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. 31 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 31 [X]
COLONIAL TRUST II
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(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of Principal Executive Offices)
(617) 426-3750
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(Registrant's Telephone Number, Including Area Code)
Name and Address of Agent for Service: Copy to:
- -------------------------------------- --------
Michael H. Koonce, Esquire John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 12, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on [date] pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on [date] pursuant to paragraph (a)(2) of Rule 485
If appropriate check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
This Post-Effective Amendment relates solely to Newport Greater China Fund. No
information relating to any other series of the Registrant is amended or
superseded hereby.
<PAGE>
COLONIAL TRUST II
Cross Reference Sheet (Newport Greater China Fund--Classes A, B and C)
Item Number of Form N-1A Prospectus Location or Caption
- ------------------------ ------------------------------
Part A
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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; How the Fund is managed; Organization
and history; The Fund's investment objective;
Back cover
6. Organization and history; Distributions and taxes;
How to buy shares
7. Summary of expenses; How to buy shares; How the
Fund values its shares; 12b-1 plans; Back cover
8. How to sell shares; How to exchange shares;
Telephone transactions
9. Not applicable
<PAGE>
December 12, 1997 GC-XX/XXXX-1197
NEWPORT GREATER CHINA FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) and your full-service
financial adviser want you to understand both the risks and benefits of mutual
fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Newport Greater China Fund (Fund), a non-diversified portfolio of Colonial Trust
II (Trust), an open-end management investment company, seeks long-term growth of
capital by investing primarily in equity securities of companies located in, or
which derive a substantial portion of their revenue from business activity with
or in, the Greater China Region (i.e., Hong Kong, the People's Republic of China
and Taiwan).
The Fund is managed by Newport Fund Management, Inc. (Adviser), an
investment adviser since 1984 and an affiliate of the Administrator.
This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the December 12, 1997 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Administrator at 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
The Fund offers multiple classes of shares. Class A shares are offered at net
asset value plus a sales charge imposed at the time of purchase; Class B shares
are offered at net asset value and are subject to an annual distribution fee and
a declining contingent deferred sales charge on redemptions made within six
years after purchase; and Class C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year after purchase. Class B shares automatically
convert to Class A shares after approximately eight years. See "How to Buy
Shares."
Contents Page
Summary of Expenses
The Fund's Financial History
The Fund's Investment Objective
How the Fund Pursues its Objective
and Certain Risk Factors
How the Fund Measures its
Performance
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
12b-1 Plan
Organization and History
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NOT MAY LOSE VALUE
FDIC-INSURED NO BANK GUARANTEE
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your estimated
annual expenses for an investment in the Class A, Class B and Class C shares of
the Fund. "Other expenses" are based on estimated amounts for the current fiscal
year. See "How the Fund is Managed" and "12b-1 Plan" for more complete
descriptions of the Fund's various costs and expenses.
Shareholder Transaction Expenses (1)(2)
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price) (3) 5.75% 0.00%(5) 0.00%(5)
Maximum Contingent Deferred Sales Charge (as a % of offering price) (3) 1.00%(4) 5.00% 1.00%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be
deducted. See "How to Buy Shares."
(2) Redemption proceeds exceeding $1,000 sent via federal funds wire will
be subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of $1 million to $5
million redeemed within approximately 18 months after purchase.
See "How to Buy Shares."
(5) Because of the 0.75% distribution fee applicable to Class B and
Class C shares, long-term Class B and Class C shareholders may pay
more in aggregate sales charges than the maximum initial sales
charge permitted by the National Association of Securities Dealers,
Inc. However, because the Fund's Class B shares automatically
convert to Class A shares after approximately 8 years, this is less
likely for Class B shares than for a class without a conversion
feature.
Estimated Annual Operating Expenses (as a % of average net assets)
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management and administration fees (after expense reimbursement)(6) 0.81% 0.81% 0.81%
12b-1 fees 0.25 1.00 1.00
Other expenses 1.09 1.09 1.09
---- ---- ----
Total operating expenses (after expense reimbursement)(6) 2.15% 2.90% 2.90%
==== ==== ====
</TABLE>
(6) The Adviser and Administrator have voluntarily agreed until further
notice to waive their fees and bear Fund expenses so that the
Fund's total annual operating expenses, excluding commissions, taxes,
12b-1 fees and any extraordinary expenses will not exceed 1.90%.
