COLONIAL TRUST II /, 485APOS, 1997-12-31

COLONIAL TRUST II /
485APOS, 1997-12-31

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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. 34 [ X ]

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

Amendment No. 34 [ 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 John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624

It is proposed that this filing will become effective (check appropriate box):

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ X ] 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.

MASTER FUND FEEDER FUND REPRESENTATION

This Registration Statement includes the Prospectus and Statement of
Additional Information for the Colonial Money Market Fund (currently known as
Colonial Government Money Market Fund), which uses a master fund/feeder fund
structure. In accordance with SEC requirements, the master fund has executed
this Registration Statement

<PAGE>

COLONIAL TRUST II

Cross Reference Sheet

Colonial Money Market Fund

(formerly known as Colonial Government Money Market Fund)

Item Number of Form N-1A Prospectus Location or Caption

Part A

1. Cover page

2. Summary of expenses

3. The Fund's Financial History

4. Organization and history;
The Fund's investment objective;
How the Fund pursues
its objective and certain risk factors

5. Cover page; The Fund's investment
objective; How the Fund and the Portfolio
are managed; Organization and history;
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

March 2, 1998

COLONIAL MONEY MARKET FUND

PROSPECTUS

BEFORE YOU INVEST

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

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

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

Colonial Money Market Fund (Fund), a diversified portfolio of Colonial Trust II
(Trust), an open-end management investment company, seeks maximum current
income, consistent with safety of capital and maintenance of liquidity.

Prior to its conversion to a master/feeder structure on March 2, 1998, the Fund
invested directly in individual securities and was managed by the Administrator.
Unlike a traditional mutual fund which invests directly in individual
securities, the Fund currently seeks to achieve its objective by investing all
of its assets in SR & F Cash Reserves Portfolio (Portfolio), a money market
master fund which has the same objective as the Fund. The Portfolio is a series
of the S R & F Base Trust, an open-end diversified management investment company
which was organized as a trust under the laws of The Commonwealth of
Massachusetts on August 23, 1993. Except for certain separate expenses, the
Fund's investment experience will correspond directly to that of the Portfolio.
The Portfolio is managed by Stein Roe & Farnham Incorporated (Adviser),
successor to an investment advisory business that was founded in 1932.

This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the March 2, 1998 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 three classes of shares. Class A shares are offered at net asset
value; Class B shares are offered at net asset value and are subject to an
annual distribution fee and a declining contingent deferred sales charge on
redemptions made within six years after purchase; and Class C shares are offered
at net asset value and are subject to an annual distribution fee and a
contingent deferred sales charge on redemptions made within one year after
purchase. Class B shares automatically convert to Class A shares after
approximately eight years. See "How to Buy Shares."

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

An investment in the Fund is not insured or guaranteed by the U.S. government.
There can be no assurance that the $1.00 net asset value per share will be
maintained.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

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

<PAGE>

SUMMARY OF EXPENSES

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

Shareholder Transaction Expenses(1)(2)

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

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

(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.

(3) Does not apply to reinvested distributions.

(4) Only with respect to purchases of $1 million or more of other Colonial
funds' Class A shares which exchange into Class A shares of the Fund and
then redeem the Fund shares. The CDSC will be assessed using the schedule
of the fund into which the original investment was made.

(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.

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

Class A Class B Class C
Management fee(6) 0.236% 0.236% 0.236%
Administration fee
(after applicable fee reduction)(7) 0.06 0.06 0.06
12b-1 fees
(after applicable fee reduction) 0.00 1.00 0.40(8)
Other expenses 0.42 0.42 0.42
---- ---- ----
Total operating expenses
(after applicable fee reduction)(9) 0.72% 1.72% 1.12%
==== ==== ====

(6) Fee subject to the following breakpoints: 0.25% for the first $500 million
of the Portfolio's average net assets and 0.225% thereafter.

(7) In order to maintain Total operating expenses (exclusive of 12b-1 fees),
at the pre-Conversion rates, the Administrator has voluntarily agreed
to waive 0.19% of the Administration fee. The Administrator may
terminate this fee waiver at any time without shareholder approval.

(8) The Distributor has voluntarily agreed to waive 0.60% of the Class C share
Rule 12b-1 distribution fee so that it will not exceed 0.15% annually.
Absent such fee waiver, the "Rule 12b-1 fees" would have been 1.00%.
The Distributor may terminate this fee waiver at any time without
shareholder approval. See "12b-1 Plan."

(9) Absent the fee waivers discussed above, Total operating expenses would
have been 0.91%, 0.91% and 1.91% for the Class A, Class B and Class C
shares, respectively.

Example

The following Example shows the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in each Class of shares of the
Fund for the periods specified, assuming a 5% annual return and, unless
otherwise noted, redemption at period end. The 5% return and expenses used in
this Example should not be considered indicative of actual or expected Fund
performance or expenses, both of which will vary.

Class A Class B Class C
(10) (11) (10) (11)
1 year $ 7 $ 67 $ 17 $ 21 $ 11
3 years 23 84 54 36(13) 36
5 years 40 113 93 62 62
10 years 89 176(12) 176(12) 136 136

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

<PAGE>

THE FUND'S FINANCIAL HISTORY(b)

The following financial highlights for a share outstanding throughout each
period have been audited by Price Waterhouse LLP, independent accountants. Their
unqualified report is included in the Fund's 1997 Annual Report and is
incorporated by reference into the Statement of Additional Information. The Fund
adopted its current investment objective and investment policies effective
October 17, 1994. The data presented below prior to October 17, 1994 represents
operations under earlier investment objectives and investment policies.

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

Year ended Period ended
August 31 August 31
--------------------------------------------------------------- ------------
1997 1996 1995 1994 1993 1992(c)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
======= ======= ======= ======= ======= =======
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.048 0.048 0.050 0.028 0.023 0.022
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.048) (0.048) (0.050) (0.028) (0.023) (0.022)
------- ------- ------- ------- ------- -------
In excess of net investment income (0.000) --- --- --- --- ---
------- ------- ------- ------- ------- -------
Total Distributions Declared to
Shareholders (0.048) --- --- --- --- ---
------- ------- ------- ------- ------- -------
Net asset value - End of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
======= ======= ======= ======= ======= =======
Total return(d) 4.90% 4.93% 5.14%(e) 2.85%(e) 2.28%(e) 2.18%(e)(f)
===== ===== ===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 0.72%(g) 0.70%(g) 0.69% 0.73% 0.88% 1.00%(h)
Fees and expenses waived or
borne by the Adviser --- --- 0.04% 0.20% 0.20% 0.38%(h)
Net investment income 4.73%(g) 4.76%(g) 4.96% 3.01% 2.26% 3.23%(h)
Net assets at end of period (000) $144,076 $115,063 $83,086 $97,115 $44,693 $47,885
- --------------------------
(a) Net of fees and expenses waived
or borne by the Administrator
which amounted to: $--- $--- $0.000 $0.002 $0.002 $0.003
<CAPTION>
CLASS A
----------------------------------------------------

Year ended December 31
----------------------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $1.000 $1.000 $1.000 $1.000
======= ======= ======= ======
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.053 0.074 0.082 0.065
------ ------ ------ -----
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.053) (0.074) (0.082) (0.065)
------- ------- ------- -------
Net asset value - End of period $1.000 $1.000 $1.000 $1.000
======= ======= ======= =======
Total return(d) 5.38%(e) 7.64%(e) 8.50% 6.66%
===== ===== ===== =====
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.77% 0.74% 0.67%
Fees and expenses waived or
borne by the Adviser 0.20% 0.13% --- ---
Net investment income 5.32% 7.38% 8.20% 6.49%
Net assets at end of period (000) $56,198 $79,771 $75,301 $95,262
- --------------------------
(a) Net of fees and expenses waived
or borne by the Administrator which
amounted to: $0.002 $0.001 $--- $---
</TABLE>
(b) Prior to March 2, 1998, the Fund was managed by the Administrator and
invested directly in individual securities.
(c) The Fund changed its fiscal year end from December 31 to August 31 in 1992.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Had the Administrator not waived or reimbursed a portion of expenses, total
return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(h) Annualized.

<PAGE>

THE FUND'S FINANCIAL HISTORY (CONT'D)(b)

<TABLE>
<CAPTION>
CLASS B CLASS C(c)
--------------------------------------------------------------------------------------------
Period ended Year ended
Year ended August 31 August 31 August 31
--------------------------------------------- ----------- ----------------------------
1997 1996 1995 1994 1993 1992(d)(e) 1997 1996 1995
---- ---- ---- ---- ---- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ======
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.038 0.038 0.040 0.018 0.013 0.004 0.039 0.038 0.040
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.038) (0.038) (0.040) (0.018) (0.013) (0.004) (0.039) (0.038) (0.040)
In excess of net investment income (0.000) --- --- --- --- --- (0.000) --- ---
------ ------ ------- ------- ------ ------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.038) --- --- --- --- --- (0.039) --- ---
------ ------ ------- ------- ------ ------ ------ ------ ------
Net asset value - End of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(g) 3.82% 3.86% 4.08%(i) 1.82%(i) 1.27%(i) 0.43%(i)(j) 3.97% 3.85% 4.07%(i)
====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.72%(h) 1.70%(h) 1.69% 1.73% 1.88% 2.00%(k) 1.64%(h) 1.70%(h) 1.69%
Fees and expenses waived or borne --- --- 0.04% 0.20% 0.20% 0.38%(k) --- --- 0.04%
Net investment income 3.73%(h) 3.76%(h) 3.96% 2.01% 1.26% 2.23%(k) 3.81%(h) 3.76%(h) 3.96%
Net assets at end of period (000) $70,242 $76,539 $55,441 $54,535 $10,890 $14,096 $2,904 $4,435 $625
- ---------------------------------
(a) Net of fees and expenses waived or borne by
the Administrator which amounted to:$--- $--- $0.000 $0.002 $0.002 $0.001 $--- $--- $0.000
<CAPTION>
CLASS C(c)
------------
Period ended
August 31
------------
1994(f)
------
<S> <C>
Net asset value - Beginning of period $1.000
======
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.005
------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.005)
------
Net asset value - End of period $1.000
======
Total return(g) 0.45%(i)(j)
======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.73%(k)
Fees and expenses waived or borne 0.20%(k)
Net investment income 2.01%(k)
Net assets at end of period (000) $518
- ---------------------------------
(a) Net of fees and expenses waived or borne by
the Administrator which amounted to: $0.002
</TABLE>
(b) Prior to March 2, 1998, the Fund was managed by the Administrator and
invested directly in individual securities.
(c) Effective July 1, 1997, Class D shares were converted to Class C shares.
(d) The Fund changed its fiscal year end from December 31 to August 31 in 1992.
(e) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(f) Class C shares were initially offered on July 1, 1994. Per share amounts
reflect activity from that date.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(i) Had the Administrator not waived or reimbursed a portion of expenses, total
return would have been reduced.
(j) Not annualized.
(k) Annualized.

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

<PAGE>

TWO-TIERED STRUCTURE

Unlike other mutual funds which invest directly in individual securities, the
Fund is an open-end management investment company that seeks to achieve its
investment objective by investing all of its assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund and
which invests directly in portfolio securities. See "The Fund's Investment
Objective," "How the Fund Pursues its Objective and Certain Risk Factors" and
"How the Fund and the Portfolio are Managed" for information concerning the
Portfolio's and the Fund's investment objectives, policies, management and
expenses.

The Fund's and the Portfolio's investment objectives and non-fundamental
investment policies may be changed without shareholder approval. Fund
The Fund will notify investors in connection with any material change in the
Fund's or the Portfolio's investment objective. Class B and Class C
shareholders may incur a contingent deferred sales charge if they
redeem shares in response to a change in objective.

Matters submitted by the Portfolio to its investors for a vote will be passed
along by the Fund to its shareholders, and the Fund will vote its entire
interest in the Portfolio in proportion to the votes actually received from Fund
shareholders. As of the date of this Prospectus, the Stein Roe Cash Reserves
Fund (Stein Roe Fund) is also an investor in the Portfolio. In the future, other
funds or institutional investors, including the Fund may also invest in the
Portfolio. The Stein Roe Fund currently has, and in the future other investors
may have, sufficient voting interests in the Portfolio to control matters
relating to the operation of the Portfolio. You may obtain additional
information about other investors in the Portfolio by writing or calling the
Administrator at 1-800-426-3750.

The Stein Roe Fund has invested, and other feeder funds or institutions may
invest, in the Portfolio on substantially the same terms and conditions as the
Fund. Each investor in the Portfolio will bear its proportionate share of the
Portfolio's expenses. However, other mutual fund investors in the Portfolio will
not be required to issue their shares at the same public offering price as the
Fund and may have direct expenses that are higher or lower than those of the
Fund. These differences may result in such other funds' generating investment
returns higher or lower than those of the Fund. Large scale redemptions by such
other investors in the Portfolio could result in untimely liquidation of the
Portfolio's security holdings, loss of investment flexibility and an increase in
the operating expenses of the Portfolio as a percentage of its assets.

The Fund will continue to invest in the Portfolio as long as the Trust's Board
of Trustees determines it is in the best interest of Fund shareholders to do so.
In the event that the Portfolio's investment objective or policies were changed
so as to be inconsistent with the Fund's investment objective or policies, the
Board of Trustees of the Trust would consider what action might be taken,
including changes to the Fund's investment objective or policies, withdrawal of
the Fund's assets from the Portfolio and investment of such assets in another
pooled investment entity or the retention of an investment adviser to manage the
Fund's investments. Certain of these actions would require Fund shareholder
approval. Withdrawal of the Fund's assets from the Portfolio could result in a
distribution by the Portfolio to the Fund of portfolio securities in kind (as
opposed to a cash distribution), and the Fund could incur brokerage fees or
other transaction costs and could realize distributable taxable gains in
converting such securities to cash. Such a distribution in kind could also
result in a less diversified portfolio of investments for the Fund.

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks maximum current income, consistent with safety of capital and
maintenance of liquidity.

HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS

As indicated above, the Fund seeks to achieve its investment objective by
investing all its assets in the Portfolio, which has the same investment
objective and policies as the Fund. In pursuing its investment objective, the
Portfolio seeks to obtain maximum current income consistent with the
preservation of capital and the maintenance of liquidity by investing all of its
assets in U.S. dollar-denominated money market instruments maturing in thirteen
months or less from time of investment. Each security must be rated (or be
issued by an issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two nationally
recognized statistical rating organizations ("NRSRO") (or if rated by only one
NRSRO, by that rating agency), or, if unrated, determined by or under the
direction of the Board of Trustees to be of comparable quality. For a
description of certain NRSRO commercial paper, note, and bond ratings, see the
Appendix to the Statement of Additional Information. These securities may
include:

(1) Securities issued or guaranteed by the U.S. Government or by its agencies
or instrumentalities ("U.S. Government Securities");

(2) Securities issued or guaranteed by the government of any foreign country
that are rated at time of purchase A or better (or equivalent rating) by at
least one NRSRO;

(3) Certificates of deposit, bankers' acceptances and time deposits of any bank
(U.S. or foreign) having total assets in excess of $1 billion, or the
equivalent in other currencies (as of the date of the most recent available
financial statements) or of any branches, agencies or subsidiaries (U.S. or
foreign) of any such bank;

(4) Commercial paper of U.S. or foreign issuers;

(5) Notes, bonds, and debentures rated at time of purchase A or better (or
equivalent rating) by at least one NRSRO;

(6) Repurchase agreements involving securities listed in (1) above. A
repurchase agreement involves a sale of securities to the Portfolio in
which the seller (a bank or securities dealer that the Adviser believes to
be financially sound) agrees to repurchase the securities at a higher
price, which includes an amount representing interest on the purchase
price, within a specified time; and

(7) Other high-quality short-term obligations.

In accordance with its investment objectives and policies, the Portfolio may
invest in variable and floating rate money market instruments which provide for
periodic or automatic adjustment in coupon interest rates that are reset based
on changes in amount and directions of specified short-term interest rates.

Under normal market conditions, the Portfolio will invest at least 25% of its
total assets in securities of issuers in the financial services industry (which
includes, but is not limited to, banks, personal credit and business credit
institutions, and other financial services institutions).

The Portfolio maintains a dollar-weighted average portfolio maturity appropriate
to its objective of maintaining a stable net asset value per share, and not in
excess of 90 days. It is a fundamental policy that the maturity of any
instrument that grants the holder an optional right to redeem at par plus
interest and without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption right. A
fundamental policy may be changed only with the approval of a "majority of the
outstanding voting securities" as defined in the Investment Company Act of 1940.

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

HOW THE FUND MEASURES ITS PERFORMANCE

Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, 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 contingent deferred sales charge.

Each Class's yield is calculated in accordance with the Securities and Exchange
Commission's formula for money market funds. Each Class's performance may be
compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information for more information.

Unlike bank deposits or other investments which pay a fixed yield for a stated
period of time, each Class's yield changes in response to fluctuations in
interest rates and Fund expenses. Therefore, past Fund performance does not
predict future performance. Yields on other investments may be calculated
differently. When comparing investments, investors should consider the quality
and maturity of the portfolio securities involved.

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

HOW THE FUND AND THE PORTFOLIO ARE MANAGED

The Trust's Trustees formulate the Fund's general policies and oversee the
Fund's affairs. The Fund has not retained the services of an investment adviser
because the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio is managed by the Adviser.
Subject to the supervision of the Portfolio's Trustees, the Adviser makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments. The
Adviser is an indirect subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), which in turn is an indirect subsidiary of Liberty Mutual Insurance
Company (Liberty Mutual). Liberty Mutual is an underwriter of workers'
compensation insurance and a property and casualty insurer in the U.S. See
"Management of the Colonial Funds" and "Management of the Base Trust" in the
Statement of Additional Information for information concerning the Trustees and
officers of the Trust and the Portfolio.

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

For its management services, the Adviser receives from the Portfolio a monthly
fee at an annual rate of 0.25% of the Portfolio's average daily net assets up to
$500 million and 0.225% thereafter. The Adviser also provides pricing and
bookkeeping services to the Portfolio for a fee of $25,000 plus 0.0025% annually
of the Portfolio's average daily net assets over $50 million. SteinRoe
Services Inc., a wholly-owned indirect subsidiary of Liberty Mutual, serves as
the transfer agent to the Portfolio for a monthly fee of $500.

The Administrator provides the Fund with certain administrative services and
generally oversees the operation of the Fund. The Fund pays the Administrator a
monthly fee at the annual rate of 0.25% of the Fund's average daily net assets
for these services. The Administrator has voluntarily agreed to waive 0.19% of
the administration fee until further notice. The Administrator also provides
pricing and bookkeeping services to the Fund for a monthly fee at the annual
rate of $18,000 plus 0.0233% annually of the Fund's average daily net assets
over $50 million. Liberty Financial Investments, Inc. (Distributor) serves as
the Fund's distributor. Colonial Investors Service Center, Inc. (Transfer
Agent) serves as the Fund's shareholder services and transfer agent for a fee
of 0.20% annually of the Fund's average daily net assets plus certain
out-of-pocket expenses. The Administrator, the Distributor and the
Transfer Agent are all indirect subsidiaries of Liberty Financial.

Each of the foregoing fees is subject to any fee waiver or expense reimbursement
to which the Adviser or the Administrator may agree. See "Summary of Expenses"
above.

HOW THE FUND VALUES ITS SHARES

Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund and
the Portfolio are valued as of the close of the New York Stock Exchange
(Exchange) (normally 4:00 p.m. Eastern time, 3:00 p.m. Central time) each day
the Exchange is open. The net asset value of the Portfolio will not be
determined on days when the Exchange is closed, unless, in the judgment of the
Portfolio's Board of Trustees, the net asset value of the Portfolio should be
determined on any such day, in which case the determination will be made at 3:00
p.m. Central time. Portfolio securities are valued using the "amortized cost"
method (which does not consider the effect of fluctuating interest rates on the
value of assets) when the Adviser determines pursuant to procedures adopted by
the Portfolio's Trustees that such cost approximates current market value. The
Portfolio allocates net asset value, income and expenses to the Fund based on
its percentage of ownership. The Fund and the Portfolio intend to maintain a per
share net asset value of $1.00, but this cannot be assured.

DISTRIBUTIONS AND TAXES

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

The Fund generally declares distributions daily and pays them monthly.
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. If an investment
is made by federal funds wire dividends start accruing on the next business day.
Regardless of the shareholder's election, distributions of $10 or less will not
be paid in cash to shareholders but will be invested in additional shares of the
same Class of the Fund at net asset value. If a shareholder has elected to
receive dividends and/or capital gain distributions in cash and the postal or
other delivery service selected by the Transfer Agent is unable to deliver
checks to the shareholder's address of record, such shareholder's distribution
option will automatically be converted to having all dividend and other
distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks. To change
your election, call the Transfer Agent for information.

Whether you receive distributions in cash or in additional Fund shares, you must
report them as taxable income unless you are a tax-exempt institution. Each
January, information on the amount and nature of distributions for the prior
year is sent to shareholders.

HOW TO BUY SHARES

Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with a financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value.

The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for shares of the Fund. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information. 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.

Class A Shares. Class A shares are offered at net asset value. The Distributor
pays no commission on sales of Class A shares.

Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, and are subject to a 0.75% annual distribution fee and a
declining contingent deferred sales charge if redeemed within six years after
purchase. Class B shares automatically convert to Class A shares after
approximately eight years which do not bear distribution or service fees or a
declining contingent deferred sales charge. The Distributor pays financial
service firms a commission of 4.00% on Class B share purchases.

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

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

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

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

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

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

HOW TO SELL SHARES

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

Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent. 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 net asset value (less any applicable contingent deferred
sales charge), are responsible for furnishing all necessary documentation to the
Transfer Agent and may charge for this service.

Contingent Deferred Sales Charges. As stated above, Class B and Class C shares
may be subject to a contingent deferred sales charge. As shown below, the
contingent deferred sales charge applicable to Class B shares depends on the
number of years after purchase that the redemption occurs:

Years Contingent
After Deferred
Purchase Sales Charge

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

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

Sales of Class C shares made within one year from the first day of the month
following the purchase will be subject to a 1.00% contingent deferred sales
charge.

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. All contingent deferred
sales charges are deducted from the amount redeemed, not the amount remaining in
the account, and are paid to the Distributor. Shares issued upon distribution
reinvestment and amounts representing appreciation are not subject to a
contingent deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below its Base
Amount (the total dollar value of purchase payments in the account, reduced by
prior redemptions on which a contingent deferred sales charge was paid and any
exempt redemptions). See the Statement of Additional Information for more
information. Under unusual circumstances, the Fund may suspend repurchases or
postpone payment for up to seven days or longer, as permitted by federal
securities law. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.

HOW TO EXCHANGE SHARES

Except as described below with respect to money market funds, Fund shares may
be exchanged at net asset value for shares of other mutual funds distributed by
the Distributor, including funds advised by the Administrator and its
affiliates, Stein Roe & Farnham Incorporated and Newport Fund Management, Inc.
Generally, such exchanges must be between the same classes of shares. Consult
your financial service firm or Transfer Agent for information regarding what
funds are available. Shares will continue to age without regard to the exchange
for purposes of conversion and determining the contingent deferred sales charge,
if any, upon redemption. Carefully read the prospectus of the fund into which
the exchange will go before submitting the request. Call 1-800-426-3750 to
receive a prospectus and an exchange authorization form. Call 1-800-422-3737 to
exchange shares by telephone. An exchange is a taxable capital transaction. The
exchange service may be changed, suspended or eliminated on 60 days' written
notice. The Fund will terminate the exchange privilege as to a particular
shareholder if the Administrator determines, in its sole and absolute
discretion, that the shareholder's exchange activity is likely to adversely
impact the Adviser's ability to manage a Fund's investments in accordance with
its investment objective or otherwise harm a 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 any
sales charge), except for amounts on which an initial sales charge was paid.
Non-money market fund shares must be held for five months before qualifying for
exchange to a fund with a higher sales charge, after which exchanges are made at
the net asset value next determined.

Purchasers of $1,000,000 or more of other Colonial funds' Class A shares who
exchange for Class A shares of the Fund and redeem the Fund shares will be
assessed a contingent deferred sales charge using the schedule of the Fund into
which the original investment was made.

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

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

TELEPHONE TRANSACTIONS

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

12B-1 PLAN

Under a 12b-1 Plan, the Fund pays the Distributor monthly a service fee at the
annual rate of 0.25% of the net assets attributed to the Fund's Class B and
Class C shares. The 12b-1 Plan also requires the Fund to pay the Distributor
monthly a distribution fee at an annual rate of 0.75% of the average daily net
assets attributed to its Class B and Class C shares. The Distributor has
voluntarily agreed to waive a portion of the Class C share distribution fee so
that it does not exceed 0.15% annually. The Distributor may terminate the waiver
at any time without shareholder approval. Because the Class B and Class C shares
bear the additional fees, their dividends will be lower than the dividends of
Class A shares. Class B shares automatically convert to Class A shares,
approximately eight years after the Class B shares were purchased. Class C
shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray distribution expenses, including the cost of commissions paid to
financial service firms which have sold Fund shares and expenses associated with
providing certain shareholder services. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plan also
authorizes other payments to the Distributor and its affiliates (including the
Administrator and the Adviser) which may be construed to be indirect financing
of sales of Fund shares.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized in 1980. The Fund
represents the entire interest in a separate portfolio of the Trust.

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

APPENDIX

DESCRIPTION OF BOND RATINGS

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

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

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, this category faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

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

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

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

C rating typically is applied to debt subordinated to senior debt which is
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 comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.

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

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

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

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

Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note).

Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).

Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations, 1, 2, and 3 to indicate the relative degree of safety.

A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.

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

MOODY'S

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:

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

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

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

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

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

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

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

<PAGE>

Investment Adviser
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606

Administrator

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

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

Custodian of the Fund

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

Custodian of the Portfolio
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

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

Independent Accountants of the Fund

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

Independent Auditors of the Portfolio
Ernst & Young LLP
233 South Wacker Drive
Chicago, IL 60606

Legal Counsel of the Fund

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

Your financial service firm is:

Printed in U.S.A.

March 2, 1998

COLONIAL MONEY MARKET FUND

PROSPECTUS

For more detailed information about the Fund, call 1-800-426-3750 for the March
2, 1998 Statement of Additional Information.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

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

Colonial Mutual Funds
Please send your completed application to:

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

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

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

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

___ Please check here if this is a revision.

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

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

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

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

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

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

______________________________________
Name of account owner

______________________________________
Name of joint account owner

______________________________________
Street address

______________________________________
City, State, and Zip

______________________________________
Daytime phone number

______________________________________
Social Security # or Taxpayer I.D. #

Are you a U.S. citizen? ___Yes ___No

______________________________________
If no, country of permanent residence

______________________________________
Account Owner's date of birth

______________________________________
Account number (if existing account)

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

Fund Fund Fund

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

$_______________ $__________________ $____________________
Amount Amount Amount

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

Method of Payment Choose one

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

Ways to receive your distributions

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

___Reinvest dividends and capital gains

___Dividends and capital gains in cash

___Dividends in cash; reinvest capital gains

___Automatic Dividend Diversification See section 5A, inside

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

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

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

I certify, under penalties of perjury, that:

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

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

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

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

X______________________________________________
Signature

_______________________________________________
Capacity, if applicable Date

X______________________________________________
Signature

_______________________________________________
Capacity, if applicable Date

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

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

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

Funds for withdrawal:

___________________
Name of fund

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

Frequency (choose one)
__Monthly __Quarterly __Semiannually

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

___________________
Name of fund

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

Frequency (choose one)
__Monthly __Quarterly __Semiannually

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

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

______________________________________________
Name of payee

______________________________________________
Address of payee

______________________________________________
City

______________________________________________
State Zip

______________________________________________
Payee's bank account number, if applicable

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

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

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

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

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

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

____________________________________________________________
Bank name City Bank account number

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

X__________________________________
Signature of account owner(s)

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

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

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

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

____________________________
From fund

____________________________
Account number (if existing)

____________________________
To fund

____________________________
Account number (if existing)

____________________________
From fund

____________________________
Account number (if existing)

____________________________
To fund

____________________________
Account number (if existing)

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

____________________________________
Fund from which shares will be sold

$_________________________
Amount to redeem monthly

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

____________________________________
Fund to invest shares in

$_________________________
Amount to invest monthly

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

____________________________________
Fund name

_________________________________
Account number

$_____________________ _________________
Amount to transfer Month to start

___________________________________
Fund name

________________________________
Account number

$_____________________ _________________
Amount to transfer Month to start

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

Check one:

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

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

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

______________________________________
Bank name

______________________________________
Bank street address

______________________________________
City State Zip

______________________________________
Bank account number

______________________________________
Bank routing #

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

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

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

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

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

_____________________________________
Name on account

_____________________________________
Account number

_____________________________________
Name on account

_____________________________________
Account number

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

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

7-------------Financial service firm---------------------
To be completed by a Representative of your financial service firm.

