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. 30 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 30 [ 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):
[ X ] 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
[ ] 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or superseded hereby.
<PAGE>
COLONIAL TRUST II
Cross Reference Sheet (Colonial Newport Greater China Fund)
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 Fund's 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
<PAGE>
NEWPORT GREATER CHINA FUND
Subscription Offering of
Load-Waived Class A Shares
Offer Expires July 25, 1997
<PAGE>
This Prospectus Supplement contains information in addition to that contained in
the Prospectus dated May 16, 1997 for the Newport Greater China Fund (the
"Fund"). The primary purpose of this Prospectus Supplement is to describe the
offer (the "Subscription Offer") of Load-Waived Class A Shares (defined below)
of the Fund to beneficial owners of shares of certain funds managed or sponsored
by Colonial Management Associates, Inc. or Liberty Asset Management Company and
certain other persons.
The Subscription Offer
The Fund is offering the common shareholders (the "Eligible Shareholders") of
record as of the close of business on June 16, 1997 (the "Record Date") of each
of the Participating Funds (defined herein) the right to subscribe (the
"Subscription Rights") for Class A shares of the Fund, without paying an
up-front sales charge (the "Load-Waived Class A Shares") at the rate of one
Load-Waived Class A Share of the Fund for each common share of a Participating
Fund (the "Participating Fund Shares") held on the Record Date (the "Primary
Subscription Privilege"). Eligible Shareholders who fully exercise their
Subscription Rights may request to subscribe for additional Load-Waived Class A
Shares of the Fund (the "Over-Subscription Privilege"). The Subscription Offer
is available for a limited Subscription Period and is subject to a Maximum Offer
Amount (each as described herein). If subscriptions exceed the Maximum Offer
Amount, Load-Waived Class A Shares will be allocated among valid subscriptions
on the first come, first served basis as described herein. The Subscription
Rights are non-transferable and may not be purchased or sold.
The subscription price (the "Subscription Price") per Load-Waived Class A Share
in the Subscription Offer will be equal to $20.00 per share, without payment of
an up-front sales charge. The minimum purchase in the Subscription Offer is 150
Load-Waived Class A Shares ($3,000). The Load-Waived Class A Shares issued
pursuant to the Subscription Offer are subject to a Contingent Deferred Sales
Charge ("CDSC") of 2% if such Shares are redeemed prior to July 31, 1999.
<PAGE>
UNLESS TERMINATED EARLIER AS DESCRIBED HEREIN, THE SUBSCRIPTION OFFER WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JULY 25, 1997 (THE "EXPIRATION
DATE").
-----------------------
PaineWebber Incorporated
Merrill Lynch & Co.
A.G. Edwards & Sons Inc.
----------------------------
Prospectus Supplement dated June 20, 1997
<PAGE>
S-9
<PAGE>
The Fund and the Adviser
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 their revenues from business activity with or in, the
Greater China Region. The Greater China Region consists of Hong Kong, the
People's Republic of China and Taiwan. It currently is anticipated that the Fund
will invest primarily in companies whose securities are listed and traded in
Hong Kong but that the Fund's investment adviser believes will benefit from
growth opportunities in mainland China. There is no assurance the Fund will
achieve its investment objective. See "How the Fund Pursues its Objective and
Certain Risk Factors" on page 3 of the Prospectus. The Fund commenced investment
operations in May 1997 and has not to date offered any of its shares to the
public.
The Fund is managed by Newport Fund Management, Inc. (the "Adviser"). The
Adviser manages a number of funds and accounts, totaling approximately $2
billion as of May 31, 1997, that invest primarily in equity securities of
companies located in Asia, including the Greater China Region. The largest and
oldest of these funds is the Colonial Newport Tiger Fund (the "Tiger Fund"),
which commenced investment operations on March 31, 1989. Shown below are the
average annual and cumulative total returns for the one year, five year and
since inception periods through May 31, 1997 of the Class A Shares of the Tiger
Fund. Also shown for the same periods are the average annual and cumulative
total returns of (i) the Morgan Stanley Capital International Europe, Asia and
Far East (GDP) Index (the "MSCI EAFE (GDP) Index") and (ii) the average fund in
the Lipper Pacific Basin ex-Japan category, and the Tiger Fund's rankings within
its Lipper category for such periods.
COLONIAL NEWPORT
TIGER FUND
Average Annual Cumulative
Total Returns Total Returns
(NAV) (NAV)
One Year 2.4% 2.4%
Five Years 15.05% 101.62%
Since 5/31/89 14.06% 186.60%
(inception)
MSCI EAFE
(GDP) INDEX*
Average Annual Cumulative
Total Returns Total Returns
One Year 8.77% 8.77%
Five Years 10.61% 65.59%
Since 5/31/89 8.07% 86.03%
(inception)
AVERAGE LIPPER PACIFIC REGION
EX-JAPAN FUND*
Average Annual Cumulative
Total Returns Total Returns
One Year 4.13% 4.13%
Five Years 10.88% 69.22%
Since 5/31/89 10.79% 132.80%
LIPPER PACIFIC REGION
EX-JAPAN CATEGORY
RANKINGS OF
COLONIAL NEWPORT
TIGER FUND**
One Year 37/72
Five Years 1/8
Since 5/31/89 1/2
*The MSCI EAFE (GDP) 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.
**First number shows rank within category/second number shows total number of
funds in category. The one year ranking reflects the Tiger Fund's Class A
shares; because Lipper does not rank the Tiger Fund's Class A shares for such
periods, the five year and since 5/31/89 rankings reflect Class T shares, which
are not subject to the 0.25% service fee applicable to Class A shares. If Tiger
Fund's Class A shares rather than its Class T shares were used in the rankings
for these periods, the ranking would not have changed.
<PAGE>
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 (GDP) Index do
not represent past performance of the Fund, and are not necessarily indicative
of the Fund's future performance. 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 include funds investing in other Pacific Rim countries,
and the MSCI EAFE (GDP) 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 Funds.
The Fund's portfolio management team consists of three co-managers: Thomas R.
Tuttle, as lead portfolio manager, and Xiaodong (Tony) Zhang and Christopher
Legallet. Mr. Tuttle is a Senior Vice President of the Adviser and of Newport
Pacific Management, Inc. ("Newport Pacific"), the Adviser's immediate parent.
Mr. Tuttle has been a co-manager of the Tiger Fund since 1995, has been a Senior
Vice President since 1994 and has been affiliated with the Adviser since 1983.
Mr. Zhang is a Greater China Analyst of the Adviser and of Newport Pacific. Mr.
Zhang has been affiliated with the Adviser since 1993. Prior to his affiliation
with the Adviser, Mr. Zhang was Project Manager of overseas investment for
Hongmei Electronic Corporation, in China, from 1990 to 1992. Mr. Legallet
recently joined with the Adviser as a Senior Vice President. Prior to his
affiliation with the Adviser, Mr. Legallet was a Managing Director of Jupiter
Tyndall (Asia) LTD. in Hong Kong as lead manager for investment in Asia, and
prior to 1992, a Vice President of Solomon Inc. in New York.
The Subscription Offer
The Subscription Rights provide Eligible Shareholders of the Participating Funds
the opportunity to purchase Class A shares of the Fund without paying an upfront
sales charge. 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; Colonial Newport Tiger Cub Fund; Colonial Newport
Japan Fund; Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc.
As described in the Prospectus, Class A shares of the Fund generally will be
offered to the public at their net asset value plus a maximum up-front sales
charge of 5.75%. Pursuant to the Subscription Rights, Eligible Shareholders may
subscribe for Load-Waived Class A Shares at the rate of one Load-Waived Class A
Share for each Participating Fund Share held on the Record Date (the "Primary
Subscription Privilege"). Any Eligible Shareholder who fully exercises all
Subscription Rights pursuant to the Primary Subscription Privilege may request
to subscribe for additional Load-Waived Class A Shares at the Subscription Price
(the "Over-Subscription Privilege"). Exercises of Subscription Rights in the
Primary Subscription Privilege and requests for additional Load-Waived Class A
Shares pursuant to the Over-Subscription Privilege are subject to the Maximum
Offer Amount (as described below).
Subscription Rights may be exercised at any time during the Subscription Period,
which commences on June 23, 1997 and, unless terminated earlier, ends at 5:00
p.m., New York City time, on July 25, 1997 (the "Expiration Date"). See
"Expiration of the Subscription Offer" below.
An Eligible Shareholder's Subscription Rights will be evidenced by a
Subscription Rights Exercise and Application Form (the "Subscription Form")
which will be mailed to all Eligible Shareholders, or, if the Participating Fund
Shares are held by a broker, Cede or any other depository or nominee, to such
broker, Cede or such depository or nominee. Eligible Shareholders seeking to
participate should contact their broker or financial adviser who can exercise
the Subscription Rights and arrange for payment on behalf of such Eligible
Shareholder. Eligible Shareholders who do not have a broker or financial adviser
should complete and sign the Subscription Form and send it together with payment
for the subscribed Load-Waived Class A Shares to the Fund's Subscription Agent
(defined below). See "How to Participate in the Subscription Offer" and "How to
Pay for Your Shares" below.
The Fund reserves the right, during the Subscription Period, to offer
Load-Waived Class A Shares at the Subscription Price to clients of the Dealer
Managers named on the cover page of this Prospectus Supplement ("Dealer Manager
Clients") and to employees of Liberty Financial Companies, Inc. and its
affiliates ("LFC Employees") who may not be Eligible Shareholders subject to the
Maximum Offer Amount (as described below).
The Over-Subscription Privilege
Eligible Shareholders who exercise all of their Subscription Rights pursuant to
the Primary Subscription Privilege may request on the Subscription Form to
subscribe for additional Load-Waived Class A Shares pursuant to the
Over-Subscription Privilege. To the extent shares issued pursuant to the Primary
Subscription Privilege do not exceed the Maximum Offer Amount, all or a portion
of the Over-Subscription Privilege requests will be honored. See the "Maximum
Offer Amount" below.
Maximum Offer Amount
The Fund is limiting the amount of Load-Waived Class A Shares that may be
subscribed for to approximately 12,500,000 Load-Waived Class A Shares
($250,000,000) (the "Maximum Offer Amount"). To the extent exercises of
Subscription Rights in the Primary Subscription Privilege exceed the Maximum
Offer Amount, the Load-Waived Class A Shares will be allocated among subscribing
Eligible Shareholders based upon their exercises of Subscription Rights on a
first-come, first served basis. If the Maximum Offer Amount is not reached in
the Primary Subscription Privilege, the remaining Load-Waived Class A Shares
will be allocated among subscription requests received in the Over-Subscription
Privilege, also on a first come, first served basis. In the event the Maximum
Offer Amount is not reached in the Primary Subscription Privilege and
Over-Subscription Privilege, then remaining Load-Waived Class A Shares will be
allocated among subscription requests received from Dealer Manager Clients and
LFC Employees, also on a first come, first served basis.
In the event the Maximum Offer Amount is subscribed for in the Subscription
Offer at any time during the Subscription Period, the Fund reserves the right to
terminate the Subscription Offer prior to the Expiration Date and to reject
subscriptions received after such early termination date. Eligible Shareholders,
Dealer Manager Clients and LFC Employees seeking to purchase Load-Waived Class A
Shares should forward their subscriptions as soon as possible. As a result of
the Maximum Offer Amount, there is no guarantee that an Eligible Shareholder, a
Dealer Manager Client or an LFC Employee will receive all or any Load-Waived
Class A Shares requested.
Subscription Price
The Subscription Price for the Load-Waived Class A shares will be $20.00 per
share, without an upfront sales charge. If such Load-Waived Class A Shares are
redeemed on or before July 31, 1999, a CDSC of 2% of the lower of the purchase
price or the redemption proceeds may be imposed upon the redemption. The CDSC is
subject to waiver as described in the Prospectus and in the Fund's Statement of
Additional Information. If Load-Waived Class A Shares are exchanged for shares
in another Colonial Fund and the shares received in the exchange are redeemed on
or before July 31, 1999, the CDSC will apply to such redemption.
Low Minimum Investment
The minimum subscription amount is 150 Load-Waived Class A Shares ($3,000).
Eligible Shareholders owning, in the aggregate, fewer than 150 Participating
Fund Shares will be entitled to purchase 150 Load-Waived Class A Shares in the
Primary Subscription Privilege.
<PAGE>
Non-Transferability of Subscription Rights
The Subscription Rights are non-transferable and, therefore, may not be
purchased or sold. The Subscription Rights are offered to Record Date Eligible
Shareholders, which term, for purposes of the Subscription Offer, includes (i)
the person or persons who are the owners, co-owners and beneficiaries of the
account(s) in which the Participating Fund Shares are held (collectively, the
"Designated Persons") and (ii) any account (including a trust, Individual
Retirement Account, qualified plan account or other similar arrangement) of
which any Designated Person is directly or indirectly an owner, a co-owner or
beneficiary.
Expiration of the Offer
The Subscription Offer will expire at 5:00 p.m., New York City time, on July 25,
1997 (the "Expiration Date"), unless terminated earlier in connection with the
Maximum Offer Amount. See "The Maximum Offer Amount" above.
How to Participate in the Subscription Offer
The Subscription Rights are evidenced by Subscription Forms which will be mailed
to all Eligible Shareholders, or, if the Participating Fund Shares are held by a
broker, Cede or any other depository or nominee, to such broker, Cede or such
depository or nominee. To exercise Subscription Rights, an Eligible Shareholder
should contact their broker or financial adviser who can exercise the
Subscription Rights and arrange for payment on behalf of such Eligible
Shareholder. Eligible Shareholders who do not have a broker or financial adviser
should complete and sign the Subscription Form which accompanies the Prospectus,
as supplemented, and mail it in the envelope provided, or otherwise deliver the
completed Subscription Form to Colonial Investors Service Center, Inc. (the
"Subscription Agent"), together with payment in full of the Subscription Price
for the Load-Waived Class A Shares being subscribed for. Subscription Rights may
also be exercised by contacting your broker or financial adviser, which may
arrange, on your behalf, to guarantee delivery of payment and a properly
completed Subscription Form (a "Notice of Guaranteed Delivery"). A fee may be
charged for this service. Completed Subscription Forms must be received by the
Subscription Agent prior to 5:00 p.m., New York 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 set forth below under "Subscription Agent."
Eligible Shareholders Who Are Record Owners. Eligible Shareholders who are
record owners may exercise their Subscription Rights in either of two ways.
(1) They may contact their broker or financial adviser and request that such
broker or adviser exercise their Subscription Rights on their behalf. If time is
of the essence, a broker or financial adviser may be able to exercise
Subscription Rights immediately and guarantee delivery of a Subscription Form
and payment. See "How to Pay for Your Shares Below." A fee may be charged for
this service.
(2) Alternatively, Eligible Shareholders who are record owners may complete and
sign the Subscription Form included with this Prospectus Supplement and mail it
in the envelope provided, or otherwise deliver it, to the Subscription Agent,
together with payment in full of the aggregate Subscription Price of the
Load-Waived Class A Shares being subscribed for.
Eligible Shareholders Who Hold Through a Broker, Depository or Nominee. Eligible
Shareholders whose Participating Fund Shares are held by a nominee, such as a
broker or trustee, must contact that nominee to exercise their Subscription
Rights. In that case, the nominee will complete the Subscription Form on behalf
of the investor and arrange for proper payment by one of the methods set forth
under "How to Pay for Your Shares" below.
Brokers, Depositories and Nominees. Nominees who hold Participating Fund Shares
for the account of others must notify the beneficial owners of such
Participating Fund Shares as soon as possible to ascertain such beneficial
owners' intentions and to obtain instructions with respect to the Subscription
Offer. If the beneficial owner so instructs, the nominee should complete the
Subscription Form and forward it to the Subscription Agent with the proper
payment described under "How to Pay for Your Shares" below.
Dealer Manager Clients. Dealer Manager Clients who wish to subscribe for
Load-Waived Class A Shares should contact their broker or financial adviser.
Subscription Agent
The Subscription Agent is Colonial Investors Service Center, Inc., which also
serves as the Fund's transfer and shareholder servicing agent. SIGNED
SUBSCRIPTION FORMS 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 Forms actually received on a timely basis at any
of the addresses listed below.
(1) BY FIRST CLASS MAIL
Colonial Investors Service Center, Inc.
Attn: Newport Greater China Fund
P.O. Box 1722
Boston, MA 02105-1722
(2) BY EXPRESS MAIL, BY OVERNIGHT COURIER OR BY HAND
Colonial Investors Service Center, Inc.
Attn: Newport Greater China Fund
One Financial Center
Boston, MA 02111
(3) BY FACSIMILE (TELECOPIER), with the original Subscription Form to be sent
by one of the methods described above:
Colonial Investors Service Center, Inc.
Facsimile numbers: 617-330-7421
617-261-6065
Confirm by telephone: 800-441-4020
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 total
number of Shares subscribed for in the Primary Subscription Privilege and/or
requested pursuant to the Over-Subscription Privilege or otherwise multiplied by
the Subscription Price of $20 per Share.
Eligible Shareholders may choose between the following two methods to pay for
their Load-Waived Class A Shares.
(1) Eligible Shareholders or their brokers, nominees or representatives can send
Subscription Forms together with full payment for the total number of
Load-Waived Class A Shares subscribed for to the Subscription Agent. Under this
method, the completed Subscription Form must be received by the Subscription
Agent at the Subscription Agent's office at the address specified above prior to
5:00 p.m. on the Expiration Date. Any direct payment must be in United States
dollars drawn on a bank located in the United States by wire transfer or by
money order or check made payable to the "NEWPORT GREATER CHINA FUND" and must
accompany the completed Subscription Form and be received by the Subscription
Agent by the Expiration Date to be accepted. Any payment arranged through a
clearing organization will be designated for payment by the third business day
after the Expiration Date; the completed Subscription Form must have been
received by the Subscription Agent by the Expiration Date and the full payment
must be received by the Subscription Agent by the third business date after the
Expiration Date 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 by the third business day after the Expiration Date of (i)
payment of the Subscription Price of $20 per Load-Waived Class A Share
subscribed for in the Subscription Offer and (ii) a properly completed
Subscription Form. The Subscription Agent will not be required to honor a Notice
of Guaranteed Delivery unless a properly completed Subscription Form (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 business day after the Expiration Date (July 30, 1997).
Dealer Manager Clients should arrange with their broker or financial adviser for
payment and any other account information or documentation to be delivered to
the Subscription Agent prior to the Expiration Date.
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.
Subscriptions may not be rescinded after the Expiration Date.
The method of delivery of Subscription Forms and payment of the Subscription
Price to the Fund will be at the election and risk of the subscribing Eligible
Shareholders and Dealer Manager Clients. A sufficient number of days should be
allowed to ensure mail delivery to the Subscription Agent prior to 5:00 p.m.,
New York City time, on the Expiration Date.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of Subscription Rights and any subscriptions pursuant to the
Over-Subscription Privilege or otherwise 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
subscription. 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
subscriptions or incur any liability for failure to give such notification.
The Fund reserves the right to reject exercise of subscriptions where the
proceeds for payment of the Subscription Price are from the sale of shares of
any Colonial fund or Liberty All-Star fund, and the Distributor 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 Fund Shares are held by a nominee
or other representative who exercises Subscription Rights on behalf of an
Eligible Shareholder, to such nominee or representative) and to each Dealer
Manager, a confirmation within one business day following the Expiration Date
(the "Confirmation Date"). The confirmation will reflect the number of
Load-Waived Class A Shares acquired. The Subscription Agent will mail any excess
payment to be refunded to a subscriber as a result of having received requests
for Load-Waived Class A Shares in excess of the Maximum Offer Amount, without
interest, as promptly as possible.
