
First National Bank of Boston (the "Bank"). These checks may be made payable to
the order of any person in the amount of not less than $500 nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Municipal Money Market Fund will be
earned starting with the day after that fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. Class T and Z shares may be
exchanged for Class A shares of the other Colonial funds. The prospectus of each
Colonial fund describes its investment objective and policies, and shareholders
should obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange. Shares of certain Colonial funds are not
available to residents of all states. Consult CISC before requesting an
exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another Colonial fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other Colonial funds are available from the Colonial
Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or CISC. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other Colonial open-end funds generally may exchange their
shares at NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Colonial fund may not suspend shareholders' right of redemption or postpone
payment for more than seven days unless the Exchange is closed for other than
customary weekends or holidays, or if permitted by the rules of the SEC during
periods when trading on the Exchange is restricted or during any emergency which
makes it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the fund or the
Trust's Trustees. The Declaration provides for indemnification out of fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus of
each Colonial fund, the fund will not hold annual shareholders' meetings. The
Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be held
upon written request of the holders of not less than 10% of the outstanding
shares of the Trust. Upon written request by the holders of 1% of the
outstanding shares of the Trust stating that such shareholders of the Trust, for
the purpose of obtaining the signatures necessary to demand a shareholders'
meeting to consider removal of a Trustee, request information regarding the
Trust's shareholders, the Trust will provide appropriate materials (at the
expense of the requesting shareholders). Except as otherwise disclosed in the
Prospectus and this SAI, the Trustees shall continue to hold office and may
appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non money market. The yield for each class of shares of a fund is determined by
(i) calculating the income (as defined by the SEC for purposes of advertising
yield) during the base period and subtracting actual expenses for the period
(net of any reimbursements), and (ii) dividing the result by the product of the
average daily number of shares of the fund that were entitled to dividends
during the period and the maximum offering price of the fund on the last day of
the period, (iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of 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.
<PAGE>
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from AAA
only in small degree.
A bonds have a strong capacity to repay principal and interest, although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to repay principal and interest than for bonds in the A category.
BB, B, CCC, and CC bonds are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest degree. While likely to have some quality and protection
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being paid.
D bonds are in default, and payment of interest and/or principal is in arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the major
rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
<PAGE>
MOODY'S INVESTORS SERVICES, INC. (MOODY'S)
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups that Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes these
bonds.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may be present
elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICES
Investment Grade Bond Ratings
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in the
`AAA' and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
securities and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
securities with higher ratings.
Conditional
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
Speculative-Grade Bond Ratings
BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which
could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, and D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.
DUFF & PHELPS CREDIT RATING CO.
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA - High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic
conditions.
A+, A, A - Protection factors are average but adequate. However, risk factors
are more available and greater in periods of economic stress.
BBB+, BBB, BBB - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
CCC - Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
<PAGE>
APPENDIX II
1995
<TABLE>
<CAPTION>
<S> <C>
SOURCE CATEGORY RETURN (%)
Donoghue Tax-Free Funds 3.39
Donoghue U.S. Treasury Funds 5.19
Dow Jones & Company Industrial Index 36.95
Morgan Stanley Capital International EAFE Index 11.22
Morgan Stanley Capital International EAFE GDP Index 11.16
Libor Six-month Libor N/A
Lipper Adjustable Rate Mortgage 4.73
Lipper California Municipal Bond Funds 18.32
Lipper Connecticut Municipal Bond Funds 16.58
Lipper Closed End Bond Funds 20.83
Lipper Florida Municipal Bond Funds 17.84
Lipper General Bond Fund 20.83
Lipper General Municipal Bonds 16.84
Lipper General Short-Term Tax-Exempt Bonds 7.43
Lipper Global Funds 16.05
Lipper Growth Funds 30.79
Lipper Growth & Income Funds 30.82
Lipper High Current Yield Bond Funds 16.44
Lipper High Yield Municipal Bond Debt 15.98
Lipper Fixed Income Funds 15.19
Lipper Insured Municipal Bond Average 17.59
Lipper Intermediate Muni Bonds 12.89
Lipper Intermediate (5-10) U.S. Government Funds 15.75
Lipper Massachusetts Municipal Bond Funds 16.82
Lipper Michigan Municipal Bond Funds 16.89
Lipper Mid Cap Funds 32.04
Lipper Minnesota Municipal Bond Funds 15.39
Lipper U.S. Government Money Market Funds 5.26
Lipper Natural Resources 18.80
Lipper New York Municipal Bond Funds 16.73
Lipper North Carolina Municipal Bond Funds 17.51
Lipper Ohio Municipal Bond Funds 16.81
Lipper Small Company Growth Funds 31.55
Lipper U.S. Government Funds 17.34
Lipper Pacific Region Funds-Ex-Japan 1.95
Shearson Lehman Composite Government Index 18.33
Shearson Lehman Government/Corporate Index 19.25
Shearson Lehman Long-term Government Index 30.90
S&P S&P 500 Index 37.54
S&P Utility Index 42.39
S&P Barra Growth 38.13
S&P Barra Value 37.00
S&P Midcap 400 28.56
First Boston High Yield Index 17.38
Swiss Bank 10 Year U.S. Government (Corporate Bond) 22.24
Swiss Bank 10 Year United Kingdom (Corporate Bond) 16.19
Swiss Bank 10 Year France (Corporate Bond) 26.72
Swiss Bank 10 Year Germany (Corporate Bond) 25.74
Swiss Bank 10 Year Japan (Corporate Bond) 17.83
Swiss Bank 10 Year Canada (Corporate Bond) 25.04
Swiss Bank 10 Year Australia (Corporate Bond) 19.42
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 23.83
Morgan Stanley Capital International 10 Year Belgium (Equity) 20.67
SOURCE CATEGORY RETURN (%)
Morgan Stanley Capital International 10 Year Austria (Equity) 10.85
Morgan Stanley Capital International 10 Year France (Equity) 15.30
Morgan Stanley Capital International 10 Year Netherlands (Equity) 19.33
Morgan Stanley Capital International 10 Year Japan (Equity) 12.82
Morgan Stanley Capital International 10 Year Switzerland (Equity) 17.06
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 15.02
Morgan Stanley Capital International 10 Year Germany (Equity) 10.66
Morgan Stanley Capital International 10 Year Italy (Equity) 7.78
Morgan Stanley Capital International 10 Year Sweden (Equity) 19.43
Morgan Stanley Capital International 10 Year United States (Equity) 14.82
Morgan Stanley Capital International 10 Year Australia (Equity) 15.13
Morgan Stanley Capital International 10 Year Norway (Equity) 10.72
Morgan Stanley Capital International 10 Year Spain (Equity) 17.91
Morgan Stanley Capital International World GDP Index 18.14
-----
Morgan Stanley Capital International Pacific Region Funds Ex-Japan 12.95
Bureau of Labor Statistics Consumer Price Index (Inflation) N/A
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Federal Reserve Six-Month Treasury Bill N/A
Federal Reserve One-Year Constant-Maturity Treasury Rate N/A
Federal Reserve Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell & Co. Russell 2000 28.45
Frank Russell & Co. Russell 1000 Value 38.35
Frank Russell & Co. Russell 1000 Growth 37.19
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>
*in U.S. currency
<PAGE>
Part C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Summary of Expenses
(b) Exhibits:
1. Amendment No.5 to the Agreement and Declaration of
Trust(g)
2. By-Laws, as amended (e)
3. Not Applicable
4. Form of Specimen Share Certificate (e)
5. Form of proposed Management Agreement
6.(i) Form of Distributor's Contract (incorporated herein
by reference to Exhibit 6.(b) to Post-Effective
Amendment No. 97 to the Registration Statement of
Colonial Trust III, Registration Nos. 2-15184 and
811-881, filed with the Commission on February 14,
1997)
6.(i)(a) Proposed Amendment 1 to Appendix 2 of Distributors
Contract
6.(ii) Form of Selling Agreement (incorporated herein by
reference to Exhibit 6.(a) to Post-Effective
Amendment No. 10 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and
811-6529 filed with the Commission on September 27,
1996)
6.(iii) Investment Account Application (incorporated by
reference from Prospectus)
6.(iv) Form of Bank and Bank Affiliated Selling Agreement
(incorporated herein by reference to Exhibit 6.(c)
to Post Effective Amendment No. 10 to the
Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed
with the Commission on September 27, 1996)
6.(v) Form of Asset Retention Agreement (incorporated
herein by reference to Exhibit 6.(d) to Post-
Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on
September 27, 1996)
7. Not Applicable
8.(i) Form of proposed Custody Agreement
8(ii) Form of Customer, Safekeeping and Procedural
Agreements
9.(i) Form of Pricing and Bookkeeping Agreement with
Colonial Management Associates, Inc. (incorporated
herein by reference to Exhibit 9.(b) to Post-
Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on
September 27, 1996)
9.(i)(a) Amendment to Appendix I of Pricing and Bookkeeping
Agreement
9.(ii) Amended and Restated Shareholders' Servicing and
Transfer Agent Agreement as amended with Colonial
Management Associates, Inc. and Colonial Investors
Service Center, Inc. (incorporated herein by
reference to Exhibit 9.(a) to Post-Effective
Amendment No. 10 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on September
27, 1996)
9.(ii)(a) Proposed Amendment No. 9 to Schedule A of Amended
and Restated Shareholders Servicing and Transfer
Agent Agreement as amended with Colonial Investors
Service Center, Inc. (formerly Citadel Service
Company, Inc.)
9.(iii) Form of proposed Administration Agreement with
Colonial Management Associates, Inc.
10. Opinion and Consent of Counsel(a)
11. Not Applicable
12. Not Applicable
13. Not Applicable
14.(i) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Document and Trust
Agreement (incorporated herein by reference to
Exhibit 14(a) to Post-Effective Amendment No. 5 to
the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with
the Commission on October 11, 1994)
14.(ii) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Establishment
Booklet (incorporated herein by reference to
Exhibit 14(b) to Post-Effective Amendment No.
5 to the Registration Statement of Colonial
Trust VI, Registration Nos. 33-45117 and 811-6529,
filed with the Commission on October 11, 1994)
14.(iii) Form of Colonial Mutual Funds Individual Retirement
Account and Application (incorporated herein by
reference to Exhibit 14(c) to Post-Effective
Amendment No. 5 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and
811-6529, filed with the Commission on October 11,
1994)
14.(iv) Form of Colonial Mutual Funds Simplified Employee
Plan and Salary Reduction Simplified Employee
Pension Plan (incorporated herein by reference to
Exhibit 14(d) to Post-Effective Amendment No. 5 to
the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed
with the Commission on October 11,1994)
14.(v) Form of Colonial Mutual Funds 401(k) Plan Document,
Trust Agreement and IRS Opinion Letter
(incorporated by reference to Exhibit 14.(v) of
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.(vi) Form of Colonial Mutual Funds 401(k) Plan
Establishment Booklet and Employee Communications
Kit (incorporated by reference to Exhibit 14.(vi)
of 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.(vii) Form of Colonial Mutual Funds 401(k) Employee
Reports Booklet (incorporated herein by reference
to Exhibit 14(g) to Post-Effective Amendment No. 5
to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with
the Commission on October 11, 1994)
15. Form of proposed 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(i) and
6(i)(a) hereto
16. Not applicable
17. Not applicable
18.(i) 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. (incorporated herein by reference to
Exhibit 18(a) to Post-Effective Amendment No. 97 to
the Registration Statement of Colonial Trust III,
Registration Nos. 2-15184 and 811-881, filed with
the Commission on February14, 1997)
18.(ii) Plan pursuant to Rule 18f-3(d) under the Investment
Company Act of 1940 (incorporated herein by
reference to Exhibit No. 18(b) to Post-Effective
Amendment No.97 to the Registration Statement of
Colonial Trust III, Registration Statement Nos.
2-15184 and 811-881, filed with the Commission on
February14, 1997)
- -------------------------------------
Not all footnotes listed below will be applicable to this filing.