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

_____________________________________
Representative's name

_____________________________________
Representative's number

_____________________________________
Representative's phone number

_____________________________________
Account # for client at financial
service firm

_____________________________________
Branch office address

_____________________________________
City

_____________________________________
State Zip

_____________________________________
Branch office number

_____________________________________
Name of financial service firm

_____________________________________
Main office address

_____________________________________
City

_____________________________________
State Zip

X____________________________________
Authorized signature

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

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

________________________________________________________________________

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

This program's deposit privilege can be revoked by CISC without prior
notice if any check is not paid upon presentation. CISC has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by 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. (CISC) to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of CISC, CISC, hereby
indemnifies and holds you harmless from any loss (including reasonable
expenses) you may suffer from honoring such draw, except any losses due to your
payment of any draw against insufficient funds.

Liberty Financial Investments, Inc., Distributor SH-185E-0997
[Colonial Flag Logo]
Colonial
Mutual Funds

Checkwriting Signature Card
(Class A Shares Only)

Signature Card for the Bank of Boston ("Bank").

- -----------------------------------------------
Name of Fund

- -----------------------------------------------
Fund account number

Indicate the number of signatures required

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

Account Name:

You must sign below exactly as your account is registered.

X
- -----------------------------------------------
Signature

By signing this card, you are subject to the conditions printed on the reverse
side. If adding this privilege to an existing account, your signatures must be
guaranteed.

Checkwriting Privilege

By electing the checkwriting privilege and signing the signature card, I
acknowledge that I am subject to the rules and regulations of the Bank of
Boston ("Bank") as currently existing and as they may be amended from time
to time. I designate the Bank as my representative to present checks drawn
on my Fund account to the Fund or its Agent and deposit the proceeds in this
checking account. I understand that the shares for which share certificates
have been issued or requested cannot be redeemed in this manner.

If the account is registered in joint tenancy, all persons must sign this card,
and each person guarantees the genuineness of all other parties' signatures. I
understand that if only one person signs a check, that all other tenants have
authorized that signature.

Minimum and Maximum
I understand that checks may not be in amounts less than $500 nor more than
$100,000, and that the Fund reserves the right to change these limits in its
sole discretion. I agree that neither the Fund nor its Agent is responsible
for any loss, expense, or cost arising from these redemptions. Also, if I have
recently made additional investments, I understand that redemption proceeds
will not be available until the check used to purchase the investment
(including a certified or cashier's check) has been cleared by the bank on
which it is drawn, which could take up to 15 days or more.

D-999D-0797

<PAGE>

COLONIAL TRUST II

Cross Reference Sheet

Colonial Money Market Fund

(formerly known as Colonial Government Money Market 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; 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

COLONIAL MONEY MARKET FUND
Statement of Additional Information

March 2, 1998

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Colonial
Money Market Fund (Fund). This SAI is not a prospectus and is authorized for
distribution only when accompanied or preceded by the Prospectus of the Fund
dated March 2, 1998. This SAI should be read together with the Prospectus and
the Fund's most recent Annual Report dated August 31, 1997. Investors may obtain
a free copy of the Prospectus and Annual Report from Liberty Financial
Investments, Inc., One Financial Center, Boston, MA 02111-2621.

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

TABLE OF CONTENTS

Part 1 Page

Definitions

Investment Objective and Policies
Fundamental Investment Policies
Other Investment Policies
Fund Charges and Expenses
Investment Performance
Custodian of the Fund
Independent Accountants of the Fund
Management of the Base Trust
Information Concerning the Portfolio

Part 2

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

MM-XX/XXX-0198

<PAGE>

Part 1
COLONIAL MONEY MARKET FUND

Statement of Additional Information
March 2, 1998

DEFINITIONS
"Trust" Colonial Trust II

"Fund" Colonial Money Market Fund

"Administrator" Colonial Management Associates, Inc., the Fund's
administrator and the investment manager to each of the
Colonial funds except for the Fund, Newport Greater China
Fund, Newport Japan Opportunities Fund and Colonial Newport
Tiger Cub Fund, each a series of Colonial Trust II,
Colonial Global Utilities Fund, a series of Colonial Trust
III, Colonial Municipal Money Market Fund, a series of
Colonial Trust IV, and Colonial Newport Tiger Fund, a
series of Colonial Trust VII
"Adviser" Colonial Management Associates, Inc., the Fund's
investment adviser
"LFII" Liberty Financial Investments, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
"Base Trust" SR&F Base Trust, a Massachusetts trust
"Portfolio" SR&F Cash Reserves Portfolio, a series of the Base Trust

INVESTMENT OBJECTIVE AND POLICIES

As described in the Fund's Prospectus, the Fund currently seeks to achieve its
investment objective by investing all its assets in the Portfolio. Part 1 of
this SAI includes additional information concerning, among other things, a
description of the Fund's and the Portfolio's fundamental investment policies.
Except where otherwise indicated, references to the Fund in connection with
descriptions of investment policies and practices shall include the Portfolio.
Part 2 contains additional information about the following securities and
investment techniques that are described or referred to in the Prospectus and
that may be utilized by the Portfolio:

Money Market Instruments
Forward Commitments
Stand-by Commitments
Short-Term Trading
Repurchase Agreements

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

FUNDAMENTAL INVESTMENT POLICIES

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

As a fundamental policy, neither the Fund nor the Portfolio may:

1. Invest in a security if, as a result of such investment, more than 25% of its
total assets (taken at market value at the time of each investment) would be
invested in the securities of issuers in any particular industry, except that
this restriction does not apply to (i) U.S. government securities, (ii)
repurchase agreements, or (iii) securities of issuers in the financial services
industry, and except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the same investment
objective and substantially similar investment policies as the Fund;

2. Invest in a security if, with respect to 75% of its assets, as a result of
such investment, more than 5% of its total assets (taken at market value at the
time of such investment) would be invested in the securities of any one issuer,
except that this restriction does not apply to U.S. government securities or
repurchase agreements for such securities and except that all or substantially
all of the assets of the Fund may be invested in another registered investment
company having the same investment objective and substantially similar
investment policies as the Fund;*

3. Invest in a security if, as a result of such investment, it would hold more
than 10% (taken at the time of such investment) of the outstanding voting
securities of any one issuer, except that all or substantially all of the assets
of the Fund may be invested in another registered investment company having the
same investment objective and substantially similar investment policies as the
Fund;

4. Purchase or sell real estate (although it may purchase securities secured by
real estate or interests therein, or securities issued by companies which invest
in real estate, or interests therein);

5. Purchase or sell commodities or commodities contracts or oil, gas or mineral
programs;

6. Purchase securities on margin, except for use of short-term credit necessary
for clearance of purchases and sales of portfolio securities;

7. Make loans, although it may (a) participate in an interfund lending program
with other Stein Roe Funds and Portfolios provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3% of the value
of its total assets (taken at market value at the time of such loans); (b)
purchase money market instruments and enter into repurchase agreements; and (c)
acquire publicly distributed or privately placed debt securities;

8. Borrow except that it may (a) borrow for non-leveraging, temporary or
emergency purposes, (b) engage in reverse repurchase agreements and make other
borrowings, provided that the combination of (a) and (b) shall not exceed 33
1/3% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law;

9. Act as an underwriter of securities, except insofar as it may be deemed to be
an "underwriter" for purposes of the Securities Act of 1933 on disposition of
securities acquired subject to legal or contractual restrictions on resale,
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and substantially similar investment policies as the Fund; or

10. Issue any senior securities except to the extent permitted under the
Investment Company Act of 1940.

* Notwithstanding the foregoing, and in accordance with Rule 2a-7 of the
Investment Company Act of 1940 (the "Rule"), the Portfolio will not, immediately
after the acquisition of any security (other than a Government Security or
certain other securities as permitted under the Rule), invest more than 5% of
its total assets in the securities of any one issuer; provided, however, that it
may invest up to 25% of its total assets in First Tier Securities (as that term
is defined in the Rule) of a single issuer for a period of up to three business
days after the purchase thereof.

As a matter of operating policy and not a fundamental policy, the Fund will not
purchase a security if, as a result, more than 5% of its total assets would then
be invested in securities of a single issuer other than the U.S. government or
its agencies, without regard to the 75% of total assets criterion referred to in
policy 7 above.

<PAGE>

OTHER INVESTMENT POLICIES

None of the following restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company having the same
investment objective and substantially similar investment policies as the Fund.
As non-fundamental investment policies which may be changed without a
shareholder vote, neither the Fund nor the Portfolio may:

1. Invest for the purpose of exercising control or management;

2. Purchase more than 3% of the stock of another investment company or purchase
stock of other investment companies equal to more than 5% of its total assets
(valued at time of purchase) in the case of any one other investment company and
10% of such assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to be made in the
open market where no profit to a sponsor or dealer results from the purchase,
other than the customary broker's commission, except for securities acquired as
part of a merger, consolidation or acquisition of assets;1

3. Purchase portfolio securities from, or sell portfolio securities to, any of
the officers and directors or trustees of the Trust or its investment adviser;

4. Purchase shares of other open-end investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization;

5. Invest more than 5% of its net assets (valued at time of investment) in
warrants, nor more than 2% of its net assets in warrants which are not listed on
the New York or American Stock Exchange;

6. Sell securities short unless (i) it owns or has the right to obtain
securities equivalent in kind and amount to those sold short at no added cost or
(ii) the securities sold are "when issued" or "when distributed" securities
which it expects to receive in a recapitalization, reorganization, or other
exchange for securities it contemporaneously owns or has the right to obtain;
and

7. Invest more than 10% of its net assets (taken at market value at the time of
a particular investment) in illiquid securities,2 including repurchase
agreements maturing in more than seven days.

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

FUND CHARGES AND EXPENSES

Aggregate Fund expenses include the Fund's proportionate share of the expenses
of the Portfolio, which are borne indirectly by the Fund, and the Fund's direct
expenses. The Portfolio's expenses include (i) a management fee paid to the
Adviser at the annual rate of 0.25% of the Portfolio's average daily net assets
up to $500 million and 0.225% thereafter, (ii) a pricing and bookkeeping fee of
$25,000 plus 0.0025% annually of the Portfolio's average daily net assets
over $50 million, (iii) a monthly transfer agent fee of $500, and (iv)
custody, legal and audit fees and other miscellaneous expenses. The Fund's
direct expenses include (i) an administrative fee paid to the Administrator at
the annual rate of 0.25% of the Fund's average daily net assets (the
Administrator has voluntarily agreed to waive 0.19% of the administration
fee until further notice), (ii) a transfer agency and shareholder services fee
paid to CISC at the annual rate of 0.20% of the Fund's average daily net assets
plus CISC's out-of-pocket expenses, (iii) the Rule 12b-1 fees paid to LFII
described below, (iv) a pricing and bookkeeping fee paid to the Administrator
in the amount of $18,000 per year plus 0.0233% of the Fund's average daily net
assets in excess of $50 million, and (v) custody, legal and audit fees and
other miscellaneous expenses.

<PAGE>

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

Year ended August 31
------------------------------------
1997 1996 1995
---- ---- ----

Administration fee(a) N/A N/A N/A
Management fee $564 $461 $467
Bookkeeping fee 75 63 58
Shareholder service and transfer agent fee 475 375 336

12b-1 fees:

Distribution fee (Class B) 517 484 396
Distribution fee (Class C)(b) 24 17 4
Service Fee (Class B) 174 160 132
Service Fee (Class C)(b) 9 6 1

Amount of the above fees waived
by the Adviser 0 0 (55)

(a) Prior to March 2, 1998, the Administrator was the Adviser of the Fund.
(b) Effective July 1, 1997, Class D shares converted to Class C shares.

Brokerage Commissions
The Fund did not pay any brokerage commissions during the fiscal years ended
August 31, 1997, 1996, and 1995.

Trustees Fees

For the fiscal year ended August 31, 1997 and the calendar year ended December
31, 1996, the Trustees received the following compensation for serving as
Trustees(c):

Total Compensation
From Trust and Fund Complex
Aggregate Compensation Paid To The Trustees For
From Fund For The Fiscal The Calendar Year Ended

Trustee Year Ended August 31, 1997 December 31, 1996(d)
- ------- -------------------------- --------------------

Robert J. Birnbaum $ 1,331 $ 92,000
Tom Bleasdale 1,517(e) 104,500(f)
Lora S. Collins 1,328 92,000
James E. Grinnell 1,340(g) 93,000
William D. Ireland, Jr. 1,445 109,000
Richard W. Lowry 1,340 95,000
William E. Mayer 1,264 91,000
James L. Moody, Jr. 1,397(h) 106,500(i)
John J. Neuhauser 1,347 94,500
George L. Shinn 1,475 105,500
Robert L. Sullivan 1,421 102,000
Sinclair Weeks, Jr. 1,445 110,000

(c) The Fund does not currently provide pension or retirement plan
benefits to the Trustees.
(d) At December 31, 1996, the Colonial Funds complex consisted of 38
open-end and 5 closed-end management investment company portfolios.
(e) Includes $885 payable in later years as deferred compensation.
(f) Includes $51,500 payable in later years as deferred compensation.
(g) Includes $112 payable in later years as deferred compensation.
(h) Total compensation of $1,397 for the fiscal year ended August 31, 1997
will be payable in later years as deferred compensation.
(i) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.

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

Total Compensation From Liberty
Funds For The Calendar Year Ended

Trustee December 31, 1996 (j)

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

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

Ownership of the Fund
As of record on November 29, 1997, the officers and Trustees of the Trust as a
group owned less than 1% of the Class B and Class C shares of the Fund.