Who to Call for Further Information
If you have any questions or need any assistance with respect to the
Subscription Offer, please call Shareholder Communications Corporation (the
"Information Agent") at 800-733-8481 ext. 354 or write to the Information Agent
at 17 State Street, 28th Floor, New York, New York 10004. Eligible Shareholders
may also contact their brokers or nominees for more information with respect to
the Subscription Offer.
Important Dates to Remember
Event Date
Record Date.................................. June 16, 1997
Subscription Period...................... ... June 23, 1997 to
July 25, 1997
Expiration Date.............................. July 25, 1997
Subscription Form or Notice of
Guarantee Due.............................. July 25, 1997
Confirmation to Participants................. July 28, 1997
All Payments Due............................. July 30, 1997
Public Subscription Offer
Terms of the Public Subscription Offer. In the event that, in connection with
the Subscription Offer, the Fund has not received on or prior to the Expiration
Date exercises of Subscription Rights and requests for purchases pursuant to the
Over-Subscription or otherwise exceeding the Maximum Offer Amount, the Fund
reserves the right to offer and sell Load-Waived Class A Shares to the general
public for a 30 day period following the Subscription Period (the "Public
Subscription Offer"). Whether Load-Waived Class A Shares will be offered to the
general public under the Public Subscription Offer is within the discretion of
the Fund and the Distributor and there are no assurances that any Load-Waived
Class A Shares will be so offered. In the event the Fund commences the Public
Subscription Offer, the Fund may terminate it at any time upon receiving orders
in the Public Subscription Offer for Load-Waived Class A Shares together with
Load-Waived Class A Shares issued and sold in the Subscription Offer equal to
the Maximum Offer Amount.
Public Subscription Price. The price for the Load-Waived Class A Shares, if any,
to be issued pursuant to the Public Subscription Offer will be the net asset
value per Class A Share next computed after receipt of the order, without
payment of an up-front sales charge. If Load-Waived Class A Shares purchased in
the Public Subscription Offer are redeemed on or before August 31, 1999, a CDSC
of 2% of the lower of the purchase price or the redemption proceeds may be
imposed upon the redemption subject to waiver as described in the Prospectus and
Statement of Additional Information.
Low Minimum Investment. The minimum purchase pursuant to the Public Subscription
Offer is $3,000.
How to Purchase Shares in the Public Subscription Offer. You should contact your
broker or financial adviser if you wish to purchase Load-Waived Class A Shares
in the Public Subscription Offer.
Distribution Arrangements for the Offer
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York (the
"Representative"); and Merrill Lynch, Pierce, Fenner & Smith Incorporated, North
Tower, World Financial Center, New York, New York; and A.G. Edwards & Sons,
Inc., One North Jefferson Avenue, St. Louis Missouri will act, together with the
Representative, as dealer managers (the "Dealer Managers") for the Subscription
Offer and any Public Subscription Offer (collectively the "Offer"). Under the
Dealer Manager Agreement dated on or about June 20, 1997, the Dealer Managers
will provide financial advisory services and marketing assistance in connection
with the Offer, and will solicit the purchase of shares. The Offer is not
contingent upon any amount of Subscription Rights being exercised or
subscriptions being received. The Distributor of the Fund's shares has agreed to
pay the Dealer Managers for their services an amount equal to 1.00% of the
purchase price per Class A Share sold pursuant to the Offer. The Distributor of
the Fund's shares also has agreed to pay broker-dealers and financial
institutions (including the Dealer Managers) for their solicitation efforts an
amount equal to 2.00% of the purchase price per Load-Waived Class A Share sold
pursuant to the Offer. Such solicitation fees will be paid to the broker-dealer
or financial institution, if any, designated on the applicable portion of the
Subscription Form or other related document received in connection with
subscriptions submitted pursuant to the Offer. All fees payable to the Dealer
Managers and to other broker-dealers will be paid by the Distributor of the
Fund's shares and not by the Fund or by Eligible Shareholders or other
subscribers.
In addition, the Distributor of the Fund's shares has agreed to reimburse the
Dealer Managers up to $250,000 for their reasonable expenses incurred in
connection with the Offer. The Fund and Distributor 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 Manager 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 validity of the Load-Waived Class A Shares will be passed on for the Fund by
Ropes & Gray, Boston, Massachusetts and certain legal matters will be passed on
for the Dealer Managers by Skadden, Arps, Slate, Meagher & Flom (Illinois).
GC-36/731D-0597
<PAGE>
May 16, 1997 GC-01/601D-0497
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.
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 their 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 16, 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.
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 C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year after purchase. Class B shares automatically
convert to Class A shares after approximately eight years. See "How to Buy
Shares."
Contents Page
Summary of Expenses 2
The Fund's Investment Objective 3
How the Fund Pursues its Objective
and Certain Risk Factors 3
Adviser Performance Information 6
How the Fund Measures its Performance 7
How the Fund is Managed 8
How the Fund Values its Shares 9
Distributions and Taxes 9
How to Buy Shares 9
How to Sell Shares 12
How to Exchange Shares 12
Telephone Transactions 13
12b-1 Plans 13
Organization and History 14
- ----------------------------- --------------------------
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 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)
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering
price) (3) 5.75% 0.00%(5) 0.00%(5)
Maximum Contingent Deferred Sales Charge (as a % of offering price) (3) 1.00%(4) 5.00% 0.99%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See "How
to Buy Shares."
(2) Redemption proceeds exceeding $5,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and Class C
shares, long-term Class B and Class C shareholders may pay more in aggregate
sales charges than the maximum 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)
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management and administration fees (after expense reimbursement)(6) 1.30% 1.30% 1.30%
12b-1 fees 0.25 1.00 1.00
Other expenses (after expense reimbursement)(6) 0.60 0.60 0.60
---- ---- ----
Total operating expenses (6) 2.15% 2.90% 2.90%
==== ==== ====
</TABLE>
(6) The Adviser and Administrator have voluntarily agreed until further notice
to waive their fees and bear Fund expenses so that the Fund's total annual
operating expenses, excluding commissions, taxes, 12b-1 fees and any
extraordinary expenses will not exceed 1.90%. Absent such fee waiver,
"Management and administration fees" would be 1.40% for each Class of shares
and "Total operating expenses" would be 2.25% (Class A) and 3.00% (Classes B
and C).
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:
<TABLE>
<CAPTION>
Class A Class B Class C
Period: (7) (8) (7) (8)
<S> <C> <C> <C> <C> <C>
1 year $ 78 $ 79 $29 $39 $29
3 years $121 $120 $90 $90 $90(9)
</TABLE>
Without voluntary fee reductions by the Adviser and Administrator:
<TABLE>
<CAPTION>
Class A Class B Class C
Period: (7) (8) (7) (8)
<S> <C> <C> <C> <C> <C>
1 year $ 79 $ 80 $30 $40 $30
3 years $124 $123 $93 $93 $93(9)
</TABLE>
(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
<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
their 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 at least 80% of its total assets in equity securities
of companies located in, or which derive a substantial portion (at least 50%) of
their revenue from business activity with or in, the Greater China Region. The
remaining 20% may be invested in equity securities of companies that are
otherwise expected to benefit from the Greater China Region's anticipated
economic growth. The Adviser currently anticipates that the Fund will invest
primarily in companies whose securities are listed and traded in Hong Kong, but
that the Adviser believes will benefit from growth opportunities in mainland
China.
The Fund generally invests in companies with at least $100 million in equity
market capitalization at the time of purchase, 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.
<PAGE>
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. 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
<PAGE>
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 shares of closed-end 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 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.
<PAGE>
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 $2 billion in assets as
of March 31, 1997, that invest primarily in equity securities of companies
located in Asia. 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 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 (GDP) 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 rankings 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 (GDP) 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
<PAGE>
include funds investing in other Pacific Rim countries, and the MSCI EAFE (GDP)
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 (5.11)% (5.11)%
Five Years 16.26% 112.37%
Since 5/31/89
(inception) 13.40% 167.97%
MSCI EAFE (GDP) INDEX
Average Annual Cumulative Total
Total Returns Returns
One Year 5.29% 5.29%
Five Years 11.00% 68.52%
Since 5/31/89 7.58% 77.25%
AVERAGE LIPPER PACIFIC REGION
EX-JAPAN FUND
Average Annual Cumulative Total
Total Returns Returns
One Year (0.72)% (0.72)%
Five Years 11.52% 74.31%
Since 5/31/89 10.76% 126.29%
LIPPER PACIFIC REGION EX-JAPAN
CATEGORY RANKINGS* OF COLONIAL
NEWPORT TIGER FUND
One Year 47/62
Five Years 1/6
Since 5/31/89 1/2
*First number shows rank within category/second number shows total number of
funds in category. The one year ranking reflects the Tiger Fund's Class A
shares; because Lipper does not rank the Tiger Fund's Class A shares for such
periods, the five year and since 5/31/89 rankings reflect Class T shares, which
are not subject to the 0.25% service fee applicable to Class A shares. If Tiger
Fund's Class A shares rather than its Class T shares were used in the rankings
for these periods, the ranking would not have changed.
The MSCI EAFE (GDP) 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
<PAGE>
Commission's formula and assume the reinvestment of all distributions, the
maximum initial sales charge of 5.75% on Class A shares and the contingent
deferred sales charge applicable to the time period quoted on Class B and Class
C shares. Other total returns differ from the average annual total return only
in that they may relate to different time periods, 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 1.15% 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.
The Fund's portfolio management team consists of three co-managers: Thomas R.
Tuttle, as lead portfolio manager, and Xiaodong (Tony) Zhang and Christopher
Legallet.
Mr. Tuttle is Senior Vice President of the Adviser and of Newport Pacific
Management, Inc. ("Newport Pacific"), the Adviser's immediate parent. Mr. Tuttle
has been affiliated with the Adviser since 1983.
Mr. Zhang is a Greater China Analyst of the Adviser and of Newport Pacific. Mr.
Zhang has been affiliated with the Adviser since 1993. Prior to his affiliation
with the Adviser, Mr. Zhang was Project Manager of overseas investments for
Hongmei Electric Corporation, in China from 1990 to 1992.
Mr. Legallet recently joined with the Adviser as a Senior Vice President. Prior
to his affiliation with the Adviser, Mr. Legallet was a Managing Director of
Jupiter Tyndall (Asia) LTD. in Hong Kong as lead manager for investment in Asia,
and prior to 1992, a Vice President of Solomon Inc. in New York.
The Administrator provides certain administrative services to the Fund, for
which the Fund pays the Administrator a monthly fee at the annual rate of 0.25%
of the Fund's average daily net assets for such services. The
<PAGE>
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 0.236% 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 (normally 4:00 p.m. Eastern time) of the New York Stock
Exchange (Exchange) each day the Exchange is open. Portfolio securities for
which market quotations are readily available are valued at current market
value. Short-term investments maturing in 60 days or less are valued at
amortized cost when the Adviser determines, pursuant to procedures adopted by
the Trustees, that such cost approximates current market value. 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
<PAGE>
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 C shares and there are
some limitations on the issuance of Class A share certificates. The Fund may
refuse any purchase order for its shares. See the Statement of Additional
Information for more information.
Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:
Initial Sales Charge
----------------------------------
Retained
by
Financial
Service
as % of Firm as
--------------------- % of
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 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.
<PAGE>
Class C Shares. Class C shares are offered at net asset value and are subject to
a 0.75% annual distribution fee and a 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which purchase
was accepted.
The Distributor pays financial service firms an ongoing commission on purchases
of Class C shares of 0.75% annually commencing after the shares purchased have
been outstanding for one year. Payment of the ongoing commission is conditioned
on receipt by the Distributor of the 0.75% annual distribution fee referred to
above. The commission may be reduced or eliminated 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). When a redemption on which a contingent
deferred sales charge is payable is made, generally, older shares will be
redeemed first unless the shareholder instructs otherwise. See the Statement of
Additional Information for more information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class C shares. Purchases of $250,000 or
more must be for Class A or Class C shares. Purchases of $1,000,000 or more must
be for Class A shares. Consult your financial service firm.
The Fund also offers Class Z shares, which are offered through a separate
Prospectus only to (i) employees of the Administrator and its affiliates and
(ii) certain institutions and defined benefit retirement plans investing a
minimum of $5 million in the Fund. Class Z shares have no initial or contingent
deferred sales charge and no Rule 12b-1 fee. Otherwise, the Class Z share
expenses are the same as Classes A, B and C. Class Z shares are exchangeable
only for Class A shares of the other Colonial funds.
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."
Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.
In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000 unless the account value has dropped
below $1,000 solely as a result of share value depreciation.
<PAGE>
Shareholders will receive 60 days' written notice to increase the account value
before the fee is deducted. The Fund may also deduct annual maintenance and
processing fees (payable to the Transfer Agent) in connection with certain
retirement plan accounts. See "Special Purchase Programs/Investor Services" in
the Statement of Additional Information for more information.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will 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 manage 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
<PAGE>
exchange to a fund with a higher sales charge, after which exchanges are made at
the net asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund in which the original investment was made.
Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one exchange of the Fund's Class C shares may be made in any three month
period. For this purpose, an exchange into the Fund and a prior or subsequent
exchange out of the Fund constitutes "one exchange."
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 0.25% 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 0.75% of the average daily net assets attributed to its Class B
and Class C shares. Because the Class B and Class C shares bear additional
distribution fees, their dividends, 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 C
shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares, and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing costs
and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plans also
authorize other payments to the Distributor and its affiliates (including the
Adviser and the Administrator) which may be construed to be indirect financing
of sales of Fund shares.
<PAGE>
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>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<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
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108-2624
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A
May 16, 1997
NEWPORT GREATER CHINA FUND
PROSPECTUS
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 their 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 16, 1997 Statement of Additional Information.
- ----------------------------- --------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- --------------------------
<PAGE>
[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
COLONIAL TRUST II
Cross Reference Sheet (Colonial Newport Greater China Fund)
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
<PAGE>
NEWPORT GREATER CHINA FUND
Statement of Additional Information
May 16, 1997
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of 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 16, 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
Part 1 Page
Definitions b
Investment Objective and Policies b
Fundamental Investment Policies b
Other Investment Policies b
Portfolio Turnover b
Fund Charges and Expenses c
Custodian d
Independent Accountants d
Management of the Fund d
Part 2
Miscellaneous Investment Practices 1
Taxes 10
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 25
Suspension of Redemptions 25
Shareholder Liability 25
Shareholder Meetings 25
Performance Measures 26
Appendix I 27
Appendix II 31
GC-16/733D-0597
a
<PAGE>
Part 1
NEWPORT GREATER CHINA FUND
Statement of Additional Information
May 16, 1997
DEFINITIONS
"Trust" Colonial Trust II
"Fund" 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
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 restrictions 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
Futures Contracts and Related Options
Foreign Currency Transactions
Except as indicated 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 100% annually.
b
<PAGE>
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 1.15%.
Under the Fund's administration agreement, the Fund pays the Administrator a
monthly fee at the annual rate of 0.25% 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:
0.035% on the next $950 million
0.025% on the next $1 billion 0.015%
on the next $1 billion 0.001% on the
excess over $3 billion
Under the Fund's transfer agency and shareholder servicing agreement, the Fund
pays CISC a monthly fee at the annual rate of 0.25% 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 38 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).
c
<PAGE>
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 C 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 0.25% of
net assets attributed to Class A, Class B and Class C shares. The Fund also pays
CISI monthly a distribution fee at an annual rate of 0.75% of average daily net
assets attributed to Class B and Class C 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 not interested persons of the Trust is effected by such
disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a 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 C shares are offered at net asset value 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
Boston Safe Deposit and Trust Company is the Fund's custodian. The custodian is
responsible for safeguarding the Fund's cash and securities, receiving and
delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings.
MANAGEMENT OF THE FUND
Officers of the Fund (in addition to those listed in Part 2 of this SAI).
<TABLE>
<CAPTION>
Name Age Position with Fund Principal Occupation During Past Five Years
<S> <C> <C> <C>
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
</TABLE>
d
<PAGE>
<TABLE>
<CAPTION>
International, Inc.)
<S> <C> <C> <C>
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.
e
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated debt securities. Relative to debt securities of higher
quality,
1. an economic downturn or increased interest rates may have a more significant
effect on the yield, price and potential for default for lower rated bonds;
2. the secondary market for lower rated bonds may at times become less liquid
or respond to adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
3. the Adviser's credit analysis of lower rated bonds may have a greater impact
on the fund's achievement of its investment objective.
4. lower rated bonds are less sensitive to interest rate changes, but are more
sensitive to adverse economic developments.
In addition, 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.
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.
1
<PAGE>
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
2
<PAGE>
investment of the cash collateral or receives a fee from the borrower. Although
voting rights, or rights to consent, with respect to the loaned securities pass
to the borrower, the fund retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the fund if the holders of such securities are asked to vote upon or consent
to matters materially affecting the investment. The fund may also call such
loans in order to sell the securities involved.
Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where such purchases are made
through dealers, the fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the fund of an advantageous
yield or price. Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the Adviser deems it appropriate to do so. The
fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
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
3
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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
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in the underlying securities, since the fund may continue to hold its investment
in those securities notwithstanding the lack of a change in price of those
securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the Securities and
Exchange Commission's requirements, cash or liquid securities, equal in value to
the amount of the fund's obligation under the contract (less any applicable
margin deposits and any assets that constitute "cover" for such obligation),
will be segregated with the fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
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Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account of the fund's
custodian. The fund may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. The fund may use such options on
futures contracts in lieu of writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser`s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of U.S. Treasury security futures contracts and options.
The funds investing in tax-exempt securities issued by a governmental entity may
purchase and sell futures contracts and related options on U.S. Treasury
securities when, in the 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.
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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.
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The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
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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.
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Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax adviser for state and local tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.
Alternative Minimum Tax. Distributions derived from interest which is exempt
from regular federal income tax may subject corporate shareholders to or
increase their liability under the corporate alternative minimum tax (AMT). A
portion of such distributions may constitute a tax preference item for
individual shareholders and may subject them to or increase their liability
under the AMT.
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Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT.
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
A tax-exempt fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the fund's ordinary income which
will be taxable when distributed.
The Revenue Reconciliation Act of 1993 requires that any market discount
recognized on a tax-exempt bond is taxable as ordinary income. This rule applies
only for disposals of bonds purchased after April 30, 1993. A market discount
bond is a bond acquired in the secondary market at a price below its redemption
value. Under prior law, the treatment of market discount as ordinary income did
not apply to tax-exempt obligations. Instead, realized market discount on
tax-exempt obligations was treated as capital gain. Under the new law, gain on
the disposition of a tax-exempt obligation or any other market discount bond
that is acquired for a price less than its principal amount will be treated as
ordinary income (instead of capital gain) to the extent of accrued market
discount. This rule is effective only for bonds purchased after April 30, 1993.
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
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
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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.)
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The Adviser is the investment adviser to each of the Colonial funds (except for
Colonial Municipal Money Market Fund, Colonial Global Utilities Fund, Colonial
Newport Tiger Fund, Colonial Newport Tiger Cub Fund, Colonial Newport Japan Fund
and Newport Greater China Fund - see Part I of each Fund's respective SAI for a
description of the investment adviser). The Adviser is a subsidiary of The
Colonial Group, Inc. (TCG), One Financial Center, Boston, MA 02111. TCG is a
direct subsidiary of Liberty Financial Companies, Inc. (Liberty Financial),
which in turn is a direct subsidiary of LFC Holdings, Inc., which in turn is a
direct subsidiary of Liberty Mutual Equity Corporation, which in turn is a
wholly-owned subsidiary of Liberty Mutual Insurance Company (Liberty Mutual).