(a) Incorporated by reference from Pre-Effective Amendment No. 3 filed on
December 5, 1980.
(b) Incorporated by reference from Post-Effective Amendment No. 14 filed on
December 17, 1991.
(c) Incorporated by reference from Post-Effective Amendment No. 19 filed on
February 19, 1993.
(d) Incorporated by reference from Post-Effective Amendment No. 24 filed on
December 11, 1995.
(e) Incorporated by reference from Post-Effective Amendment No. 25 filed on
March 20, 1996.
(f) Incorporated by reference from Post-Effective Amendment No. 26 filed on
October 28, 1996.
(g) Incorporated by reference to Post-Effective Amendment No. 28 filed on
December 13, 1996.
Item 25.Persons Controlled by or under Common Group Control with Registrant
Not applicable
Item 26.Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders at 02/28/97
Shares of Beneficial Interest 0 Class A recordholders
0 Class B recordholders
0 Class D recordholders
0 Class Z recordholders
Item 27. Indemnification
See Article VIII of Amendment No. 5 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.
<PAGE>
Item 28.
The following sets forth business and other connections of each Director and
officer of Newport Fund Management, Inc. (Newport), which in turn is a
wholly-owned subsidiary of Liberty Financial Companies, Inc. (LFCI), which in
turn is a subsidiary of Liberty Mutual Equity Corporation, which in turn is a
subsidiary of Liberty Mutual Insurance Company. Newport serves as investment
adviser to Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund,
series of Colonial Trust II, and Colonial Newport Tiger Fund, a series of
Colonial Trust VII, and serves as sub-adviser to Newport-Keyport Tiger Fund, a
series of Keyport Variable Investment Trust. In addition, Newport advises its
parent, Newport Pacific Management, Inc.(NPM), which manages institutional and
private accounts and offshore funds.
During the past two years, neither Newport nor any of its directors or officers,
except for Lindsay Cook, Kenneth R. Leibler, and Gerald Rush, have been engaged
in any business, profession, vocation or employment of a substantial nature
either on their own account or in the capacity of director, officer, partner or
trustee, other than as an director or officer of Newport. Lindsay Cook is Senior
Vice President of LFCI, Kenneth R. Leibler is President, Chief Executive Officer
and Director of LFCI, and Gerald Rush is Vice President-Finance of LFCI.
<TABLE>
<CAPTION>
<S> <C> <C>
Positions with Position Formerly Held
Name Newport and NPM within Past Two Years
Robert B. Cameron Senior Vice President of Newport Branch manager - equity sales at CS First
and NPM Boston, Swiss Bank Corp., and Baring
Securities
Lindsay Cook Senior Vice President of Newport
Lynda Couch Senior Vice President of Newport Vice President of Newport and NPM and Vice
and NPM President - Research at Global Strategies
and at Smith Bellingham International, Inc.
Pamela Frantz Executive Vice President, Same
Treasurer and Secretary of
Newport and NPM
Kenneth R. Leibler Director of Newport and NPM
John M. Mussey President of Newport and Same
President and Director of NPM
Gerald Rush Vice President-Finance of Newport
David Smith Senior Vice President of Newport Analyst at NPM, Executive Vice President at
and Director of North Asian Carnegie Investor Services and a Vice
Strategies of NPM President at Global Strategies, Redwood
Securities and Smith Bellingham
International, Inc.
Thomas R. Tuttle Senior Vice President of Newport Same
and NPM
</TABLE>
The business address of each individual listed in the foregoing table is Newport
Fund Management, Inc., 580 California Street, Suite 1960, San Francisco, CA
94104.
Item 28. Business and Other Connections of Investment Adviser
The following sets forth business and other connections
of each director and officer of Colonial Management Associates,
Inc.: (see next page)
ITEM 28.
- --------
Registrant's investment adviser/administrator, Colonial Management
Associates, Inc., is registered as an investment adviser under the Investment
Advisers Act of 1940 (1940 Act). Colonial Advisory Services, Inc. (CASI), an
affiliate of Colonial Management Associates, Inc., is also registered as an
investment adviser under the 1940 Act. As of the end of its fiscal year,
December 31, 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
Management Associates, Inc. was the investment adviser, sub-adviser and/or
administrator to 49 Colonial mutual funds, the market value of which investment
companies was approximately $17,165.0 million. Colonial Investment Services,
Inc., a subsidiary of Colonial Management Associates, Inc., is the principal
underwriter and the national distributor of all of the funds in the Colonial
Mutual Funds complex, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 2/28/97. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Babbitt, Debra V.P.
Andersen, Peter V.P.
Archer, Joseph A. V.P.
Berliant, Allan V.P.
Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal
Boatman, Bonny E. Dir.; Colonial Advisory Services, Inc. Exec. V.P.
Sr.V.P.;
IPC Mbr.
Campbell, Kimberly V.P.
Carnabucci,
Dominick V.P.
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.;
Chairman; Chrm.
IPC Mbr.; Colonial Trusts I through VII Pres.
Exe. Cmte. Colonial High Income
Mbr. Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
LFC Utilities Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Stein Roe & Farnham Dir.
Incorporated
Conlin, Nancy V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Colonial Investment Services,
Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Daniszewski, V.P. Colonial Investment Services,
Joseph J. Inc. V.P.
DiSilva, Linda V.P. Colonial Advisory Services, Compliance
IPC Mbr. Inc. Officer
Ericson, Carl C. Dir; Sr. Colonial Intermediate High
V.P. Income Fund V.P.
IPC Mbr. Colonial Advisory Services,
Inc. Exec. V.P.
Evans, C. Frazier Dir.; Colonial Investment Services,
Sr.V.P. Inc. Sr. V.P.
Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. Sr. V.P.
Feloney, Joseph L. V.P. Colonial Investment Services,
Inc. A.V.P.
Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.
Franklin, Sr. V.P.
Fred J.
Gauger, Richard V.P.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Gibson, Stephen E. Dir.; Pres.; The Colonial Group, Inc. Dir.;
CEO; Exec. Pres.; CEO;
Cmte. Mbr. Exec. Cmte.
Mbr.
Colonial Investment Services, Dir.; Chm.
Inc.
Colonial Advisory Services, Dir.; Chm.
Inc.
Colonial Investors Service Dir.; Chm.
Center, Inc.
Harasimowicz, V.P. Colonial Investment Services,
Stephen Inc. V.P.
Harris, David V.P. Stein Roe Global Capital Mngmt Principal
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. Sr. V.P.
Hill, William V.P.
Jacoby, Timothy J. Sr. V.P. Colonial Trusts I through VII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO
LFC Utilities Trust Treasr.,CFO
Johnson, Gordon V.P.
Kimball, Erik V.P.
Koonce, Michael H. V.P.; Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec.; Municipal Trust Asst. Sec.
Asst. Colonial InterMarket Income
Clerk & Trust I Asst. Sec.
Counsel Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Colonial Investors Service
Center, Inc. Asst. Clerk
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services,
Inc. Asst. Clerk
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VII Controller;CAO
Asst. Colonial High Income
Treasurer Municipal Trust Controller;CAO
Colonial InterMarket Income
Trust I Controller;CAO
Colonial Intermediate High
Income Fund Controller;CAO
Colonial Investment Grade
Municipal Trust Controller;CAO
Colonial Municipal Income
Trust Controller;CAO
LFC Utilities Trust Controller;CAO
MacKinnon, Dir.;
Donald S. Sr.V.P.
McGregor, Dir.; Colonial Investment Services, Pres.; CEO;
Jeffrey L. Sr.V.P. Inc. Dir.
Newman, Maureen V.P.
O'Neill, Charles A. Sr.V.P.; Colonial Investment Services,
Dir. Inc. Exec. V.P.
Ostrander, Laura V.P.
Peters, Helen F. Dir.; Colonial Advisory Services, Dir. Pres.,
Sr.V.P.; Inc. CEO
IPC Mbr.
Peterson, Ann T. V.P. Colonial Advisory Services,
Inc. V.P.
Rao, Gita V.P.
Reading, John V.P.
Rega, Michael V.P.
Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Exec. V.P.
Dir.
Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Exec. Comm. Municipal Trust V.P.
Mbr. Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
LFC Utilities Trust V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Colonial Investment Services,
Inc. Director
Seibel, Sandra L. V.P.
Spanos, Gregory Sr. V.P.
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk, Dir.
Sec.; Colonial High Income
Clrk. & Municipal Trust Secretary
Gnrl. Colonial InterMarket Income
Counsel; Trust I Secretary
IPC Mbr. Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Colonial Trusts I through VII Secretary
LFC Utilities Trust Secretary
Colonial Investors Service
Center, Inc. Clerk
The Colonial Group, Inc. Exec. V.P.;
Clerk; General
Counsel
Colonial Investment Services, Dir., Chrmn.
Inc. Counsel; Clrk.
Stevens, Richard V.P. Colonial Advisory Services,
Inc. V.P.
Stoeckle, Mark V.P.
Waas, Robert S. V.P.
Wallace, John V.P.- Corp. Colonial Advisory Services,
Finance and Inc. Controller
Controller
Welsh, Stephen Treasurer The Colonial Group, Inc. Controller, Chf
Acctng. Officer
Asst. Treasurer
Colonial Investment Services,
Inc. Treasurer
Colonial Advisory Service,
Inc. Treasurer
Colonial Investors Service
Center, Inc. Controller
Wiley, Peter 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) Colonial Investment Services, Inc. a subsidiary of Colonial Management
Associates, Inc., Registrant's principal underwriter, also acts in the
same capacity to Colonial Trust I, Colonial Trust III, Colonial Trust IV,
Colonial Trust V, Colonial Trust VI and Colonial Trust VII; and sponsor
for Colony Growth Plans (public offering of which were discontinued June
14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
Business Address* with Principal Offices with
Underwriter Registrant
- ------------------ ------------------- --------------
Babbitt, Debra V.P. None
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Bartsokas, David Regional V.P. None
Cairns, David Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Crossfield, Andrew Regional V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Regional Sr. V.P. None
Desilets, Marian V.P. None
Donovan, John Regional V.P. None
Eckelman, Bryan Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia G. V.P. None
Evans, C. Frazier Sr. V.P. None
Feldman, David Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman None
of the Board
Goldberg, Matthew Regional V.P. None
Harasimowicz, V.P. None
Stephen
Hodgkins, Joseph Sr. Regional V.P. None
Karagiannis, Sr. V.P. None
Marilyn
Kavolius, Mark Regional V.P. None
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Lloyd, Judith H. Sr. V.P. None
McGregor, Jeffrey L. Director, CEO, None
President
Moberly, Ann R. Regional Sr. V.P. None
Morner, Patrick V.P. None
O'Neill, Charles A. Exec. V.P. None
Palmer, Laura V.P. None
Prescott, Peter Regional V.P. None
Reed, Christopher B. Sr. Regional V.P. None
Scarlott, Rebecca V.P. None
Scoon, Davey Director V.P.
Scott, Michael W. Sr. V.P. None
Sorrells, Sr. V.P. None
Elizabeth
Spanos, Gregory J. Sr. V.P. None
Stern, Arthur O. Clerk and Secretary
Counsel, Dir.
Sutton, R. Andrew Regional V.P. None
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
Wallace, John V.P. None
Welsh, Stephen Treasurer Asst. Treasurer
Wess, Valerie Regional V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA 02111.
Item 30. Location of Accounts and Records
Registrant's accounts and records required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are in the physical possession of the following:
Registrant
Rule 31a-1 (b) (4)
Rule 31a-2 (a) (1)
Colonial Management Associates, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (b) (1), (2), (3), (5), (6), (7), (8), (9), (10), (11),
(12)
Rule 31a-1 (d), (f)
Rule 31a-2 (a) (1), (2), (c), (e)
Colonial Investment Services, Inc.
One Financial Center, Boston, Massachusetts 02111
Rule 31a-1 (d)
Rule 31a-2 (c)
Boston Safe Deposit and Trust Company
One Boston Place, Boston, Massachusetts 02108
Rule 31a-1 (b), (2), (3)
Rule 31a-2 (a) (2)
Colonial Investors Service Center, Inc.