As of record on November 29, 1997, The Colonial Group, Inc. Profit Sharing Plan,
of which certain officers of the Adviser serve as trustees, held approximately
2,712,893 Class A shares of the Fund, representing 1.98% of such Class.

At December 6, 1997, the following shareholders owned more than 5% of a class of
the Fund's outstanding shares:

Centre Reinsurance LTD account held at First National Bank of Boston TTEE,
Hiller Company, Inc., 401K Retirement Plan, A/C Hank Muniz, 635 Mill Street,
Marion, MA 02738 owned 7,301,848.770 Class A shares representing 5.64% of the
total outstanding.

John A. McNeice, Jr., 47 Green St., Canton, MA owned 10,184,600.440 Class A
shares representing 7.87% of the total outstanding.

Liberty Financial Services, Inc., c/o Phil Iudice, One Financial Center, Boston,
MA 02111 owned 18,305,054.940 Class A shares representing 14.15% of the total
outstanding.

Liberty Financial Companies, Inc., Attn: Michael Santilli, 600 Atlantic Avenue,
Boston, MA 02110 owned 10,975,934.400 Class A shares representing 8.48% of the
total outstanding.

Colonial Management Associates, Inc., Attn: Phil Iudice/Controller, One
Financial Center, 11th Floor, Boston, MA 02111-2621 owned 968,671.260 Class C
shares representing 25.34% of the total outstanding.

Nicholas Stevens, c/o Shephard & Associates, 9200 Sunset Blvd., Penthouse 22,
Los Angeles, CA 90069 owned 1,098,538.040 Class C shares representing 28.74% of
the total outstanding.

At December 3, 1997, there were 4,993 Class A; 7,457 Class B; and 240 Class C
recordholders of the Fund.

Sales Charges (dollars in thousands)
<TABLE>
<CAPTION>

Class B Shares Class C Shares
---------------------------- --------------------------------------
Years ended August 31 Years ended August 31
---------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Aggregate contingent deferred
sales charges (CDSC) on Fund
<S> <C> <C> <C> <C> <C> <C>
redemptions retained by LFII $684 $346 $638 $6 $1 $(k)
</TABLE>

(k) Rounds to less than one.

<PAGE>

12b-1 Plan, CDSC and Conversion of Shares

The Fund offers three classes of shares - Class A, Class B and Class C. The Fund
may in the future offer other classes of shares. The Trustees have approved a
12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Fund
pays LFII monthly a service fee at an annual rate of 0.25% of the net assets and
a monthly distribution fee at an annual rate of 0.75% of average daily net
assets attributed to Class B and C shares only. The Distributor has voluntarily
agreed to waive a portion of the Class C share distribution fee so that it does
not exceed 0.15% annually. The waiver may be eliminated at any time without
shareholder approval. LFII may use the entire amount of such fees to defray the
costs of commissions and service fees paid to financial service firms (FSFs) for
certain services provided to shareholders, and for certain other purposes. Since
the distribution and service fees are payable regardless of the amount of LFII's
expenses, LFII may realize a profit from the fees. The Class A Plan has no fee
but like the Class B and Class C Plan authorizes any other payments by the Fund
to LFII and its affiliates (including the Administrator and the Adviser) to the
extent that such payments might be construed to be indirect financing of the
distribution of Fund shares.

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

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

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, which are not
subject to the service and distribution fees, having an equal value.

Sales-related expenses (dollars in thousands) of LFII relating to the Fund were
as follows:
<TABLE>
<CAPTION>

Year ended August 31, 1997
-------------------------------------------------
Class A Class B Class C

<S> <C> <C> <C>
Fees to FSFs $2 $692 $14
Cost of sales material relating to the Fund
(including printing and mailing expenses) 14 (l) (l)
Allocated travel, entertainment and other promotional
expenses (including advertising) 0 0 0
</TABLE>

(l) Rounds to less than one.

<PAGE>

INVESTMENT PERFORMANCE
The Fund's Class A, Class B and Class C share 7-day yields and 7-day effective
yields at August 31, 1997 were:

Class A Shares Class B Shares Class C Shares

7-day Yield 4.735% 3.915% 4.492%
7-day Effective Yield 4.846% 3.992% 4.593%

The Fund's average annual total returns at August 31, 1997 were:

Class A Shares
1 year 5 years 10 years
------ ------- --------
4.90% 4.01% 5.24%

<TABLE>
<CAPTION>
Class B Shares
June 8, 1992
(Class B Shares
initially offered)
1 Year 5 Years through August 31, 1997
------ ------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
With applicable CDSC (1.18)%(5.00% CDSC) 2.61% (2.00% CDSC) 2.74% (1.00% CDSC)
Without CDSC 3.82% 2.96% 2.91%
</TABLE>

Class C Shares
July 1, 1994
(Class C Shares initially offered)
1 Year through August 31, 1997
------ -----------------------

With CDSC of 1.00% 2.97% 3.89% (m)
Without CDSC 3.97% 3.89%

(m) Does not include a CDSC.

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

CUSTODIAN OF THE FUND
The Chase Manhattan Bank is the Fund's custodian. The custodian is responsible
for maintaining the Fund's open account.

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

The financial statements and Report of Independent Accountants appearing in the
August 31, 1997 Annual Report of the Fund are incorporated in this SAI by
reference.

MANAGEMENT OF THE BASE TRUST
Trustees and Officers of the Base Trust

Gary A. Anetsberger(n), (Age 41), Senior Vice President, is Senior Vice
President of the Adviser since April 1996, Chief Financial Officer of the Mutual
Funds division of the Adviser; Vice President of the Adviser January, 1991 to
April, 1996.

Timothy K. Armour(n), (o), (Age 48), President and Trustee, is President of the
Mutual Funds division of the Adviser and Director of the Adviser.

Jilaine Hummel Bauer(n), (Age 42), Executive Vice President and Secretary, is
General Counsel and Secretary since November 1995, Senior Vice President since
April, 1992 of the Adviser.

Kenneth L. Block(n), (Age 77), Trustee, is Chairman Emeritus of A. T. Kearney,
Inc. (international management consultants), 11 Woodley Road, Winnetka,
Illinois 60093.

William W. Boyd(n), (Age 70), Trustee, is Chairman and Director of Sterling
Plumbing Group, Inc. (manufacturer of plumbing products) since 1992; President
and Chief Executive Officer of Sterling Plumbing Group, Inc., over five years;
2900 Golf Road, Rolling Meadows, Illinois 60008.

Thomas W. Butch(n), (Age 40), Executive Vice President, is Senior Vice President
of the Adviser since September, 1994; First Vice President Corporate
Communications of Mellon Bank Corporation prior thereto.

Lindsay Cook(n), (o), (Age 45), Trustee, is Executive Vice President of Liberty
Financial since March, 1997; Senior Vice President of Liberty Financial prior
thereto; 600 Atlantic Avenue, Boston, Massachusetts 02210.

Douglas A. Hacker(n), (Age 41), Trustee, is Senior Vice President and Chief
Financial Officer, United Airlines since July, 1994; Senior Vice President -
Finance, United Airlines, February, 1993 to July, 1994; Vice President -
Corporate & Fleet Planning, American Airlines 1991 to 1993; P.O. Box 66100,
Chicago, Illinois 60666.

Janet Langford Kelly(n), (Age 39), Trustee, is Senior Vice President, Secretary
and General Counsel of Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) since 1995; partner of Sidley & Austin (law
firm) prior thereto; Three First National Plaza, Chicago, Illinois 60602.

Francis W. Morley(n), (Age 77), Trustee, is Chairman of Employer Plan
Administrators and Consultants Co. (designer, administrator, and communicator of
employee benefits plans) over five years, 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606.

Charles R. Nelson(n), (Age 55), Trustee, is Van Voorhis Professor of Political
Economy of the University of Washington, over five years, Seattle, Washington
981953.

Nicolette D. Parrish(n), (Age 47), Vice President and Assistant Secretary, is
Senior Compliance Administrator and Assistant Secretary of the Adviser since
November, 1995; Senior Legal Assistant, over five years.

Sharon R. Robertson(n), (Age 35), Controller, is Accounting Manager for the
Adviser's mutual funds division since 1987.

Janet B. Rysz(n), (Age 41), Assistant Secretary, is Senior Compliance
Administrator of the Adviser.

Thomas C. Theobald(n), (Age 60), Trustee, is Managing Director of William Blair
Capital Partners (private equity fund) since 1994; Chief Executive Officer and
Chairman of the Board of Directors of Continental Bank Corporation from 1987 to
1994; Suite 3300, 222 West Adams Street, Chicago, Illinois 60606.

Heidi J. Walter (n), (Age 30), Vice President, is Legal Counsel for the Adviser
since March, 1995; associate with Beeler Schad & Diamond PC (law firm) prior
thereto.

Stacy H. Winick(n), (Age 32), Vice President, is Senior Legal Counsel for the
Adviser since October, 1996; associate of Bell, Boyd & Lloyd (law firm), June,
1993 to September, 1996; associate of Debevoise & Plimpton (law firm) prior
thereto.

Hans P. Ziegler(n), (Age 56), Executive Vice President, is Chief Executive
Officer of the Adviser since May, 1994; President of the Investment Counsel
division of the Adviser from July, 1993 to June, 1994; and President and Chief
Executive Officer, Pitcairn Financial Management Group, from 1989 to 1993.
Margaret O. Zwick(n), (Age 31), Assistant Treasurer, is Project Manager for the
Adviser since April, 1997; Compliance Manager from August, 1995 to April, 1997;
Compliance Accountant, January, 1995 to July, 1995; Section Manager, January
1994 to January 1995; supervisor prior thereto.

(n) The address of each Trustee and Officer is One South Wacker Drive,
Chicago, IL 60606, unless otherwise noted.
(o) Trustee who is an "interested person" of the Portfolio and of the
Adviser, as defined in the Investment Company Act of 1940.

The Management Agreement
Under the Management Agreement, the Adviser has agreed to make day to day
investment decisions for the Portfolio, arrange for the execution of portfolio
transactions and generally manage the Portfolio's investments. The Adviser has
also agreed to perform administrative services for the Portfolio, including
without limitation, providing all executive and other facilities required to
render investment management and administrative services. For these services and
facilities, the Portfolio pays a monthly fee based on the average daily net
assets of the Portfolio for such month.

INFORMATION CONCERNING THE PORTFOLIO
Portfolio's Investment Adviser

Under its Management Agreement with the Portfolio, the Adviser provides the
Portfolio with discretionary investment services. Specifically, the Adviser is
responsible for supervising and directing the investments of the Portfolio in
accordance with the Portfolio's investment objective, policies and restrictions
as provided in the Fund's Prospectus and this Statement of Additional
Information. The Management Agreement provides for the payment by the Portfolio
to the Adviser of the management fee described above under "Fund Charges and
Expenses."

The Adviser is a wholly-owned subsidiary of Liberty Financial, which in turn is
an indirect majority-owned subsidiary of Liberty Mutual Insurance Company
(Liberty Mutual). Liberty Mutual is an underwriter of worker's compensation
insurance and a property and casualty insurer in the U.S. Liberty Mutual's
address is 175 Berkeley Street, Boston, Massachusetts 02117.

The Adviser is the successor to an investment advisory business that was founded
in 1932. The Adviser acts as investment adviser to wealthy individuals,
trustees, pension and profit sharing plans, charitable organizations and other
institutional investors. As of September 30, 1997, the Adviser managed over $29
billion in net assets: including over $5 billion in equities and over $17
billion in fixed-income securities (including $1.7 billion in municipal
securities). The $29 billion in managed assets included over $7 billion held by
open-end mutual funds managed by the Adviser (approximately 15% of the mutual
fund assets were held by clients of the Adviser). These mutual funds were owned
by over 265,000 shareholders. The $7 billion in mutual fund assets included over
$728 million in over 42,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that maintains and
regularly updates information for approximately 9,000 companies. The Adviser
also monitors over 1,400 issues via a proprietary credit analysis system. At
September 30, 1997, the Adviser employed approximately 16 research analysts and
55 account managers. The average investment-related experience of these
individuals is 24 years.

The directors of the Adviser are Timothy K. Armour, Harold W. Cogger, Kenneth R.
Leibler, C. Allen Merritt, and Hans P. Ziegler. Mr. Cogger is Executive Director
of Liberty Financial; Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Armour is President of the Adviser's Mutual Funds
division; Mr. Merritt is Executive Vice President and Treasurer of Liberty
Financial; and Mr. Ziegler is Chief Executive Officer of the Adviser. The
business address of Messrs. Cogger, Leibler and Merritt is Federal Reserve
Plaza, 600 Atlantic Avenue, Boston, Massachusetts 02210; that of Messrs. Armour
and Ziegler is One South Wacker Drive, Chicago, Illinois 60606.

Under the Management Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolio or the Fund
in connection with the matters to which such Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard of its obligations and
duties under the Agreement.

Portfolio Transactions
The Adviser places the orders for the purchase and sale of the Portfolio's
portfolio securities. Portfolio securities are purchased both in underwritings
and in the over-the-counter market. Included in the price paid to an underwriter
of a portfolio security is the spread between the price paid by the underwriter
to the issuer and the price paid by the purchaser. Purchases and sales of
portfolio securities in the over-the-counter market usually are transacted with
a broker or dealer on a net basis, without any brokerage commission being paid
by the Portfolio, but do reflect the spread between the bid and asked prices.
The Adviser may also transact purchases of portfolio securities directly with
the issuers. The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price and execution.
The best net price, giving effect to transaction charges and other costs,
normally is an important factor in this decision, but a number of other
judgmental factors may also enter into the decision. These include: the
Adviser's knowledge of negotiated transaction costs; the nature of the security
being traded; the size of the transaction; the desired timing of the trade; the
activity existing and expected in the market for the particular security;
confidentiality; the execution, clearance and settlement capabilities of the
broker or dealer selected and others which are considered; the Adviser's
knowledge of the financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the value of these
factors, the Portfolio may pay a price in excess of that which another broker or
dealer may have charged for effecting the same transaction or receive a price
lower than that which another broker-dealer may have paid. Evaluations of the
reasonableness of portfolio transactions, based on the foregoing factors, are
made on an ongoing basis by the Adviser's staff while effecting portfolio
transactions and reports are made annually to the Board of Trustees of the
Portfolio.