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S. Liberty Financial's address is 600
Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley
Street, Boston, MA 02117.
Trustees and Officers (this section applies to all of the Colonial funds)
<TABLE>
<CAPTION>
Position with
Name and Address Age Fund Principal Occupation
- ---------------- --- ------------- --------------------
<S> <C> <C> <C>
Robert J. Birnbaum 69 Trustee Retired (formerly Special Counsel, Dechert Price & Rhoads from September, 1988
313 Bedford Road to December, 1993).
Ridgewood, NJ 07450
Tom Bleasdale 66 Trustee Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
102 Clubhouse Drive #275 & Trust Company from 1992-1993), is a Director of The Empire Company since
Naples, FL 34105 June, 1995.
Lora S. Collins 61 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
1175 Hill Road from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 67 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
William D. Ireland, Jr. 73 Trustee Retired, is a Trustee of certain charitable and non-charitable organizations
103 Springline Drive since February, 1990.
Vero Beach, FL 32963
Richard W. Lowry 61 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 56 Trustee Partner, Development Capital, LLC (formerly Dean, College of Business and
500 Park Avenue, 5th Floor Management, University of Maryland from October, 1992 to November, 1996, Dean,
New York, NY 10022 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. since May, 1984
P.O. Box 1000 (formerly Chief Executive Officer, Hannaford Bros. Co. from May, 1973 to
Portland, ME 04104 May, 1992).
John J. Neuhauser 53 Trustee Dean, Boston College School of Management since 1978.
140 Commonwealth Avenue
Chestnut Hill, MA 02167
George L. Shinn 74 Trustee Financial Consultant since 1989.
Credit Suisse First Boston
Corp.
Eleven Madison Avenue,
25th Floor
New York, NY 10010-3629
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Robert L. Sullivan 69 Trustee Retired Partner, Peat Marwick Main & Co.
7121 Natelli Woods Lane
Bethesda, MD 20817
Sinclair Weeks, Jr. 73 Trustee Chairman of the Board, Reed & Barton Corporation since 1987.
Bay Colony Corporate Ctr.
Suite 4550
1000 Winter Street
Waltham, MA 02154
Harold W. Cogger 61 President President of Colonial funds since March, 1996 (formerly Vice President from
(formerly Vice July, 1993 to March, 1996); is Director, since March, 1984 and Chairman of the
President) 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 since October, 1996, is
Chief Financial Senior Vice President of the Adviser since September, 1996 (formerly Senior
Officer 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 funds since June, 1993
Officer and (formerly Assistant Controller from March, 1985 to June, 1993); is Vice
Controller President of the Adviser since June, 1993 (formerly Assistant Vice President
(formerly of the Adviser from August, 1988 to June, 1993).
Assistant
Controller)
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.
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The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint meeting. Committee
chairs receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the Colonial funds based on each fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 38 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 open-end management investment
company portfolios (collectively, Colonial funds). Trustees and officers of the
Trust, who are also officers of the Adviser or its affiliates, will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $16.3 billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund, Colonial Newport Tiger Cub Fund or Newport Greater
China Fund)
Under a Management Agreement (Agreement), the Adviser has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each Colonial fund pays a monthly fee based on the average of the daily closing
value of the total net assets of each fund for such month. Under the Agreement,
any liability of the Adviser to the Trust, a fund and/or its shareholders is
limited to situations involving the Adviser's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders. CISI pays the cost of printing and distributing all other
Prospectuses.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund, Colonial Newport Tiger Cub Fund and Newport Greater
China Fund and their respective Trusts).
Under an Administration Agreement with each Fund named above, the Adviser, in
its capacity as the Administrator to each Fund, has contracted to perform the
following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its Directors,
officers and employees to serve as Trustees, officers or agents of
each Fund;
(c) preparing and, if applicable, filing all documents required for
compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of
meetings of Trustees, committees of Trustees and shareholders;
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<PAGE>
(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
Utilities Trust (LFC Portfolio) in which Colonial Global Utilities
Fund is invested and reporting to the Trustees from time to time
with respect thereto.
The Adviser is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Adviser, in its capacity as
the Administrator to each of Colonial Municipal Money Market Fund and Colonial
Global Utilities Fund, is paid an annual fee of $18,000, plus 0.0233% of average
daily net assets in excess of $50 million. For each of the other Colonial funds
(except for Colonial Newport Tiger Fund, Colonial Newport Japan Fund, Colonial
Newport Tiger Cub Fund and Newport Greater China Fund), the Adviser is paid
monthly a fee of $2,250 by each fund, plus a monthly percentage fee based on net
assets of the fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion; 1/12
of 0.015% of the next $1 billion; and 1/12
of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund, Colonial Newport Japan Fund, Colonial Newport Tiger Cub Fund and Newport
Greater China Fund for an annual fee of $27,000, plus 0.035% of each Fund's
average daily net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund and
Colonial Global Utilities Fund. For each of these funds, see Part 1 of its
respective SAI. The Adviser of Colonial Newport Tiger Fund, Colonial Newport
Japan Fund, Colonial Newport Tiger Cub Fund and Newport Greater China Fund
follows the same procedures as those set forth under "Brokerage and research
services."
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Colonial Newport Tiger Fund, Colonial Newport Japan Fund,
Colonial Newport Tiger Cub Fund and Newport Greater China Fund, each of which is
administered by the Adviser. The Adviser's affiliate, CASI, advises other
institutional, corporate, fiduciary and individual clients for which CASI
performs various services. Various officers and Trustees of the Trust also serve
as officers or Trustees of other Colonial funds and the other corporate or
fiduciary clients of the Adviser. The Colonial funds and clients advised by the
Adviser or the funds administered by the Adviser sometimes invest in securities
in which the Fund also invests and sometimes engage in covered option writing
programs and enter into transactions utilizing stock index options and stock
index and financial futures and related options ("other instruments"). If the
Fund, such other Colonial funds and such other clients desire to buy or sell the
same portfolio securities, options or other instruments at about the same time,
the purchases and sales are normally made as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold by each.
Although in some cases these practices could have a detrimental effect on the
price or volume of the securities, options or other instruments as far as the
Fund is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the
16
<PAGE>
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
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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, Colonial Newport Tiger Cub Fund and Newport
Greater China Fund - "Adviser" in these two paragraphs refers to each fund's
Adviser, Newport Fund Management, Inc.)
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II - see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
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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, T or Z
shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most Colonial funds
may be purchased through the Colonial Fundamatic Program. Preauthorized monthly
bank drafts or electronic funds transfer for a fixed amount of at least $50 are
used to purchase a Colonial fund's shares at the public offering price next
determined after CISI receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your Fundamatic
purchase is by electronic funds transfer, you may request the Fundamatic
purchase for any day. Further information and application forms are available
from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B and C). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund in which you have a current balance of at least
$5,000 into the same class of shares of up to four other Colonial funds.
Complete the Automated Dollar Cost Averaging section of the Application. The
designated amount will be exchanged on the third Tuesday of each month. There is
no charge for exchanges made pursuant to the Automated Dollar Cost Averaging
program. Exchanges will continue so long as your Colonial fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the
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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, T and Z shares of the Colonial funds. The applicable sales charge
is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the
previous day of all Colonial funds' Class A shares held by the shareholder
(except shares of any Colonial money market fund, unless such shares were
acquired by exchange from Class A shares of another Colonial fund other than
a money market fund and Class B, C, T and Z shares).
CISI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
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Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
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.
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Reinstatement Privilege. An investor who has redeemed Class A, B, C or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to the Colonial Funds). Class A shares of certain
funds may be sold at NAV to the following individuals whether currently employed
or retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, CISI and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with CISI; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements,
and by participants in certain retirement plans.
Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to the Colonial Funds) (Classes A, B and C) CDSCs may
be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii)
the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers
to Minors Act (UTMA) or other custodial account. If, upon the occurrence of
one of the foregoing, the account is transferred to an account registered in
the name of the deceased's estate, the CDSC will be waived on any redemption
from the estate account occurring within one year after the death. If the
Class B shares are not redeemed within one year of the death, they will
remain subject to the applicable CDSC, when redeemed from the transferee's
account. If the account is transferred to a new registration and then a
redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP established
with CISC, to the extent the redemptions do not exceed, on an annual basis,
12% of the account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a period at
least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement does not apply
if the SWP is set up at the time the account is established, and
distributions are being reinvested. See below under "Investor Services -
Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will be
charged.
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)
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death occurs following the purchase and (iii) the trust document provides
for dissolution of the trust upon the trustee's death. If the account is
transferred to a new registration (including that of a successor trustee),
the applicable CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required
to return excess contributions made to retirement plans or individual
retirement accounts, so long as the FSF agrees to return the applicable
portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following (i) normal
retirement (as stated in the Plan document) or (ii) separation from service.
CDSCs also will be waived on SWP redemptions made to make required minimum
distributions from qualified retirement plans that have invested in Colonial
funds for at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any Colonial fund designated by
the shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election, of the shareholder's investment. Withdrawals from Class B
and Class C shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class C
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn. If a shareholder wishes to participate in a SWP, the
shareholder must elect to have all of the shareholder's income dividends and
other fund distributions payable in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
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
23
<PAGE>
of a shareholder. Until this evidence is received, CISC will not be liable for
any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All Colonial fund shareholders and/or their FSFs (except
for Colonial Newport Tiger Cub Fund, Colonial Newport Japan Fund and Newport
Greater China Fund) are automatically eligible to redeem up to $50,000 of the
fund's shares by calling 1-800-422-3737 toll-free any business day between 9:00
a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time).
Transactions received after 4:00 p.m. Eastern time will receive the next
business day's closing price. Telephone redemption privileges for larger amounts
and for the Colonial Newport Tiger Cub Fund, Colonial Newport Japan Fund and the
Newport Greater China Fund may be elected on the Application. CISC will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address and account number. FSFs will also be
required to provide their broker number. All telephone transactions are
recorded. A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to
execute the telephone authorization form or to use the telephone to execute
transactions.
Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of the Colonial
Funds) (Available only on the Class A 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. CISC will provide checks to be drawn on The
First National Bank of Boston (the "Bank"). These checks may be made payable to
the order of any person in the amount of not less than $500 nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
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.
24
<PAGE>
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.
25
<PAGE>
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non-money market. The yield for each class of shares of a fund is determined by
(i) calculating the income (as defined by the SEC for purposes of advertising
yield) during the base period and subtracting actual expenses for the period
(net of any reimbursements), and (ii) dividing the result by the product of the
average daily number of shares of the fund that were entitled to dividends
during the period and the maximum offering price of the fund on the last day of
the period, (iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares of a fund is
calculated by annualizing the most current period's distributions and dividing
by the maximum offering price on the last day of the period. Generally, the
fund's distribution rate reflects total amounts actually paid to shareholders,
while yield reflects the current earning power of the fund's portfolio
securities (net of the fund's expenses). The fund's yield for any period may be
more or less than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as are listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Adviser to be reputable, and publications in
the press pertaining to a fund's performance or to the Adviser or its
affiliates, including comparisons with competitors and matters of national and
global economic and financial interest. Examples include Forbes, Business Week,
Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe,
Barron's National Business & Financial Weekly, Financial Planning, Changing
Times, Reuters Information Services, Wiesenberger Mutual Funds Investment
Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia
Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index and Disclosure Incorporated.
All data are based on past performance and do not predict future results.
26
<PAGE>
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently has the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
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<PAGE>
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.
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 protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
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<PAGE>
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.
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<PAGE>
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.
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APPENDIX II
<TABLE>
<CAPTION>
1996
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
<S> <C> <C>
Donoghue Tax-Free Funds 4.95
Donoghue U.S. Treasury Funds 4.71
Dow Jones & Company Industrial Index 28.91
Morgan Stanley Capital International EAFE Index 6.05
Morgan Stanley Capital International EAFE GDP Index 7.63
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 4.36
Lipper California Municipal Bond Funds 3.65
Lipper Connecticut Municipal Bond Funds 3.48
Lipper Closed End Bond Funds 8.13
Lipper Florida Municipal Bond Funds 3.00
Lipper General Bond Fund 6.16
Lipper General Municipal Bonds 3.30
Lipper Global Funds 16.51
Lipper Growth Funds 19.24
Lipper Growth & Income Funds 20.78
Lipper High Current Yield Bond Funds 13.67
Lipper High Yield Municipal Bond Debt 4.17
Lipper Fixed Income Funds 10.24
Lipper Insured Municipal Bond Average 2.83
Lipper Intermediate Muni Bonds 3.70
Lipper Intermediate (5-10) U.S. Government Funds 2.68
Lipper Massachusetts Municipal Bond Funds 3.39
Lipper Michigan Municipal Bond Funds 3.17
Lipper Mid Cap Funds 18.10
Lipper Minnesota Municipal Bond Funds 3.11
Lipper U.S. Government Money Market Funds 4.75
Lipper New York Municipal Bond Funds 3.15
Lipper North Carolina Municipal Bond Funds 2.78
Lipper Ohio Municipal Bond Funds 3.35
Lipper Small Company Growth Funds 20.20
Lipper U.S. Government Funds 1.72
Lipper Pacific Region Funds-Ex-Japan 11.11
Lipper Pacific Region (4.45)
Lipper International Funds 11.78
Lipper Balanced Funds 13.76
Lipper Tax-Exempt Money Market 2.93
Shearson Lehman Composite Government Index 2.77
Shearson Lehman Government/Corporate Index 2.90
Shearson Lehman Long-term Government Index (0.84)
S&P S&P 500 Index 22.95
S&P Utility Index 3.12
S&P Barra Growth 23.98
S&P Barra Value 21.99
S&P Midcap 400 19.20
First Boston High Yield Index 12.40
Swiss Bank 10 Year U.S. Government (Corporate Bond) 0.30
Swiss Bank 10 Year United Kingdom (Corporate Bond) 19.10
Swiss Bank 10 Year France (Corporate Bond) 7.80
Swiss Bank 10 Year Germany (Corporate Bond) 1.00
Swiss Bank 10 Year Japan (Corporate Bond) (3.40)
Swiss Bank 10 Year Canada (Corporate Bond) 10.5
Swiss Bank 10 Year Australia (Corporate Bond) 20.6
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 21.87
Morgan Stanley Capital International 10 Year Belgium (Equity) 15.16
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
<S> <C> <C>
Morgan Stanley Capital International 10 Year Austria (Equity) 7.65
Morgan Stanley Capital International 10 Year France (Equity) 10.35
Morgan Stanley Capital International 10 Year Netherlands (Equity) 16.90
Morgan Stanley Capital International 10 Year Japan (Equity) 3.39
Morgan Stanley Capital International 10 Year Switzerland (Equity) 13.14
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 15.06
Morgan Stanley Capital International 10 Year Germany (Equity) 8.16
Morgan Stanley Capital International 10 Year Italy (Equity) 0.53
Morgan Stanley Capital International 10 Year Sweden (Equity) 16.42
Morgan Stanley Capital International 10 Year United States (Equity) 14.39
Morgan Stanley Capital International 10 Year Australia (Equity) 11.44
Morgan Stanley Capital International 10 Year Norway (Equity) 13.23
Morgan Stanley Capital International 10 Year Spain (Equity) 11.55
Morgan Stanley Capital International World GDP Index 11.50
-----
Morgan Stanley Capital International Pacific Region Funds Ex-Japan 20.54
Bureau of Labor Statistics Consumer Price Index (Inflation) 3.32
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Federal Reserve Six-Month Treasury Bill N/A
Federal Reserve One-Year Constant-Maturity Treasury Rate N/A
Federal Reserve Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell & Co. Russell 2000 16.50
Frank Russell & Co. Russell 1000 Value 21.64
Frank Russell & Co. Russell 1000 Growth 11.26
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>
*in U.S. currency
32
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 (h)
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 Distributor's
Contract (h)
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)
6.(vi) Form of Dealer Manager Agreement
7. Not Applicable
8.(i) Form of Custody Agreement with Boston Safe
Deposit and Trust Company (incorporated herein by
refernce to Exhibit 8.(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)
8(ii) Appendix A to the Custody Agreement, as amended and
restated on May 12, 1997
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 (h)
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.) (h)
9.(iii) Form of proposed Administration Agreement with
Colonial Management Associates, Inc. (h)
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 (incorporate
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
February 14, 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 February 14,
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.
(h) Incorporated by reference to Post-Effective Amendment No. 29 filed on
March 11, 1997.
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 05/31/97
Shares of Beneficial Interest 1 Class A recordholders
1 Class B recordholders
1 Class D recordholders
1 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>
Positions with Position Formerly Held
Name Newport and NPM within Past Two Years
<S> <C> <C>
Robert B. Cameron Senior Vice President of Branch manager - equity sales at CS First
Newport and NPM Boston, Swiss Bank Corp., and Baring
Securities
Lindsay Cook Senior Vice President of Newport
Lynda Couch Senior Vice President of Vice President of Newport and NPM and Vice
Newport 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
Christopher Legallet Senior Vice President of Managing Director of Jupiter Tyndall
Newport and NPM (Asis) LTD.
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 Analyst at NPM, Executive Vice President
Newport and Director of North at Carnegie Investor Services and a Vice
Asian Strategies of NPM President at Global Strategies, Redwood
Securities and Smith Bellingham
International, Inc.
Thomas R. Tuttle Senior Vice President of Same
Newport 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.
<PAGE>
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. ("Colonial"), is registered as an investment adviser under
the Investment Advisers Act of 1940 (1940 Act). Colonial Advisory Services,
Inc. (CASI), an affiliate of Colonial, is also registered as an investment
adviser under the 1940 Act. As of the end of its fiscal year, December 31,
1996, CASI had one institutional, corporate or other account under management
or supervision, the market value of which was approximately $42.0 million.
As of the end of its fiscal year, December 31, 1996, Colonial was the
investment adviser, sub-adviser and/or administrator to 49 Colonial mutual
funds (including funds sub-advised by Colonial, the market value of which
investment companies was approximately $17,165.0 million. Colonial Investment
Services, Inc., a subsidiary of Colonial Management Associates, Inc., is the
principal underwriter and the national distributor of all of the funds in the
Colonial Mutual Funds complex, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 5/31/97. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Andersen, Peter V.P.
Archer, Joseph A. V.P.
Babbitt, Debra V.P. Colonial Investment Services, Inc. V.P.,
Comp. Off.
Berliant, Allan V.P.
Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal
Boatman, Bonny E. Dir.; Colonial Advisory Services, Inc. Exec. V.P.
Sr.V.P.;
IPC Mbr.
Campbell, Kimberly V.P.
Carnabucci,
Dominick V.P.
Carroll, Sheila A. Sr.V.P.;
Dir.
Citrone, Frank V.P.
Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.;
Chairman; Chrm.
IPC Mbr.; Colonial Trusts I through VII Pres.
Exe. Cmte. Colonial High Income
Mbr. Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
LFC Utilities Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Stein Roe & Farnham Dir.
Incorporated
Conlin, Nancy V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Colonial Investment Services,
Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.
Daniszewski, V.P. Colonial Investment Services,
Joseph J. Inc. V.P.
DiSilva, Linda V.P. Colonial Advisory Services, Compliance
IPC Mbr. Inc. Officer
Ericson, Carl C. Dir; Sr. Colonial Intermediate High
V.P. Income Fund V.P.
IPC Mbr. Colonial Advisory Services,
Inc. Exec. V.P.
Evans, C. Frazier Dir.; Colonial Investment Services,
Sr.V.P. Inc. Sr. V.P.
Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. Sr. V.P.
Feloney, Joseph L. V.P. Colonial Investment Services,
Inc. A.V.P.
Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.
Franklin, Sr. V.P.
Fred J.
Gauger, Richard V.P.