Post Office Box 1722, Boston, Massachusetts 02105-1722
Rule 31a-1 (b) (2)
Rule 31a-2 (a) (2)
Item 31. Management Services
See Item 5, Part A and Item 16, Part B
Item 32. Undertakings
(i) The Registrant undertakes to call a meeting of shareholders
for the purpose of voting upon the question of the removal
of a Trustee or Trustees when requested in writing to do so
by the holders of at least 10% of any series' outstanding
shares and in connection with such meeting to comply with
the provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
(ii) The Registrant undertakes to furnish free of charge to each
person to whom a prospectus is delivered, a copy of the
applicable series' annual report to shareholders containing
the information required of Item 5A of Form N-1A.
(iii) The Registrant undertakes to file a post-effective
amemdment, including financial statements which need not be
certified, within 4 to 6 months from the effective date of
this Registration Statement under the Securities Act of
1933, as amended.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Colonial
Trust II is on file with the Secretary of The Commonwealth of Massachusetts and
notice is hereby given that the instrument has been executed on behalf of the
Trust by an officer of the Trust as an officer and by the Trust's Trustees as
trustees and not individually and the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers, or shareholders
individually but are binding only upon the assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No.29 to its Registration Statement under the Securities Act of 1933
and the Post-Effective Amendment No.29 under the Investment Company Act of
1940, to be signed in this City of Boston, and The Commonwealth of
Massachusetts on this 28th day of February, 1997.
COLONIAL TRUST II
By: /s/ HAROLD W. COGGER
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment has been signed below by the following persons in
their capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE DATE
/s/ HAROLD W. COGGER President February 28, 1997
Harold W. Cogger (chief executive officer)
/s/ TIMOTHY J. JACOBY Treasurer and Chief February 28, 1997
Timothy J. Jacoby Financial Officer
(principal financial officer)
/s/ PETER L. LYDECKER Controller and Chief February 28, 1997
Peter L. Lydecker Accounting Officer
(principal accounting officer)
</TABLE>
<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
William D. Ireland, Jr.
/s/ RICHARD W. LOWRY* Trustee
Richard W. Lowry
/s/ JAMES L. MOODY, JR.* Trustee
James L. Moody, Jr. *Michael H. Koonce
Attorney-in-fact
February 28, 1997
/s/ WILLIAM E. MAYER* Trustee
William E. Mayer
/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>
EXHIBITS
5. Form of proposed Management Agreement
6.(i)(a) Proposed Amendment 1 to Appendix 2 of Distributors Contract
8.(i) Form of proposed Custody Agreement
8.(ii) Form of Customer, Safekeeping and Procedural Agreements
9.(i)(a) Amendment to Appendix I of Pricing and Bookkeeping Agreement
9.(ii)(a) Proposed Amendment No. 9 to Schedule A of Amended and Restated
Shareholders Servicing and Transfer Agent Agreement as amended with
Colonial Investors Service Center, Inc. (formerly Citadel Service
Company, Inc.)
9.(iii) Form of proposed Administration Agreement with Colonial Management
Associates, Inc.
MANAGEMENT AGREEMENT
AGREEMENT dated as of February 28, 1997 between COLONIAL TRUST II, a
Massachusetts business trust (Trust), with respect to COLONIAL NEWPORT GREATER
CHINA FUND (Fund), and NEWPORT FUND MANAGEMENT, INC., a Virginia corporation
(Adviser).
In consideration of the promises and covenants herein, the parties agree as
follows:
1. The Adviser will manage the investment of the assets of the Fund in
accordance with its prospectus and statement of additional information
and will perform the other services herein set forth, subject to the
supervision of the Board of Trustees of the Trust. The Adviser may
delegate its investment responsibilities to a sub-adviser.
2. In carrying out its investment management obligations, the Adviser shall:
(a) evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable; (b)
purchase and sell securities and other investments for the Fund in
accordance with the procedures described in its prospectus and statement
of additional information; and (c) report results to the Board of
Trustees of the Trust.
3. The Adviser shall be free to render similar services to others so long
as its services hereunder are not impaired thereby.
4. The Fund shall pay the Adviser monthly a fee at the annual rate of 0.95%
of the average daily net assets of the Fund.
5. If the operating expenses of the Fund for any fiscal year exceed the
most restrictive applicable expense limitation for any state in which
shares are sold, the Adviser's fee shall be reduced by the excess but
not to less than zero. Operating expenses shall not include brokerage,
interest, taxes, deferred organization expenses, Rule 12b-1
distribution fees, service fees and extraordinary expenses, if any. The
Adviser may waive its compensation (and bear expenses of the Fund) to
the extent that expenses of the Fund exceed any expense limitation the
Adviser declares to be effective.
6. This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, shall continue until two years from its
date of execution and from year to year thereafter so long as approved
annually in accordance with the 1940 Act; (b) may be terminated without
penalty on sixty days' written notice to the Adviser either by vote of
the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by
the Adviser on sixty days' written notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the
outstanding shares", "affiliated person" and "assignment" shall have
their respective meanings defined in the 1940 Act and exemptions and
interpretations issued by the Securities and Exchange Commission under
the 1940 Act.
9. In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Adviser, or reckless disregard of its obligations and
duties hereunder, the Adviser shall not be subject to any liability to
the Trust or the Fund, to any shareholder of the Trust or the Fund or to
any other person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder.
COLONIAL TRUST II on behalf of
COLONIAL NEWPORT GREATER CHINA FUND
By: __________________________
Title: Controller
NEWPORT FUND MANAGEMENT, INC.
By: __________________________
Title:
A copy of the document establishing the Trust is filed with the Secretary of The
Commonwealth of Massachusetts. This Agreement is executed by officers not as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.
funds/edgar/trustii/ngcfman.txt
AMENDMENT NO. 1 TO APPENDIX 2
(DISTRIBUTOR'S CONTRACT)
Trust Series
Colonial Trust I
Colonial High Yield Securities Fund
Colonial Income Fund
Colonial Strategic Income Fund
Colonial Tax-Managed Growth Fund
Colonial Trust II
Colonial Government Money Market Fund
Colonial U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Newport Tiger Cub Fund
Colonial Newport Japan Fund
Colonial Newport Greater China Fund
Colonial Trust III
Colonial Select Value Fund
The Colonial Fund
Colonial Federal Securities Fund
Colonial Global Equity Fund
Colonial International Horizons Fund
Colonial International Fund for Growth
Colonial Strategic Balanced Fund
Colonial Global Utilities Fund
Colonial Trust IV
Colonial High Yield Municipal Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Tax-Exempt Fund
Colonial Tax-Exempt Insured Fund
Colonial Municipal Money Market Fund
Colonial Utilities Fund
Colonial Trust V
Colonial Massachusetts Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial California Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial Trust VI
Colonial U.S. Fund for Growth
Colonial Small Stock Fund
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Trust VII
Colonial Newport Tiger Fund
By:
Arthur O. Stern, Secretary For Each Trust
By:
Marilyn Karagiannis, Senior Vice President
Colonial Investment Services, Inc.
Dated: February 28, 1997 S:\FUNDS\edgar\trustii\DISTCON2.DOC
- --------
* Except as indicated in Appendix 1.
CUSTODY AGREEMENT
AGREEMENT dated as of May XX, 1997, between Colonial Value Investing
Portfolios - Equity Portfolio (the "Trust"), a Massachusetts business trust,
having its principal office and place of business at One Financial Center,
Boston, Massachusetts 02111, and _____________________________ (the
"Custodian"), a _______________________________ company with its principal place
of business at
- ---------------------------------------------.
WITNESSETH
That for an in consideration of the mutual promises hereinater set forth,
the Trust and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
(a) "Authorized Person" shall be deemed to include the President, any
Vice President, the Secretary, the Assistant Secretary, the Treasurer
and any Assistant Treasurer, or any other person, whether or not any
such person is an officer of the Trust, duly authorized by the Board
of Trustees of the Trust, duly authorized by the Board of Trustees of
the Trust to give Oral Instructions and Written Instructions on
behalf of the Trust and listed in the certification annexed hereto as
Appendix A or such other certification as may be received by the
Custodian from time to time.
(b) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities,
its successor or successors and its nominee or nominees.
(c) "Declaration of Trust" shall mean the Declaration of Trust of the
Trust as now in effect and as the same may be amended from time to
time.
(d) "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange
Commission under Section 17(a) of the Securities Exchange Act of
1934, as amended, its successor or successors and its nominee or
nominees, in which the Custodian is hereby specifically authorized to
make deposits. The term "Depository" shall further mean and include
any other person to be named in Written Instructions a authorized to
act as a depository under the 1940 Act, its successor or successors
and its nominee or nominees.
(e) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities normally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase and reverse repurchase agreements with respect to any
of the foregoing types of securities.
(f) "Oral Instructions" shall mean verbal instructions actually received
by the Custodian from a person reasonably believed by the Custodian
to be an Authorized Person.
(g) "Prospectus" shall mean the Series' current prospectus and statement
of additional information relating to the Series' Shares under the
Securities Act of 1933, as amended.
(h) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and
other securities and investments from time to time owned by each
Series.
(i) "Shares" refers to the shares of beneficial interest of each Series
of the Trust.
(j) "Series" refers to VIP Aggressive Growth Fund, VIP Diversified Return
Fund and VIP Inflation Hedge Fund, or such other series as may from
time to time be created and designated in accordance with the
provisions of the Declaration of Trust.
(k) "Transfer Agent" shall mean the person which performs the transfer
agent, dividend disbursing agent and shareholder servicing agent
functions for the Trust.
(l) "Written Instructions" shall mean a written or electronic
communication actually received by the Custodian from an Authorized
Person or from a person reasonable believed by the Custodian to be an
Authorized Person to telex or any other such system whereby the
receiver of such communication is able to verify through codes or
otherwise with a reasonable degree of certainty the authenticity of
the sender of such communication.
(m) The "40 Act" refers to the Investment Company Act of 1940, and the
Rules and Regulations thereunder, all as amended from time to time.
2. Appointment of Custodian.
(a) The Trust hereby constitutes and appoints the Custodian as custodian
of all the Securities and moneys at the time owned by or in the
possession of the Trust and specifically allocated to a Series during
the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian for the
Trust and any Series and agrees to perform the duties thereof as
hereinafterset forth.
3. Compensation.
(a) The Trust will compensate the custodian for its services rendered
under this Agreement in accordance with the fees set forth in the Fee
Schedule annexed hereto as Schedule A and incorporated herein for the
existing Series. Such Fee Schedule does not include out-of-pocket
disbursements of the Custodian for which the Custodian shall be
entitled to bill separately. Out-of-pocket disbursements shall
include, but shall not be limited to, the items specified in the
Schedule of Out-of-Pocket charges annexed hereto as Schedule B and
incorporated herein. Schedule B may be modified by the Custodian upon
not less than thirty days prior written notice to the Trust.
(b) The parties hereto will agree upon the compensation for acting as
Custodian for any Series hereafter established and designated, and at
the time that the Custodian commences serving as such for said
Series, such agreement shall be reflected in a Fee Schedule for that
Series, dated and signed by an officer of each party hereto, which
shall be attached to Schedule A of this Agreement.
(c) Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule A of this Agreement of revised Fee
Schedule, dated and signed by an Authorized Officer of each party
hereto.
(d) The Custodian will bill each Series as soon as practicable after the
end of each calendar month, and said billings will be detailed in
accordance with the Fee Schedule for each Series. The Trust will
promptly pay to the Custodian the amount of such billing.