With respect to issues of securities involving brokerage commissions, when more
than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Portfolio, the Adviser often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, the Adviser uses an internal allocation procedure
to identify those brokers or dealers who provide it with research products or
services and the amount of research products or services they provide, and
endeavors to direct sufficient commissions generated by its clients' accounts in
the aggregate, including the Portfolio, to such brokers or dealers to ensure the
continued receipt of research products or services that the Adviser feels are
useful. In certain instances, the Adviser receives from brokers and dealers
products or services which are used both as investment research and for
administrative, marketing or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative proportions of such
products or services which may be considered as investment research. The portion
of the costs of such products or services attributable to research usage may be
defrayed by the Adviser (without prior agreement or understanding, as noted
above) through brokerage commissions generated by transactions of clients
(including the Portfolio), while the portions of the costs attributable to
non-research usage of such products or services is paid by the Adviser in cash.
No person acting on behalf of the Portfolio is authorized, in recognition of the
value of research products or services, to pay a price in excess of that which
another broker or dealer might have charged for effecting the same transaction.
Research products or services furnished by brokers and dealers may be used in
servicing any or all of the clients of the Adviser and not all such research
products or services are used in connection with the management of the
Portfolio.

The Board of Trustees of the Base Trust has reviewed the legal aspects and the
practicability of attempting to recapture underwriting discounts or selling
concessions included in prices paid by the Portfolio for purchases of Municipal
Securities in underwritten offerings. The Portfolio attempts to recapture
selling concessions on purchases during underwritten offerings; however, the
Adviser will not be able to negotiate discounts from the fixed offering price
for those issues for which there is a strong demand and will not allow the
failure to obtain a discount to prejudice its ability to purchase an issue. The
Trustees of the SR&F Base Trust periodically review efforts to recapture
concessions and whether it is in the best interests of the Portfolio to continue
to attempt to recapture underwriting discounts or selling concessions.

Amortized Costs for Money Market Funds
In connection with the Portfolio's use of amortized cost and the maintenance of
its per share net asset value of $1.00, the Base Trust has agreed, with respect
to the Portfolio: (i) to seek to maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining relative stability of
principal and not in excess of 90 days; (ii) not to purchase a portfolio
instrument with a remaining maturity of greater than thirteen months (for this
purpose, the Portfolio considers that an instrument has a maturity of thirteen
months or less if it is a "short-term" obligation); and (iii) to limit its
purchase of portfolio instruments to those instruments that are denominated in
U.S. dollars which the Portfolio's Board of Trustees determines present minimal
credit risks and that are of eligible quality as determined by any major rating
service as defined under Securities and Exchange Commission Rule 2a-7 or, in the
case of any instrument that is not rated, of comparable quality as determined by
the Portfolio's Board of Trustees.

The Portfolio has also agreed to establish procedures reasonably designed to
stabilize its price per share, as computed for the purpose of sales and
redemptions, at $1.00. Such procedures include review of its portfolio holdings
by the Portfolio's Board of Trustees, at such intervals as the Portfolio deems
appropriate, to determine whether its net asset value calculated by using
available market quotations or market equivalents deviates from $1.00 per share
based on amortized cost. Calculations are made to compare the value of its
investments valued at amortized cost with market value. Market values are
obtained by using actual quotations provided by market makers, estimates of
market value, values from yield data obtained from reputable sources for the
instruments, values obtained from the Adviser's matrix, or values obtained from
an independent pricing service. Any such service might value the Portfolio's
investments based on methods which include consideration of: yields or prices of
Municipal Securities of comparable quality, coupon, maturity and type;
indications as to values from dealers and general market conditions. The service
may also employ electronic data processing techniques, a matrix system, or both
to determine valuations.

In connection with the Portfolio's use of the amortized cost method of portfolio
valuation to maintain its net asset value at $1.00 per share, the Portfolio
might incur or anticipate an unusual expense, loss, depreciation, gain or
appreciation that would affect its net asset value per share or income for a
particular period. The extent of any deviation between the net asset value based
upon available market quotations or market equivalents and $1.00 per share based
on amortized cost will be examined by the Portfolio's Board of Trustees as it
deems appropriate. If such deviation exceeds 1/2 of 1%, the Portfolio's Board of
Trustees will promptly consider what action, if any, should be initiated. In the
event the Portfolio's Board of Trustees determines that a deviation exists that
may result in material dilution or other unfair results to investors or existing
shareholders, it will take such action as it considers appropriate to eliminate
or reduce to the extent reasonably practicable such dilution or unfair results.
Actions which the Portfolio's Board of Trustees might take include: selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; increasing, reducing, or suspending
dividends or distributions from capital or capital gains; or redeeming shares in
kind. The Portfolio's Board of Trustees might also establish a net asset value
per share by using market values, as a result of which the net asset value might
deviate form $1.00 per share.

Custodian of the Portfolio
State Street Bank and Trust Company (Bank) is the custodian for the securities
and cash of the Portfolio, but it does not participate in the investment
decisions of the Portfolio. The Portfolio has authorized the Bank to deposit
certain portfolio securities in central depository systems as allowed by federal
law. The Bank's main office is at 225 Franklin Street, Boston, Massachusetts
02110.

Independent Auditors of the Portfolio
The independent auditors for the Portfolio are Ernst & Young LLP, 233 South
Wacker Drive, Chicago, IL 60606. Ernst & Young LLP audit and report on the
annual financial statements of the Portfolio, review certain regulatory reports
and the Portfolio's Federal income tax returns, and perform such other
professional accounting, auditing, tax and advisory services as the Portfolio
may engage them to do.

Cross-Indemnification Agreement
The Trust, on behalf of the Fund, and the Base Trust, on behalf of the
Portfolio, have entered into a cross-indemnification agreement relating to
liability in connection with the information relating to the Base Trust and the
Portfolio contained in the Trust's Registration Statement of which this SAI is a
part.

- --------

1 The Portfolio has been informed that the staff of the Securities and Exchange
Commission takes the position that the issuers of certain CMOs and certain other
collateralized assets are investment companies and that subsidiaries of foreign
banks may be investment companies for purposes of Section 12(d)(1) of the
Investment Company Act of 1940, which limits the ability of one investment
company to invest in another investment company. Accordingly, the Funds intend
to operate within the applicable limitations under Section 12(d)(1)(A) of that
Act.

2 In the judgment of the Adviser, Private Placement Notes, which are issued
pursuant to Section 4(2) of the Securities Act of 1933, generally are readily
marketable even though they are subject to certain legal restrictions on resale.
As such, they are not treated as being subject to the limitation on illiquid
securities.

STATEMENT OF ADDITIONAL INFORMATION

PART 2

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

MISCELLANEOUS INVESTMENT PRACTICES

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

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

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

1. the market price is likely to be more volatile because:

a. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default;

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

c. existing legislation limits and future legislation may further
limit (i) investment by certain institutions or (ii) tax
deductibility of the interest by the issuer, which may adversely
affect value; and

d. certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest
on a current basis, and may have to sell securities to generate
cash for distributions.

2. the fund's achievement of its investment objective is more
dependent on the Adviser's credit analysis.

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

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

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

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

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

Zero Coupon Securities (Zeros)
The fund may invest in debt securities which do not pay interest, but instead
are issued at a deep discount from par. The value of the security increases over
time to reflect the interest accrued. The value of these securities may
fluctuate more than similar securities which are issued at par and pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the fund and
distributed to its shareholders. These distributions must be made from the
fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.

Step Coupon Bonds (Steps)
The fund may invest in debt securities which do not pay interest for a stated
period of time and then pay interest at a series of different rates for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities are subject to the volatility risk of zero coupon
bonds for the period when no interest is paid.

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

Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.

Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory notes issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the Securities and
Exchange Commission's requirements, cash, cash equivalents or high-grade debt
securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.

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

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

Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government Securities. This
amount is known as "initial margin". The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.

Subsequent payments, called "variation margin", to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."

The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash, cash equivalents or high-grade
debt securities, equal in value to the amount of the fund's obligation under the
contract (less any applicable margin deposits and any assets that constitute
"cover" for such obligation), will be segregated with the fund's custodian. For
example, if a fund investing primarily in foreign equity securities enters into
a contract denominated in a foreign currency, the fund will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the fund's obligation under the contract and the aggregate value of all
readily marketable equity securities denominated in the applicable foreign
currency held by the fund.

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

Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sales of Shares. In general, any gain or loss realized upon a taxable
disposition of shares by a shareholder will be treated as long-term capital gain
or loss if the shares have been held for more than twelve months, and otherwise
as short-term capital gain or loss assuming such shares are held as a capital
asset. However, any loss realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares will be disallowed if other shares are
purchased within 30 days before or after the disposition. In such a case, the
basis of the newly purchased shares will be adjusted to reflect the disallowed
loss.

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

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

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

Futures Contracts. Accounting for futures contracts will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on the closing out of a futures contract will result in a capital gain or
loss for tax purposes. In addition, certain futures contracts held by the fund
(so-called "Section 1256 contracts") will be required to be "marked-to-market"
(deemed sold) for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales or on
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.

However, if a futures contract is part of a "mixed straddle" (i.e., a straddle
comprised in part of Section 1256 contracts), a fund may be able to make an
election which will affect the character arising from such contracts as
long-term or short-term and the timing of the recognition of such gains or
losses. In any event, the straddle provisions described below will be applicable
to such mixed straddles.

Special Tax Rules Applicable to "Straddles". The straddle provisions of the Code
may affect the taxation of the fund's options and futures transactions and
transactions in securities to which they relate. A "straddle" is made up of two
or more offsetting positions in "personal property," including debt securities,
related options and futures, equity securities, related index futures and, in
certain circumstances, options relating to equity securities, and foreign
currencies and related options and futures.

The straddle rules may operate to defer losses realized or deemed realized on
the disposition of a position in a straddle, may suspend or terminate the fund's
holding period in such positions, and may convert short-term losses to long-term
losses in certain circumstances.

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

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

Certain securities are considered to be Passive Foreign Investment Companies
(PFICS) under the Code, and the fund is liable for any PFIC-related taxes.

MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
"Investment decisions," and "Brokerage and research services," the "Adviser"
refers to Colonial Management Associates, Inc.) The Adviser is the investment
adviser to each of the Colonial funds (except for Colonial Municipal Money
Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Tiger Cub Fund and Colonial Newport Japan Fund - see Part I of
each Fund's respective SAI for a description of the investment adviser). The
Adviser is a subsidiary of The Colonial Group, Inc. (TCG), One Financial Center,
Boston, MA 02111. TCG is a direct subsidiary of Liberty Financial Companies,
Inc. (Liberty Financial), which in turn is a direct subsidiary of LFC Holdings,
Inc., which in turn is a direct subsidiary of Liberty Mutual Equity Corporation,
which in turn is a wholly-owned subsidiary of Liberty Mutual Insurance Company
(Liberty Mutual). Liberty Mutual is an underwriter of workers' compensation
insurance and a property and casualty insurer in the U.S. Liberty Financial's
address is 600 Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is
175 Berkeley Street, Boston, MA 02117.

Trustees and Officers (this section applies to all of the Colonial funds)
<TABLE>
<CAPTION>

<S> <C> <C> <C>
Name and Address Age Position with Principal Occupation
Fund

Robert J. Birnbaum 69 Trustee Retired (formerly Special Counsel, Dechert Price & Rhoads
313 Bedford Road from September, 1988 to December, 1993).
Ridgewood, NJ 07450

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

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

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

William D. Ireland, Jr. 72 Trustee Retired, is a Trustee of certain charitable and
103 Springline Drive non-charitable organizations since February, 1990.
Vero Beach, FL 32963

Richard W. Lowry 60 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963

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

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

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

George L. Shinn 73 Trustee Financial Consultant since 1989.
Credit Suisse First Boston
Corp.
Eleven Madison Avenue,
25th Floor
New York, NY 10010-3629

Robert L. Sullivan 69 Trustee Retired Partner, Peat Marwick Main & Co. (formerly
7121 Natelli Woods Lane Self-employed Management Consultant since January, 1989.)
Bethesda, MD 20817

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

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

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

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

Davey S. Scoon 50 Vice President Vice President of Colonial funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995).

Arthur O. Stern 58 Secretary Secretary of Colonial funds since 1985, is Director
since 1985, Executive Vice President since July, 1993,
General Counsel, Clerk and Secretary since March, 1985
of the Adviser; Executive Vice President, Legal since
March, 1995 and Clerk since March, 1985 of TCG
(formerly Executive Vice President, Compliance from
March, 1995 to March, 1996 and Vice President - Legal
of TCG from March, 1985 to March, 1995).
</TABLE>

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

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

The Trustees serve as trustees of all Colonial funds for which each Trustee will
receive an annual retainer of $45,000 and attendance fees of $7,500 for each
regular joint meeting and $1,000 for each special joint meeting. Committee
chairs receive an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-thirds of
the Trustee fees are allocated among the Colonial funds based on each fund's
relative net assets and one-third of the fees are divided equally among the
Colonial funds.

The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 38 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 open-end management investment
company portfolios (collectively, Colonial funds). Trustees and officers of the
Trust, who are also officers of the Adviser or its affiliates, will benefit from
the advisory fees, sales commissions and agency fees paid or allowed by the
Trust. More than 30,000 financial advisers have recommended Colonial funds to
over 800,000 clients worldwide, representing more than $16.3. billion in assets.

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

The Management Agreement (this section does not apply to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Colonial Newport Japan Fund or Colonial Newport Tiger Cub Fund) Under a
Management Agreement (Agreement), the Adviser has contracted to furnish each
fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each Colonial fund pays a monthly fee based on the average of the daily closing
value of the total net assets of each fund for such month. Under the Agreement,
any liability of the Adviser to the fund and its shareholders is limited to
situations involving the Adviser's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.

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

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

The Agreement provides that the Adviser shall not be subject to any liability to
the Trust or to any shareholder of the Trust for any act or omission in the
course of or connected with rendering services to the Trust in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of the Adviser.

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

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

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

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

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

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

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

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

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

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

(h) monitoring the investments and operations of the SR&F
Municipal Money Market Portfolio (Municipal Money Market
Portfolio) in which Colonial Municipal Money Market Fund
is invested and the LFC Portfolio and reporting to the
Trustees from time to time with respect thereto.