Gerokoulis, V.P. Colonial Investment Services,
Stephen A. Inc. Sr. V.P.
Gibson, Stephen E. Dir.; Pres.; The Colonial Group, Inc. Dir.;
CEO; Exec. Pres.; CEO;
Cmte. Mbr. Exec. Cmte.
Mbr.
Colonial Investment Services, Dir.; Chm.
Inc.
Colonial Advisory Services, Dir.; Chm.
Inc.
Colonial Investors Service Dir.; Chm.
Center, Inc.
Harasimowicz, V.P. Colonial Investment Services,
Stephen Inc. V.P.
Harris, David V.P. Stein Roe Global Capital Mngmt Principal
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. Sr. V.P.
Hill, William V.P.
Iudice, Jr. Philip V.P. The Colonial Group, Inc. Controller,
Controller Chief Acctg.
Officer
Colonial Investment Services,
Inc. Controller,
Treasurer
Colonial Advisory Services,
Inc. Controller
Jacoby, Timothy J. Sr. V.P. Colonial Trusts I through VII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO
LFC Utilities Trust Treasr.,CFO
Johnson, Gordon V.P.
Koonce, Michael H. V.P.; Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec.; Municipal Trust Asst. Sec.
Asst. Colonial InterMarket Income
Clerk & Trust I Asst. Sec.
Counsel Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.
Colonial Investment Services,
Inc. Asst. Clerk
Colonial Investors Service
Center, Inc. Asst. Clerk
The Colonial Group, Inc. Asst. Clerk
Colonial Advisory Services,
Inc. Asst. Clerk
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Loring, William C. V.P.
Lydecker, Peter L. V.P.; Colonial Trusts I through VII Controller;CAO
Asst. Colonial High Income
Treasurer Municipal Trust Controller;CAO
Colonial InterMarket Income
Trust I Controller;CAO
Colonial Intermediate High
Income Fund Controller;CAO
Colonial Investment Grade
Municipal Trust Controller;CAO
Colonial Municipal Income
Trust Controller;CAO
LFC Utilities Trust Controller;CAO
MacKinnon, Dir.;
Donald S. Sr.V.P.
Newman, Maureen V.P.
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. Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.
Rega, Michael V.P.
Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Exec. V.P.
Dir.
Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Exec. Comm. Municipal Trust V.P.
Mbr. Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
LFC Utilities Trust V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Colonial Investment Services,
Inc. Director
Seibel, Sandra L. V.P.
Spanos, Gregory Sr. V.P.
Stern, Arthur O. Exe.V.P.; Colonial Advisory Services,
Dir.; Inc. Clerk, Dir.
Sec.; Colonial High Income
Clrk. & Municipal Trust Secretary
Gnrl. Colonial InterMarket Income
Counsel; Trust I Secretary
IPC Mbr. Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Colonial Trusts I through VII Secretary
LFC Utilities Trust Secretary
Colonial Investors Service
Center, Inc. Clerk
The Colonial Group, Inc. Exec. V.P.;
Clerk; General
Counsel
Colonial Investment Services, Dir., Chrmn.
Inc. Counsel; Clrk.
Stevens, Richard V.P. Colonial Advisory Services,
Inc. V.P.
Stoeckle, Mark V.P.
Wallace, John V.P.
Welsh, Stephen Treasurer The Colonial Group, Inc. Controller,
Chief Acctng.
Officer,
Asst. Treasurer
Colonial Investment Services,
Inc. Treasurer
Colonial Advisory Service,
Inc. Treasurer
Colonial Investors Service
Center, Inc. Controller
Young, Deborah V.P. Colonial Investment Services
Inc. V.P.
- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.
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. and None
Comp. Officer
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Bartlett, John Sr. V.P. None
Bartsokas, David Regional V.P. None
Carroll, Greg Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Crossfield, Andrew Regional V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Regional Sr. V.P. None
Desilets, Marian V.P. None
Donovan, John Regional V.P. None
Downey, Christopher V.P. None
Eckelman, Bryan Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Sr. V.P. None
Feldman, David Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman None
of the Board
Goldberg, Matthew Regional V.P. None
Harasimowicz, V.P. None
Stephen
Harrington, Tom Sr. Regional V.P. None
Hodgkins, Joseph Sr. Regional V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Karagiannis, Sr. V.P. None
Marilyn
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Lloyd, Judith H. Sr. V.P. None
Menchin, Catherine V.P. None
Moberly, Ann R. Regional Sr. V.P. None
Morner, Patrick V.P. None
Nerney, Andrew Regional V.P. None
Nolin, Kevin V.P. None
O'Neill, Charles A. Exec. V.P. None
O'Shea, Kevin Sr. V.P. None
Predmore, Tracy Regional V.P. None
Reed, Christopher B. Sr. Regional V.P. None
Scarlott, Rebecca V.P. None
Scoon, Davey Director V.P.
Scott, Michael W. Sr. V.P. None
Spanos, Gregory J. Sr. V.P. None
Stern, Arthur O. Clerk and Secretary
Counsel, Dir.
Studer, Eric Regional V.P. None
Sutton, R. Andrew Regional V.P. None
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
Wallace, John V.P. None
Welsh, Stephen Treasurer Asst. Treasurer
Wess, Valerie Regional V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
<PAGE>
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. 30 to its Registration Statement under the Securities Act of 1933
and the Post-Effective Amendment No. 30 under the Investment Company Act of
1940, to be signed in this City of Boston, and The Commonwealth of Massachusetts
on this 23rd day of June, 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.
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)
<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
June 23, 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
6.(vi) Form of Dealer Manager Agreement
8(ii) Appendix A to Custody Agreement
NEWPORT GREATER CHINA FUND,
a portfolio of Colonial Trust II
Load-Waived Class A Shares
Issuable Upon Exercise of
Subscription Rights for such Shares
DEALER MANAGER AGREEMENT
New York, New York
June 23, 1997
PAINEWEBBER INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
A.G. EDWARDS & SONS, INC.
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Each of Colonial Trust II, a Massachusetts business trust (the
"Trust"), on behalf of its portfolio Newport Greater China Fund (the "Fund"),
Colonial Investment Services, Inc., a Massachusetts corporation ("Colonial"),
Colonial Management Associates, Inc., a Massachusetts corporation (the
"Administrator"), and Newport Fund Management, Inc., a Virginia corporation (the
"Portfolio Manager"), confirms its agreement with each of the Trust, on behalf
of the Fund and Colonial, pursuant to the authority granted by the Trust to
Colonial in the Distribution Agreement (as defined herein), appoints PaineWebber
Incorporated (the "Representative"), on its own behalf and on behalf of Merrill
Lynch, Pierce, Fenner & Smith Incorporated and A.G. Edwards & Sons, Inc., to act
as dealer managers (the Representative and such other dealer managers
collectively being referred to herein as the "Dealer Managers") in connection
with the offer to beneficial shareholders ("Holders") as of the close of
business on June 16, 1997 (the "Record Date") of (i) shares of common stock or
common shares of beneficial interest, as the case may be, (the "Colonial ETF
Shares") of the following exchange-traded, closed-end investment companies:
Colonial Investment Grade Municipal Trust; Colonial Municipal Income Fund;
Colonial High Income Municipal Trust; Colonial Intermediate High Income Fund;
Colonial Intermarket Income Trust I; Liberty All-Star Equity Fund; and Liberty
All-Star Growth Fund, Inc. (the "Colonial ETF Funds") and (ii) common shares of
beneficial interest, of any designated class (the "Colonial MF Shares"), of
Colonial Newport Tiger Fund; Colonial Newport Tiger Cub Fund ; and Colonial
Newport Japan Fund(the "Colonial Mutual Funds"), of non-transferable
subscription rights (the "Subscription Rights") to purchase shares of beneficial
interest of the Fund, no par value, designated Class A Shares (the "Shares") at
the Initial Subscription Price (as hereinafter defined) without payment of an
up-front sales charge (the "Load-Waived Class A Shares").
The Subscription Rights entitle Holders of Colonial ETF Shares
and Colonial MF Shares to subscribe, subject to availability, for Load-Waived
Class A Shares at the rate of one Load-Waived Class A Share for each Colonial
ETF Share or Colonial MF Share held on the Record Date (the "Primary
Subscription Privilege"), except that Holders owning fewer than 150 Colonial ETF
Shares or Colonial MF Shares are entitled to subscribe for 150 Load-Waived Class
A Shares. Holders of Colonial ETF Shares and Colonial MF Shares who fully
exercise all their Subscription Rights may be entitled to subscribe for
additional Load-Waived Class A Shares of the Fund, subject to availability (the
"Over-Subscription Privilege"). The opportunity for Holders of Colonial ETF
Shares and Colonial MF Shares to subscribe for Load-Waived Class A Shares
pursuant to the Subscription Rights expires at 5:00 p.m., New York City time, on
July 25, 1997 (the "Initial Expiration Date"). In the event that the Fund has
not achieved, as of the Initial Expiration Date, the Maximum Offer Amount (as
defined in the Fund's Prospectus Supplement (as hereinafter defined)), then the
Fund may offer Load-Waived Class A Shares to the general public for a period not
to exceed thirty calendar days from the Initial Settlement Date (as defined
herein), unless earlier terminated by the Fund (the last day of such period is
referred to as the "Secondary Expiration Date") as provided for in the Fund's
Prospectus Supplement. The offer of Subscription Rights to the Holders of
Colonial ETF Shares and Colonial MF Shares will commence on June 23, 1997 (the
"Commencement Date").
The Fund may also, from the Commencement Date through the
Initial Expiration Date, offer Load-Waived Class A Shares to clients of the
Dealer Managers (the "Dealer Manager Clients") and to employees of Colonial and
its affiliates ("Employees") who may not be holders of Colonial ETF Shares and
Colonial MF Shares, subject to the Maximum Offer Amount (as defined in the
Prospectus Supplement (as hereinafter defined)). Each of (i) subscriptions duly
received pursuant to the Primary Subscription Privilege, (ii) requests duly
received for additional shares pursuant to the Over-Subscription Privilege,
(iii) requests duly received from Dealer Manager Clients and Employees, and (iv)
requests from the general public for Secondary Load-Waived Class A Shares (as
defined below), will be accepted on a first come, first served basis and are
subject to the Maximum Offer Amount. Load-Waived Class A Shares will be issued
to Dealer Manager Clients and Employees only if subscriptions duly received
pursuant to the Primary Subscription Privilege and pursuant to the
Over-Subscription Privilege on or before the Expiration Date do not equal or
exceed the Maximum Offer Amount. Load-Waived Class A Shares issued to Holders of
Colonial ETF Shares and Colonial MF Shares pursuant to exercise of Subscription
Rights in the Primary Subscription Privilege, as well as pursuant to requests
for additional Load-Waived Class A Shares pursuant to the Over-Subscription
Privilege and requests received from or on behalf of Dealer Manager Clients and
Employees, duly received on or prior to the Initial Expiration Date, will be at
the initial subscription price (the "Initial Subscription Price") of $20.00 per
Load-Waived Class A Share. The aggregate number of Load-Waived Class A Shares
issued to Holders of Colonial ETF Shares and Colonial MF Shares in connection
with the exercise of Subscription Rights or pursuant to the Over-Subscription
Privilege, and those issued to Dealer Manager Clients and Employees, on or prior
to the Initial Expiration Date (the "Initial Load-Waived Class A Shares")
multiplied by the Initial Subscription Price shall be referred to as the
"Initial Subscription Amount." The settlement date for the issuance of the
Initial Load-Waived Class A Shares shall be July 30, 1997 (the "Initial
Settlement Date"). Purchase requests, if any, for Load-Waived Class A Shares by
members of the general public received after the Initial Settlement Date will
not be accepted until after the Initial Trade Date and, if accepted, will be
sold at the net asset value per Share next determined after receipt and
acceptance of the order (the "Secondary Subscription Price"). The aggregate
number of Load-Waived Class A Shares issued to members of the general public
after the Initial Expiration Date (the "Secondary Load-Waived Class A Shares")
multiplied by the applicable Secondary Subscription Price shall be referred to
as the "Secondary Subscription Amount." The Initial Subscription Amount and the
Secondary Subscription Amount are collectively referred to as the "Subscription
Amount." The Initial Subscription Price and the Secondary Subscription Price are
collectively referred to as the "Subscription Price." The aggregate number of
Initial Load-Waived Class A Shares that may be issued on the Initial Settlement
Date, and the aggregate number of Secondary Load-Waived Class A Shares that may
be issued until the Secondary Expiration Date, will be subject to the Maximum
Offer Amount (as defined in the Prospectus Supplement (as hereinafter defined)).
The Load-Waived Class A Shares will be subject to a Contingent
Deferred Sales Charge ("CDSC") of 2% of the lower of the purchase price or the
redemption proceeds if such Load-Waived Class A Shares are redeemed within
approximately twenty-four months from their purchase date. The CDSC may be
waived in certain circumstances as described or referred to in the Prospectus
Supplement. The offer of Load-Waived Class A Shares to Holders of Colonial ETF
Shares and Colonial MF Shares pursuant to Subscription Rights and pursuant to
the Over-Subscription Privilege, to Dealer Manager Clients and Employees and to
members of the general public in connection with the Secondary Expiration Date,
is referred to herein as the "Offer." The minimum purchase in the Offer is
$3,000 of Load-Waived Class A Shares (150 Load-Waived Class A Shares).
The Trust has filed with the Securities and Exchange
Commission (the "Commission") a post-effective amendment to its registration
statement on Form N-1A (File Nos. 2-66976 and 811-3009) including a prospectus
and statement of additional information relating to the Fund for the
registration of the Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and the Trust under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations of the
Commission under the Securities Act and the Investment Company Act (the "Rules
and Regulations"), and has filed such amendments to such registration statement
on Form N-1A, if any, and such amended prospectuses and statements of additional
information as may have been required to the date hereof. The term "Registration
Statement" means the post-effective amendment to the registration statement
declared effective by the Commission on May 16, 1997, including financial
statements and all exhibits and all documents, if any, incorporated therein by
reference and including any post-effective amendments that become effective
prior to the Secondary Expiration Date to the extent information set forth
therein relates to the Fund. The term "Prospectus" means the prospectus of the
Fund and statement of additional information in the forms filed with the
Commission pursuant to Rule 497(c), (e) or (j) of the Rules and Regulations, as
the case may be, as from time to time amended or supplemented pursuant to the
Securities Act and including, without limitation, the prospectus supplement
dated June 20, 1997 used by the Fund in connection with the June 23, 1997 Offer
(the "Prospectus Supplement"). The Prospectus, letters to Holders, subscription
certificates, brochures, wrappers and other materials preceded or accompanied by
the Prospectus, forms used to exercise Subscription Rights, any letters and
other informational material, in each case approved by the Fund or Colonial, to
securities dealers, commercial banks and other nominees and any newspaper
announcements, press releases and other offering materials and information that
the Fund or Colonial may use specifically in connection with the solicitation
contemplated by this Agreement, or approve, prepare or authorize for use in
connection with the Offer, are collectively referred to hereinafter as the
"Offering Materials."
1. Representations and Warranties.
(a) Each of the Trust, on behalf of the Fund, and Colonial
represents and warrants to, and agrees with, the Dealer Managers as of the
Commencement Date and the Initial Settlement Date (each, a "Representation
Date") that:
(i) The Trust meets the requirements for use of Form N-1A
under the Securities Act and the Investment Company Act and the Rules
and Regulations. The Registration Statement contains or will contain
all statements required to be stated therein in accordance with, and
complies or will comply in all material respects with, the requirements
of the Securities Act, the Investment Company Act and the Rules and
Regulations and does not or will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus and the other Offering Materials, together with the
Prospectus, do not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(ii) The Trust has been duly organized and is validly existing
as a Massachusetts business trust in good standing under the laws of
the Commonwealth of Massachusetts, the Fund has been duly designated as
a series of the Trust, the Trust and the Fund have full power and
authority to conduct their respective business as described in the
Registration Statement and the Prospectus, currently maintain all
material governmental licenses, permits, consents, orders, approvals,
and other authorizations necessary to carry on their business as
contemplated in the Prospectus, and are duly qualified to do business
in each jurisdiction wherein they own or lease real property or in
which the conduct of their business requires such qualification, except
where the failure to be so qualified would not result in a material
adverse effect upon the business, properties, financial position or
results of operations of the Fund. Neither the Trust nor the Fund have
any subsidiaries.
(iii) The Trust is registered with the Commission under the
Investment Company Act as an open-end management investment company, no
order of suspension or revocation of such registration has been issued
or proceedings therefor initiated or threatened by the Commission; all
required action has been or will be taken under the Securities Act, the
Investment Company Act and state securities laws to make the public
offering and consummate the Offer and the issuance and sale of the
Shares by the Fund upon exercise of the Subscription Rights as
contemplated by the Prospectus; each of the waiver of front-end sales
charges in connection with the Offer, which sales charges generally are
applicable as described in the Prospectus, and the imposition of a
contingent deferred sales charge complies in all material respects with
all applicable provisions of the Investment Company Act, the Securities
Exchange Act of 1934, as amended (including the Rules and Regulations
thereunder, being referred to as the "Exchange Act"), and the Rules and
Regulations; the provisions of the Trust's organizational documents
comply as to form in all material respects with the requirements of the
Investment Company Act.
(iv) Price Waterhouse LLP, the accountants of the Fund set
forth in the Registration Statement and the Prospectus, are independent
public accountants as required by the Investment Company Act and the
Rules and Regulations.
(v) The Trust is authorized to issue an unlimited number of
shares of beneficial interest in one or more series, which may be
divided into classes of shares; the Load-Waived Class A Shares of the
Fund have been duly designated as Class A Shares in compliance with all
applicable provisions of the Investment Company Act and the Rules and
Regulations thereunder; the Fund's outstanding shares of beneficial
interest have been duly authorized and are validly issued, fully paid
and non-assessable by the Trust and conform in all material respects to
the description thereof in the Prospectus; the Subscription Rights have
been duly authorized by all requisite action on the part of the Trust;
the Load-Waived Class A Shares have been duly authorized by all
requisite action on the part of the Trust for issuance and sale
pursuant to the terms of the Offer and, when issued and delivered by
the Trust pursuant to the terms of the Offer against payment of the
consideration set forth in the Prospectus, will be validly issued,
fully paid and non-assessable by the Trust; the Shares and the
Subscription Rights conform in all material respects to all statements
relating thereto contained in the Registration Statement and the
Prospectus; and the issuance of each of the Subscription Rights and the
Shares is not subject to any preemptive rights.
(vi) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, (A) the Fund has not incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, other than in the ordinary course of business, that are
material to the Fund, (B) there has not been any material decrease in
the shares of beneficial interest or material increase in long-term
debt of the Fund, or any material adverse change, or any development
involving a prospective material adverse change, in the condition
(financial or other), business, prospects, net worth or results of
operations of the Fund (other than the share split or recapitalization
contemplated by Section 4(a)(xiii) hereof) and (C) there has been no
dividend or distribution paid or declared in respect of the Fund's
shares of beneficial interest other than in the ordinary course of
business (other than the distribution contemplated by Section
4(a)(xiii) hereof).
(vii) Except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the knowledge of the Trust or
Colonial, threatened action, suit or proceeding affecting the Trust or
the Fund or to which the Trust or the Fund is a party before or by any
court or governmental agency, authority or body or any arbitrator,
whether foreign or domestic, which might reasonably be expected to
result in any material adverse change in the condition (financial or
other), business, prospects, net worth or results of operations of the
Trust or the Fund, or which might reasonably be expected to materially
and adversely affect the properties or assets thereof, of a character
required to be disclosed in the Registration Statement or the
Prospectus.