4. Custody of Cash and Securities.
(a) Receipt and Holding of Assets. The Trust will deliver or cause to
------------------------------
be delivered to the Custodian all Securities and moneys owned by it
at any time during the period of this Agreement and shall specify
the Series to which the Securities and moneys are to be specifically
allocated. The Custodian shall keep and maintain the assets of each
Series separate and apart, including separate identification of
Securities held in the Book-Entry System. The Custodian will not
be responsible for such Securities and moneys until actually received
by it. The Trust shall instruct the Custodian from time to time in
its sole discretion, by means of Written Instructions, or, in
connection with the purchase or sale of Money Market Securities, by
means of Oral Instructions or Written Instructions, as to the manner
in which and in what amounts Securities and moneys of a Series
are to be deposited on behalf of such Series in the Book-Entry System
or the Depository and specifically allocated on the books of the
Custodian to such Series; provided, however, that prior to the
initial deposit of Securities of a Series in the Book-Entry System or
the Depository, the Custodian shall have received Written
Instructions specifically approving such deposits by the Custodian in
the Book-Entry System or the Depository.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Series and shall credit to the
separate account for each Series all moneys received by it for the
account of such Series and shall disburse the same only:
1. In payment for Securities purchased for such Series, as provided
in Section 5 hereof;
2. In payment of dividends or distributions with respect to the
Shares of such Series, as provided in Section 7 hereof;
3. In payment of original issue or other taxes with respect to the
Shares of such Series, as provided in Section 8 hereof;
4. In payment for Shares which have been redeemed by such Series,
as provided in Section 8 hereof;
5. Pursuant to Written Instructions, or with respect to Money
Market Securities, Oral Instructions or Written Instructions,
setting forth the name of such Series, the name and address of
the person to whom the payment is to be made, the amount to be
paid and the purpose for which payment is to be made; or
6. In payment of fees and in reimbursement of the expenses
and liabilities of the Custodian attributable to such Series,
as provided in Section 11(h) hereof.
(c) Confirmation and Statements.
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Promptly after the close of business on each day, the Custodian shall
furnish the Trust with confirmations and a summary of all transfers
to or from the account of each Series during said day. Where
securities purchased by a Series are in a fungible bulk of
securities registered in the name of the Custodian (or its nominee)
or shown on the Custodian's account on the books of the Depository
or the Book-Entry System, the Custodian shall by book entry or
otherwise identify the quantity of those securities belonging to
such Series. At lease monthly, the Custodian shall furnish the
Trust with a detailed statement of the Securities and moneys held
for each Series under this Agreement.
(d) Registration of Securities and Physical Separation.
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All Securities held for a Series which are issued or issuable only
in bearer form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian in that form; all other
Securities held for a Series may be registered in the name of that
Series, in the name of any duly appointed registered nominee of
the custodian as the Custodian may from time to time determine, or
in the name of the Book-Entry System or the Depository or their
successor or successors, or their nominee or nominees. The Trust
reserves the right to instruct the Custodian as to the method of
registration and safekeeping of the Securities of each Series.
The Trust agrees to furnish to the Custodian appropriate instruments
to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee
or in the name of the Book-Entry System or the Depository, any
Securities which it may hold for the account of a Series and which
may from time to time be registered in the name of a Series. The
Custodian shall hold all such Securities specifically allocated to a
Series which are not held in the Book-Entry System or the Depository
in a separate account for such Series in the name of such Series
physically segregated at all times from those of any other person or
persons.
(e) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by Written Instructions, the
Custodian by itself, or through the use of the Book-Entry System or
the Depository with respect to Securities therein deposited, shall
with respect to all Securities held for a Series in accordance with
this Agreement:
1. Collect all income due or payable;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired,
or otherwise become payable. Notwithstanding the foregoing,
the Custodian shall have no responsibility to the Trust or a
Series for monitoring or ascertaining of any call, redemption
or retirement date with respect to put bonds which are owned by
a Series and held by the Custodian or its nominee. Nor shall
the Custodian have any responsibility or liability to the
Trust or a Series for any loss by a Series for any missed
payment or other default resulting therefrom unless the
Custodian received timely notification from the Trust or the
Series specifying the time, place and manner for the presentment
of such put bond owned by a Series and held by the Custodian or
its nominee. The Custodian shall not be responsible and
assumes no liability to the Trust or a Series for the accuracy
or completeness of any notification the Custodian shall provide
to the Trust or a Series with respect to put bonds;
3. Surrender Securities in temporary form for definitive
Securities;
4. Execute any necessary declarations or certificates of ownership
under the Federal income tax laws or the laws or regulations of
any other taxing authority now or hereafter in effect; and
5. Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the
account of each Series all rights and other Securities issued
with respect to any Securities held by the Custodian hereunder
for such Series.
(f) Delivery of Securities and Evidence of Authority. Upon receipt of
Written Instructions and not otherwise, except for subparagraphs 5,
6, 7 and 8 which may be effected by Oral or Written Instructions, the
Custodian, directly or through the use of the Book-Entry System or
the Depository, shall: 1. Execute and deliver or cause to be executed
and delivered to such persons as may be designated in such Written
Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Trust as owner of any
Securities may be exercised;
2. Deliver or cause to be delivered any Securities held for a
Series in exchange for other Securities or cash issued or paid
in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Series to any protective committee, reorganization committee or
other person in connection with the reorganization, refinancing,
merger, consolidation or recapitalization or sale of assets of
any corporation, and receive and hold under the terms of this
Agreement in the separate account for each Series such
certificates of deposit, interim receipts or other instruments
or documents as may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a
Series and take such other steps as shall be stated in said
Written Instructions to be for the purpose of eccentuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Trust;
5. Deliver Securities owned by any Series upon sale of such
Securities for the account of such Series pursuant to Section 5;
6. Deliver Securities owned by any Series upon the receipt of
payment in connection with any repurchase agreement related to
such Securities entered into by such Series;
7. Deliver Securities owned by any Series to the issuer thereof or
its agent when such Securities are called, redeemed, retired or
otherwise become payable,; provided, however, that in any such
case the cash or other consideration is to be delivered to the
Custodian. Notwithstanding the foregoing, the Custodian shall
have no responsibility to the Trust or to a Series for
monitoring or ascertaining of any call, redemption or retirement
date with respect to put bonds which are owned by a Series and
held by the Custodian or its nominee; nor shall the Custodian
have any responsibility or liability to the Trust or a Series
for any loss by a Series for any missed payment or other
default resulting therefrom unless the Custodian received
timely notification from the Trust or the Series specifying
the time, place and manner for the presentment of such put
bond owned by a Series and held by the Custodian or its nominee.
The Custodian shall not be responsible and assumes no liability
to the Trust or a Series for the accuracy or completeness of
any notification the Custodian may furnish to the Trust or the
Series with respect to put bonds;
8. Deliver Securities owned by any Series for delivery in
connection with any loans of securities made by such Series but
only against receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Trust which may be in any
form permitted under the 1940 Act or any interpretations thereof
issued by the Securities and Exchange Commission or its staff;
9. Deliver Securities owned by any Series for delivery as security
in connection with any borrowings by such Series requiring a
pledge of Series assets, but only against receipt of amounts
borrowed;
10. Deliver Securities owned by any Series upon receipt of
instructions from such Series for delivery to the Transfer Agent
or to the holders of Shares of such Series in connection with
distributions in kind, as may be described from time to time in
the Series' Prospectus, in satisfaction of requests by holders
of Shares for repurchase or redemption; and
11. Deliver Securities owned by any Series for any other proper
business purpose, but only upon receipt of, in addition to
Written Instructions, a certified copy of a resolution of the
Board of Trustees signed by an Authorized Person and certified
by the Secretary or Assistant Secretary of the Trust, specifying
the Securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be
a proper business purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
(g) Endorsement and Collection of Checks, Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of
a Series.
5. Purchase and Sale of Investments of the Series.
(a) Promptly after each purchase of Securities for a Series, the Trus
shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, Written
Instructions, and (ii) with respect to each purchase of Money
Market Securities, either Written Instructions or Oral Instructions,
in either case specifying with respect to each purchase: (1) the
name of the Series to which such Securities are to be specifically
allocated; (2) the name of the issuer and the title of the
Securities; (3) the number of shares or the principal amount
purchased and accrued interest, if any; (4) the date of purchase and
settlement; (5) the purchase price per unit; (6) the total amount
payable upon such purchase; (7) the name of the person from whom
or the broker through whom the purchase was made, if any; (8) whether
or not such purchase is to be settled through the Book-Entry System
or the Depository; and (9) whether the Securities purchased are to
be deposited in the Book-Entry System or the Depository. The
Custodian shall receive all Securities purchased by or for a Series
and upon receipt of such Securities shall pay out of the moneys
held for the account of such Series the total amount payable upon
such purchase, provided that the same conforms to the total amount
payable as set forth in such Written or Oral Instructions.
(b) Promptly after each sale of Securities of a Series, the Trust shall
deliver to the Custodian (i) with respect to each sale of Securities
which are not Money Market Securities, Written Instructions, and
(ii) with respect to each sale of Money Market Securities, either
Written or Oral Instructions, in either case specifying with
respect to such sale: (1) the name of the Series to which the
Securities sold were specifically allocated; (2) the name of the
issuer and the title of the Securities; (3) the number of shares or
principal amount sold, and accrued interest, if any; (4) the date
of sale; (5) the sale price per unit; (6) the total amount payable
to the Series upon such sale; (7) the name of the broker through
whom or the person to whom the sale was made; and (8) whether or not
such sale is to be settled through the Book-Entry System or the
Depository. The Custodian shall deliver or cause to be delivered
the Securities to the broker or other person designated by the
Trust upon receipt of the total amount payable to such Series upon
such sale, provided that the same conforms to the total amount
payable to such Series as set forth in such Written or such Oral
Instructions. Subject to the foregoing, the Custodian may accept
payment in such form as shall be satisfactory to it, and may
deliver Securities and arrange for payment in accordance with the
customs prevailing among dealers in Securities.
6. Lending of Securities.
If any Series is permitted as disclosed in its current Prospectus or
Statement of Additional Information to lend Securities specifically allocated to
that Series, within 24 hours after each loan of Securities, the Trust shall
deliver to the Custodian Written Instructions specifying with respect to each
such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title fo the Securities; (c) the
number of shares or the principal amount loaned; (d) the date of loan and
delivery; (e) the total amount to be delivered to the Custodian, and
specifically allocated to such Series against the loan of the Securities,
including the amount of cash collateral and the premium, if any, separately
identified; (f) the name of the broker, dealer or financial institutional to
which the loan was made; and (g) whether the Securities loaned are to be
delivered through the Book-Entry System or the Depository.
Promptly after each termination of a loan of Securities specifically
allocated to a Series, the Trust shall deliver to the Custodian Written
Instructions specifying with respect to each such loan termination and return of
Securities: (a) the name of the Series to which such loaned Securities are
specifically allocated; (b) the name of the issuer and the title of the
Securities to be returned; (c) the number of shares or the principal amount to
be returned; (d) the date of termination; (e) the total amount to be delivered
by the Custodian (including the cash collateral for such Securities minus any
offsetting credits as described in said Written Instructions); (f) the name fo
the broker, dealer or financial institution from which the Securities will be
returned; and (g) whether such return is to be effected through the Book-Entry
System or the Depository. The Custodian shall receive all Securities returned
from the broker, dealer or financial institution to which such Securities were
loaned and upon receipt thereof shall pay, out of the moneys specifically
allocated to such Series, the total amount payable upon such return of
Securities as set forth in the Written Instructions. Securities returned to the
Custodian shall be held as they were prior to such loan.
7. Payment of Dividends or Distributions.
(a) The Trust shall furnish to the Custodian the resolution of the
Board of Trustees of the Trust certified by the Secretary of
Assistant Secretary (i) authorizing the declaration of dividends or
distribution with respect to a Series on a specified periodic basis
and authorizing the Custodian to rely on Oral or Written
Instructions specifying the date of the declaration of such
dividend or distribution, the date of payment thereof, the record
date as of which shareholders entitled to payment shall be
determined, the amount payable per share to the shareholders of
record as of the record date and the total amount payable to the
Transfer Agent on the payment date, or (ii) setting forth the date
of declaration of any dividend or distribution by a Series, the date
of payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable per share
to the shareholders of record as of the record date and the total
amount payable to the Transfer Agent on the payment date.