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

The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and Bookkeeping
Agreement has a one-year term. The Adviser, in its capacity as the Administrator
to each of Colonial Municipal Money Market Fund and Colonial Global Utilities
Fund, is paid an annual fee of $18,000, plus 0.0233% of average daily net assets
in excess of $50 million. For each of the other Colonial funds (except for
Colonial Newport Tiger Fund, Colonial Newport Japan Fund and Colonial Newport
Tiger Cub Fund), the Adviser is paid monthly a fee of $2,250 by each fund, plus
a monthly percentage fee based on net assets of the fund equal to the following:

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

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

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

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

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

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

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

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

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

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

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

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

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

Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund to CISC or generally by 6 months' notice by CISC to the Fund.
The agreement limits the liability of CISC to the Fund for loss or damage
incurred by the Fund to situations involving a failure of CISC to use reasonable
care or to act in good faith in performing its duties under the agreement. It
also provides that the Fund

will indemnify CISC against, among other things, loss or damage incurred by CISC
on account of any claim, demand, action or suit made on or against CISC not
resulting from CISC's bad faith or negligence and arising out of, or in
connection with, its duties under the agreement.

DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m.
Eastern time, 3:00 p.m. Chicago time) each day the Exchange is open. Currently,
the Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. Funds with portfolio securities which are primarily
listed on foreign exchanges may experience trading and changes in NAV on days on
which such Fund does not determine NAV due to differences in closing policies
among exchanges. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. The net asset
value of the Municipal Money Market Portfolio will not be determined on days
when the Exchange is closed unless, in the judgment of the Municipal Money
Market Portfolio's Board of Trustees, the net asset value of the Municipal Money
Market Portfolio should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time. Debt securities generally
are valued by a pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or where the
Adviser deems it appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on NASDAQ are valued at
the last sale price. Listed securities for which there were no sales during the
day and unlisted securities are valued at the last quoted bid price. Options are
valued at the last sale price or in the absence of a sale, the mean between the
last quoted bid and offering prices. Short-term obligations with a maturity of
60 days or less are valued at amortized cost pursuant to procedures adopted by
the Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Portfolio
positions for which there are no such valuations and other assets are valued at
fair value as determined by the Adviser in good faith under the direction of the
Trust's Trustees.

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

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

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

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

Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Money Market Fund, a series of Colonial Trust II - see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, D, T and Z shares of the Colonial funds. The applicable sales
charge is based on the combined total of:

1. the current purchase; and

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

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

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

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

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

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

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

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

Systematic Withdrawal Plan Share Certificates

Sponsored Arrangements Exchange Privilege

$50,000 Fast Cash Colonial Cash Connection

Right of Accumulation Automatic Dividend Diversification

Telephone Redemption Reduced Sales Charges for any "person"

Statement of Intent

*Exchanges may be made to other Colonial funds offering the Program.

Because of the unavailability of certain services, this Program may not be
suitable for all investors.

The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. CISI may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.

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

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

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

Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.

Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with CISI pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements,
and by participants in certain retirement plans.

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

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

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

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

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

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

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

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

HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15 days).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.

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

HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered Colonial funds (with certain exceptions) on the basis of
the NAVs per share at the time of exchange. Class T and Z shares may be
exchanged for Class A shares of the other Colonial funds. The prospectus of each
Colonial fund describes its investment objective and policies, and shareholders
should obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange. Shares of certain Colonial funds are not
available to residents of all states. Consult CISC before requesting an
exchange.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)
AAA The highest rating assigned by S&P indicates an extremely strong capacity to
repay principal and interest.

AA bonds also qualify as high quality. Capacity to repay principal and pay
interest is very strong, and in the majority of instances, they differ from AAA
only in small degree.

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

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

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

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

D bonds are in default, and payment of interest and/or principal is in arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the major
rating categories.

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

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

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

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

Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).

Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).

Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.

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

<PAGE>

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

Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Those bonds in the
Aa through B groups that Moody's believes possess the strongest investment
attributes are designated by the symbol Aa1, A1 and Baa1.

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

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

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

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

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

Ca bonds are speculative in a high degree, often in default or having other
marked shortcomings.

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

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

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

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

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

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

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

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

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

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

FITCH INVESTORS SERVICES

Investment Grade Bond Ratings

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

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

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

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

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

Speculative-Grade Bond Ratings

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

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

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

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

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

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

DUFF & PHELPS CREDIT RATING CO.

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

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

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

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

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

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

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

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

<PAGE>

APPENDIX II
1995
<TABLE>
<CAPTION>
<S> <C>
SOURCE CATEGORY RETURN (%)

Donoghue Tax-Free Funds 3.39
Donoghue U.S. Treasury Funds 5.19
Dow Jones & Company Industrial Index 36.95
Morgan Stanley Capital International EAFE Index 11.22
Morgan Stanley Capital International EAFE GDP Index 11.16
Libor Six-month Libor N/A
Lipper Adjustable Rate Mortgage 4.73
Lipper California Municipal Bond Funds 18.32
Lipper Connecticut Municipal Bond Funds 16.58
Lipper Closed End Bond Funds 20.83
Lipper Florida Municipal Bond Funds 17.84
Lipper General Bond Fund 20.83
Lipper General Municipal Bonds 16.84
Lipper General Short-Term Tax-Exempt Bonds 7.43
Lipper Global Funds 16.05
Lipper Growth Funds 30.79
Lipper Growth & Income Funds 30.82
Lipper High Current Yield Bond Funds 16.44
Lipper High Yield Municipal Bond Debt 15.98
Lipper Fixed Income Funds 15.19
Lipper Insured Municipal Bond Average 17.59
Lipper Intermediate Muni Bonds 12.89
Lipper Intermediate (5-10) U.S. Government Funds 15.75
Lipper Massachusetts Municipal Bond Funds 16.82
Lipper Michigan Municipal Bond Funds 16.89
Lipper Mid Cap Funds 32.04
Lipper Minnesota Municipal Bond Funds 15.39
Lipper U.S. Government Money Market Funds 5.26
Lipper Natural Resources 18.80
Lipper New York Municipal Bond Funds 16.73
Lipper North Carolina Municipal Bond Funds 17.51
Lipper Ohio Municipal Bond Funds 16.81
Lipper Small Company Growth Funds 31.55
Lipper U.S. Government Funds 17.34
Lipper Pacific Region Funds-Ex-Japan 1.95
Shearson Lehman Composite Government Index 18.33
Shearson Lehman Government/Corporate Index 19.25
Shearson Lehman Long-term Government Index 30.90
S&P S&P 500 Index 37.54
S&P Utility Index 42.39
S&P Barra Growth 38.13
S&P Barra Value 37.00
S&P Midcap 400 28.56
First Boston High Yield Index 17.38
Swiss Bank 10 Year U.S. Government (Corporate Bond) 22.24
Swiss Bank 10 Year United Kingdom (Corporate Bond) 16.19
Swiss Bank 10 Year France (Corporate Bond) 26.72
Swiss Bank 10 Year Germany (Corporate Bond) 25.74
Swiss Bank 10 Year Japan (Corporate Bond) 17.83
Swiss Bank 10 Year Canada (Corporate Bond) 25.04
Swiss Bank 10 Year Australia (Corporate Bond) 19.42
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 23.83
Morgan Stanley Capital International 10 Year Belgium (Equity) 20.67

SOURCE CATEGORY RETURN (%)

Morgan Stanley Capital International 10 Year Austria (Equity) 10.85
Morgan Stanley Capital International 10 Year France (Equity) 15.30
Morgan Stanley Capital International 10 Year Netherlands (Equity) 19.33
Morgan Stanley Capital International 10 Year Japan (Equity) 12.82
Morgan Stanley Capital International 10 Year Switzerland (Equity) 17.06
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 15.02
Morgan Stanley Capital International 10 Year Germany (Equity) 10.66
Morgan Stanley Capital International 10 Year Italy (Equity) 7.78
Morgan Stanley Capital International 10 Year Sweden (Equity) 19.43
Morgan Stanley Capital International 10 Year United States (Equity) 14.82
Morgan Stanley Capital International 10 Year Australia (Equity) 15.13
Morgan Stanley Capital International 10 Year Norway (Equity) 10.72
Morgan Stanley Capital International 10 Year Spain (Equity) 17.91
Morgan Stanley Capital International World GDP Index 18.14
-----
Morgan Stanley Capital International Pacific Region Funds Ex-Japan 12.95
Bureau of Labor Statistics Consumer Price Index (Inflation) N/A
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Federal Reserve Six-Month Treasury Bill N/A
Federal Reserve One-Year Constant-Maturity Treasury Rate N/A
Federal Reserve Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell & Co. Russell 2000 28.45
Frank Russell & Co. Russell 1000 Value 38.35
Frank Russell & Co. Russell 1000 Growth 37.19
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA

</TABLE>

*in U.S. currency

<PAGE>

Part C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Included in Part A

Summary of Expenses
The Fund's Financial History

Incorporated by reference into Part B are the financial
statements contained in the Annual Report for the Colonial
Government Money Market Fund, dated August 31, 1997 (which was
previously filed electronically pursuant to Section 30(b)(2)
of the Investment Company Act of 1940):

Fund Accession Number

Colonial Government Money Market Fund 0000883163-97-000028

The Financial Statement contained in the Annual Report are as
follows:

Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Asset
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants

(b) Exhibits:

1. Amendment No. 5 to the Agreement and
Declaration of Trust (h)

2. By-Laws, as amended (e)

3. Not Applicable

4. Form of Specimen Share Certificate (e)

5.(i) Form of Management Agreement (CGMMF)(d)

6.(i) Form of Distributor's Contract (incorporated
herein by reference to Exhibit 6.(a) to
Post-Effective Amendment No. 44 to the
Registration Statement of Colonial Trust I,
Registration Nos. 2-41251 and 811-2214,
filed with the Commission on or about
July 24, 1997)

6.(ii) Form of Selling Agreement (incorporated
herein by reference to Exhibit 6.(a) to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial
Trust VI, Registration Nos. 33-45117 and
811-6529 filed with the Commission on
September 27, 1996)

6.(iii) Investment Account Application (incorporated
by reference from Prospectus)

6.(iv) Form of Bank and Bank Affiliated Selling
Agreement (incorporated herein by reference
to Exhibit 6.(c) to Post Effective
Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration
Nos. 33-45117 and 811-6529, filed
with the Commission on September 27, 1996)

6.(v) Form of Asset Retention Agreement
(incorporated herein by reference to Exhibit
6.(d) to Post-Effective Amendment No. 10
to the Registration Statement of
Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the
Commission on September 27, 1996)

7. Not Applicable

8. Custody Agreement with The Chase Manhattan
Bank (incorporated herein by refernce to
Exhibit 8. to Post-Effective Amendment No.
13 to the Registration Statement of Colonial
Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on
or about October 24, 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 (i)

9.(ii)(a) 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)(b) Amendment No. 10 to Schedule A of Amended
and Restated Shareholders' Servicing and
Transfer Agent Agreement dated October 1,
1997 (incorporated herein by reference to
Exhibit 9(a)(ii) to Post-Effective Amendment
No. 13 to the Registration Statement of
Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the
Commission on or about October 24, 1997)

9.(ii)(c) Amendment No. 15 to Appendix I of Amended
and Restated Shareholders' Servicing
and Transfer Agent Agreement as amended
(incorporated herein by reference to
Exhibit 9(a)(iii) to Post-Effective
Amendment No. 13 to the Registration
Statement of Colonial Trust VI, Registration
Nos. 33-45117 and 811-6529, filed
with the Commission on or about October 24,
1997)

9.(iii) Form of Administration Agreement with
Colonial Management Associates, Inc. (CGMMF)

9.(iv)(a) Credit Agreement (incorporated herein by
reference to Exhibit 9.(f) to
Post-Effective Amendment No. 19 to the
Registration Statement of Colonial
Trust V, Registration Nos. 811-5030 and
33-12109, filed with the Commission on
or about May 20, 1996)

9.(iv)(b) Form of Amendment No. 1 to the Credit
Agreement (incorporated herein by
reference to Exhibit 9(f) to Post-Effective
Amendment No. 99 to the Registration
Statement of Colonial Trust III,
Registration Nos. 811-881 and 2-15184,
filed with the Commission on or about
December 19, 1997)

9.(iv)(c) Form of Amendment No. 2 to the Credit
Agreement (incorporated herein by
reference to Exhibit 9(g) to Post-Effective
Amendment No. 99 to the Registration
Statement of Colonial Trust III,
Registration Nos. 811-881 and 2-15184,
filed with the Commission on or about
December 19, 1997)

9.(iv)(d) Form of Amendment No. 3 to the Credit
Agreement (incorporated herein by
reference to Exhibit 9(h) to Post-Effective
Amendment No. 99 to the Registration
Statement of Colonial Trust III,
Registration Nos. 811-881 and 2-15184,
filed with the Commission on or about
December 19, 1997)

9.(v) Proposed Form on Indemnification Agreement
between Colonial Trust II, on behalf of
CGMMF, and the SR&F Base Trust, on behalf of
SR&F Cash Reserves Portfolio

10.(iii) Opinion and Consent of Counsel (CGMMF)(a)

11. Consent of Independent Accountants

12. Not Applicable

13. Not Applicable

14.(i) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan
Document and Employee Communications Kit
(incorporated herein by reference to
Exhibit 14(a) to Post-Effective Amendment
No. 99 to the Registration Statement
of Colonial Trust III, Registration
Nos. 2-15184 and 811-881, filed with the
Commission on December 19, 1997)

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. 99 to the
Registration Statement of Colonial
Trust III, Registration Nos. 2-15184 and
811-881, filed with the Commission on
December 19, 1997)

14.(iii) Form of Colonial IRA Application, Forms,
Custodial Agreement and Disclosure
Statement and Distribution Form
(incorporated herein by reference to
Exhibit 14(c) to Post-Effective Amendment
No. 99 to the Registration Statement of
Colonial Trust III, Registration Nos.
2-15184 and 811-881, filed with the
Commission on December 19, 1997)

14.(iv) Form of IRA Application and Fact Kit
(incorporated herein by reference to
Exhibit 14(d) to Post-Effective Amendment
No. 99 to the Registration Statement
of Colonial Trust III, Registration Nos.
2-15184 and 811-881, filed with the
Commission on December 19, 1997)

14.(v) Form of Colonial Mutual Funds Simplified
Employee Pension Plan and Salary
Reduction Simplified Employee Pension
Plan Application and Fact Kit
(incorporated by reference to Exhibit 14(e)
of Post-Effective Amendment No. 99
to the Registration Statement of Colonial
Trust III, Registration Nos. 2-15184
and 811-881, filed with the Commission on
December 19, 1997)

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

14.(vii) 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.(viii) Form of Colonial 401(k) Beneficiary
Designation and Participant Enrollment
Forms (incorporated by reference to Exhibit
14(h) of Post-Effective Amendment
No. 99 to the Registration Statement of
Colonial Trust III, Registration Nos.
2-15184 and 811-881, filed with the
Commission on December 19, 1997)

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) hereto

16.(i)(a) Calculation of Performance Information
(Classes A & B)(CGMMF)(h)

16.(i)(b) Calculation of Performance Information
(Class C)(CGMMF)(m)

16.(ii)(a) Calculation of Yield Information
(Classes A & B)(CGMMF)(h)

16.(ii)(b) Calculation of Yield Information
(Class C)(CGMMF)(m)

17.(i)(a) Financial Data Schedule (Class A) (CGMMF)

17.(i)(b) Financial Data Schedule (Class B) (CGMMF)

17.(i)(c) Financial Data Schedule (Class C) (CGMMF)

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. 44 to
the Registration Statement of Colonial
Trust I, Registration Statement Nos.
2-41251 and 811-2214, filed with the
Commission on July 24, 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.