(viii) There are no franchises, contracts or other documents
of the Trust or the Fund required to be described in the Registration
Statement or the Prospectus, or to be filed (other than a
post-effective amendment to file this Agreement and other agreements
related to the Offer) or incorporated by reference as exhibits which
are not described or filed or incorporated by reference therein as
permitted by the Securities Act, the Investment Company Act or the
Rules and Regulations.
(ix) Each of this agreement (the "Agreement"), the Management
Agreement (the "Management Agreement") dated as of May 12, 1997 between
the Trust, on behalf of the Fund, and the Portfolio Manager, the
Distributor's Contract (the "Distribution Agreement") dated as of
December 30, 1996 between the Trust and Colonial, the Administration
Agreement (the "Administration Agreement") dated as of May 12, 1997
between the Trust, on behalf of the Fund, and the Administrator, the
Custodian Agreement (the "Custodian Agreement") dated as of May 18,
1993 between the Trust and Boston Safe Deposit & Trust Company, the
Transfer and Shareholder Services Agreement (the "Transfer Agency
Agreement") dated as of July 1, 1991, between the Trust and Colonial
Investors Service Center, Inc. (the "Transfer Agent") and the Pricing
and Bookkeeping Agreement dated as of November 1, 1991 between the
Trust, on behalf of the Fund, and the Administrator (the "Pricing
Agreement") (collectively, all the foregoing are referred to as the
"Fund Agreements") has been duly authorized, executed and delivered by
the Trust, on behalf of the Fund; each of the Fund Agreements complies
in all material respects with the applicable provisions of the Exchange
Act, the Investment Company Act and the Investment Advisers Act of
1940, as amended (the "Advisers Act"); and, assuming due authorization,
execution and delivery by the other parties thereto, each of the Fund
Agreements constitutes a legal, valid, binding and enforceable
obligation of the Trust, on behalf of the Fund, subject to the
qualification that the enforceability of the Trust's obligations
thereunder may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights, and to general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law) and except to the extent that the enforceability of
the indemnification provisions contained herein may be limited under
U.S. federal and state securities laws.
(x) Neither the offering of the Subscription Rights, nor the
issuance and sale of the Shares, nor the performance and consummation
by the Trust of any other of the transactions contemplated in the Fund
Agreements, nor the consummation of the transactions contemplated in
the Prospectus Supplement, will conflict with, result in a breach or
violation of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any properties or
assets of the Fund under the charter or by-laws of the Trust, or the
terms and provisions of any agreement, indenture, mortgage, lease or
other instrument to which the Trust, on behalf of the Fund, is a party
or by which it may be bound or to which any of the property or assets
of the Fund is subject, nor will such action result in any violation of
any order, law, rule or regulation of any court or governmental agency
or body, whether foreign or domestic, having jurisdiction over the
Trust or any of its properties.
(xi) No consent, approval, authorization, notification or
order of, or filing with, any court or governmental agency or body,
whether foreign or domestic, is required for the consummation by the
Trust of the transactions contemplated by the Fund Agreements or the
Registration Statement, except such as have been obtained, or such as
may be required (and shall be obtained as provided in this Agreement)
under the Securities Act, the Investment Company Act, the Exchange Act,
the rules of the New York Stock Exchange and state securities laws,
except where the failure to obtain any of the foregoing would not,
either individually or in the aggregate, have a material adverse effect
on the Fund.
(xii) The Trust owns or possesses all governmental licenses,
permits, consents, orders, approvals or other authorizations, whether
foreign or domestic, to enable the Fund to invest in securities as
contemplated in the Prospectus, except where the failure to own or
possess any of the foregoing would not, either individually or in the
aggregate, have a material adverse effect on the Fund. Neither the
execution or delivery by the Trust, on behalf of the Fund, nor the
performance by the Trust, on behalf of the Fund, of any of its
obligations under the Fund Agreements materially contravene or
constitute a material default under any provision contained in any law,
rule or regulation of any governmental or regulatory authority or any
order or regulation of any court by which the Trust or the Fund or any
of their assets are bound or affected.
(xiii) The Fund intends to direct the investment of the
proceeds of the offering described in the Registration Statement and
the Prospectus in such a manner as to comply with the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended
("Subchapter M of the Code"), and intends to continue to qualify as a
regulated investment company under Subchapter M of the Code.
(b) Colonial represents and warrants to, and agrees
with, the Dealer Managers as of each Representation Date that:
(i) Colonial has been duly organized and is validly existing
as a corporation in good standing under the laws of the Commonwealth of
Massachusetts, has full power and authority (corporate and other) to
own its properties and conduct its business as described in the
Registration Statement and the Prospectus, and is duly qualified to do
business as a foreign corporation in each jurisdiction wherein it owns
or leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so
qualified does not involve a material adverse risk to its business,
properties, financial position or results of operations.
(ii) Colonial is duly registered as a broker-dealer under the
Exchange Act and is not prohibited by the Exchange Act or the
Investment Company Act, or the rules and regulations under such Acts,
from acting as principal underwriter of the Shares as contemplated in
the Prospectus and the Distribution Agreement.
(iii) Each of this Agreement, the Subscription Agency
Agreement (the "Subscription Agency Agreement") dated as of June 20,
1997 between Colonial and Colonial Investors Service Center, Inc. (the
"Subscription Agent"), the Distribution Agreement and any other Fund
Agreement to which Colonial is a party has been duly authorized,
executed and delivered by Colonial and complies in all material
respects with the applicable provisions of the Exchange Act, the
Investment Company Act and the Rules and Regulations (including the
Rules and Regulations under the Exchange Act), and is, assuming due
authorization, execution and delivery by the other parties thereto, a
legal, valid, binding and enforceable obligation of Colonial, subject
as to enforcement to bankruptcy, insolvency, reorganization, moratorium
and other laws of general applicability relating to or affecting
creditors' rights, and to general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at
law) and except to the extent that the enforceability of the
indemnification provisions contained herein may be limited under U.S.
federal and state securities laws.
(iv) Neither the execution, delivery or performance by
Colonial of its obligations under this Agreement, the Distribution
Agreement or any other Fund Agreement to which Colonial is a party nor
the consummation of the transactions contemplated therein or in the
Prospectus Supplement nor the fulfillment of the terms thereof will
conflict in any material way with, result in a material breach or
violation of, or constitute a material default under, or result in the
creation or imposition of any material lien, charge or encumbrance upon
any properties or assets of Colonial under the charter or by-laws of
Colonial, or the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument to which Colonial is a party or by
which it may be bound or to which any of the property or assets of
Colonial is subject, nor will such action result in any material
violation of any order, law, rule or regulation of any court or
governmental agency or body, whether foreign or domestic, having
jurisdiction over Colonial or any of its properties.
(v) Except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the best knowledge of Colonial,
threatened action, suit or proceeding affecting Colonial or to which
Colonial is a party before or by any court or governmental agency,
authority or body or any arbitrator, whether foreign or domestic, which
may reasonably be expected to result in any material adverse change in
the condition (financial or other), business prospects, net worth or
results of operations of Colonial, or which may reasonably be expected
to materially and adversely affect the properties or assets thereof, of
a character required to be disclosed in the Registration Statement or
Prospectus.
(vi) Colonial owns or possesses any governmental licenses,
permits, consents, orders, approvals or other authorizations to enable
Colonial to distribute Shares as contemplated in the Prospectus.
(vii) No consent, approval, authorization, notification or
order of, or any filing with, any court or governmental agency or body
or securities exchange, whether foreign or domestic, is required for
the consummation by Colonial of the transactions contemplated by this
Agreement, the Distribution Agreement or any other Fund Agreement to
which Colonial is a party, except such as have been made or obtained
under the Securities Act, the Exchange Act, the Investment Company Act,
the Rules and Regulations and the rules of the New York Stock Exchange
and state securities laws.
(viii) The New York Stock Exchange has been duly notified of
the proposed offering of the Subscription Rights and the Record Date
and no other notice or action by the Trust is required to be delivered
to, or taken with respect to, the New York Stock Exchange in connection
with the issuance of the Subscription Rights or the issuance and sale
of the Shares pursuant thereto.
(c) The Administrator represents and warrants to,
and agrees with, the Dealer Managers as of each Representation Date that:
(i) The Administrator has been duly organized and is validly
existing as a corporation in good standing under the laws of the
Commonwealth of Massachusetts, has full power and authority (corporate
and other) to own its properties and conduct its business as described
in the Registration Statement and the Prospectus, and is duly qualified
to do business as a foreign corporation in each jurisdiction wherein it
owns or leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so
qualified does not involve a material adverse risk to its business,
properties, financial position or results of operations.
(ii) Each of this Agreement, the Administration Agreement and
any other Fund Agreement to which the Administrator is a party has been
duly authorized, executed and delivered by the Administrator and
complies in all material respects with the applicable provisions of the
Investment Company Act and the rules and regulations thereunder, and
is, assuming due authorization, execution and delivery by the other
parties thereto, a legal, valid, binding and enforceable obligation of
the Administrator, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights, and to general principles
of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and except to the extent that the
enforceability of the indemnification provisions contained herein may
be limited under U.S. federal and state securities laws.
(iii) Neither the execution, delivery or performance by the
Administrator of its obligations under this Agreement, the
Administration Agreement or any other Fund Agreement to which the
Administrator is a party nor the consummation of the transactions
contemplated therein or in the Prospectus Supplement nor the
fulfillment of the terms thereof will conflict in any material way
with, result in a material breach or violation of, or constitute a
material default under, or result in the creation or imposition of any
material lien, charge or encumbrance upon any properties or assets of
the Administrator under the charter or by-laws of the Administrator, or
the terms and provisions of any agreement, indenture, mortgage, lease
or other instrument to which the Administrator is a party or by which
it may be bound or to which any of the property or assets of the
Administrator is subject, nor will such action result in any material
violation of any order, law, rule or regulation of any court or
governmental agency or body, whether foreign or domestic, having
jurisdiction over the Administrator or any of its properties.
(iv) Except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the best knowledge of the
Administrator, threatened action, suit or proceeding affecting the
Administrator or to which the Administrator is a party before or by any
court or governmental agency, authority or body or any arbitrator,
whether foreign or domestic, which may reasonably be expected to result
in any material adverse change in the condition (financial or other),
business, prospects, net worth or results of operations of the
Administrator, or which may reasonably be expected to materially and
adversely affect the properties or assets thereof, of a character
required to be disclosed in the Registration Statement or Prospectus.
(v) The Administrator owns or possesses any governmental
licenses, permits, consents, orders, approvals or other authorizations
to enable the Administrator to perform the services for the Fund as
contemplated in the Prospectus.
(vi) No consent, approval, authorization, notification or
order of, or any filing with, any court or governmental agency or body,
whether foreign or domestic, for the consummation by the Administrator
of the transactions contemplated by this Agreement, the Administration
Agreement or any other Fund Agreement to which the Administrator is a
party, except such as have been made or obtained under the Securities
Act, the Exchange Act, the Investment Company Act, the Rules and
Regulations and the rules of the New York Stock Exchange or the
American Stock Exchange and state securities laws.
(d) The Portfolio Manager represents and warrants to, and
agrees with, the Dealer Managers as of each Representation Date that:
(i) The Portfolio Manager has been duly organized and is
validly existing as a corporation in good standing under the laws of
the Commonwealth of Virginia, has full power and authority (corporate
and other) to own its properties and conduct its business as described
in the Registration Statement and the Prospectus, and is duly qualified
to do business as a foreign corporation in each jurisdiction wherein it
owns or leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so
qualified does not involve a material adverse risk to its business,
properties, financial position or results of operations.
(ii) The Portfolio Manager is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers
Act or the Investment Company Act, or the rules and regulations under
such Acts, from acting as an investment adviser for the Fund as
contemplated in the Prospectus and the Management Agreement.
(iii) Each of this Agreement, the Management Agreement and any
other Fund Agreement to which the Portfolio Manager is a party has been
duly authorized, executed and delivered by the Portfolio Manager and
complies in all material respects with the applicable provisions of the
Advisers Act, the Investment Company Act and the rules and regulations
under such Acts, and is, assuming due authorization, execution and
delivery by the other parties thereto, a legal, valid, binding and
enforceable obligation of the Portfolio Manager, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors'
rights, and to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law) and
except to the extent that the enforceability of the indemnification
provisions contained herein may be limited under U.S.
federal and state securities laws.
(iv) Neither the execution, delivery or performance by the
Portfolio Manager of its obligations under this Agreement, the
Management Agreement or any other Fund Agreement to which the Portfolio
Manager is a party nor the consummation of the transactions
contemplated therein or in the Prospectus Supplement nor the
fulfillment of the terms thereof will conflict in any material way
with, result in a material breach or violation of, or constitute a
material default under, or result in the creation or imposition of any
material lien, charge or encumbrance upon any properties or assets of
the Portfolio Manager under the charter or by-laws of the Portfolio
Manager, or the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument to which the Portfolio Manager is a
party or by which it may be bound or to which any of the property or
assets of the Portfolio Manager is subject, nor will such action result
in any material violation of any order, law, rule or regulation of any
court or governmental agency or body, whether foreign or domestic,
having jurisdiction over the Portfolio Manager or any of its
properties.
(v) Except as set forth in the Registration Statement and
Prospectus, there is no pending or, to the best knowledge of the
Portfolio Manager, threatened action, suit or proceeding affecting the
Portfolio Manager or to which the Portfolio Manager is a party before
or by any court or governmental agency, authority or body or any
arbitrator, whether foreign or domestic, which may reasonably be
expected to result in any material adverse change in the condition
(financial or other), business prospects, net worth or results of
operations of the Portfolio Manager, or which may reasonably be
expected to materially and adversely affect the properties or assets
thereof, of a character required to be disclosed in the Registration
Statement or Prospectus.
(vi) The Portfolio Manager owns or possesses any governmental
licenses, permits, consents, orders, approvals or other authorizations
necessary to enable the Portfolio Manager to continue to direct
investments in securities as contemplated in the Prospectus.
(vii) No consent, approval, authorization, notification or
order of, or any filing with, any court or governmental agency or body,
whether foreign or domestic, is necessary for the consummation by the
Portfolio Manager of the transactions contemplated by this Agreement,
the Management Agreement or any other Fund Agreement to which the
Portfolio Manager is a party, except such as have been made or obtained
under the Securities Act, the Exchange Act, the Investment Company Act,
the Rules and Regulations, the rules of the New York Stock Exchange and
state securities laws.
(e) Any certificate required by this Agreement
that is signed by any officer of the Trust, Colonial, the Administrator or
the Portfolio Manager and delivered to the Dealer Managers or counsel for the
Dealer Managers shall be deemed a representation and warranty by the Trust,
Colonial, the Administrator or the Portfolio Manager, as the case may be, to
the Dealer Managers, as to the matters covered thereby.
2. Agreement to Act as Dealer Managers.
(a) On the basis of the representations and
Warranties contained herein, and subject to the terms and conditions of the
Offer:
(i) Colonial hereby appoints the Dealer Managers and other
soliciting dealers entering into a Colonial Selling Agreement, as
amended to the date hereof in connection with the Offer, and soliciting
exercises by Holders of Subscription Rights (the "Soliciting Dealers"),
to solicit, in accordance with the Securities Act, the Exchange Act and
the Investment Company Act, and their customary practice, the exercise
of the Subscription Rights, subject to the terms and conditions of this
Agreement, the procedures described in the Registration Statement, the
Prospectus and, where applicable, the terms and conditions of the
Colonial Selling Agreement, as so amended; and
(ii) Colonial agrees to request the respective transfer agents
for the Colonial ETF Funds and the Colonial Mutual Funds to produce
lists showing the names and addresses of Holders of Colonial ETF Shares
and Colonial MF Shares as of the Record Date. Although Colonial shall
have no obligation to deliver such lists to the Dealer Managers, to the
extent any copies of or extracts from such lists are delivered to the
Dealer Managers, the Dealer Managers agree to use such information only
in connection with the Offer, and not to furnish the information to any
other person except for securities brokers and dealers that have been
requested by the Dealer Managers to solicit exercises of Subscription
Rights.
(b) The Dealer Managers agree to provide to the Trust and to
Colonial, in addition to the services described in paragraph (a) of this Section
2, financial advisory and marketing services in connection with the Offer.
(c) The Trust, Colonial and the Dealer Managers agree that the
Dealer Managers are independent contractors with respect to the solicitation of
the exercise of Subscription Rights and other purchases in connection with the
Offer, and the performance of financial advisory and marketing services
contemplated by this Agreement.
(d) In rendering the services contemplated by this Agreement,
the Dealer Managers will not be subject to any liability to the Trust, the Fund,
Colonial, the Administrator or the Portfolio Manager or any of their affiliates,
for any act or omission on the part of any soliciting broker or dealer (except
with respect to the Dealer Managers acting in such capacity) or any other
person, and the Dealer Managers will not be liable for acts or omissions in
performing their obligations under this Agreement, except, on a several basis
and not a joint basis, for any losses, claims, damages, liabilities and expenses
that are finally judicially determined to have resulted primarily from the bad
faith, willful misconduct or gross negligence of a respective Dealer Manager or
by reason of the reckless disregard of the obligations and duties of such
respective Dealer Manager under this Agreement.
(e) Each of the Dealer Managers severally agrees to (i)
solicit exercises of Subscription Rights relating to the Colonial ETF Shares and
to the Colonial MF Shares, (ii) solicit subscriptions for Load-Waived Class A
Shares pursuant to the Over-Subscription Privilege, (iii) solicit purchase
requests for Load-Waived Class A Shares by Dealer Manager Clients and Employees
and (iv) solicit purchase requests for Load-Waived Class A Shares, by members of
the general public in connection with any Supplemental Settlement Date, in each
case in a manner consistent with the terms of the Offer set forth in the
Prospectus. Each of the Dealer Managers severally acknowledges that the
respective boards of directors or trustees, as the case may be, of each Colonial
ETF Fund and each Colonial Mutual Fund has authorized and directed that the
Prospectus (including the Prospectus Supplement) be delivered to each beneficial
owner of shares of the Colonial ETF Funds and the Colonial Mutual Funds, and
each of the Dealer Managers severally agrees to use its best efforts to deliver
or cause to be delivered the Prospectus (including the Prospectus Supplement) to
each beneficial owner for which such Dealer Manager holds such shares of record
or as nominee, consistent with the applicable provisions of the Exchange Act and
the rules of the New York Stock Exchange.
3. Dealer Managers and Solicitation Fees. In payment for the
financial advisory and marketing services rendered and to be rendered hereunder
by the Dealer Managers, Colonial agrees to pay the Dealer Managers an aggregate
fee (the "Dealer Manager Fee") equal to 1.00% of the aggregate Subscription
Amount for all Load-Waived Class A Shares sold during the Offer. Colonial also
agrees to pay Soliciting Dealers and the Dealer Managers, in payment for their
soliciting efforts hereunder, fees (the "Solicitation Fees") (such Solicitation
Fees paid to the Dealer Managers are in addition to the Dealer Manager Fee) of
up to 2.00% of the applicable Subscription Price per Load-Waived Class A Share
issued in connection with the Offer, other than Shares which would not be
subject to a contingent deferred sales charge as described in the Prospectus.