Absent such fee waiver, "Management and administration fees" would
be 1.40% for each Class of shares and "Total operating expenses"
would be 2.74% (Class A) and 3.49% (Classes B and C).
Example
The following Example shows the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in each of the Class A, Class B
and Class C shares of the Fund shares for the periods specified, assuming a 5%
annual return and, unless otherwise noted, redemption at period end. The 5%
return and expenses in this Example should not be considered indicative of
actual or expected Fund performance or expenses, both of which will vary:
Class A Class B Class C
Period: (7) (8) (7) (8)
1 year $ 78 $ 79 $29 $39 $29
3 years $121 $120 $90 $90(9) $90
Without voluntary fee reductions by the Adviser and Administrator:
Class A Class B Class C
Period: (7) (8) (7) (8)
1 year $ 84 $ 85 $35 $45 $35
3 years $138 $137 $107 $107(9) $107
(7) Assumes redemption at period end.
(8) Assumes no redemption.
(9) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
<PAGE>
THE FUND'S FINANCIAL HISTORY
The following financial highlights for a Class A, Class B or Class C share
outstanding throughout the period from May 16, 1997 (effective date of
registration) through August 31, 1997 have been derived from the Fund's
financial statements, which 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.
Period ended August 31
1997(d)
--------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Net asset value - Beginning of period $13.340 $13.330 $13.330
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a)(b)(c) 0.052 (0.004) (0.004)
Net realized and unrealized gain (b)(j) 4.508 4.534 4.534
----- ----- -----
Total from Investment Operations 4.560 4.530 4.530
----- ----- -----
Net asset value - End of period $17.900 $17.860 $17.860
------- ------- -------
Total return (e)(f)(g) 34.22% 33.98% 33.98%
----- ----- -----
RATIOS TO AVERAGE NET ASSETS
Expenses (h)(i) 2.15% 2.90% 2.90%
Net investment income (h)(i) 0.89% 0.14% 0.14%
Fees and expenses waived or borne by the
Adviser/Administrator (h)(i) 0.59% 0.59% 0.59%
Portfolio turnover (g) 4% 4% 4%
Average commission rate $0.0094 $0.0094 $0.0094
Net assets at end of period (000) $115,699 $135 $134
- ---------------------------------
</TABLE>
(a) Net of fees and expenses waived or borne by the
Adviser/Administrator which amounted to: $0.034 $0.034 $0.034
(b) Per share data was calculated using average shares outstanding during
the period.
(c) Includes distributions from China Light & Power Co. Ltd, Dah Sing
Financial, Glorious Sun Enterprises and Hang Seng Bank Limited which
amounted to $0.078 per share.
(d) The Fund commenced investment operations on May 12, 1997. The activity
shown is from the effective date of registration (May 16, 1997) with
the Securities and Exchange Commission. The per share information
reflects the 1.5 for 1 stock split effective July 25, 1997.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(i) Annualized.
(j) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period due to the timing of
sales and repurchases of Fund shares in relation to fluctuating market
values of the investments of the Fund.
Further performance information is contained in the Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital by investing primarily in equity
securities of companies located in, or which derive a substantial portion of
their revenue from business activity with or in, the Greater China Region (i.e.,
Hong Kong, the People's Republic of China and Taiwan).
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund normally invests at least 80% of its total assets in equity securities
of companies located in, or which derive a substantial portion (at least 50%) of
their revenue from business activity with or in, the Greater China Region. The
remaining 20% may be invested in equity securities of companies that are
otherwise expected to benefit from the Greater China Region's anticipated
economic growth. The Adviser currently anticipates that the Fund will invest
primarily in companies whose securities are listed and traded in Hong Kong, but
that the Adviser believes will benefit from growth opportunities in mainland
China.