(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 from Post-Effective Amendment No. 27 filed on
November 18, 1996.

(h) Incorporated by reference to Post-Effective Amendment No. 28 filed on
December 13, 1996.

(i) Incorporated by reference to Post-Effective Amendment No. 29 filed on
March 11, 1997.

(j) Incorporated by reference to Post-Effective Amendment No. 30 filed on
June 23, 1997.

(k) Incorporated by reference to Post-Effective Amendment No. 31 filed on
November 14, 1997.

(l) Incorporated by reference to Post-Effective Amendment No. 32 filed on
November 25, 1997.

(m) Incorporated by reference to Post-Effective Amendment No. 33 filed on
December 22, 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 11/30/97

Shares of Beneficial Interest 4,993 Class A recordholders (CGMMF)
7,457 Class B recordholders (CGMMF)
240 Class C recordholders (CGMMF)

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.

<PAGE>

The following sets forth business and other connections of each
Director and officer of Stein Roe & Farnham Incorporated (only
with respect to Colonial Government Money Market Fund which
invests all of its assets in the SR&F Cash Reserves Portfolio
(Portfolio), which is managed by Stein Roe & Farnham
Incorporated).

Stein Roe & Farnham Incorporated (Manager), the investment manager of
the Portfolio, is a wholly owned subsidiary of SteinRoe Services Inc.
(SSI), which in turn is a wholly owned subsidiary of Liberty Financial
Companies, Inc. (LFCI), which is a majority owned subsidiary of LFC
Holdings, Inc., which in turn is a subsidiary of Liberty Mutual Equity
Corporation, which in turn is a subsidiary of Liberty Mutual Insurance
Company (LMIC). The Manager acts as investment adviser to
individuals, trustees, pension and profit-sharing plans, charitable
organizations, and other investors. In addition to the Portfolio, it
also acts as investment adviser to other investment companies having
different investment policies.

For a two-year history of officers and directors of the Manager,
please refer to the Form ADV of the Manager.

Certain directors and officers of the Manager also serve and have
during the past two years served in various capacities as officers,
directors or trustees of SSI, the SR&F Base Trust or investment
companies managed by the Manager, as shown below. (The listed
entities are all located at One South Wacker Drive, Chicago, IL 60606;
the address of SteinRoe Variable Investment Trust and Liberty Variable
Investment Trust is Federal Reserve Plaza, 600 Atlantic Avenue,
Boston, MA 02110 and the address of LFC Utilities Trust is One
Financial Center, Boston, MA 02111).

Position Formerly
Held Within Past
Current Position Two Years
SteinRoe Services Inc.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President;
Secretary
Kenneth J. Kozanda Vice President;
Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice
President
Hans P. Ziegler Director; President; Vice Chairman
Chairman

SR&F Base Trust
William D. Andrews Executive Vice
President
Gary A. Anetsberger Senior Vice President Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Thomas W. Butch Executive Vice
President
Loren A. Hansen Executive Vice
President
Michael T. Kennedy Vice President
Lynn C. Maddox Vice President
Jane M. Naesath Vice President
Hans P. Ziegler Executive Vice
President

Stein Roe Income Trust, Stein Roe Institutional Trust and Stein
Roe Trust
William D. Andrews Executive Vice
President
Gary A. Anetsberger Senior Vice President Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Thomas W. Butch Executive Vice Vice President
President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Loren A. Hansen Executive Vice
President
Stephen F. Lockman Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Hans P. Ziegler Executive Vice
President

Stein Roe Investment Trust
William D. Andrews Executive Vice
President
Gary A. Anetsberger Senior Vice President Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Executive Vice Vice President
President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice
President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Arthur J. McQueen Vice President
Richard B. Peterson Vice President
M. Gerard Sandel Vice President
Gloria J. Santella Vice President
Hans P. Ziegler Executive Vice
President

Stein Roe Municipal
Trust
William D. Andrews Executive Vice
President
Gary A. Anetsberger Senior Vice President Treasurer
Timothy K. Armour President; Trustee
Loren A. Hansen Executive Vice
President
Jilaine Hummel Bauer Executive Vice
President; Secretary
Thomas W. Butch Executive Vice Vice President
President
Joanne T. Costopoulos Vice President
Philip J. Crosley Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
M. Jane McCart Vice President
Hans P. Ziegler Executive Vice
President

SteinRoe Variable Investment Trust
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President

LFC Utilities Trust
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President

Liberty Variable Investment Trust
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President

Stein Roe Advisor
Trust
William D. Andrews Executive Vice
President
Gary A. Anetsberger Senior Vice President Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice
President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Executive Vice Vice President
President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice
President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Stephen F. Lockman Vice President
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
M. Jane McCart Vice President
Arthur J. McQueen Vice President
Richard B. Peterson Vice President
M. Gerard Sandel Vice President
Gloria J. Santella Vice President
Hans P. Ziegler Executive Vice
President

<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. Liberty
Financial Investments, Inc., a subsidiary of Colonial Management Associates,
Inc., is the principal underwriter and the national distributor of all of
the funds in the Colonial Mutual Funds complex, including the Registrant.

The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:

(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 11/01/97. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Allard, Laurie V.P.

Archer, Joseph A. V.P.

Ballou, William J. V.P., Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec., Municipal Trust Asst. Sec.
Counsel Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.

Berliant, Allan V.P.

Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal

Boatman, Bonny E. Sr.V.P.; Colonial Advisory Services, Inc. Exec. V.P.
IPC Mbr.

Bunten, Walter V.P.

Campbell, Kimberly V.P.

Carnabucci,
Dominick V.P.

Carroll, Sheila A. Sr.V.P.;

Citrone, Frank V.P.

Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.;
Chairman; Chrm.
IPC Mbr.; Colonial Trusts I through VII Pres.
Colonial High Income
Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
LFC Utilities Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Stein Roe & Farnham Dir.
Incorporated

Conlin, Nancy V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Liberty Financial Investments,
Inc. Asst. Clerk
AlphaTrade Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.

Daniszewski, V.P.
Joseph J.

Desilets, Marian V.P. Liberty Financial Investments,
Inc. V.P.

DiSilva, Linda V.P. Colonial Advisory Services, Compliance
IPC Mbr. Inc. Officer

Ericson, Carl C. Sr.V.P. Colonial Intermediate High
IPC Mbr. Income Fund V.P.
Colonial Advisory Services,
Inc. Exec. V.P.

Evans, C. Frazier Sr.V.P. Liberty Financial Investments,
Inc. Mng. Director

Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. Sr. V.P.

Feloney, Joseph L. V.P.
Asst. Treasurer

Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.

Franklin, Sr. V.P. AlphaTrade Inc. President
Fred J. IPC Mbr.

Gibson, Stephen E. Dir.; Pres.; The Colonial Group, Inc. Dir.;
CEO; Pres.; CEO;
Exec. Cmte.
Mbr.
Liberty Financial Investments, Dir.; Chm.
Inc.
Colonial Advisory Services, Dir.; Chm.
Inc.
Colonial Investors Service Dir.; Chm.
Center, Inc.
AlphaTrade Inc. Dir.

Harasimowicz, V.P.
Stephen

Harris, David V.P. Stein Roe Global Capital Mngmt Principal

Hartford, Brian V.P.

Haynie, James P. V.P. Colonial Advisory Services,
Inc. Sr. V.P.

Hill, William V.P.

Iudice, Jr. Philip V.P.; The Colonial Group, Inc. Controller,
Controller CAO, Asst.
Asst. Treas.
Treasurer Liberty Financial Investments, CFO,
Inc. Treasurer
Colonial Advisory Services,
Inc. Controller;
Asst. Treas.
AlphaTrade Inc. CFO, Treas.

Jacoby, Timothy J. Sr. V.P.; The Colonial Group, Inc. V.P., Treasr.,
CFO; CFO
Treasurer Colonial Trusts I through VII Treasr.,CFO
Controller
Colonial High Income Treasr.,CFO
Municipal Trust Controller
Colonial InterMarket Income Controller;
Trust I Treasr.,CFO
Colonial Intermediate High Controller;
Income Fund Treasr.,CFO
Colonial Investment Grade Controller;
Municipal Trust Treasr.,CFO
Colonial Municipal Income Controller;
Trust Treasr.,CFO
LFC Utilities Trust Controller;
Treasr.,CFO
Colonial Advisory Services,
Inc. CFO, Treasr.

Johnson, Gordon V.P.

Knudsen, Gail V.P.

Koonce, Michael H. Sr. V.P.; Colonial Trusts I through VII Secretary
Sec.; Clerk Colonial High Income
IPC Mbr.; Municipal Trust Secretary
Dir; Gen. Colonial InterMarket Income
Counsel Trust I Secretary
Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
LFC Utilities Trust Secretary
Liberty Financial Investments,
Inc. Dir., Clerk
Colonial Investors Service
Center, Inc. Clerk, Dir.
The Colonial Group, Inc. V.P., Gen.
Counsel and
Clerk
Colonial Advisory Services,
Inc. Dir., Clerk
AlphaTrade Inc. Dir., Clerk

Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.

Lenzi, Sharon V.P.

Lessard, Kristen V.P.

Loring, William C. V.P.

MacKinnon,
Donald S. Sr.V.P.

Newman, Maureen V.P.

Ostrander, Laura V.P.

Peters, Helen F. Sr.V.P.; Colonial Advisory Services, Pres.,
IPC Mbr. Inc. CEO

Peterson, Ann T. V.P. Colonial Advisory Services,
Inc. V.P.

Rao, Gita V.P.

Reading, John V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Liberty Financial Investments,
Inc. Asst. Clerk
AlphaTrade Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.V.P.

Rega, Michael V.P. Colonial Advisory Services
Inc. Vice President

Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
LFC Utilities Trust V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Liberty Financial Investments,
Inc. Director
AlphaTrade Inc. Director

Seibel, Sandra L. V.P.

Spanos, Gregory Sr. V.P.

Stern, Arthur O. Exe.V.P.; The Colonial Group, Inc. Exec. V.P.

Steck, Nicholas V.P.

Stevens, Richard V.P.

Stoeckle, Mark V.P. Colonial Advisory Services,
Inc. V.P.
Swayze, Gary V.P.

Wallace, John V.P.
Asst.Treasurer

- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.
Item 29 Principal Underwriter
- ------- ---------------------

(a) Liberty Financial Investments, Inc. (LFII), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFII acts in such capacity for Colonial Trust I,
Colonial Trust III, Colonial Trust IV, Colonial Trust V,
Colonial Trust VI and Colonial Trust VII. LFII is the sponsor
for Colony Growth Plans (public offering of which were discontinued
June 14, 1971).

(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.

(1) (2) (3)

Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------

Anderson, Judith V.P. None

Babbitt, Debra V.P. and None
Comp. Officer

Ballou, Rich Regional V.P. None

Balzano, Christine R. V.P. None

Bartlett, John Managing Director None

Brown, Beth V.P. None

Burtman, Tracy V.P. None

Campbell, Patrick V.P. None

Carroll, Greg Regional V.P. None

Chrzanowski, Regional V.P. None
Daniel

Claiborne, Regional V.P. None
Douglas

Clapp, Elizabeth A. Sr. 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

Devaney, James Regional V.P. None

DiMaio, Steve V.P. None

Donovan, John Regional V.P. None

Downey, Christopher V.P. None

Eckelman, Bryan Sr. V.P. None

Emerson, Kim P. Regional V.P. None

Erickson, Cynthia G. Sr. V.P. None

Evans, C. Frazier Managing Director None

Feldman, David Sr. V.P. None

Fifield, Robert Regional V.P. None

Gerokoulis, Sr. V.P. None
Stephen A.

Gibson, Stephen E. Director; Chairman None
of the Board

Goldberg, Matthew Regional V.P. None

Guenard, Brian Regional V.P. None

Harrington, Tom Sr. Regional V.P. None

Hodgkins, Joseph Sr. Regional V.P. None

Iudice, Jr., Philip Treasurer and CFO None

Jones, Cynthia V.P. None

Karagiannis, Managing Director None
Marilyn

Kelley, Terry M. Regional V.P. None

Kelson, David W. Sr. V.P. None

Koonce, Michael H. Dir.; Clerk Secretary

Libutti, Chris Regional V.P. None

McCombs, Gregory Regional Sr. V.P. None

McKenzie, Mary V.P. None

Menchin, Catherine V.P. None

Moberly, Ann R. Regional Sr. V.P. None

Morner, Patrick V.P. None

Nerney, Andrew Regional V.P. None

O'Shea, Kevin Managing Director None

Predmore, Tracy Regional V.P. None

Quirk, Frank V.P. None

Reed, Christopher B. Sr. Regional V.P. None

Scarlott, Rebecca V.P. None

Schulman, David Regional V.P. None

Scoon, Davey Director V.P.