(b) Upon the payment date specified in such resolution, Oral
Instructions, or Written Instructions, as the case may be, the
Custodian shall pay out the moneys specifically allocated to and held
for the account of the appropriate Series the total amount payable to
the Transfer Agent of the Trust.
8. Sale and Redemption of Shares of a Series.
(a) Whenever the Trust shall sell any Shares of a Series, the Trust shall
deliver or cause to be delivered to the Custodian Written
Instructions duly specifying:
1. The name of the Series whose Shares were sold;
2. The number of Shares sold, trade date, and price; and
3. The amount of money to be received by the Custodian for the
sale of such Shares and specifically allocated to such Series.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account of the Series
specified in subparagraph (1) of paragraph (a) of this Section 8.
(c) Upon issuance of any Shares of a Series in accordance with the
foregoing provisions of this Section 8, the Custodian shall pay, out
of the moneys specifically allocated and held for the account of such
Series, all original issue or other taxes required to be paid in
connection with such issuance upon the receipt of Written
Instructions specifying the amount to be paid.
(d) Except as provided hereafter, whenever any Shares of a Series are
redeemed, the Trust shall cause the Transfer Agent to promptly
furnish the Custodian Written Instructions, specifying:
1. The name of the Series whose Shares were redeemed;
2. The number of Shares redeemed; and
3. The amount to be paid for the Shares redeemed.
The Custodian understands that the information contained in such
Written Instructions will be derived from the redemption of Shares as
reported to the Trust by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Series received by the Transfer Agent for
redemption and that such Shares are valid and in good form for
redemption, the Custodian shall make payment to the Transfer Agent
out of the moneys specifically allocated to and held for the account
of the Series specified in subparagraph (1) of paragraph (d) of this
Section 8 of the total amount specified in Written Instructions
issued pursuant to paragraph (d) of this Section 8.
(f) Notwithstanding the above provisions regarding the redemption of
Shares, whenever such Shares are redeemed pursuant to any check
redemption privilege which may from time to time be offered by the
Trust, the Custodian, unless otherwise instructed by Written
Instructions shall, upon receipt of advice from the Trust or its
agent stating that the redemption is in good form for redemption in
accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the
moneys specifically allocated to the Trust in such advice for such
purpose.
9. Indebtedness.
(a) The Trust will cause to be delivered to the Custodian by any bank
(excluding the Custodian) from which the Trust borrows money for
temporary administrative or emergency purpose using Securities
as collateral for such borrowings, a notice or undertaking in the
form currently employed by any such bank setting forth the amount
which such bank will loan to the Trust against delivery of a stated
amount of collateral. The Trust shall promptly deliver to the
Custodian Written or Oral Instructions stating with respect to each
such borrowing: (1) the name of the Series for which the borrowing
is to be made; (2) the name of the bank; (3) the amount and terms
of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Trust,
or other loan agreement; (4) the time and date, if known, on which
the loan is to be entered into (the "borrowing date"); (5) the date
on which the loan becomes due and payable; (6) the total amount
payable to the Trust for the separate account of the Series on the
borrowing date; (7) the market value of Securities to be delivered
as collateral for such loan, including the name of the issuer,
the total and the number of shares or the principal amount of any
particular Securities; (8) whether the Custodian is to deliver such
collateral through the Book-Entry System or the Depository; and
(9) a statement that such loan is in conformance with the 1940 Act
and the Series' Prospectus.
(b) Upon receipt of the Written or Oral Instructions referred to in
subparagraph (a) above, the Custodian shall deliver on the borrowing
date the specified collateral and the executed promissory note, if
any, against delivery by the lending bank of the total amount of the
loan payable, provided that the same conforms to the total amount
payable as set forth in the Written or Oral Instructions. The
Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject
to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver as
additional collateral in the manner directed by the Trust from time
to time such Securities specifically allocated to such Series as
may be specified in Written or Oral Instructions to collateralize
further any transaction described in this Section 9. The Trust shall
cause all Securities released from collateral status to be returned
directly to the Custodian, and the Custodian shall receive from time
to time such return of collateral as may be tendered to it. In the
event that the Trust fails to specify in Written or Oral Instructions
all of the information required by this Section 9, the Custodian
shall not be under any obligation to deliver any Securities.
Collateral returned to the Custodian shall be held hereunder as
it was prior to being used as collateral.
10. Persons Having Access to Assets of the Series.
(a) No Trustee, officer, employee or agent of the Trust, and no officer,
director, employee or agent of the Adviser shall have physical access
to the assets of the Trust held by the Custodian or be authorized or
permitted to withdraw any investments of the Trust, nor shall the
Custodian deliver any assets of the Trust to any such person. No
officer, director, employee or agent of the Custodian who holds any
similar position with the Trust, the Adviser or the Administrator
shall have access to the assets of the Trust.
(b) The individual employees of the Custodian duly authorized by the
Board of Directors of the Custodian to have access to the assets of
the Trust are listed in the certification annexed hereto as Appendix
C. The Custodian shall advise the Trust of any change in the
individuals authorized to have access to the assets of the Trust by
written notice to the Trust accompanied by a certified copy of the
authorizing resolution of the Custodian's Board of Directors
approving such change.
(c) Nothing in this Section 10 shall prohibit any officer, employee or
agent of the Trust, or any officer, director, employee or agent of
the Adviser, from giving Oral Instructions or Written Instructions to
the Custodian so long as it does not result in delivery of or access
to assets of the Trust prohibited by paragraph (a) of this Section
10.
11. Concerning the Custodian.
(a) Standard of Conduct. Except as otherwise provided herein, neither
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the Custodian nor its nominee shall be liable for any loss or
damage, including reasonable counsel fees, resulting from its
action or omission to act or otherwise, except for any such loss or
damage arising out of its own negligence or willful misconduct.
The Custodian may, with respect to questions of law, apply for
and obtain the advice and opinion of counsel to the Trust at the
expense of the TRust, or of its own counsel, at the expense of the
Trust, and shall be fully protected with respect to anything done
or omitted by it in good faith in conformity with such advice or
opinion; provided, however, that if such reliance involves a
potential material loss to the Trust, the Custodian will advise
the Trust of any such actions to be taken in accordance with advice
of counsel to the Custodian. The Custodian shall be liable to the
Trust for any loss or damage resulting from the use of the Book-Entry
System or the Depository arising by reason of any negligence,
misfeasance or misconduct on the part of the Custodian or any of its
employees or agents.
(b) Limit of Duties. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into,
and shall not be liable for:
1. The validity of the issue of any Securities purchased by any
Series, the legality of the purchase thereof, or the propriety
of the amount paid therefor;
2. The legality of the sale of any Securities by any Series, or
the propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or he propriety
of the amount to be paid therefor;
5. The legality of the declaration or payment of any dividend or
other distribution of any Series;
6. The legality of any borrowing for temporary or emergency
administrative purposes.
(c) No Liability Until Receipt. The Custodian shall not be liable for, or
considered to be the Custodian of, any money, whether or not
represented by any check, draft, or other instrument for the payment
of money, received by it on behalf of any Series until the Custodian
actually receives and collects such money directly or by the final
crediting of the account representing the Trust's interest in the
Book-Entry System or the Depository.
(d) Collection Where Payment Refused. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount, if the Securities upon which such amount is payable are in
default, of if payment is refused after due demand or presentation,
unless and until (a) it shall be directed to take such action by
Written Instructions and (b) it shall be assured to its satisfaction
of reimbursement of its costs and expenses in connection with any
such action.
(e) Appointment of Agents and Sub-Custodians. The Custodian may appoint
one or more banking institutions, including but not limited to
banking institutions located in foreign countries, to act as
Depository or Depositories or as Sub-Custodian or as Sub-Custodians
of Securities and moneys at any time owned by any Series, upon terms
and conditions specified in Written Instructions. The Custodian shall
use reasonable care in selecting a Depository and/or Sub-Custodian
located in a country other than the United States ("Foreign
Sub-Custodian"), and shall oversee the maintenance of any Securities
or moneys of the Trust by any Foreign Sub-Custodian.
(f) No Duty to Ascertain Authority. The Custodian shall not be under any
duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Trust and specifically allocated
to a Series are such as may properly be held by the Series and
specifically allocated to such Series under the provisions of the
Declaration of Trust and the Series' Prospectus.
(g) Compensation of the Custodians. The Custodian shall be entitled to
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receive, and the Trust agrees to pay to the Custodian, such
compensation as may be agreed upon from time to time between the
Custodian and the Trust. The Custodian may charge against any
money specifically allocated to a Series such compensation and any
expenses incurred by the Custodian in the performance of its duties
pursuant to such agreement with respect to such Series. The
Custodian shall also be entitled to charge against any money held by
it and specifically allocated to a Series the amount of any loss,
damage, liability or expense incurred with respect to such
Series, including counsel fees, for which it shall be entitled to
reimbursement under the provision of this Agreement.
The expenses which the Custodian may charge against such account
include, but are not limited to, the expenses of Sub-Custodians and
foreign branches of the Custodian incurred in settling transactions
outside of Boston, Massachusetts or New York City, New York involving
the purchase and sale of Securities of any Series.
(h) Reliance on Certificates and Instructions. The Custodian shall
--------------------------------------------
be entitled to rely upon any Written Instructions or Oral
Instructions actually received by the Custodian pursuant to the
applicable Sections of this Agreement and reasonably believed by
the Custodian to be genuine and to be given by an Authorized Person.
The Trust agrees to forward to the Custodian Written Instructions
from an Authorized Person confirming such Oral Instructions in such
manner so that such Written Instructions are received by the
Custodian, whether by hand delivery, telex or otherwise, by the
close of business on the same day that such Oral Instructions are
given to the Custodian. The Trust agrees that the fact that such
confirming instructions are not received by the Custodian shall
in no way affect the validity of the transactions or enforceability
of the transactions hereby authorized by the Trust. The Trust
agrees that the Custodian shall incur no liability to the Trust in
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions reasonably
appear to have been received from a duly Authorized Person.
(i) Inspection of Books and Records. The books and records of the
Custodian shall be open to inspection and audit at reasonable times
by officers and auditors employed by the Trust and by employees of
the Securities and Exchange Commission.
The Custodian shall provide the Trust with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System
or the Depository and with such reports on its own systems of internal
accounting control as the Trust may reasonably request from time to time.
12. Term and Termination.
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter
as the parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement with
respect to any Series by giving to the other party a notice in
writing specifying the date of such termination, which shall be not
less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Trust, it shall be accompanied
by a certified resolution of the Board of Trustees of the Trust,
electing to terminate this Agreement with respect to any Series
and designating a successor custodian or custodians, which shall
be a person qualified to so act under the 1940 Act. In the event
such notice is given by the Custodian, the Trust shall, on or
before the termination date, deliver to the Custodian a certified
resolution of the Board of Trustees of the Trust, designating a
successor custodian or custodians. In the absence of such designation
by the Trust, the Custodian may designate a successor custodian,
which shall be a person qualified to so act under the 1940 Act. If
the Trust fails to designate a successor custodian for any Series,
the Trust shall, upon the date specified in the notice of
termination of this Agreement and upon the delivery by the Custodian
of all Securities (other than Securities held in the Book-Entry
Systems which cannot be delivered to the Trust) and moneys then
owned by such Series, be deemed to be its own custodian and the
Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book-Entry System which cannot
be delivered to the Trust.
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 12, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly
to the successor custodian all Securities and moneys then held by the
Custodian and specifically allocated to the Series or Series
specified, after deducting all fees, expenses and other amounts for
the payment or reimbursement of which it shall then be entitled with
respect to such Series or Series.