The Fund generally invests in companies with at least $100 million in equity
market capitalization at the time of purchase, as well as both seasoned
companies and those with limited operating histories. The equity securities in
which the Fund invests include common and preferred stock, warrants (rights) to
purchase stock, debt securities convertible into stock, sponsored and
unsponsored American Depositary Receipts (receipts issued in the U.S. by banks
or trust companies evidencing ownership of underlying foreign securities),
Global Depositary Receipts (receipts issued by foreign banks or trust
companies) and shares of closed-end investment companies that invest primarily
in the foregoing securities. Dividend income will not be considered in choosing
the investments of the Fund.
An investment in the Fund involves a high degree of risk arising out of its
concentration of investments in companies located in or economically tied to the
Greater China Region. This Region currently is undergoing significant economic
and political change. The uncertainty surrounding such change, as well as any
adverse developments that may occur both within the Region as well as within
other parts of Southeast Asia, may negatively impact the Fund's return and the
value of the Fund's shares. See "The Greater China Region" below. An investment
in the Fund also involves special risks generally associated with foreign
investing and with investing in smaller, less-established companies. See
"Foreign Investing Generally" and "Small Companies" below.
The Greater China Region. Although Hong Kong, the People's Republic of China and
Taiwan are closely tied economically, they have different political and economic
systems and their markets and regulatory structures are at different stages of
development. Following is a summary of the major risks and uncertainties
associated with investing in each country.
Hong Kong. Although Hong Kong has the most developed securities markets of the
three countries in the Greater China Region, a substantial portion of its
economy is dependent on investments in or trade with China and other
less-developed Asian countries. Political and economic developments in those
countries including but not limited to inflation, recession or currency
fluctuations, could adversely impact the Fund's Hong Kong investments.
As of July 1, 1997, sovereignty over Hong Kong was transferred from Great
Britain to China and Hong Kong became a Special Administrative Region of China.
In connection with this transfer, China has agreed to maintain for 50 years Hong
Kong's existing economic and social systems, as well as most of the personal
freedoms previously enjoyed by Hong Kong residents. Nevertheless, it is
impossible to predict with certainty the ultimate effect Chinese sovereignty
will have on Hong Kong's business environment. Chinese sovereignty could result
in the imposition of significant restrictions on social or economic activity
within Hong Kong. These or other potential actions by China could adversely
affect the Fund's Hong Kong investments.
China. Since 1978, China's leaders have implemented economic reforms which have
transformed China from a socialist economy to one that is increasingly
market-based. These changes have included the creation of two domestic stock
exchanges and have stimulated strong economic growth. The continued development
of China's industrial and service sectors will depend on, among other things,
the extent to which governmental policies continue to support such development
and the pace at which economic reforms are implemented.
Investments in China also are significantly affected by domestic political
developments. As evidenced by the government's actions during the 1989 crisis in
<PAGE>
Tiananmen Square, the Chinese government's reaction to domestic and
international events is unpredictable. Uncertainty exists particularly with
respect to China's relationship with Taiwan and the ultimate impact on Hong Kong
of the assumption of sovereignty by China. Dramatic action by China's leaders
could cause extreme short-run volatility in the value of the Fund's investments
and the Fund's shares, and also could significantly and adversely affect the
Fund's returns in the long run. Similarly, China's relations with its important
trading partners in the West (including the United States) could be adversely
affected if the Chinese government's human rights policies are perceived to be
deteriorating. Even if trading relations are not actually affected, threats to
impose trading restrictions could cause substantial short-term volatility in the
value of the Fund's China investments and of the Fund's shares.
Taiwan. The Taiwan Stock Exchange is owned by government-controlled enterprises
and private banks and has only recently begun to allow direct foreign investment
in listed Taiwan securities. Substantial restrictions on such investment remain,
including limitations on the percentage of shares of a company that may be
foreign-owned and prohibitions on foreign ownership of companies in certain
industries.
Taiwan's economy is heavily dependent on exports. Any deterioration in Taiwan's
relationships with its trading partners could adversely impact Taiwan's economy
and the Fund's Taiwan investments. In particular, Taiwan has become increasingly
dependent on direct and indirect trade with China and other Asian countries.
Adverse economic or political developments in those countries could negatively
impact the Fund's Taiwan investments.