Scott, Michael W. Sr. V.P. None

Sideropoulos, Lou V.P. None

Smith, Darren Regional V.P. None

Spanos, Gregory J. Sr. V.P. None

Studer, Eric Regional V.P. None

Sutton, R. Andrew Regional V.P. None

Tambone, James CEO None

Tasiopoulos, Lou President None

VanEtten, Keith H. Sr. V.P. None

Villanova, Paul Regional V.P. None

Wallace, John V.P. None

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

Person maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder include
Registrant's Secretary; Registrant's investment adviser and/or
administrator, Colonial Management Associates, Inc.; Registrant's
principal underwriter, Liberty Financial Investments, Inc.;
Registrant's transfer and dividend disbursing agent, Colonial
Investors Service Center, Inc.; and the Registrant's custodians,
UMB, n.a. and Boston Safe Deposit and Trust Company. The address
for each person except the Registrant's custodians is One Financial
Center, Boston, MA 02111. The address for UMB, n.a. is 928 Grand
Avenue, Kansas City, MO 64106. The address for Boston Safe Deposit
and Trust Company is One Boston Place, Boston, MA 02108.
Registrant's custodian is scheduled to change to Chase Manhattan
Bank, located at 4 Chase MetroTech Center, Brooklyn, NY 11245, in
December, 1997.

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 hereby undertakes to file a post-effective
amendment, on behalf of Colonial Government Money Market
Fund, using financial statements which need not be
certified, within four to six months from the effective
date of Registrant's Registration Statement under the
Securities Act of 1933.
<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 certifies that it meets all the requirements
for effectiveness of the Registration Statement pursuant to Rule 485(a) and has
duly caused this Post-Effective Amendment No. 34 to its Registration Statement
under the Securities Act of 1933 and the Post-Effective Amendment No. 34 under
the Investment Company Act of 1940, to be signed in this City of Boston, and The
Commonwealth of Massachusetts on this day of December, 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 December , 1997
- ---------------------
Harold W. Cogger (chief executive officer)

/s/ TIMOTHY J. JACOBY Treasurer and Chief December , 1997
- -----------------------
Timothy J. Jacoby Financial Officer

/s/ TIMOTHY J. JACOBY Controller and Chief December , 1997
- -----------------------
Timothy J. Jacoby 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
December , 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>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the SR&F Base Trust certifies that Colonial
Trust II meets all the requirements for effectiveness of the Registration
Statement pursuant to Rule 485(a) and has duly caused this Post-Effective
Amendment No. 34 to the Registration Statement on Form N-1A of Colonial Trust
II, insofar as it relates to Colonial Government Money Market Fund of said Trust
under the Securities Act of 1933 and Amendment No. 34 to its Registration
Statement under the Investment Company Act of 1940, to be signed in the City of
Chicago and the State of Illinois on this ___ day of December, 1997.

SR&F BASE TRUST

By: /s/ TIMOTHY K. ARMOUR____________
Timothy K. Armour, President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement on Form N-1A of Colonial
Trust II has been signed below by the following trustees and officers of SR&F
Base Trust in their capacities and on the date indicated.

SIGNATURES TITLE DATE

/s/ TIMOTHY K. ARMOUR______ President (Principal
Timothy K. Armour Executive Officer and
Trustee)

/s/ GARY A. ANETSBERGER____ Senior Vice President
Gary A. Anetsberger and Chief Financial
Officer (Principal
Financial Officer)

/s/ SHARON R. ROBERTSON Controller (Principal
Sharon R. Robertson Accounting Officer)
<PAGE>

/s/ KENNETH L. BLOCK_______ Trustee
Kenneth L. Block

/s/ WILLIAM W. BOYD________ Trustee
William W. Boyd

/s/ LINDSAY COOK___________ Trustee
Lindsay Cook

/s/ DOUGLAS A. HACKER_______ Trustee
Douglas A. Hacker

/s/ JANET LANGFORD KELLY____ Trustee
Janet Langford Kelly

/s/ FRANCIS W. MORLEY______ Trustee
Francis W. Morley

/s/ CHARLES R. NELSON______ Trustee
Charles R. Nelson

/s/ THOMAS C. THEOBALD______ Trustee
Thomas C. Theobald

<PAGE>

EXHIBITS

9.(iii) Form of Administration Agreement with
Colonial Management Associates, Inc.

9.(v) Proposed Form of Indemnification Agreement
between Colonial Trust II, on behalf CGMMF,
and SR&F Base Trust, on behalf of SR&F
Cash Reserves
Portfolio

11. Consent of Independent Accountants

17.(i)(a) Financial Data Schedule (Class A) (CGMMF)

17.(i)(b) Financial Data Schedule (Class B) (CGMMF)

17.(i)(c) Financial Data Schedule (Class C) (CGMMF)

ADMINISTRATION AGREEMENT

AGREEMENT dated as of ________ __, 1998 between COLONIAL TRUST II, a
Massachusetts business trust (Trust), on behalf of Colonial Money Market Fund
(Fund), and COLONIAL MANAGEMENT ASSOCIATES, INC., a Massachusetts corporation
(Administrator).

In consideration of the promises and covenants herein, the parties agree as
follows:

1. Subject to the general direction and control of the Board of Trustees of
the Trust, the Administrator shall perform such administrative services as
may from time to time be reasonably requested by the Trust, which shall
include without limitation: (a) providing office space, equipment and
clerical personnel necessary for maintaining the organization of the Fund
and for performing the administrative functions herein set forth; (b)
arranging, if desired by the Trust, for Directors, officers and employees
of the Administrator to serve as Trustees, officers or agents of the Fund
if duly elected or appointed to such positions and subject to their
individual consent and to any limitations imposed by law; (c) preparing
and, if applicable, filing all documents required for compliance by the
Fund with applicable laws and regulations, including registration
statements, registration fee filings, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (d) preparation of agendas
and supporting documents for and minutes of meetings of Trustees,
committees of Trustees and shareholders; (e) monitoring compliance by the
Fund with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act) and
reporting to the Trustees from time to time with respect thereto; (f)
monitoring the investments and operations of any open-end investment
company in which the Fund may invest and reporting to the Trustees from
time to time with respect thereto; (g) coordinating and overseeing the
activities of the Fund's other third-party service providers; and (h)
maintaining books and records of the Fund (exclusive of records required by
Section 31(a) of the 1940 Act). Notwithstanding the foregoing, the
Administrator shall not be deemed to have assumed any duties with respect
to, and shall not be responsible for, the management of the Fund's assets
or the rendering of investment advice with respect thereto, or of insuring
that any investment company in which the Fund may invest complies with Rule
2a-7 under the 1940 Act, nor shall the Administrator be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent or custodian of the Fund.

2. The Administrator shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.

3. The Fund shall pay the Administrator monthly a fee at the annual rate of
0.25% of the average daily net assets of the Fund.

4. This Agreement shall become effective as of the date of its execution, and
may be terminated without penalty by the Board of Trustees of the Trust or
by the Administrator, in each case on sixty days' written notice to the
other party.

5. This Agreement may be amended only by a writing signed by both parties.

6. In the absence of willful misfeasance, bad faith or gross negligence on the
part of the Administrator, or reckless disregard of its obligations and
duties hereunder, the Administrator shall not be subject to any liability
to the Trust or Fund, to any shareholder of the Trust or the Fund or to any
other person, firm or organization, for any act or omission in the course
of, or connected with, rendering services hereunder.

COLONIAL TRUST II
on behalf of Colonial Money Market Fund

By: _____________________________
Title: Controller

COLONIAL MANAGEMENT ASSOCIATES, INC.

By: _____________________________
Title: Executive Vice President

A copy of the document establishing the Trust is filed with the Secretary of The
Commonwealth of Massachusetts. This Agreement is executed by officers not as
individuals and is not binding upon any of the Trustees, officers or
shareholders of the Trust individually but only upon the assets of the Fund.

S:\FUNDS\GENERAL\CONTRACT\ADMNMMMF.DOC

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT dated as of ______________, 1998 by and
between Colonial Trust II (the "Colonial Trust"), a Massachusetts business trust
established under a Declaration of Trust dated February 14, 1980, as amended, on
behalf of Colonial Money Market Fund (the "Colonial Fund"), a series of the
Colonial Trust, and SR&F Base Trust ("Base Trust"), a Massachusetts trust
established under a Declaration of Trust dated June 30, 1994, as amended, on
behalf of SR&F Cash Reserves Portfolio (the "Portfolio"), a series of the Base
Trust.

WITNESSETH:

WHEREAS, the parties hereto wish to enter into a master/feeder fund
arrangement whereby the Colonial Fund will, at its sole discretion, invest all
or substantially all of its assets in shares of beneficial interest in the
Portfolio;

WHEREAS, the Registration Statement of the Colonial Trust
("Registration Statement") as filed with the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940, as amended (the "1940 Act"), and
the Securities Act of 1933, as amended (the "1933 Act," and together with the
1940 Act, the "Acts"), will disclose information concerning the Portfolio and
the Base Trust; and

WHEREAS, both the Base Trust and the Colonial Trust and their
respective trustees and certain of their respective officers will execute the
Registration Statement;

NOW THEREFORE, the parties hereto agree as follows:

SECTION 1. The Colonial Trust, on behalf of the Colonial Fund, agrees
to indemnify and hold harmless each Base Trust Indemnitee (which term as used in
this Agreement shall mean each of the Base Trust, each of its trustees, each of
its officers who signed the Registration Statement, the Portfolio and each
person who controls the Base Trust within the meaning of Section 15 of the 1933
Act, as applicable) against any losses, claims, expenses, damages or
liabilities, joint or several, to which such Base Trust Indemnitee may become
subject, under the Acts or otherwise, insofar as such losses, claims, expenses,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any final prospectus or statement of
additional information relating to the shares offered thereby ("Final
Prospectus") or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, but only to
the extent that such statement or omission does not relate to information
relating to the Base Trust or the Portfolio furnished in writing to the Colonial
Trust by the Base Trust; and agrees to reimburse each Base Trust Indemnitee for
any legal or other expenses reasonably incurred by it in connection with
investigating or defending and such loss, claim, damage, liability or action.

SECTION 2. The Base Trust, on behalf of the Portfolio, agrees to
indemnify and hold harmless each Colonial Indemnitee (which term as used in this
Agreement shall mean each of the Colonial Trust, each of its trustees, each of
its officers who signed the Registration Statement, the Colonial Fund and each
person who controls the Colonial Trust within the meaning of Section 15 of the
1933 Act, as applicable) against any losses, claims, expenses, damages or
liabilities, joint or several, to which such Colonial Indemnitee may become
subject, under the Acts or otherwise insofar as such losses, claims, expenses,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Final Prospectus or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necesarry to make the statements therein, in light of the circumstances in which
they were made, not misleading, but only to the extent that such statement or
omission relates to information relating to the Base Trust or the Portfolio
furnished in writing to the Colonial Trust by the Base Trust; and agrees to
reimburse each Colonial Indemnitee for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action.

SECTION 3. Promptly after receipt by an indemnified party under this
Agreement of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Agreement, notify the indemnifying party in writing of the
commencement thereof but the omission to so notify the indemnifying party will
not relieve it from any liability which it may have against any indemnified
party otherwise than under this Agreement. In case such action is brought
against any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and, to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified parties and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel (which approval shall
not be unreasonably withheld), the indemnifying party will not be liable to such
indemnified party under this Agreement for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel approved by the indemnifying party,
representing all the indemnified parties under this Agreement who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. In no event shall
any indemnifying party be liable in respect of any amounts paid in settlement of
any action unless the indemnifying party shall have approved the terms of such
settlement; provided, however, that such consent shall not be unreasonably
withheld.

SECTION 4. In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this
Agreement but it is judicially determined (by entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Agreement provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Colonial Trust
is responsible pro rata in proportion to the proportion of aggregate losses,
claims, expenses, damages or liabilities relating to disclosure not relating to
information relating to the Portfolio or the Base Trust furnished in writing to
the Colonial Trust by the Base Trust and the Base Trust is responsible pro rata
in proportion to the proportion of aggregate losses, claims, expenses, damages
or liabilities relating to information relating to the Base Trust or the
Portfolio furnished in writing to the Colonial Trust by the Base Trust,
provided, however, that no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to a
contribution from any person who is not guilty of such fraudulent
misrepresentation.

SECTION 5. The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Agreement
fairly allocate the risks in light of the ability of the parties to assure that
adequate disclosure is made in the Registration Statement as required by the
Acts. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Agreement, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Agreement and further agree not to attempt to
assert any such defense.

SECTION 6. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.

SECTION 7. This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.

SECTION 8. No provision of this Agreement shall protect or purport to
protect any trustee or officer of a company (as defined in the 1940 Act) against
any liability to the company or to its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.

SECTION 9. A copy of the Declaration of Trust of the Colonial Trust is
on file with the Secretary of the Commonwealth of Massachusetts, and notice is
hereby given that no trustee, officer, agent, employee or shareholder of the
Colonial Trust shall have any personal liability under this Agreement and that
this Agreement is binding only upon the assets and properties of the Colonial
Fund and not other series of the Colonial Trust. This Agreement is executed by
the officer of the Base Trust on behalf of the Base Trust and not individually
and is binding only upon the assets and property of the Portfolio and not the
other series of the Base Trust, nor on any trustee, officer, agent, employee or
shareholder of the Base Trust.

<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as a sealed instrument by its President or Vice
President and its corporate seal to be affixed hereto and attested by its
Secretary or Assistant Secretary.

COLONIAL MONEY MARKET FUND

BY: COLONIAL TRUST II

ATTEST:__________________________ BY:_______________________________

SR&F CASH RESERVES PORTFOLIO

BY: SR&F BASE TRUST

ATTEST:__________________________ BY:________________________________

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Statements
of Additional Information constituting part of this Post-Effective Amendment
No. 34 to the registration statement on Form N-1A (the "Registration Statement")
of our report dated October 13, 1997, relating to the financial statements and
financial highlights appearing in the August 31, 1997 Annual Report to
Shareholders of Colonial Government Money Market Fund, a series of Colonial
Trust II, which is also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings
"The Fund's Financial History" in the Prospectus and "Independent
Accountants" in the Statement of Additional Information."

PRICE WATERHOUSE LLP
Boston, Massachusetts
December 31, 1997

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