13. Miscellaneous.
(a) Annexed hereto as Appendix A is a certification signed by two of
the present Trustees of the Trust setting forth the names and the
signatures of the present Authorized Persons. The Trust agrees
to furnish to the Custodian a new certification in similar form in
the event that any such present Authorized Person ceases to be
such an Authorized Person or in the event that other or additional
Authorized Persons are elected or appointed. Until such new
certification shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement
upon Oral Instructions or signatures of the present Authorized
Persons as set forth in the last delivered certification.
(b) Annexed hereto as Appendix B is a certification signed by two of the
present Trustees of the Trust setting forth the names and the
signatures of the present Trustees of the Trust. The Trust agrees to
furnish to the Custodian a new certification in similar form in the
event any such present Trustee ceases to be a Trustee of the Trust or
in the event that other or additional Trustees are elected or
appointed. Until such new certification shall be received, the
Custodian shall be fully protected in acting under the provisions of
this Agreement upon the signature of the officers as set forth in the
last delivered certification.
(c) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at One Boston Place, Boston, Massachusetts 02108 or at
such other place as the Custodian may from time to time designate in
writing.
(d) Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Trust, shall be sufficiently given
if addressed to the Trust and mailed or delivered to it at its
offices at One Financial Center, Boston, Massachusetts 02111 or at
such other place as the Trust may from time to time designate in
writing.
(e) This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the same formality
as this Agreement, and as may be permitted or required by the 1940
Act.
(f) This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Trust
without the written consent of the Custodian, or by the Custodian
without the written consent of the Trust authorized or approved by a
resolution of the Board of Trustees of the Trust, and any attempted
assignment without such written consent shall be null and void.
(g) This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.
(h) It is expressly agreed to that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents, or employees of the Trust, personally,
but bind only the trust property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the Trust
and signed by an authorized officer of the Trust, acting as such,
and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the
Trust as provided in its Declaration of Trust.
(i) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(j) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
executed by their respective officers thereunder duly authorized as of the day
and year first above written.
COLONIAL NEWPORT GREATER CHINA FUND
By:
Date:
Agreed and Accepted By:
CUSTODIAN
By:
Date:
CUSTOMER AGREEMENT BETWEEN
(Broker/Dealer) AND
COLONIAL NEWPORT GREATER CHINA FUND
In consideration of acceptance by {Broker/Dealer}, a futures
commissions merchant (hereinafter "Broker" or "FCM"), of an account for Colonial
Newport Greater China Fund ("Customer"), Broker and Customer agree as follows:
1. Customer authorizes Broker to purchase and sell futures contracts
and option contracts thereon ("Contracts") traded on duly registered boards of
trade for Customer's account in accordance with Customer's oral or written
instructions. Customer hereby waives any defense that any such instruction was
not in writing as may be required by the Statute of Frauds or any other law,
rule or regulation.
2. Customer shall in connection with Contract transactions pay Broker
(1) brokerage and commission charges as agreed upon by Broker and Customer from
time to time, (2) any charges imposed on any transaction undertaken for Customer
by the exchange or clearinghouse through which it is executed and any tax or fee
imposed on such transactions by any competent authority or self-regulatory
organization, (3) any margin required by any exchange on which Contract
transactions are effected by Broker for Customer due to the variation in value
of one or more outstanding Contracts purchased or sold by Customer ("Variation
Margin") in accordance with Paragraph 7 hereof, and (4) interest and service
charges on any Customer deficit balances at the rates customarily charged by
Broker, together with Broker's costs and attorney's fees incurred in collecting
such deficit. Such payments shall be made in Federal funds to Broker at such
address as Broker may designate.
3. A detailed statement of all transactions for or on the Customer's
behalf shall be furnished to Customer on a daily and a monthly basis. Such
statements shall be conclusive and binding on the Customer unless the customer
notifies Broker of any objection within five business days from the day the
Customer receives such statement; provided however that with respect to monthly
statements only the Customer may make such objection within ten business days.
4. Customer shall timely deposit and maintain in the Safekeeping
Account at all times Initial Margin for Customer's account in accordance with
the Procedural Agreement. Customer shall timely pay to Broker the amount of any
additional or Variation Margin with respect to Customer's open positions on
Contracts in accordance with the Procedural Agreement. If upon notice expiration
of all notice periods set forth in the Procedural Agreement, Customer still
fails to provide additional or Variation Margin or if Customer fails to deposit
or maintain in the Safekeeping Account the required Initial Margin, Broker may
without further notice to Customer take any action set forth in Sections 9 and
11 hereof.
5. Customer shall make timely delivery of or payment for financial
instruments in compliance with the terms of the Contracts purchased or sold by
Customer through Broker unless such Contracts have been terminated by an
offsetting purchase or sale prior to the delivery date. Customer shall advise
Broker of its intentions with respect to the delivery of or payment for such
financial instruments, and Broker shall be entitled to receive appropriate
assurances with respect thereto.
6. Customer acknowledges that (a) any trading recommendations and
market or other information communicated to Customer by Broker are incidental to
the conduct of Broker's business as a futures commission merchant and do not
constitute an offer to sell or the solicitation of an offer to buy any Contracts
or instrument that is the subject of any Contract; (b) such recommendation and
information, although based upon information obtained from sources believed by
Broker to be reliable, may be incomplete, may not be verified, and may be
changed without notice to Customer; and (c) Broker makes no representation,
warranty or guarantee as to the accuracy or completeness of any market or other
information or trading recommendation furnished to Customer. Customer
understands that officers, employees, or affiliates of Broker may have a
position in, may intend to, and may, buy or sell, Contracts or instruments that
are the subject of Contracts, including Contracts which are the subject of
information or recommendations furnished to Customer, and that the position or
transactions of any such officer, employees, or affiliates may or may not be
consistent with the recommendations furnished by Broker to Customer.
7. All transactions by Broker on Customer's behalf shall be subject to
the applicable constitution, by-laws, rules, regulations, customs, usages,
rulings, and interpretations of the contract market and its clearinghouse on
which such transactions are executed or cleared by Broker or its agents for
Customer's account, and to all applicable governmental acts and statutes (such
as the Commodity Exchange Act) and to rules and regulations made thereunder;
Broker shall not be liable to Customer as a result of any action taken by Broker
or its agents to comply with any such constitution, by-law, rule, regulation,
custom, usage, ruling, interpretation, act or statute.
8. Broker shall have no responsibility for delays in the transmission
of orders due to (a) breakdown or failure of transmission or communication
facilities, or (b) any other cause beyond Broker's control. Broker shall have no
responsibility for compliance by Customer with any law or regulation governing
Customer's conduct as a fiduciary.
9. In the event that (a) Customer shall be dissolved, become insolvent
or in any other way terminate, (b) fail to deposit or maintain initial margin or
make payment of additional or variation margin, as set forth in Section 4 hereof
or (c) in the event Broker reasonably feels that it is necessary to its
protection, Broker my close out Customer's open Contracts in whole or in part,
sell any or all of Customer's property held by Broker, buy any securities or
other property for Customer's account, and cancel any outstanding orders and
commitments made by Broker on behalf of Customer. Subject to Broker's obligation
to use best efforts to obtain a fair and reasonable price, any such sale,
purchase, or cancellation may be made at Broker's discretion on the contract or
other market or through the clearinghouse where such business is then
transacted, at public auction or at private sale, without advertising the same
and without notice to Customer, and without prior tender, demand or call upon
Customer. Customer shall remain liable for and shall pay to Broker the amount of
any deficiency resulting from any transaction described above.
10. As used above, the term insolvent means that (a) an order, judgement
or decree has been entered under the bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution of liquidation or
similar law (herein called the "Bankruptcy Law") or any jurisdiction
adjudicating the Customer insolvent; or (b) the Customer has petitioned or
applied to any tribunal for, or consented to, the appointment of, or taking
possession by, a trustee, receiver, liquidator or similar official, of the
Customer or commenced a voluntary case under the Bankruptcy Law of the United
States or any proceedings relating to the Customer under the Bankruptcy Law of
any other jurisdiction, whether now or hereafter in effect; or (c) any such
petition or application has been filed, or any such proceedings commenced,
against the Customer and the Customer by any act has indicated its approval
thereof, consent thereto or acquiescence therein, or an order for relief has
been entered in an involuntary case against Customer under the Bankruptcy Law of
the United States, as now or hereafter constituted, or an order, judgement or
decree has been entered therein appointing any such trustee, receiver,
liquidator or similar official, approving the petition in any such proceedings,
and such order, judgement or decree remains unstayed and in effect for more than
30 days.
11. If at any time Customer fails to deliver to Broker any property
previously sold by Broker on Customer's behalf or fails to deliver financial
instruments in compliance with Contracts, Customer authorizes Broker in its
discretion to borrow or to buy any property necessary to make delivery thereof,
and Customer shall pay Broker for any cost, loss and damage which Broker may be
required to pay thereon, and for any cost, loss and damage which Broker may
sustain from its inability to borrow or buy any such property.
12. All communications to Customer shall be to: Colonial Newport
Greater China Fund, Attention: Michael H. Koonce, Esq. or to such other
address as Customer may hereafter direct Broker in writing to use. All
communications to Broker shall be to: {Broker/Dealer address}
13. This Agreement, the Procedural Agreement and the Safekeeping
Agreement referred to in the Procedural Agreement contain the entire agreement
between the parties and supersede any prior agreements between the parties as to
the subject matter of this Agreement. Subject to Section 7 hereof, no provision
of this Agreement shall in any respect be waived, altered, modified, or amended
unless such waiver, alteration, modification, or amendment be committed to in
writing and signed by Customer and a duly authorized officer of Broker.
14. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the State of
_________________.
15. This Agreement shall inure to the benefit of Broker and Customer
and their respective successors and assigns.
16. If any term or provision hereof, or the application thereof to any
person or circumstances, shall to any extent be contrary to any exchange or
government regulation or otherwise invalid or unenforceable, the remainder of
this Agreement or the application of such term or provision to persons or
circumstances other than those as to which it is contrary, invalid, or
unenforceable, shall not be affected thereby, and it shall be enforced to the
fullest extent permitted by regulation and law.
17. The rights and remedies conferred upon the parties hereto shall be
cumulative, and the exercise or waiver of any thereof shall not preclude or
inhibit the exercise of additional rights and remedies.
18. This Agreement is executed on behalf of the Trustees of the Customer
as Trustees and not individually and the obligations of this Agreement are not
binding upon any of the Trustees but are binding upon the assets and property of
the Customer.
19. Customer represents that (a) Customer will promptly notify Broker in
writing if any of the above representations shall materially change or cease to
be true and correct; (b) Customer has read and understands the Commodity Futures
Trading Commission Risk Disclosure Statement, the Options on Futures Risk
Disclosure Statement (under separate cover) and the Margin Disclosure Statement;
and (c) no person or entity has any interest in or control of the account to
which this Agreement pertains other than Customer and the persons designated by
Customer as set forth in Paragraph 1 hereof.
20. Customer and Broker agree to promptly furnish appropriate financial
statements to each other to show any material changes in their financial
positions and to furnish such other information concerning each other as each
may reasonably request.
21. Where the context hereof requires, the singular shall import the
plural and the masculine shall import the feminine and neuter.
22. Broker shall be entitled to rely on any instruction received from
any person identified in writing to Broker by Customer and such instruction
shall bind Customer. Customer agrees to hold Broker harmless against any action
taken by Broker in reliance upon this provision.
23. Customer hereby represents that it will seek to comply with all
applicable CFTC Rules and Regulations.
24. This Agreement shall become a binding contract between Customer and
Broker when signed by both parties.
COLONIAL NEWPORT GREATER CHINA FUND
By:
Title:
Date:
APPROVED:
{Broker/Dealer}
By:
Title:
Date:
SAFEKEEPING AGREEMENT
Colonial Newport Greater China Fund ("Depositor") and {Broker/Dealer} a futures
commission merchant (hereinafter "Broker") have interests in the subject
Safekeeping Account pursuant to a certain Procedural Agreement among Broker,
Depositor, and {Bank} ("Custodian") which Procedural Agreement governs over any
inconsistent provisions in this Safekeeping Agreement.