Investments in Taiwan could be affected by Taiwan's political relationship with
China. Uncertainty over the prospects for political reunification between the
two countries could make the value of the Fund's Taiwan investments and of its
shares particularly volatile and could negatively impact returns, especially if
China threatens political or military action. Such reunification, if it were to
occur, also could negatively impact the Fund's Taiwan investments.
General. Countries both within the Greater China Region and in other parts of
Southeast Asia have experienced rapid economic growth. While these countries are
expected to continue to grow economically over the long-term, they can be
expected to do so at varying rates and to experience periods of high inflation,
economic recession and currency fluctuations along the way. Such periods may be
associated with greater, and sometimes extreme, fluctuations in the value of
investments in the Region, compared to investments in more developed economies.
Further, events in one country may impact investments in other countries.
Monetary, fiscal and other governmental policies adopted by the countries in and
around the Region in response to such economic developments could exacerbate any
such fluctuations.
Foreign Investing Generally. In addition to the specific risks described above,
investing in foreign securities generally entails special risks not associated
with investing in U.S. securities. As a result, the prices of foreign securities
and, therefore, the value of Fund shares, may fluctuate substantially more than
the prices of securities of issuers based in the U.S. Special risks associated
with foreign investing include, among others, the possibility of unfavorable
movements in currency exchange rates, difficulties in enforcing judgments
abroad, the existence of less liquid and less regulated markets, the
unavailability of reliable information about issuers, the existence of different
accounting, auditing and legal standards in foreign countries, the existence (or
potential imposition) of exchange control regulations (including currency
blockage or other restrictions on repatriation of capital), and political and
economic instability. In addition, transactions in foreign securities may be
more costly due to currency conversion costs and higher brokerage and custodial
costs and may be subject to delays and disruptions in securities settlement
procedures. See "Foreign Securities" and "Foreign Currency Transactions" in the
Statement of Additional Information for more information about foreign
investments.
Small Companies. The smaller, less well-established companies in which the Fund
may invest may offer greater opportunities for capital appreciation than larger,
better-established companies, but may also involve certain special risks. Such
companies often have limited product lines, markets or financial resources and
depend heavily on a small management group. Their securities may trade less
frequently, in smaller volumes, and fluctuate more sharply in value than
exchange-listed securities of larger companies.
Other Investment Companies. Up to 10% of the Fund's total assets may be invested
in shares of closed-end investment companies. Such investments will involve the
payment of duplicative fees through the indirect payment of a portion of the
expenses,
<PAGE>
including advisory fees, of such investment companies.
Foreign Currency Transactions. In connection with its investments in equity
securities, the Fund may purchase and sell (i) foreign currencies on a spot or
forward basis, (ii) foreign currency futures contracts, and (iii) options on
foreign currencies and foreign currency futures. Such transactions will be
entered into (i) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the Fund,
or (ii) to hedge against a decline in the value, in U.S. dollars or in another
currency, of a foreign currency in which securities held by the Fund are
denominated. The Fund will not attempt, nor would it be able, to eliminate all
foreign currency risk. Further, although hedging may lessen the risk of loss if
the hedged currency's value declines, it limits the potential gain from currency
value increases. See the Statement of Additional Information for information
relating to the Fund's obligations in entering into such transactions.
Futures Contracts and Options. The Fund may purchase and sell foreign stock
index futures contracts and options on such contracts. Such transactions will be
entered into to gain exposure to a particular foreign equity market pending
investment in individual securities or to hedge against market declines. A
futures contract creates an obligation by the seller to deliver and the buyer to
take delivery of a type of instrument at the time and in the amount specified in
the contract. A sale of a futures contract can be terminated in advance of the
specified delivery date by subsequently purchasing a similar contract; a
purchase of a futures contract can be terminated by a subsequent sale. Gain or
loss on a contract generally is realized upon such termination. An option on a
futures contract generally gives the option holder the right, but not the
obligation, to purchase or sell the futures contract prior to the option's
specified expiration date. If the option expires unexercised, the holder will
lose any amount it paid to acquire the option. Transactions in futures and
related options may not precisely achieve the goals of hedging or gaining market
exposure to the extent there is an imperfect correlation between the price
movements of the contracts and of the underlying securities. In addition,
hedging against a market decline will limit the Fund's return if the market
instead appreciates.
Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets. However, the Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.
<PAGE>
Temporary/Defensive Investments. Temporarily available cash may be
invested in U.S. dollar or foreign currency denominated demand deposits,
certificates of deposit, bankers' acceptances and high-quality, short-term debt
securities, as well as in Treasury bills and repurchase agreements. Some or all
of the Fund's assets may be invested in such investments during periods of
unusual market conditions. Under a repurchase agreement, the Fund buys a
security from a bank or dealer, which is obligated to buy it back at a fixed
price and time. The security is held in a separate account at the Fund's
custodian and, constitutes the Fund's collateral for the bank's or dealer's
repurchase obligation. Additional collateral will be added so that the
obligation will at all times be fully collateralized. However, if the bank or
dealer defaults or enters bankruptcy, the Fund may experience costs and delays
in liquidating the collateral and may experience a loss if it is unable to
demonstrate its right to the collateral in a bankruptcy proceeding. Not more
than 15% of the Fund's net assets will be invested in repurchase agreements
maturing in more than seven days and other illiquid assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors in connection with
any material change in the Fund's investment objective. If there is a change in
the investment objective or investment policies, shareholders should consider
whether the Fund remains an appropriate investment in light of their financial
position and needs. Shareholders may incur a contingent deferred sales charge if
shares are redeemed in response to a change in investment objective or
investment policies. The Fund's fundamental investment policies listed in the
Statement of Additional Information cannot be changed without the approval of a
majority of the Fund's outstanding voting securities. Additional information
concerning certain of the securities and investment techniques described above
is contained in the Statement of Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Each Class's
average annual total returns are calculated in accordance with the Securities
and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge of 5.75% on Class A shares and
the contingent deferred sales charge applicable to the time period quoted on
Class B and Class C shares. Other total returns differ from the average annual
total return only in that they may relate to different time periods, may
represent aggregate as opposed to average annual total returns, and may not
reflect the initial or contingent deferred sales charges.
Each Class's yield, which differs from total return because it does not consider
changes in net asset value, is calculated in accordance with the Securities and
Exchange Commission's formula. Each Class's distribution rate is calculated by
dividing the most recent twelve months' distributions by the maximum offering
price of that Class at the end of the period. Each Class's performance may be
compared to various indices. Quotations from various publications may be
included in sales literature and advertisements. See "Performance Measures" in
the Statement of Additional Information.
All performance information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
Liberty Financial Investments, Inc. (Distributor), a subsidiary of the
Administrator, serves as the distributor for the Fund's shares. Colonial
Investors Service Center, Inc. (Transfer Agent), an affiliate of the
Administrator, serves as the shareholder services and transfer agent for the
Fund. Each of the Adviser, the Administrator, the Distributor and the Transfer
Agent 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 considered to be the
controlling entity of the Adviser, the Administrator and their affiliates.
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S.
The Adviser furnishes the Fund with investment management services at the
Adviser's expense. For these services, the Fund pays the Adviser a monthly fee
at an annual rate of 1.15% of the Fund's average daily net assets.
<PAGE>
The Fund's portfolio management team consists of three co-managers: Thomas R.
Tuttle, as lead portfolio manager, and Xiaodong (Tony) Zhang and Christopher
Legallet.
Mr. Tuttle is Senior Vice President of the Adviser and of Newport Pacific
Management, Inc. ("Newport Pacific"), the Adviser's immediate parent. Mr. Tuttle
has been affiliated with the Adviser since 1983.
Mr. Zhang is a Senior Investment Officer and Greater China Analyst of the
Adviser and of Newport Pacific. Mr. Zhang has been affiliated with the Adviser
since 1993. Prior to his affiliation with the Adviser, Mr. Zhang was Project
Manager of overseas investments for Hongmei Electric Corporation in China from
1990 to 1992.
Mr. Legallet recently joined the Adviser as a Senior Vice President. Prior to
his affiliation with the Adviser, Mr. Legallet was a Managing Director of
Jupiter Tyndall (Asia) Ltd. in Hong Kong serving as lead manager for investment
in Asia, and prior to 1992, a Vice President of Salomon Brothers Inc. in New
York.