Colonial agrees to pay the Solicitation Fees to the broker-dealer, if any,
appropriately designated in connection with any exercise, request or order for
Load-Waived Class A Shares in the Offer. Payment to the Dealer Managers of that
portion of the Dealer Manager Fee relating to the Initial Load-Waived Class A
Shares will be determined with respect to the Initial Subscription Amount and
shall be made on the Initial Settlement Date to the Dealer Managers by Colonial
in the form of a wire transfer of same-day funds to an account or accounts
identified by the Representative. Payment to the Dealer Managers of that portion
of the Dealer Manager Fee relating to any Secondary Load-Waived Class A Shares
will be determined with respect to the Secondary Subscription Amount on the
Secondary Expiration Date and will be made on the third business day after the
Secondary Expiration Date to the Dealer Managers by Colonial in the form of a
wire transfer of same-day funds to an account or accounts identified by the
Representative. Payment of Solicitation Fees to each Dealer Manager and
Soliciting Dealer will be made directly to such Dealer Manager and Soliciting
Dealer by check, wire or other means as may be agreed to by Colonial and such
Dealer Manager and Soliciting Dealer to an address identified by such Soliciting
Dealer by the third business day following the Initial Expiration Date or the
Secondary Expiration Date, as the case may be, unless otherwise agreed to by
Colonial and such Soliciting Dealer.
4. Other Agreements.
(a) The Trust covenants with the Dealer Managers as
follows:
(i) The Trust will use its best efforts to maintain the
effectiveness of the Registration Statement under the Securities Act
from the Commencement Date through the Secondary Expiration Date, and
will advise the Dealer Managers promptly as to the time at which any
amendments to the Registration Statement become effective.
(ii) The Trust (or Colonial on behalf of the Trust) will
notify the Dealer Managers immediately, and confirm the notice in
writing, (A) of the filing of any amendments to the Registration
Statement or any amendment or supplement to the Prospectus from the
Commencement Date through the Secondary Expiration Date and the
effectiveness of any amendment to the Registration Statement, (B) of
the receipt of any comments from the Commission with respect to the
Registration Statement or the Prospectus, (C) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional
information, (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose and (E) of the
suspension of the qualification of the Shares or the Subscription
Rights for offering or sale in any jurisdiction. The Trust will make
every reasonable effort to prevent the issuance of any stop order
described in subsection (D) hereunder and, if any such stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(iii) The Trust will give the Dealer Managers notice of its
intention to file any amendment to the Registration Statement or any
amendment or supplement to the Prospectus from the Commencement Date
through the Secondary Expiration Date, whether pursuant to the
Investment Company Act, the Securities Act, or otherwise, and will
furnish the Dealer Managers with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or
use, as the case may be, and will not file any such amendment or
supplement to which the Dealer Managers or counsel for the Dealer
Managers shall reasonably object.
(iv) The Trust (or Colonial on behalf of the Trust) will,
without charge, deliver to the Dealer Managers, as soon as practicable,
the number of copies of the Registration Statement in effect as of the
Commencement Date and of each amendment thereto as it may reasonably
request through the Secondary Expiration Date, in each case with the
exhibits filed therewith.
(v) The Trust (or Colonial on behalf of the Trust) will,
without charge, furnish to the Dealer Managers, from time to time
during the period when the Prospectus is required to be delivered in
connection with the Offer under the Securities Act, such number of
copies of the Prospectus (as amended or supplemented) as the Dealer
Managers may reasonably request for the purposes contemplated by the
Securities Act or the Rules and Regulations.
(vi) If any event shall occur as a result of which it is
necessary, in the reasonable opinion of counsel for the Dealer
Managers, to amend or supplement the Registration Statement or the
Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a Holder
or other prospective purchaser of Load-Waived Class A Shares, the Trust
will forthwith amend or supplement the Prospectus by preparing and
filing with the Commission (and furnishing to the Dealer Managers a
reasonable number of copies of) an amendment or amendments of the
Registration Statement or an amendment or amendments of or a supplement
or supplements to, the Prospectus (in form and substance reasonably
satisfactory to counsel for the Dealer Managers), at Colonial's or the
Fund's expense, which will amend or supplement the Registration
Statement or the Prospectus so that the Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances existing at the
time the Prospectus is delivered to a Holder or other prospective
purchaser of Load-Waived Class A Shares, not misleading.
(vii) The Trust (or Colonial on behalf of the Trust) will
endeavor, in cooperation with the Dealer Managers and their counsel, to
qualify the Shares for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United
States as the Dealer Managers may designate and maintain such
qualifications in effect for the duration of the Offer; provided,
however, that the Trust will not be obligated to file any general
consent to service of process, or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not now
so qualified. Colonial, on behalf of the Trust, will file such
statements and reports as may be required by the laws of each
jurisdiction in which the Shares have been qualified as above provided.
(viii) During the 18 month period following the Commencement
Date, the Trust will (i) file a post-effective amendment to its
registration statement, using financial statements which need not be
certified, within four to six months from the initial effective date of
the Registration Statement, (ii) file a Form N-SAR with the Commission
within 60 days of its fiscal year end and within 60 days of the end of
its second fiscal quarter and (iii) transmit to shareholders annual and
semi-annual reports to shareholders within 60 days of the end of the
period for which it is prepared.
(ix) From the Commencement Date through 30 days after the
later of the Initial Expiration Date and the Secondary Expiration Date,
the Trust will not, without the prior consent of the Dealer Managers,
offer or sell, or enter into any agreement (other than the Distribution
Agreement) to sell, any equity or equity related securities of the
Fund, other than the Load-Waived Class A Shares pursuant to the Offer,
Shares issued in reinvestment of dividends or distributions or
exchanges from other mutual funds distributed by Colonial; and the
Trust will not, for a period of 180 days after the later of the
Expiration Date and the Secondary Expiration Date, if any, offer shares
of the Fund on a load-waived basis in a subscription offering
structured similarly to the Offer without the prior written consent of
the Dealer Managers.
(x) The Fund will use the net proceeds from the Offer
to acquire portfolio securities as set forth in the Prospectus.
(xi) The Fund will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of
the Code.
(xii) If requested by a Dealer Manager, the Trust (or Colonial
on behalf of the Trust) will advise or cause the Subscription Agent to
advise the Dealer Managers from day to day during the period of the
Offer, on the Initial Expiration Date and the Secondary Expiration
Date, and promptly after the termination of the Offer, as to the total
number of Subscription Rights exercised and the number of Load-Waived
Class A Shares related thereto or other purchase requests of
Load-Waived Class A Shares during the immediately preceding day, for
the Dealer Managers and each Soliciting Dealer, the number of
Subscription Rights exercised and amount of other purchase requests and
the number of Load-Waived Class A Shares related thereto on
subscription certificates or other order forms indicating the Dealer
Managers or such Soliciting Dealer, as the case may be, as the
broker-dealer with respect thereto, and as to such other information as
the Dealer Managers may reasonably request; and will notify the Dealer
Managers and each Soliciting Dealer, not later than 5:00 P.M., New York
City time, on the third business day following the Initial Expiration
Date and the Secondary Expiration Date, if any, of the total number of
Load-Waived Class A Shares subscribed for during the respective
subscription periods related thereto, the total number of Subscription
Rights verified to be in proper form for exercise, rejected for
exercise and being processed and, for the Dealer Managers and each
Soliciting Dealer, the number of Subscription Rights exercised and the
number of Load-Waived Class A Shares, including Load-Waived Class A
Shares requested pursuant to the Over-Subscription Privilege and
pursuant to purchase orders for Initial Load-Waived Class A Shares by
Dealer Manager Clients and Employees and purchase orders for Secondary
Load-Waived Class A Shares, related thereto on subscription
certificates and other order forms indicating the Dealer Managers or
such Soliciting Dealer, as the case may be, as the broker-dealer with
respect thereto, and as to such other information as the Dealer
Managers may reasonably request.
(xiii) On or immediately prior to the Initial Trade Date, the
Trust will duly effectuate a stock split, reverse stock split or a
recapitalization of the Fund's Shares, if necessary, such that the
Fund's Shares as of the close of business on the Initial Expiration
Date will be duly and validly authorized, fully paid and nonassessable
and have a net asset value of $20.00 per Share; and in that connection
the Trust shall distribute, immediately prior to or in connection with
such stock split, reverse stock split or recapitalization,
substantially all of any previously undistributed net investment income
and realized net capital gains of the Fund.
(b) Colonial covenants with the Dealer Managers to deliver to
the Dealer Managers, from time to time and upon their request, a list of all
Soliciting Dealers from whom Colonial shall have received a Colonial Selling
Agreement, as amended to the date hereof in connection with the Offer and an
indication to solicit from Holders exercises of Subscription Rights.
5. Payment of Expenses.
(a) To the extent not paid by the Fund, Colonial will pay all
expenses incident to the performance of the Trust's, Colonial's, the
Administrator's and the Portfolio Manager's respective obligations under this
Agreement, including, but not limited to, expenses relating to (i) the printing
and filing of the Registration Statement as originally filed and of each
amendment thereto, (ii) the preparation, issuance and delivery of the
certificates for the Shares and subscription certificates relating to the
Subscription Rights, (iii) the fees and disbursements of the Fund's counsel
(including the fees and disbursements of local counsel, if any) and accountants,
(iv) the qualification of the Shares under securities laws in accordance with
the provisions of Section 4(a)(vii) of this Agreement, (v) the printing or other
production and delivery to the Dealer Managers of copies of the Registration
Statement as in effect on the Commencement Date and of each amendment thereto
and of the Prospectus and any amendments or supplements thereto, (vi) the
printing or other production, mailing and delivery expenses incurred in
connection with Offering Materials and (vii) the fees and expenses incurred with
respect to the Subscription Agent and the Information Agent.
(b) In addition to any fees that may be payable to the Dealer
Managers under this Agreement, Colonial agrees to reimburse the Representative
or the Dealer Managers, as directed by the Representative, upon request made
from time to time for the reasonable expenses incurred in connection with their
activities under this Agreement, including the reasonable fees and disbursements
of their legal counsel, in an amount up to $250,000.
(c) If this Agreement is terminated by the Dealer Managers in
accordance with the provisions of Section 6, Colonial agrees to reimburse the
Dealer Managers for their reasonable out-of-pocket expenses incurred in
connection with their performance hereunder, including the reasonable fees and
disbursements of counsel for the Dealer Managers. In the event the transactions
contemplated hereunder are not consummated, Colonial agrees to pay all of the
costs and expenses set forth in paragraphs (a) and (b) of this Section 5 which
the Fund or Colonial would have paid if such transactions had been consummated.
6. Conditions of the Dealer Managers' Obligations. The
obligations of the Dealer Managers hereunder are subject to the accuracy of the
respective representations and warranties of the Trust, Colonial, the
Administrator and the Portfolio Manager contained herein, to the performance by
such parties of their respective obligations hereunder, and to the following
further conditions:
(a) The Registration Statement shall be effective as of the
Commencement Date, or at such later time and date as may be approved by the
Dealer Managers; the Prospectus and any amendment or supplement thereto,
including the Prospectus Supplement, shall have been filed with the Commission
in the manner and within the time period required by Rule 497(c), (e) or (h), as
the case may be, under the Securities Act; prior to the Secondary Expiration
Date, no stop order suspending the effectiveness of the Registration Statement
or any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Trust, Colonial, the Administrator, the Portfolio Manager or the Dealer
Managers, shall be contemplated by the Commission; and the Trust shall have
complied with any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise).
(b) On each Representation Date, the Dealer Managers
shall have received:
(1) The favorable opinions, dated each Representation Date, of
Ropes & Gray, counsel for the Trust, in form and substance reasonably
satisfactory to counsel for the Dealer Managers, to the effect that:
(i) The Trust has been duly organized and is existing
under the Trust's Declaration of Trust and the laws of The
Commonwealth of Massachusetts as a voluntary association with
transferable shares commonly referred to as a "Massachusetts
business trust," is duly authorized to exercise in
Massachusetts the powers set forth in its Declaration of Trust
and to transact business in the Commonwealth of Massachusetts,
the Fund has been duly designated as a series of the Trust,
each of the Trust and the Fund has full power and authority to
conduct its business as described in the Registration
Statement and the Prospectus, and is duly qualified to do
business in each jurisdiction wherein, to the best of such
counsel's knowledge, it owns or leases real property or in
which the conduct of its business requires such qualification,
except where the failure to be so qualified would not result
in a material adverse effect upon the business, properties,
financial position or results of operations of the Fund.
(ii) The Trust is registered with the Commission
under the Investment Company Act as an open-end, management
investment company; to the best knowledge of such counsel
after due inquiry, no order of suspension or revocation of
such registration has been issued or proceedings therefor
initiated or threatened by the Commission; the Registration
Statement (including any post-effective amendment thereto
through such Representation Date) has become effective under
the Securities Act and the Prospectus Supplement has been
filed with the Commission as required by Rule 497 under the
Securities Act; the Trust has been duly registered under the
Investment Company Act; each of the waiver of front-end sales
charges in connection with the Offer, which sales charges
generally are applicable as described in the Prospectus, and
the imposition of a contingent deferred sales charge complies
in all material respects with the applicable provisions of the
Investment Company Act and the Rules and Regulations
thereunder; the provisions of the Trust's declaration of trust
and by-laws comply as to form in all material respects with
the requirements of the Investment Company Act.
(iii) The Trust is authorized to issue an unlimited
number of shares of beneficial interest in one or more series,
which may be divided into classes of shares, the Shares of
beneficial interest of the Fund have been duly designated as
Class A Shares in compliance with all applicable provisions of
the Investment Company Act and the Rules and Regulations
thereunder; the Fund's outstanding shares of beneficial
interest have been duly authorized and are validly issued,
fully paid and (subject to the statements below)
non-assessable and conform in all material respects to the
description thereof in the Prospectus; the Shares have been
duly authorized by all requisite action on the part of the
Trust for issuance and sale pursuant to the terms of the Offer
and, when issued and delivered by the Trust pursuant to the
terms of the Offer against payment of the consideration set
forth in the Prospectus, will be validly issued, fully paid
and non-assessable except that under Massachusetts law,
shareholders of the Trust may under certain circumstances be
held personally liable for its obligations. However, Article
IX of the Declaration of Trust disclaims shareholder liability
for debts or obligations of the Trust and requires every note,
bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or any officer to recite that the
obligations of such instrument are not binding upon
shareholders individually, but are binding only upon the
assets and property of the Trust. Article VIII of the
Declaration of Trust also provides for indemnification out of
the Trust's property for all loss and expense of any
shareholder held personally liable solely by reason of his
being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations; the Shares
conform in all material respects to the statements relating
thereto contained in the Registration Statement and the
Prospectus; and the issuance of the Shares is not subject to
any statutory or other preemptive rights.
(iv) Except as set forth in the Registration
Statement and Prospectus, to the best knowledge of such
counsel after due inquiry there is no pending or threatened
action, suit or proceeding affecting the Trust or the Fund or
to which the Trust or the Fund is a party before or by any
court or governmental agency, authority or body or any
arbitrator which may reasonably be expected to result in any
material adverse change in the condition (financial or other),
business prospects, net worth or results of operations of the
Trust or the Fund, or which may reasonably be expected to
materially and adversely affect the properties or assets
thereof, of a character required to be disclosed in the
Registration Statement or the Prospectus.
(v) To the knowledge of such counsel after due
inquiry, there are no contracts or other documents of the
Trust or the Fund required to be described in the Registration
Statement or the Prospectus, or to be filed or incorporated by
reference as exhibits which are not described or filed or
incorporated by reference therein as permitted by the
Securities Act, the Investment Company Act or the Rules and
Regulations.
(vi) Each of the Fund Agreements has been duly
authorized, executed and delivered by the Trust, on behalf of
the Fund; each complies in all material respects with all
applicable provisions of the Exchange Act, Investment Company
Act and the Advisers Act; and, assuming due authorization,
execution and delivery by the other parties thereto, each of
the Fund Agreements (other than the Management Agreement and
this Agreement) constitutes a legal, valid, binding and
enforceable obligation of the Trust, subject to the
qualification that the enforceability of the Trust's
obligations thereunder may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors'
rights, and to general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity
or at law).
(vii) Neither the issuance and sale of the Shares,
nor the performance and consummation by the Trust of any other
of the transactions contemplated in the Fund Agreements or any
sub-custodial arrangements entered into pursuant to the
Custodian Agreement, nor the consummation of the transactions
contemplated in the Prospectus Supplement will conflict with,
result in a breach or violation of, or constitute a default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the
Fund under the declaration of trust or by-laws of the Trust,
or the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument known to such counsel to
which the Trust, on behalf of the Fund, is a party or by which
it may be bound or to which any of the property or assets of
the Fund is subject, nor will such action result in any
violation of any order, law, rule or regulation of any court
or governmental agency or body having jurisdiction over the
Trust or the Fund or any of their properties.
(viii) No consent, approval, authorization,
notification or order of, or filing with, any court or
governmental agency or body is required for the consummation
by the Trust of the transactions contemplated by the Fund
Agreements or the Registration Statement, except (A) such as
have been obtained and (B) such as may be required under the
blue sky laws of any jurisdiction in connection with the
transactions contemplated hereby.
(ix) The Registration Statement has become effective
under the Securities Act; any required filing of the
Prospectus or any supplement thereto pursuant to Rule 497(c),
(e) or (h) required to be made to the date hereof, including
the Prospectus Supplement, has been made in the manner and
within the time period required by Rule 497(c), (e) or (h), as
the case may be; to the best of such counsel's knowledge after
due inquiry no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for
that purpose have been instituted or threatened; and the
Registration Statement, the Prospectus and each amendment
thereof or supplement thereto (other than the financial
statements, the notes thereto and the schedules and other
financial and statistical data contained therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the
Securities Act and the Investment Company Act and the Rules
and Regulations.
(x) The statements in the Prospectus under the
heading "Distributions and Taxes" and "Taxes" fairly summarize
the matters therein described.
Such counsel also shall have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified,
and are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or
the Prospectus, in the course of their review and discussion of the
contents of the Registration Statement and Prospectus with certain officers
and employees of the Trust, no facts have come to their attention which
cause them to believe that the Registration Statement, on the respective
Representation Date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements contained therein not misleading or that
the Prospectus, as of its date and on the respective Representation Date
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Such counsel need express no opinion or belief as to
any financial or statistical data set forth or referred to in the
Registration Statement or the Prospectus or as to any statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with written information furnished to the Trust by
the Dealer Managers (which information is limited to that set forth in
Section 7(g) herein) specifically for use therein.
(2) The favorable opinions, dated the respective
Representation Date, of Michael H. Koonce, counsel for Colonial, in
form and substance reasonably satisfactory to counsel for the Dealer
Managers, to the effect that:
(i) Colonial has been duly organized and is validly
existing as a corporation in good standing under the laws of
the Commonwealth of Massachusetts, has full power and
authority (corporate and other) to own its properties and
conduct its business as described in the Registration
Statement and the Prospectus, and is duly qualified to do
business as a foreign corporation in each jurisdiction wherein
it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure
to be so qualified does not involve a material adverse risk to
its business, properties, financial position or results of
operations of Colonial.
(ii) Colonial is duly registered as a broker-dealer
under the Exchange Act and is not prohibited by the Exchange
Act or the Investment Company Act, or the rules and
regulations under such Acts, from acting as principal
underwriter of the Shares as contemplated in the Prospectus
and the Distribution Agreement.
(iii) Each of this Agreement, the Distribution
Agreement and any other Fund Agreement to which Colonial is a
party has been duly authorized, executed and delivered by
Colonial and complies in all material respects with the
applicable provisions of the Exchange Act, the Investment
Company Act and the Rules and Regulations, and is, assuming
due authorization, execution and delivery by the other parties
thereto, a legal, valid, binding and enforceable obligation of
Colonial, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights, and
to general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at
law) and except to the extent that the enforceability of the
indemnification provisions contained herein may be limited
under U.S. federal and state securities laws.