Attention: {Bank}
Gentlemen:
The Depositor hereby requests the Custodian to open and maintain a
Safekeeping Account, which shall be a subaccount under the Custodian Agreement,
dated _________________ between Depositor, and Custodian (the "Custodian
Agreement") and in the name of "{Broker/Dealer} Commodity Customer Funds for
the benefit of Colonial Newport Greater China Fund" for all monies and
securities now or hereafter deposited with you for the initial margin in futures
and option contracts transactions.
In such safekeeping capacity you are limited to holding the securities
related monies in safekeeping for the Depositor and dealing with them as herein
expressed unless otherwise mutually agreed in writing.
You shall make deliveries of securities and monies only as the
Depositor may direct, and you are authorized and directed to:
1. Collect income and principal on bearer securities in the account;
2. Dispose of the monies received from income collections,
maturity, redemption, sale, or other disposition of the securities pursuant
to said Procedural Agreement;
3. Send a daily confirmation of receipts and disbursements to the
Depositor;
4. Provide a monthly list of securities to the Depositor and to the
Broker;
5. On reasonable request, confirm to Broker and Depositor all
account charges and positions.
This agreement is executed by an officer of the Depositor, thereunto
duly authorized on behalf of the Trustees of the Depositor as Trustees and not
individually. The Trustees shall have no personal liability hereunder and the
sole recourse available to an aggrieved party for damages shall be against the
assets and property of the Depositor.
The general conditions of the Safekeeping Agreement shall be those of
the Custodian Agreement between Depositor and Custodian.
The compensation of the Custodian for its services hereunder shall be
payable as the Depositor and Custodian shall agree. No change in compensation
shall be applicable to this account except upon written notice to Depositor.
All communications from the Custodian shall be sent to the Depositor
pursuant to the Custodian Agreement, and to Broker at {Broker/Dealer Address},
or at such other address as the Depositor shall from time to time direct.
Neither the Broker nor the Depositor is a foreign citizen; if this
citizenship status changes, the Depositor or Broker, as applicable, will
promptly notify the Custodian in writing.
Either the Depositor or the Custodian, subject to the Procedural
Agreement, may close this account at any time.
Accepted: Very truly yours,
{Bank} Colonial Newport Greater China Fund
By: By:
Title: Title:
Date: Date:
Acknowledged and Approved:
on behalf of:
{Broker/Dealer}
By:
Title:
Date:
PROCEDURAL AGREEMENT
AMONG {Broker/Dealer}
COLONIAL NEWPORT GREATER CHINA FUND ("CUSTOMER")
AND {Bank}
WHEREAS the undersigned Colonial Newport Greater China Fund has
opened a trading account with the undersigned {Broker/Dealer} (hereinafter
"Broker"), a registered futures commission merchant acting as broker/dealer for
Customer in the purchase and sales of futures and options on futures contracts
(together "Contracts") traded on a commodity exchange or market or board of
trade; and
WHEREAS, in connection with the opening of the trading account,
Customer and Broker have entered into a Customer Agreement which requires
Customer to deposit as collateral the initial margin with respect to each
Contract as required by the rules and regulations of the Chicago Mercantile
Exchange, the Chicago Board of Trade, the Commodity Exchange, and such other
exchanges on which Broker may effect or cause to be effected transactions as
Broker for Customer (the "Initial Margin"); and
WHEREAS Customer, Broker, and the undersigned {Bank} ("Custodian")
have entered into a Safekeeping Agreement establishing a Safekeeping Account
entitled {Broker/Dealer} Customer Funds for the benefit of Colonial Newport
Greater China Fund" which Custodian agrees to maintain for the custody of the
Initial Margin which Customer is required to deposit and maintain; and
WHEREAS the Customer Agreement and the Safekeeping Agreement both
provide that the rights and duties of the parties thereto are subject to the
provisions of this Agreement.
NOW, THEREFORE, IT IS AGREED THAT:
1. Customer shall deposit and maintain as collateral in the
Safekeeping Account such Initial Margin as shall be required from time to time
by Broker or the exchange on which transactions are effected or caused to be
effected by Broker as Broker for Customer. Customer may deposit amounts in
excess of such requirements. The designation "Customer Funds" in the Safekeeping
Account title is intended to indicate the status of the Safekeeping Account
under the Commodity Exchange Act and Commodity Futures Trading Commission
regulations; however, the provisions of this agreement shall be controlling as
to the rights of the parties in the collateral deposited in the Safekeeping
account.
2. The Initial Margin deposited and maintained in the Safekeeping
Account, created pursuant to the Safekeeping Agreement, shall be in the form of
cash or U.S. Government Treasury Bills (valued at the current market value less
10% of the principal value thereof) or of a combination thereof Customer may
substitute U.S. Government Treasury Bills of equal or greater value upon prior
approval by Broker and receipt of such approval by Custodian. Custodian shall
have no responsibility or liability to any part for ascertaining or monitoring
or otherwise with respect to the value or valuation of any such Treasury Bills
or other securities, nor shall the Custodian have any responsibility for or
liability with respect to the adequacy of any "Initial" or other margin. Any
separate interest payments on securities held in the Safekeeping Account shall
be credited by Custodian in Federal funds to such demand deposit accounts
designated in instructions from Customer on the date that such interest has been
finally received by Custodian in good collected funds unless notice has been
provided to Custodian pursuant to Paragraph (b) of section 5 below, and such
interest is required to meet additional Variation Margin requirements in
accordance with the procedure provided in Paragraphs (a), (b) and (c) of Section
5. Amounts due on securities which mature or are redeemed will be credited to
the Safekeeping Account in Federal funds on the date such amounts are finally
received by the Custodian as good collected funds.
3. With respect to the deposit of Initial Margin, Custodian shall
be directed by Customer's custodian order to segregate specified assets in the
Safekeeping Account, and Custodian shall promptly provide Broker and Customer
with a written confirmation of each transfer into or out of the Safekeeping
Account.
4. Withdrawals of Initial Margin from the Safekeeping Account shall
be effected upon receipt by the Custodian of both Customer's custodian order and
Broker's prior written approval of such withdrawal. Broker shall, upon request
of the Customer, inform Customer of the amount of any excess Initial Margin in
the Safekeeping Account.
5. Broker shall have access to the collateral only in accordance
with the following:
(a) If notice by Broker is given to Customer that additional
margin is required by any exchange on which transactions are effected by Broker
for the Customer due to variation in the value of one or more futures contracts
held in the trading account ("Variation Margin") prior to 11:30 A.M. New York
time on a day on which Broker is open for business, which Variation Margin
shall first have been satisfied from any amounts currently credited to the
Customer's trading account with Broker in connection with which the Variation
Margin is required, the Customer shall transfer to Broker such Variation Margin
not later than 3:00 P.M. on the same day. If notice by Broker to the Customer
is given of the need for Variation Margin subsequent to 11:30 A.M. but prior to
4:00 P.M. New York time on a day on which Broker is open for business, the
Customer shall provide such Variation Margin to Broker not later than 10:30
A.M. New York time on the next succeeding day on which Broker is open for
business. Notice by Broker to the Customer of the receipt of Variation Margin
shall be given promptly.
(b) If Broker has not received the required Variation Margin as
provided in Paragraph 5(a), Broker may give notice ("Notice") to Custodian and
Customer of Customer's failure to provide Variation Margin, the amount of
Variation Margin required and that all conditions precedent to Broker's right to
direct disposition of the funds in the Safekeeping Account have been satisfied.
Without prejudice to any rights of Broker hereunder, Custodian shall promptly
reconvey Broker's Notice to Customer. Custodian shall not permit any action to
be taken with respect to the Initial Margin held in the Safekeeping Account
until further notice from Broker. Upon Broker giving such further notice to
Custodian, Broker shall have access to the Initial Margin held in the
Safekeeping Account, and Custodian shall upon instruction of Broker (as provided
for in Paragraph 5(c)) immediately transfer from the Safekeeping Account to or
for the account of Broker such amount of the Initial Margin as Broker shall have
specified. Custodian shall then promptly inform the Customer of its actions
taken pursuant to the instruction of Broker
(c) As Broker elects, it may instruct Custodian pursuant to Paragraph 5(b)
to transfer specific, U.S. Treasury Bills and/or cash, to Broker to provide for
payment to Broker of the amount of Variation Margin that Broker shall have
specified. Custodian shall take instructions solely from Broker with respect to
the transfer of cash and/or U.S. Treasury Bills to Broker. Custodian in no event
shall be liable either to Customer or Broker for acting in accordance with such
instructions. In the event that Broker receives U.S. Treasury Bills, it shall
have the right to sell or otherwise dispose of such securities and shall remit
to the Customer any proceeds of such sale or disposition in excess of the amount
of Variation Margin specified in instructions from Broker to Custodian. Broker
shall give consideration to any timely request by the Customer with respect to
particular securities to be sold and shall sell any securities in the principal
market for such securities, and if such market is closed, sell them in a manner
commercially reasonable for such securities.
(d) Custodian shall retain in the Safekeeping Account any
collateral in excess of the amount of Variation Margin specified in instructions
from Broker to Custodian including any proceeds from the sale of securities by
Broker in excess of such amount, if such proceeds are deposited by Customer with
Custodian.
6. Broker shall promptly credit to the trading account any
Variation Margin to Customer resulting from the variation in value of one or
more Contracts purchased or sold by Customer in accordance with the rules of any
exchange on which Contract transactions are effected by Broker for Customer. At
Customer's direction, Broker shall transfer trading account balances to Customer
in Federal funds to the Custodian or such bank account in Customer's name as
Customer shall otherwise direct. Customer may give such directions to Broker by
telephone, confirmed thereafter in writing.
7. If Custodian, upon timely receipt by the appropriate account
officer of clear unambiguous instructions from Broker given in full compliance
with the provisions of this Agreement, to release collateral, negligently or
willfully fails to take the action specified in such instuctions as provided
herein in a timely fashion and the Customer incurs a loss by reason thereof,
Custodian shall indemnify the Customer for any such direct loss but in no event
shall Custodian be liable for consequential damages or losses.
8. Unless otherwise provided, all notices or other communications
called for by this Agreement shall be given by the most reasonable means
possible including by telephone. If a notice or communication is not given or
made in writing, it shall be confirmed by facsimile transmission by the close of
business on the day on which the oral notice or communication was given, and a
written confirmation shall be provided to appropriate parties promptly within a
reasonable time after the oral notice is given. If there shall be any conflict
between oral instructions, notices, or other communications and written
confirmation thereof, such conflict shall be resolved in favor of the written
confirmation provided, however, Custodian shall be completely protected if it
shall have acted upon oral instruction, notice or communication prior to timely
receipt by it of such written confirmation.
9. Any and all expenses of establishing, maintaining, or terminating
the Safekeeping Account, including without limitation any and all expenses
incurred by Custodian in connection with the Safekeeping Account, shall be borne
by Customer.
10. This Agreement and the Safekeeping Account shall terminate upon
written consent of Customer and Broker, whereupon Custodian, subject to its
receipt of all amounts due and owing or accrued hereunder and under the
Safekeeping Agreement, shall transfer to Customer, or to a substitute Custodian
designated by Customer, all property held in the Safekeeping Account in excess
of Initial or Variation Margin or any other monies due and owing to Broker. The
Agreement also shall terminate upon the termination of the Custodian Agreement
between the Custodian and the Customer.
11. This Agreement shall be construed according to, and the rights
and liabilities of the parties hereto shall be governed by, the laws of The
Commonwealth of Massachusetts.
12. Except as specifically provided herein, this Agreement does not,
and shall not in any way affect any other agreements entered into among the
parties hereto and any actions taken or omitted by any party hereunder shall not
affect any rights of any other party hereunder.
13. No amendment of this Agreement shall be effective unless in
writing and signed by all the parties hereto by persons thereunto duly
authorized.