The Administrator provides certain administrative services to the Fund, for
which the Fund pays the Administrator a monthly fee at the annual rate of 0.25%
of the Fund's average daily net assets. The Administrator also provides pricing
and bookkeeping services to the Fund for a monthly fee of $2,250 plus a
percentage of the Fund's average net assets over $50 million.
The Transfer Agent provides transfer agency and shareholder services to the Fund
for a monthly fee at the annual rate of 0.25% of average daily net assets plus
certain out-of-pocket expenses. In October, 1997, the fee for such transfer
agency and shareholder services began to be reduced monthly and will continue to
do so through September, 1998, until the fee reaches 0.236%.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser and its affiliates may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished by such broker-dealers to the Adviser and its affiliates. 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. The
Adviser may use the services of AlphaTrade Inc., its registered broker-dealer
subsidiary, when buying or selling equity securities for the Fund's portfolio,
pursuant to procedures adopted by the Trustees under Investment Company Act
Rule 17e-1. Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
Fund expenses consist of management, administration, pricing and bookkeeping,
shareholder service and transfer agent fees discussed above, 12b-1 service and
distribution fees discussed under the caption "12b-1 Plan," and all other
expenses, fees, charges, taxes, organization costs and liabilities incurred or
arising in connection with the Fund or Trust or in connection with the
management thereof, including but not limited to, trustees' compensation and
expenses and auditing, counsel, custodian and other expenses deemed necessary
and proper by the Trustees.
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
valued as of the close (normally 4:00 p.m. Eastern time) of the New York Stock
Exchange (Exchange) each day the Exchange is open. Portfolio securities for
which market quotations are readily available are valued at current market
value. Short-term investments maturing in 60 days or less are valued at
amortized cost when the Adviser determines, pursuant to procedures adopted by
the Trustees, that such cost approximates current market value. In certain
countries, the Fund may hold shares designated for foreign ownership. If market
quotations for such shares are not readily available as a result of limited
trading activity, the securities are valued at the last sale price of the local
shares in the principal market in which such securities are normally traded. All
other securities and assets are valued at their fair value following procedures
adopted by the Trustees.
<PAGE>
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income and any net
realized gain, at least annually.
Distributions are invested in additional shares of the same Class of the Fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash to
shareholders but will be invested in additional shares of the same Class of the
Fund at net asset value. 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. If you
buy shares shortly before a distribution is declared, the distribution will be
taxable although it is, in effect, a partial return of the amount invested. Each
January, information on the amount and nature of distributions for the prior
year is sent to shareholders.
HOW TO BUY SHARES
Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with the financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.
The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class C shares and there are
some limitations on the issuance of Class A share certificates. The Fund may
refuse any purchase order for its shares. See the Statement of Additional
Information for more information.
Class A Shares. Class A shares are offered at net asset value plus
an initial sales charge as follows:
Initial Sales
Charge
---------------------------------------
Retained
by
Financial
Service
as % of Firm as
-------------------------- % of
Amount Amount Offering Offering
Purchased Invested Price Price
Less than 6.10% 5.75% 5.00%
$50,000
$50,000 to
less than 4.71% 4.50% 3.75%
$100,000
$100,000 to
less than 3.63% 3.50% 2.75%
$250,000
$250,000 to
less than 2.56% 2.50% 2.00%
$500,000
$500,000 to
less than 2.04% 2.00% 1.75%
$1,000,000
$1,000,000 or 0.00% 0.00% 0.00%
more
On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
(1) Paid over 12 months but only to the extent the shares remain
outstanding.
In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held by an investor.
If a purchase results in an account having a value from $1 million to $5
million, then the shares purchased will be subject to a 1.00% contingent
deferred sales charge, payable to the Distributor, if redeemed within 18 months
from the first day of the month following the purchase. If the purchase results
in an account having a value in excess of $5 million, the contingent deferred
sales charge will not apply to the portion of the purchased shares comprising
such excess amount.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they
<PAGE>
automatically convert to Class A shares not bearing a distribution fee) and a
declining contingent deferred sales charge if redeemed within six years after
purchase. As shown below, the amount of the contingent deferred sales charge
depends on the number of years after purchase that the redemption occurs:
Contingent
Years Deferred
After Sales
Purchase Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
4.00% on Class B share purchases.