(iv) Neither the performance by Colonial of its
obligations under this Agreement, the Distribution Agreement
or any other Fund Agreement to which Colonial is a party nor
the consummation of the transactions contemplated therein or
in the Prospectus Supplement nor the fulfillment of the terms
thereof will conflict with, result in a breach or violation
of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any
properties or assets of Colonial under the charter or by-laws
of Colonial, or the terms and provisions of any agreement,
indenture, mortgage, lease or other instrument to which
Colonial is a party or by which it may be bound or to which
any of the property or assets of Colonial is subject, nor will
such action result in any violation of any order, law, rule or
regulation of any court or governmental agency or body having
jurisdiction over Colonial or any of its properties, which
conflict, breach, violation, lien, charge or encumbrance,
either individually or in the aggregate, would have a material
adverse effect on Colonial.
(v) Except as set forth in the Registration Statement
and Prospectus, there is no pending or, to the best knowledge
of counsel, threatened action, suit or proceeding affecting
Colonial or to which Colonial is a party before or by any
court or governmental agency, authority or body or any
arbitrator which may reasonably be expected to result in any
material adverse change in the condition (financial or other),
business prospects, net worth or results of operations of
Colonial, or which may reasonably be expected to materially
and adversely affect the properties or assets thereof, of a
character required to be disclosed in the Registration
Statement or Prospectus.
(vi) Colonial owns or possesses any governmental
licenses, permits, consents, orders, approvals or other
authorizations necessary to enable Colonial to distribute
Shares as contemplated in the Prospectus.
(vii) The Trust owns or possesses all material
governmental licenses, permits, consents, orders, approvals or
other authorizations, necessary to enable the Fund to continue
to invest in securities as contemplated in the Prospectus.
(viii) The New York Stock Exchange has been duly
notified of the Offer and the Record Date and no other notice
or action by the Trust is required to be delivered to, or
taken with respect to, the New York Stock Exchange in
connection with the issuance and sale of the Shares pursuant
thereto.
(ix) No consent, approval, authorization,
notification or order of, or any filing with, any court or
governmental agency or body or securities exchange is required
for the consummation by Colonial of the transactions
contemplated by this Agreement, the Distribution Agreement or
any other Fund Agreement to which Colonial is a party, except
(A) such as have been obtained and (B) such as may be required
under the blue sky laws of any jurisdiction in connection with
the transactions contemplated hereby.
In rendering such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of Colonial and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise
verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the
Registration Statement or the Prospectus, in the course of their
review and discussion of the contents of the Registration Statement
and Prospectus with certain officers and employees of Colonial and of
the Trust and its independent accountants, no facts have come to their
attention which cause them to believe that the Registration Statement,
on the respective Representation Date, contained any untrue statement
of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements contained
therein not misleading or that the Prospectus, as of its date and on
the respective Representation Date, contained any untrue statement of
a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(3) The favorable opinions, dated the respective Representation Date,
of Michael H. Koonce, counsel for the Administrator, in form and substance
reasonably satisfactory to counsel for the Dealer Managers, to the effect that:
(i) The Administrator has been duly organized and is
validly existing as a corporation in good standing under the
laws of the Commonwealth of Massachusetts, has full power and
authority (corporate and other) to own its properties and
conduct its business as described in the Registration
Statement and the Prospectus, and is duly qualified to do
business as a foreign corporation in each jurisdiction wherein
it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure
to be so qualified does not involve a material adverse risk to
its business, properties, financial position or results of
operations of the Administrator.
(ii) Each of this Agreement, the Administration
Agreement and any other Fund Agreement to which the
Administrator is a party has been duly authorized, executed
and delivered by the Administrator and complies in all
material respects with the applicable provisions of the
Investment Company Act and the rules and regulations
thereunder, and is, assuming due authorization, execution and
delivery by the other parties thereto, a legal, valid, binding
and enforceable obligation of the Administrator subject as to
enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to
or affecting creditors' rights, and to general principles of
equity (regardless of whether enforceability is considered in
a proceeding in equity or at law) and except to the extent
that the enforceability of the indemnification provisions
contained herein may be limited under U.S.
federal and state securities laws.
(iii) Neither the performance by the Administrator of
its obligations under this Agreement, the Administration
Agreement or any other Fund Agreement to which the
Administrator is a party nor the consummation of the
transactions contemplated therein or in the Prospectus
Supplement nor the fulfillment of the terms thereof will
conflict with, result in a breach or violation of, or
constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
properties or assets of the Administrator under the charter or
by-laws of the Administrator, or the terms and provisions of
any agreement, indenture, mortgage, lease or other instrument
to which the Administrator is a party or by which it may be
bound or to which any of the property or assets of the
Administrator is subject, nor will such action result in any
violation of any order, law, rule or regulation of any court
or governmental agency or body having jurisdiction over the
Administrator or any of its properties, which conflict,
breach, violation, lien, charge or encumbrance, either
individually or in the aggregate, would have a material
adverse effect on the Administrator.
(iv) Except as set forth in the Registration
Statement and Prospectus, there is no pending or, to the best
knowledge of counsel, threatened action, suit or proceeding
affecting the Administrator or to which the Administrator is a
party before or by any court or governmental agency, authority
or body or any arbitrator which may reasonable be expected to
result in any material adverse change in the condition
(financial or other), business prospects, net worth or results
of operations of the Administrator, or which may reasonably be
expected to materially and adversely affect the properties or
assets thereof, of a character required to be disclosed in the
Registration Statement or Prospectus.
(v) The Administrator owns or possesses any
governmental licenses, permits, consents, orders, approvals or
other authorizations necessary to enable the Administrator to
perform the services for the Fund as contemplated in the
Prospectus.
(vi) No consent, approval, authorization,
notification or order of, or any filing with, any court or
governmental agency or body is required for the consummation
by the Administrator of the transactions contemplated by this
Agreement, the Administration Agreement or any other Fund
Agreement to which the Administrator is a party, except (A)
such as have been obtained and (B) such as may be required
under the blue sky laws of any jurisdiction in connection with
the transactions contemplated hereby.
In rendering such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Administrator and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise
verified, and are not passing upon and assume no responsibility for
the accuracy or completeness of, the statements contained in the
Registration Statement or the Prospectus, in the course of their
review and discussion of the contents of the Registration Statement
and Prospectus with certain officers and employees of the
Administrator and of the Trust and its independent accountants, no
facts have come to their attention which cause them to believe that
the Registration Statement, on the respective Representation Date,
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements contained therein not misleading or that the
Prospectus, as of its date and on the respective Representation Date,
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading.
(4) The favorable opinions, dated the respective Representation Date,
of John Davenport or John Benning, counsel for the Portfolio Manager, in form
and substance reasonably satisfactory to counsel for the Dealer Managers, to the
effect that:
(i) The Portfolio Manager has been duly organized and
is validly existing as a corporation in good standing under
the laws of the Commonwealth of Virginia, has full power and
authority (corporate and other) to own its properties and
conduct its business as described in the Registration
Statement and the Prospectus, and is duly qualified to do
business as a foreign corporation in each jurisdiction wherein
it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure
to be so qualified does not involve a material adverse risk to
its business, properties, financial position or results of
operations of the Portfolio Manager.
(ii) The Portfolio Manager is duly registered as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act or the Investment Company Act,
or the rules and regulations under such Acts, from acting as
an investment adviser for the Fund as contemplated in the
Prospectus and the Management Agreement.
(iii) Each of this Agreement, the Management
Agreement and any other Fund Agreement to which the Portfolio
Manager is a party has been duly authorized, executed and
delivered by the Portfolio Manager and complies as respects
the Portfolio Manager in all material respects with the
applicable provisions of the Advisers Act, the Investment
Company Act and the rules and regulations under such Acts, and
is, assuming due authorization, execution and delivery by the
other parties thereto, a legal, valid, binding and enforceable
obligation of the Portfolio Manager, subject as to enforcement
to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting
creditors' rights, and to general principles of equity
(regardless of whether enforceability is considered in a
proceeding in equity or at law) and except to the extent that
the enforceability of the indemnification provisions contained
herein may be limited under U.S. federal and state securities
laws.
(iv) Neither the performance by the Portfolio Manager
of its obligations under this Agreement, the Management
Agreement or any other Fund Agreement to which the Portfolio
Manager is a party nor the consummation of the transactions
contemplated therein or in the Prospectus Supplement nor the
fulfillment of the terms thereof will conflict with, result in
a breach or violation of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Portfolio
Manager under the charter or by-laws of the Portfolio Manager,
or the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument to which the Portfolio
Manager is a party or by which it may be bound or to which any
of the property or assets of the Portfolio Manager is subject,
nor will such action result in any violation of any order,
law, rule or regulation of any court or governmental agency or
body having jurisdiction over the Portfolio Manager or any of
its properties, which conflict, breach, violation, lien,
charge or encumbrance, either individually or in the
aggregate, would have a material adverse effect on the
Portfolio Manager.
(v) Except as set forth in the Registration Statement
and Prospectus, there is no pending or, to the best knowledge
of counsel, threatened action, suit or proceeding affecting
the Portfolio Manager or to which the Portfolio Manager is a
party before or by any court or governmental agency, authority
or body or any arbitrator which may reasonably be expected to
result in any material adverse change in the condition
(financial or other), business prospects, net worth or results
of operations of the Portfolio Manager, or which may
reasonably be expected to materially and adversely affect the
properties or assets thereof, of a character required to be
disclosed in the Registration Statement or Prospectus.
(vi) The Portfolio Manager owns or possesses any
governmental licenses, permits, consents, orders, approvals or
other authorizations necessary to enable the Portfolio Manager
to continue to direct investments in securities as
contemplated in the Prospectus.
(vii) No consent, approval, authorization,
notification or order of, or any filing with, any court or
governmental agency or body is required for the consummation
by the Portfolio Manager of the transactions contemplated by
this Agreement, the Management Agreement or any other Fund
Agreement to which the Portfolio Manager is a party, except
(A) such as have been obtained and (B) such as may be required
under the blue sky laws of any jurisdiction in connection with
the transactions contemplated hereby.
In rendering such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Portfolio Manager and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or the
Prospectus, in the course of their review and discussion of the contents of the
Registration Statement and Prospectus with certain officers and employees of the
Portfolio Manager and of the Trust and its independent accountants, no facts
have come to their attention which cause them to believe that the Registration
Statement, on the respective Representation Date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements contained therein not misleading or
that the Prospectus, as of its date and on the respective Representation Date,
as the case may be, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(a) The Dealer Managers shall have received from Skadden,
Arps, Slate, Meagher & Flom (Illinois), counsel for the Dealer Managers, such
opinion or opinions, dated the respective Representation Date, with respect to
the Offer, the Registration Statement, the Prospectus and other related matters
as the Dealer Managers may reasonably require, and the Trust shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(d) The Trust, on behalf of the Fund, shall have furnished to
the Dealer Managers certificates of the Trust, signed on behalf of the Trust by
the Chairman of the Board, the President, a Vice President, the Treasurer or the
Secretary or an Assistant Secretary of the Trust, dated the respective
Representation Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, any supplement to
the Prospectus and this Agreement and that, to the best of their knowledge:
(i) The representations and warranties of the Trust in this
Agreement are true and correct in all material respects on and as of
the respective Representation Date, with the same effect as if made on
the respective Representation Date, and the Trust has complied in all
material respects with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
respective Representation Date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Trust's knowledge, threatened.
(iii) Since the date of the commencement of operations of the
Fund, there has been no material adverse change in the condition
(financial or other), earnings, business or properties of the Fund,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus.
(e) Colonial shall have furnished to the Dealer Managers
certificates, signed on behalf of Colonial by the Chairman of the Board, the
President, a Vice President or other senior officer, dated the respective
Representation Date, to the effect that the signer of such certificate has read
the Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and, to the best knowledge of such signer, the representations
and warranties of Colonial in this Agreement are true and correct in all
material respects on and as of the respective Representation Date, with the same
effect as if made on the respective Representation Date.
(f) The Administrator shall have furnished to the Dealer
Managers certificates, signed on behalf of the Administrator by the Chairman of
the Board, the President, a Vice President or other senior officer, dated the
respective Representation Date, to the effect that the signer of such
certificate has read the Registration Statement, the Prospectus, any supplement
to the Prospectus and this Agreement and, to the best knowledge of such signer,
the representations and warranties of the Administrator in this Agreement are
true and correct in all material respects on and as of the respective
Representation Date, with the same effect as if made on the respective
Representation Date.
(g) The Portfolio Manager shall have furnished to the Dealer
Managers certificates, signed on behalf of the Portfolio Manager by the Chairman
of the Board, the President, a Vice President or other senior officer, dated the
respective Representation Date, to the effect that the signer of such
certificate has read the Registration Statement, the Prospectus, any supplement
to the Prospectus and this Agreement and, to the best knowledge of such signer,
the representations and warranties of the Portfolio Manager in this Agreement
are true and correct in all material respects on and as of the respective
Representation Date, with the same effect as if made on the respective
Representation Date.
(h) Price Waterhouse LLP shall have furnished to the Dealer
Managers letters, dated the respective Representation Date, in form and
substance satisfactory to the Dealer Managers, and stating in effect that:
(i) They are independent accountants with respect to the Fund
within the meaning of the Securities Act and the applicable Rules and
Regulations.
(ii) They have performed specified procedures, not
constituting an audit, including, where applicable, a reading of the
latest available interim financial information of the Fund, a reading
of the minute books of the Fund, inquiries of officials of the Trust
responsible for financial or accounting matters and such other
inquiries and procedures which shall be specified in such letter (1)
with respect to certain amounts, percentages and numerical data
relating to performance information appearing in the Registration
Statement and (2) with respect to the net asset value of the Shares as
of the Expiration Date, which have previously been specified by the
Dealer Managers and which shall be specified in such letter, and have
compared such items with, and have found such items to be in agreement
with, the accounting and financial records of the Fund or of the funds
to which they relate.
(i) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there shall not have
been (i) any change or decrease specified in the letter or letters referred to
in paragraph (h) of this Section 6, or (ii) any change, or any development
involving a prospective change, in or affecting the business or properties of
the Fund, the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the reasonable judgment of the Dealer Managers, so material and
adverse as to make it impractical or inadvisable to proceed with the Offer as
contemplated by the Registration Statement and the Prospectus.
(j) Prior to the respective Representation Date, the Trust, on
behalf of the Fund, shall have furnished to the Dealer Managers such further
information, certificates and documents as the Dealer Managers may reasonably
request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement or waived by the Dealer Managers, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall not be in all
material respects satisfactory in form and substance to the Dealer Managers and
its counsel, this Agreement and all obligations of the Dealer Managers hereunder
may be canceled at, or at any time prior to, the Initial Expiration Date or
Secondary Expiration Date, as the case may be, by the Dealer Managers. Notice of
such cancellation shall be given to the Fund in writing or by telephone or
telegraph confirmed in writing.
1. Indemnification and Contribution.
(a) Each of the Trust and Colonial, jointly and severally, will
indemnify and hold harmless each Dealer Manager, the directors,
officers, employees and agents of each Dealer Manager and each person,
if any, who controls each Dealer Manager within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, liabilities, expenses and damages
(including, but not limited to, any and all investigative, legal and
other expenses reasonably incurred in connection with, and any and all
amounts paid in settlement of, any action, suit or proceeding between
any of the indemnified parties and any indemnifying parties or between
any indemnified party and any third party, or otherwise, or any claim
asserted), to which any Dealer Manager, or any such person, may become
subject under the Securities Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar
as such losses, claims, liabilities, expenses or damages arise out of
or are based on (i) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, the
Registration Statement, the Prospectus or the Offering Materials or
any amendment or supplement to the Registration Statement, the
Prospectus or the Offering Materials or in any documents filed under
the Exchange Act and deemed to be incorporated by reference into the
Prospectus, or in any application or other document executed by or on
behalf of the Trust or based on written information furnished by or on
behalf of the Trust filed in any jurisdiction in order to qualify the
Shares under the securities laws thereof or filed with the Commission,
(ii) the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the
statements in it not misleading or (iii) any act or failure to act or
any alleged act or failure to act by any Dealer Manager in connection
with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to
in any loss, claim, liability, expense or damage arising out of or
based upon matters covered by clause (i) or (ii) above (provided that
neither the Trust nor Colonial shall be liable under this clause (iii)
to the extent it is finally judicially determined by a court of
competent jurisdiction that such loss, claim, liability, expense or
damage resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Dealer Manager through its
gross negligence or willful misconduct); provided that neither the
Trust nor Colonial will be liable to the extent that such loss, claim,
liability, expense or damage is based on an untrue statement or
omission or alleged untrue statement or omission made in reliance on
and in conformity with information relating to any Dealer Manager
furnished in writing to the Trust by the Dealer Managers expressly for
inclusion in the Registration Statement, any preliminary prospectus or
the Prospectus. This indemnity agreement will be in addition to any
liability that the Trust and Colonial might otherwise have.
(b) Each Dealer Manager will indemnify and hold harmless the
Trust and Colonial, each person, if any, who controls the Trust or Colonial
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, each trustee of the Trust and each officer of the Trust who signs
the Registration Statement to the same extent as the foregoing indemnity from
the Trust and Colonial to each Dealer Manager, but only insofar as losses,
claims, liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any Dealer Manager furnished
in writing to the Trust by the Dealer Managers expressly for use in the
Registration Statement or the Prospectus. This indemnity will be in addition to
any liability that each Dealer Manager might otherwise have; provided, however,
that in no case shall any Dealer Manager be liable or responsible for any amount
in excess of the fees and commissions received by such Dealer Manager.
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 7 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a conflict
or potential conflict exists (based on advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party has not
in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 7 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding. Notwithstanding any
other provision of this Section 7(c), if at any time an indemnified party shall
have requested an indemnifying party to reimburse the indemnified party for fees
and expenses of counsel, such indemnifying party agrees that it shall be liable
for any settlement effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Trust and Colonial or the Dealer
Managers, the Trust and Colonial and the Dealer Managers will contribute to the
total losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Trust and
Colonial from persons other than the Dealer Managers, such as persons who
control the Trust or Colonial within the meaning of the Securities Act, officers
of the Trust who signed the Registration Statement and directors of the Trust,
who also may be liable for contribution) to which the Trust and Colonial and any
one or more of the Dealer Managers may be subject in such proportion as shall be
appropriate to reflect the relative benefits received by the Trust and Colonial
on the one hand and the Dealer Managers on the other. The relative benefits
received by the Trust and Colonial (treated jointly for this purpose as one
person) on the one hand and the Dealer Managers on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Trust bear to the total fees received by the
Dealer Managers. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence but also the relative
fault of the Trust and Colonial (treated jointly for this purpose as one
person), on the one hand, and the Dealer Managers, on the other, with respect to
the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Trust or Colonial or the Dealer
Managers, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Trust, Colonial and the Dealer Managers agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were to be determined
by pro rata allocation (even if the Dealer Managers were treated as one entity
for such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to above in this
Section 7(d) shall be deemed to include, for purpose of this Section 7(d), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no Dealer Manager shall be
required to contribute any amount in excess of the fees received by it and no
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Dealer
Managers' obligations to contribute as provided in this Section 7(d) are several
and not joint. For purposes of this Section 7(d), any person who controls a
party to this Agreement within the meaning of the Securities Act will have the
same rights to contribution as that party, and each officer of the Trust who
signed the Registration Statement will have the same rights to contribution as
the Trust, subject in each case to the provisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 7(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 7(d). Except for a settlement entered
into pursuant to the last sentence of Section 7(c) hereof, no party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements
contained in this Section 7 and the representations and warranties of the Trust
and Colonial contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of
the Dealer Managers or (ii) any termination of this Agreement.
(f) Notwithstanding any other provisions in this Section 7, no
party shall be entitled to indemnification or contribution under this Agreement
against any loss, claim, liability, expense or damage arising by reason of such
person's willful misfeasance, bad faith or gross negligence in the performance
of its duties hereunder, or by reason of such person's reckless disregard of
such person's obligations and duties hereunder.