14. Written communications hereunder shall be, except as otherwise
required hereunder, hand-delivered or mailed first class postage prepaid, except
that written notice of termination shall be sent by certified mail addressed:
(a) If to Custodian, to:
{Bank Address}
(b)(1) If to Customer, to:
Colonial Newport Greater China Fund
Newport Fund management, Inc.
580 California Street, Suite 1960
San Francisco, CA 94104
Attention: Mr. Thomas Tuttle
(2) With copies to:
Michael H. Koonce
Colonial Newport Greater China Fund
One Financial Center
Boston, MA 02111
(c) If to Broker to:
{Broker/Dealer Address}
15. This Agreement is executed by an officer of the Customer
thereunto duly authorized on behalf of the Trustees of the Customer as Trustees
and not individually. The Trustees shall have no personal liability hereunder
and the sole recourse available to an aggrieved party for damages shall be
against the assets and property of the Customer.
COLONIAL NEWPORT GREATER CHINA FUND
By:
Authorized Signature
Title:
Date:
<PAGE>
{BANK}
By:
Authorized Signature
Title:
Date:
{BROKER/DEALER}
By:
Authorized Signature
Title:
Date:
APPENDIX I
<TABLE>
<CAPTION>
Trust Series Effective Date
<S> <C> <C>
Colonial Trust I Colonial High Yield Securities Fund 11/1/91
Colonial Income Fund 5/1/92
Colonial Strategic Income Fund 5/1/92
Colonial Tax-Managed Growth Fund 12/30/96
Colonial Trust II Colonial Government Money Market Fund 11/1/91
Colonial U.S. Government Fund 2/14/92
Colonial Short Duration U.S. Government Fund 10/1/92
Colonial Newport Tiger Cub Fund 6/3/96
Colonial Newport Japan Fund 6/3/96
Colonial Newport Greater China Fund 5/1/97
Colonial Trust III Colonial Select Value Fund 11/1/91
The Colonial Fund 2/14/92
Colonial Federal Securities Fund 2/14/92
Colonial Global Equity Fund 2/14/92
Colonial International Horizons Fund 2/14/92
Colonial International Fund for Growth 12/1/93
Colonial Strategic Balanced Fund 9/1/94
Colonial Trust IV Colonial High Yield Municipal Fund 6/5/92
Colonial Intermediate Tax-Exempt Fund 12/18/92
Colonial Tax-Exempt Fund 11/1/91
Colonial Tax-Exempt Insured Fund 11/1/91
Colonial Utilities Fund 2/14/92
Colonial Trust V Colonial Massachusetts Tax-Exempt Fund 11/1/91
Colonial Connecticut Tax-Exempt Fund 11/1/91
Colonial California Tax-Exempt Fund 8/3/92
Colonial Michigan Tax-Exempt Fund 8/3/92
Colonial Minnesota Tax-Exempt Fund 8/3/92
Colonial New York Tax-Exempt Fund 8/3/92
Colonial North Carolina Tax-Exempt Fund 8/6/93
Colonial Ohio Tax-Exempt Fund 8/3/92
Colonial Florida Tax-Exempt Fund 1/13/93
Colonial Trust VI Colonial U.S. Fund for Growth 7/1/92
Colonial Small Stock Fund 11/2/92
Colonial Aggressive Growth Fund 3/31/96
Colonial Equity Income Fund 3/31/96
Colonial International Equity Fund 3/31/96
Colonial Trust VII Colonial Newport Tiger Fund 5/1/95
</TABLE>
By:_______________________________
Peter L. Lydecker, Controller
By:__________________________________________
Timothy J. Jacoby, Senior Vice President
Colonial Management Associates, Inc.
Dated: February 28, 1997
S:\FUNDS\edgar\TRustii\PRICING.DOC
AMENDMENT NO. 9 TO SCHEDULE A
Terms used in the Schedule and not defined herein shall have the
meaning specified in the AMENDED AND RESTATED SHAREHOLDERS' SERVICING AND
TRANSFER AGENT AGREEMENT dated July 1, 1991, and as amended from time to time
(the "Agreement"). Payments under the Agreement to CSC shall be made in the
first two weeks of the month following the month in which a service is rendered
or an expense incurred. This Amendment No. 9 to Schedule A shall be effective as
of May 1, 1997, and supersedes the original Schedule A and Amendment Nos. 1, 2,
3, 4, 5, 6, 7 and 8 to Schedule A.
1. Each Fund that is a series of the Trust shall pay CSC for the
services to be provided by CSC under the Agreement an amount equal to the sum
of the following:
(a) The Fund's Share of CSC Compensation
PLUS
(b) The Fund's Allocated Share of CSC Reimbursable
Out-of-Pocket Expenses.
In addition, CSC shall be entitled to retain as additional compensation for its
services all CSC revenues for Distributor Fees, fees for wire, telephone,
redemption and exchange orders, IRA trustee agent fees and account transcripts
due CSC from shareholders of any Fund and interest (net of bank charges) earned
with respect to balances in the accounts referred to in paragraph 2 of the
Agreement.
2. All determinations hereunder shall be in accordance with
generally accepted accounting principles and subject to audit by the Fund's
independent accountants.
3. Definitions
"Allocated Share" for any month means that percentage of CSC
Reimbursable Out-of-Pocket Expenses which would be allocated
to the Fund for such month in accordance with the methodology
described in Exhibit 1 hereto.
"CSC Reimbursable Out-of-Pocket Expenses" means (i)
out-of-pocket expenses incurred on behalf of the Fund by CSC
for stationery, forms, postage and similar items, (ii)
networking account fees paid to dealer firms by CSC on
shareholder accounts established or maintained pursuant to the
National Securities Clearing Corporation's networking system,
which fees are approved by the Trustees from time to time and
(iii) fees paid by CSC or its affiliates to third-party dealer
firms or transfer agents that maintain omnibus accounts with a
Fund in respect of expenses similar to those referred to in
clause (i) above, to the extent the Trustees have approved the
reimbursement by the Fund of such fees.
"Distributor Fees" means the amount due CSC pursuant to any
agreement with the Fund's principal underwriter for
processing, accounting and reporting services in connection
with the sale of shares of the Fund.
"Fund" means each of the open-end investment companies advised
by CMA that are series of the Trusts which are parties to the
Agreement.
"Fund's Share of CSC Compensation" for any month means 1/12 of
the following applicable percentage of the average daily
closing value of the total net assets of such Fund for such
month:
<TABLE>
<CAPTION>
<S> <C>
Fund Percent
Equity Funds: 0.25
The Colonial Fund
Colonial Growth Shares Fund
Colonial U.S. Fund for Growth
Colonial Global Equity Fund
Colonial Global Natural Resources Fund
Colonial Small Stock Fund
Colonial International Fund for Growth
Colonial Aggressive Growth Fund
Colonial Equity Income Fund
Colonial International Equity Fund
Colonial Tax-Managed Growth Fund
Taxable Bond Funds: 0.181
Colonial U.S. Government Fund
Colonial Short Duration U.S. Government Fund
Colonial Federal Securities Fund
Colonial Income Fund
Tax-Exempt Funds 0.142
Colonial Tax-Exempt Insured Fund
Colonial Tax-Exempt Fund
Colonial High Yield Municipal Fund
Colonial California Tax-Exempt Fund
Colonial Connecticut Tax-Exempt Fund
Colonial Florida Tax-Exempt Fund
Colonial Intermediate Tax-Exempt Fund
Colonial Massachusetts Tax-Exempt Fund
Colonial Michigan Tax-Exempt Fund
Colonial Minnesota Tax-Exempt Fund
Colonial New York Tax-Exempt Fund
Colonial North Carolina Tax-Exempt Fund
Colonial Ohio Tax-Exempt Fund
Money Market Funds: 0.20
Colonial Government Money Market Fund
Colonial Municipal Money Market Fund
Others:
Colonial High Yield Securities Fund 0.25
Colonial Strategic Income Fund 0.20
Colonial Utilities Fund 0.20
Colonial Strategic Balanced Fund 0.25
Colonial Global Utilities Fund 0.20
Colonial Newport Tiger Fund 0.25
Colonial Newport Tiger Cub Fund 0.25
Colonial Newport Japan Fund 0.25
Colonial Newport Greater China Fund X.XX
</TABLE>
1 The applicable percentage shall be reduced from 0.18% to 0.17% during 1997
through successive, cumulative monthly reductions of 0.01%/12. Thereafter
the applicable percentage shall remain at 0.17%.
2 The applicable percentage shall be reduced from 0.14% to 0.13% during 1997
through successive, cumulative monthly reductions of 0.01%/12. Thereafter
the applicable percentage shall remain at 0.13%.
Agreed:
EACH TRUST ON BEHALF OF EACH FUND DESIGNATED
IN APPENDIX I FROM TIME TO TIME
By: __________________________________________
Arthur O. Stern, Secretary
COLONIAL INVESTORS SERVICE CENTER, INC.
By: ________________________________________
Davey S. Scoon, President
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: ________________________________________
Arthur O. Stern, Executive Vice President
<PAGE>
EXHIBIT 1
METHODOLOGY OF ALLOCATING CSC
REIMBURSABLE OUT-OF-POCKET EXPENSES
1. CSC Reimbursable Out-of-Pocket Expenses are allocated to the Colonial Funds
as follows:
A. Identifiable Based on actual services performed and
invoiced to a Fund.
B. Unidentifiable Allocation will be based on three evenly
weighted factors.
- number of shareholder accounts
- number of transactions
- average assets
- --------
ADMINISTRATION AGREEMENT
AGREEMENT dated as of February 28, 1997, between COLONIAL TRUST II, a
Massachusetts business trust (the "Trust"), with respect to Colonial Newport
Greater China Fund (the "Fund"), and COLONIAL MANAGEMENT ASSOCIATES, INC., a
Massachusetts corporation (the "Administrator").
In consideration of the promises and covenants herein, the parties agree as
follows:
1. Subject to the general direction and control of the Board of Trustees of
the Trust, the Administrator shall perform such administrative services as
may from time to time be reasonably requested by the Trust, which shall
include without limitation: (a) providing office space, equipment and
clerical personnel necessary for maintaining the organization of the Fund
and for performing the administrative functions herein set forth; (b)
arranging, if desired by the Trust, for Directors, officers and employees
of the Administrator to serve as Trustees, officers or agents of the Fund
if duly elected or appointed to such positions and subject to their
individual consent and to any limitations imposed by law; (c) preparing
and, if applicable, filing all documents required for compliance by the
Fund with applicable laws and regulations, including registration
statements, registration fee filings, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (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 the Fund's other third-party service providers; and (f)
maintaining books and records of the Fund (exclusive of records required by
Section 31(a) of the 1940 Act). Notwithstanding the foregoing, the
Administrator shall not be deemed to have assumed or have any
responsibility with respect to functions specifically assumed by any
transfer agent or custodian of the Fund.
2. The Administrator shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
3. The Fund shall pay the Administrator monthly a fee at the annual rate of
0.25% of the average daily net assets of the Fund.
4. This Agreement shall become effective as of the date of its execution, and
may be terminated without penalty by the Board of Trustees of the Trust or
by the Administrator, in each case on sixty days' written notice to the
other party.
5. This Agreement may be amended only by a writing signed by both parties.
6. In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Administrator, or reckless disregard of its obligations and
duties hereunder, the Administrator shall not be subject to any liability
to the Trust or Fund, to any shareholder of the Trust or the Fund or to any
other person, firm or organization, for any act or omission in the course
of, or connected with, rendering services hereunder.
COLONIAL TRUST II
on behalf of Colonial Newport Greater China Fund
By: _____________________________
Title: Controller
COLONIAL MANAGEMENT ASSOCIATES, INC.
By: _____________________________
Title: Executive Vice President
A copy of the document establishing the Trust is filed with the Secretary of The
Commonwealth of Massachusetts. This Agreement is executed by officers not as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.
S:\FUNDS\GENERAL\CONTRACT\ADMNCUB.DOC