(g) The Trust and Colonial acknowledge that the statements
under the caption "Distribution Arrangements for the Offer" in the Prospectus
Supplement constitute the only information furnished in writing to the Trust by
the Dealer Managers expressly for use in such document, and the Dealer Managers
confirm that such statements are true and correct in all material respects.
8. Representations, Warranties and Agreements to Survive
Delivery. The respective agreements, representations, warranties, indemnities
and other statements of the Trust or its officers, of Colonial, of the
Administrator, of the Portfolio Manager and of the Dealer Managers set forth in
or made pursuant to this Agreement shall survive the Initial Expiration Date and
the Secondary Expiration Date and will remain in full force and effect,
regardless of any investigation made by or on behalf of Dealer Managers or the
Trust or any of the officers, trustees, directors or controlling persons
referred to in Section 7 hereof, and will survive delivery of and payment for
the Shares pursuant to the Offer. The provisions of Sections 5 and 7 hereof
shall survive the termination or cancellation of this Agreement.
9. Termination of Agreement. (a) This Agreement shall be
subject to termination in the absolute discretion of the Dealer Managers, by
notice given to the Trust prior to the expiration of the Offer, if prior to such
time (i) financial, political, economic, currency, banking or social conditions
in the United States shall have undergone any material change the effect of
which on the financial markets makes it, in the Representative's judgment,
impracticable or inadvisable to proceed with the Offer, (ii) there has occurred
any outbreak or material escalation of hostilities or other calamity or crisis
the effect of which on the financial markets of the United States is such as to
make it, in the Representatives' judgment, impracticable or inadvisable to
proceed with the Offer, (iii) trading in securities generally on the New York
Stock Exchange shall have been suspended or limited or (iv) a banking moratorium
shall have been declared either by Federal or New York State authorities.
(a) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 5.
10. Notices. All communications hereunder will be in writing
and effective only on receipt and, if sent to the Dealer Managers, will be
mailed, delivered or telegraphed and confirmed to PaineWebber Incorporated,
Attn: Todd A. Reit, 1285 Avenue of the Americas, New York, New York 10019; or if
sent to the Trust, Colonial, the Administrator or the Portfolio Manager, will be
mailed, delivered or telegraphed and confirmed to them in writing at: c/o
Colonial Management Associates, Inc., One Financial Center, Boston,
Massachusetts 02110, Attn: Michael H. Koonce, Vice President and Counsel.
11. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and will
inure to the benefit of the officers, trustees, directors and controlling
persons referred to in Section 7 hereof, and no other person will have any right
or obligation hereunder.
12. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York without
reference to conflict of law principles thereof.
13. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
14. Miscellaneous. A copy of the Declaration of Trust of
the Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Agreement has been
executed on behalf of the Fund by an officer of the Trust in the
capacity of an officer and not individually and the obligations of or
arising out of this Agreement are not binding upon any of the trustees,
officers or shareholders individually but are binding only upon the assets and
property of the Fund.
If the foregoing is in accordance with your understanding of
our agreement, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Trust,
Colonial, the Administrator the Portfolio Manager and the Dealer Managers.
Very truly yours,
Colonial Trust II, Colonial Management
on behalf of Newport Associates, Inc.
Greater China Fund
By: By:
Name: Name:
Title: Title:
Colonial Investment Newport Fund Management,
Services, Inc. Inc.
By: By:
Name: Name:
Title: Title:
The foregoing Agreement is hereby confirmed and accepted, on behalf of
the Dealer Managers, as of the date first above written.
PaineWebber Incorporated
By:
Name:
Title:
A-2
FOOTER B HAS BEEN ENTERED (DRAFT)
NEWPORT GREATER CHINA FUND,
a portfolio of Colonial Trust II
Load-Waived Class A Shares
Issuable upon Exercise of
Subscription Rights for such Shares
AMENDMENT TO
COLONIAL SELLING AGREEMENT
To Securities Dealers and Brokers:
Colonial Trust II (the "Trust"), on behalf of its portfolio Newport
Greater China Fund (the "Fund"), is offering to beneficial shareholders
("Holders") as of the close of business on June 16, 1997 (the "Record Date") of
(i) shares of common stock or common shares of beneficial interest, as the case
may be, (the "Colonial ETF Shares") of the following exchange-traded, closed-end
investment companies: Colonial Investment Grade Municipal Trust; Colonial
Municipal Income Fund; Colonial High Income Municipal Trust; Colonial
Intermediate High Income Fund; Colonial Intermarket Income Trust I; Liberty
All-Star Equity Fund; and Liberty All-Star Growth Fund Inc. (the "Colonial ETF
Funds") and (ii) common shares of beneficial interest, of any designated class
(the "Colonial MF Shares"), of Colonial Newport Tiger Fund; Colonial Newport
Tiger Cub Fund ; and Colonial Newport Japan Fund(the "Colonial Mutual Funds"),
non-transferable subscription rights (the "Subscription Rights") to purchase
shares of beneficial interest of the Fund, no par value per share, designated
Class A Shares (the "Shares") at the Subscription Price (as hereinafter defined)
without payment of an up-front sales charge (the "Load-Waived Class A Shares").
The Subscription Rights entitle Holders of Colonial ETF Shares and
Colonial MF Shares to subscribe for Load-Waived Class A Shares at the rate of
one Load-Waived Class A Share for each Colonial ETF Share or Colonial MF Share
held on the Record Date, except that Holders owning fewer than 150 Colonial ETF
Shares or Colonial MF Shares are entitled to subscribe for 150 Load-Waived Class
A Shares. Holders of Colonial ETF Shares and Colonial MF Shares who fully
exercise all their Subscription Rights may be entitled to subscribe for
additional Load-Waived Class A Shares of the Fund, subject to availability (the
"Over-Subscription Privilege"). The opportunity for Holders of Colonial ETF
Shares and Colonial MF Shares to subscribe for Load-Waived Class A Shares
pursuant to the Subscription Rights expires at 5:00 p.m., New York City time, on
July 25, 1997 (the "Initial Expiration Date"). In the event that the Fund has
not achieved, as of the Initial Expiration Date, the Maximum Offer Amount (as
defined in the Fund's Prospectus Supplement (as hereinafter defined)), then the
Fund may offer Load-Waived Class A Shares to the general public for a period not
to exceed thirty calendar days from the Initial Expiration Date, unless earlier
terminated by the Fund (such date, as subject to early termination, is referred
to as the "Secondary Expiration Date") as provided for in the Fund's Prospectus
Supplement.
A-10
The offer of Subscription Rights to the Holders of Colonial ETF Shares
and Colonial MF Shares will commence on June 23, 1997 (the "Commencement Date").
Load-Waived Class A Shares issued to Holders of Colonial ETF Shares and Colonial
MF Shares pursuant to exercise of Subscription Rights, including pursuant to
requests for additional Load-Waived Class A Shares pursuant to the
Over-Subscription Privilege, duly received on or prior to the Initial Expiration
Date will be at the initial subscription price (the "Initial Subscription
Price") of $20.00 per Load-Waived Class A Share. The settlement date for the
issuance of the Initial Load-Waived Class A Shares shall be July 30, 1997 (the
"Initial Settlement Date"). Purchase requests, if any, of Load-Waived Class A
Shares by members of the general public received after the Initial Expiration
Date will not be accepted until after the Initial Settlement Date and, if
accepted, will be sold at the net asset value per Share next determined after
receipt and acceptance of the order (the "Secondary Subscription Price"). The
Initial Subscription Price and the Secondary Subscription Price are collectively
referred to as the "Subscription Price." The aggregate number of Initial
Load-Waived Class A Shares that may be issued on the Initial Settlement Date,
and the aggregate number of Secondary Load-Waived Class A Shares that may be
issued until the Secondary Expiration Date, will be subject to the Maximum Offer
Amount (as defined in the Prospectus Supplement (as hereinafter defined)).
The Load-Waived Class A Shares will be subject to a Contingent Deferred
Sales Charge ("CDSC") of 2% of the lower of the purchase price or the redemption
proceeds if such Load-Waived Class A Shares are redeemed within approximately
twenty-four months from their purchase date. The CDSC may be waived in certain
circumstances as described or referred to in the Prospectus Supplement. The
offer of Load-Waived Class A Shares to Holders of Colonial ETF Shares and
Colonial MF Shares pursuant to Subscription Rights, as it may be extended to
members of the general public in connection with the Secondary Expiration Date,
is referred to herein as the "Offer." The minimum purchase in the Offer is
$3,000 of Load-Waived Class A Shares (150 Load-Waived Class A Shares).
Additional information with respect to the Offer is set forth in a supplement,
dated June 23, 1997 (the "Prospectus Supplement", to the Fund's Prospectus dated
May 16, 1997.
You are a party to a Colonial Selling Agreement (the "Selected Dealer
Agreement") with Colonial Investment Services, Inc. ("Colonial") relating to the
distribution and sale of shares of mutual funds for which Colonial is the
sponsor or distributer. The submitting to Colonial of an order for any
Load-Waived Class A Shares pursuant to the Offer shall constitute your
acceptance of the terms of this Amendment to the Selected Dealer Agreement in
connection with the Offer.
For the duration of the Offer, Colonial has agreed to pay Solicitation
Fees to any qualified broker or dealer [or bank (on a fully disclosed agency
basis)] who solicits the exercise of Subscription Rights (which exercise
includes exercises pursuant to the Over-Subscription Privilege) in connection
with the Offer and who complies with the procedures described below (a
"Soliciting Dealer"). Upon timely delivery to the subscription agent (discussed
below) for the Offer, of payment for Shares purchased pursuant to the exercise
of Subscription Rights and of properly completed and executed documentation as
set forth in this Amendment to the Selected Dealer Agreement, a Soliciting
Dealer will be entitled to receive Solicitation Fees equal to 2.00% of the
Subscription Price per Share so purchased; provided, however, that no payment
shall be due with respect to the issuance of any Shares until payment therefor
is actually received. A qualified broker or dealer is a broker or dealer which
is a member of a registered national securities exchange in the United States or
the National Association of Securities Dealers, Inc. ("NASD") or any foreign
broker or dealer not eligible for membership who agrees to conform to the Rules
of Fair Practice of the NASD, including Sections 2720, 2730, 2740 and 2750
thereof, in making solicitations in the United States to the same extent as if
it were a member thereof.
Colonial has agreed to pay Solicitation Fees to Soliciting Dealers on
the terms set forth in the Dealer Manager Agreement, dated as of June 23, 1997,
among PaineWebber Incorporated, as representative of the several Dealer
Managers, the Trust, Colonial and others (the "Dealer Manager Agreement").
Solicitation and other activities by Soliciting Dealers may be undertaken only
in accordance with the applicable rules and regulations of the Securities and
Exchange Commission and only in those states and other jurisdictions where such
solicitations and other activities may lawfully be undertaken and in accordance
with the laws thereof. Compensation will not be paid for solicitations in any
state or other jurisdiction in which, in the opinion of counsel to Colonial, the
Trust or the Dealer Managers, such compensation may not lawfully be paid.
No Soliciting Dealer or any other person is authorized by the Trust,
Colonial or the Dealer Managers to give any information or make any
representations in connection with the Offer other than those contained in the
Prospectus, the Prospectus Supplement and other authorized solicitation material
furnished by the Trust through Colonial and the Dealer Managers. No Soliciting
Dealer is authorized to act as agent of the Trust, Colonial or the Dealer
Managers in any connection or transaction. In addition, nothing herein contained
shall create a partnership among the Soliciting Dealers and the Dealer Managers
or with one another, or agents of the Dealer Managers, the Trust or Colonial, or
create any association between such parties, or shall render the Dealer
Managers, the Trust or Colonial liable for the obligations of any Soliciting
Dealer. The Dealer Managers shall be under no liability to make any payment to
any Soliciting Dealer, and shall be subject to no other liabilities to any
Soliciting Dealer, and no obligations of any sort shall be implied.
Colonial Investors Service Center, Inc. is the subscription agent for
the exercise of Subscription Rights by Holders of Colonial ETF Shares and
Colonial MF Shares (the "Subscription Agent"). In order for a Soliciting Dealer
to receive Solicitation Fees for the exercise of Subscription Rights by Holders
of Colonial ETF Shares and Colonial MF Shares, the manner and timing of the
exercise of the Subscription Rights must conform with the procedures set forth
in the Prospectus Supplement. In the case of a Notice of Guaranteed Delivery,
Solicitation Fees will only be paid after delivery in accordance with such
Notice of Guaranteed Delivery has been effected. Solicitation Fees will be paid
by Colonial to the Soliciting Dealer to an account or address designated by the
Soliciting Dealer below within five business days following the Initial
Settlement Date or the Secondary Settlement Date, as the case may be.
All questions as to the form, validity and eligibility (including time
of receipt) of any exercise of Subscription Rights will be determined by the
Trust, on behalf of the Fund in its sole discretion, which determination shall
be final and binding. Unless waived, any irregularities in connection with an
exercise of Subscription Rights must be cured within such time as Colonial shall
determine. None of the Trust, Colonial, the Dealer Managers, the Subscription
Agent, the Information Agent for the Offer, Shareholder Communications
Corporation or any other person will be under any duty to give notification of
any defects or irregularities in any exercise of Subscription Rights or incur
any liability for failure to give such notification.
The acceptance of Solicitation Fees from Colonial by a Soliciting
Dealer shall constitute a representation by such Soliciting Dealer to Colonial
that: (i) it has received and reviewed the Prospectus and the Prospectus
Supplement; (ii) in soliciting purchases of Shares pursuant to the exercise of
the Subscription Rights it has complied with the applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the applicable
rules and regulations thereunder, any applicable securities laws of any state or
jurisdiction where such solicitations may lawfully be made, and the applicable
rules and regulations of any self-regulatory organization or registered national
securities exchange; (iii) in soliciting purchases of Shares pursuant to the
exercise of the Subscription Rights and in filling orders for such Shares, it
has complied with the terms of the Offer as set forth in the Prospectus
Supplement; (iv) in soliciting purchases of Shares pursuant to the exercise of
the Subscription Rights it has not published, circulated or used any soliciting
materials other than the Prospectus, the Prospectus Supplement and any other
authorized solicitation material furnished by the Trust through Colonial or the
Dealer Managers; (v) it has not purported to act as agent of the Trust, Colonial
or the Dealer Managers in any connection or transaction relating to the Offer;
(vi) the information contained in this Amendment to the Selected Dealer
Agreement is, to its best knowledge, true and complete; (vii) it is not
affiliated with Colonial; (viii) it will not accept Solicitation Fees paid by
Colonial pursuant to the terms hereof with respect to Shares purchased by the
Soliciting Dealer pursuant to an exercise of Subscription Rights for its own
account; (ix) it will not remit, directly or indirectly, any part of
Solicitation Fees paid by Colonial pursuant to the terms hereof to any
beneficial owner of Shares purchased pursuant to the Offer; (x) it acknowledges
that the respective boards of directors or trustees, as the case may be, of each
Colonial ETF Fund and each Colonial Mutual Fund has authorized and directed that
the Prospectus (including the Prospectus Supplement) be delivered to each
beneficial owner of shares of the Colonial ETF Funds and the Colonial Mutual
Funds, and such Soliciting Dealer has delivered or caused to be delivered the
Prospectus (including the Prospectus Supplement) to each beneficial owner for
which such Soliciting Dealer holds such shares of record or as nominee,
consistent with the applicable provisions of the Exchange Act and the rules of
the New York Stock Exchange; (xi) it has agreed to the amount of the
Solicitation Fees and the terms and conditions set forth herein with respect to
receiving such Solicitation Fees. By accepting Solicitation Fees, a Soliciting
Dealer will be deemed to have agreed to indemnify the Trust, Colonial and the
Dealer Managers against losses, claims, damages and liabilities to which the
Trust, Colonial or the Dealer Managers may become subject as a result of the
breach of such Soliciting Dealer's representations made herein and described
above.
Solicitation Fees due to eligible Soliciting Dealers will be paid
promptly after consummation of the Offer. Upon expiration of the Offer, no
Solicitation Fees will be payable to Soliciting Dealers with respect to Shares
purchased thereafter.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Dealer Manager Agreement or, if not defined therein, in
the Prospectus or the Prospectus Supplement.
This Amendment to the Selected Dealer Agreement will be governed by
the laws of the State of New York without reference to the conflict of law
principles thereof.
Please forward a copy of the confirmation page (Page A-9) of this
Amendment to the Selected Dealer Agreement to Newport Greater China Fund,
Attention: ______________ (tel. number (617)___________;
fax number (617)_____________).
Very truly yours,
Colonial Investment Services, Inc.
By:
Name:
Title:
PLEASE COMPLETE THE INFORMATION BELOW:
ACCEPTED AND CONFIRMED BY SOLICITING DEALER
Contact at Firm:
Printed Firm Name Address
Authorized Signature Area Code and Telephone Number
Name and Title Fax Number
Dated:
APPENDIX A
To the Custody Agreement Dated May 18, 1993
As Amended
As of May 12, 1997
Date Commence
Colonial Trust I Investment Operations
Colonial High Yield Securities Fund Existing Fund
Colonial Income Fund Existing Fund
Colonial Strategic Income Fund Existing Fund
Colonial Tax-Managed Growth Fund January 2, 1997
Colonial Trust II
Colonial Short Duration U.S. Government Existing Fund
Fund (formerly Colonial Adjustable Rate U.S.
Government Fund)
Colonial Intermediate U.S. Government Fund Existing Fund
(formerly Colonial U.S. Government Fund)
Colonial Government Money Market Fund Existing Fund
(formerly Colonial Money Market Fund)
Colonial Newport Tiger Cub Fund June 15, 1996
Colonial Newport Japan Fund June 15, 1996
Newport Greater China Fund May 12, 1997
Colonial Trust III
The Colonial Fund Existing Fund
Colonial Federal Securities Fund Existing Fund
Colonial Global Equity Fund Existing Fund
Colonial Select Value Fund (formerly Existing Fund
Colonial Growth Shares Fund)
Colonial International Horizon Fund Existing Fund
(formerly Colonial Global Natural Resources Fund)
Colonial International Fund for Growth Existing Fund
Colonial Strategic Balanced Fund Existing Fund
Colonial Trust IV
Colonial Utilities Fund Existing Fund
Colonial Trust VI
Colonial U.S. Stock Fund Existing Fund
(formerly Colonial U.S. Fund for Growth)
Colonial Small Cap Value Fund Existing Fund
(formerly Colonial Small Stock Fund)
Colonial Aggressive Growth Fund March 15, 1996
Colonial International Equity Fund March 15, 1996
Colonial Equity Income Fund March 15, 1996
Colonial Intermediate High Income Fund Existing Fund
Colonial Intermarket Income Trust I Existing Fund
Acknowledged and Approved:
COLONIAL TRUST I COLONIAL TRUST VI
By: Michael H. Koonce By: Michael H. Koonce
Title: Assistant Secretary Title: Assistant Secretary
COLONIAL TRUST II COLONIAL INTERMEDIATE HIGH INCOME FUND
By: Michael H. Koonce By: Michael H. Koonce
Title: Assistant Secretary Title: Assistant Secretary
COLONIAL TRUST III COLONIAL INTERMARKET INCOME TRUST I
By: Michael H. Koonce By: Michael H. Koonce
Title: Assistant Secretary Title: Assistant Secretary
COLONIAL TRUST IV BOSTON SAFE DEPOSIT AND TRUST COMPANY
By: Michael H. Koonce By: Christopher Healy
Title: Assistant Secretary Title: Vice President