Class 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 pays financial service firms an initial commission of 1.00%
on purchases of Class C shares and an ongoing commission of
0.75% annually, commencing after the shares purchased have been outstanding for
one year. Payment of the ongoing commission is conditioned on receipt by the
Distributor of the 0.75% annual distribution fee referred to above. The
commission may be reduced or eliminated by the Distributor at any time
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account, reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is
made, generally, older shares will be redeemed first unless the shareholder
instructs otherwise. See the Statement of Additional Information for more
information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class C shares. Purchases of $250,000 or
more must be for Class A or Class C shares. Purchases of $1,000,000 or more must
be for Class A shares. Consult your financial service firm.
The Fund also offers Class Z shares, which are offered through a separate
Prospectus only to (i) employees of the Administrator and its affiliates and
(ii) certain institutions and defined benefit retirement plans investing a
minimum of $5 million in the Fund. Class Z shares have no initial or contingent
deferred sales charge and no Rule 12b-1 fee. Otherwise, the Class Z share
expenses are the same as Classes A, B and C. Class Z shares are exchangeable
only for Class A shares of the other Colonial funds.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales.
See the Statement of Additional Information for more information.
Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."
Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.
In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000 unless the account value has dropped
below $1,000 solely as a result of share value depreciation.
Shareholders will receive 60 days' written notice to increase the account value
before the fee is deducted. The Fund may also deduct annual maintenance and
processing fees (payable to the Transfer Agent) in connection with certain
retirement plan accounts. See "Special Purchase Programs/Investor Services" in
the Statement of Additional Information for more information.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or another eligible guarantor institution. Stock
power forms are available from financial service firms, the Transfer Agent and
many banks. Additional documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual retirement account
holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, the
Fund may suspend repurchases or postpone payment for up to seven days or longer,
as permitted by federal securities law.
HOW TO EXCHANGE SHARES
Except as described below with respect to money market funds, Fund shares may be
exchanged at net asset value for shares of other mutual funds distributed by the
Distributor, including funds advised by the Adviser, the Administrator and
Stein Roe & Farnham Incorporated. Generally, such exchanges must be
between the same classes of shares. Consult your financial service firm or the
Transfer Agent for information regarding what funds are available. Shares will
continue to age without regard to the exchange for purposes of conversion and in
determining the contingent deferred sales charge, if any, upon redemption.
Carefully read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-426-3750 to receive a prospectus and an
exchange authorization form. Call 1-800-422-3737 to exchange shares by
telephone. An exchange is a taxable capital transaction. The exchange service
may be changed, suspended or eliminated on 60 days' written notice. The Fund
will terminate the exchange privilege as to a particular shareholder if it is
determined by the Adviser, in its sole and absolute discretion,
that the shareholder's exchange activity is likely to adversely impact the
Adviser's ability to manage the Fund's investments in accordance with its
investment objective or otherwise harm the Fund or its remaining shareholders.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge 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 time exchanges are made at
the net asset value next determined.
Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of
<PAGE>
the fund in which the original investment was made.
Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one "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 by calling 1-800-422-3737 toll-free any business day
between 9:00 a.m. and the time at which the Fund values its shares. Telephone
redemption privileges for larger amounts may be elected on the account
application. The Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and may be liable for
losses related to unauthorized or fraudulent transactions in the event
reasonable procedures are not employed. Such procedures include restrictions
on where proceeds of telephone redemptions may be sent, limitations on the
ability to redeem by telephone shortly after an address change, recording
of telephone lines and requirements that the redeeming shareholder and/or
his or her financial adviser provide certain identifying information.
Shareholders and/or their financial advisers wishing to redeem or exchange
shares by telephone may experience difficulty in reaching the Fund at its
toll-free telephone number during periods of drastic economic or market
changes. In that event, shareholders and/or their financial advisers should
follow the procedures for redemption or exchange by mail as described above
under "How to Sell Shares." The Adviser, the 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 an
annual rate of 0.25% of the Fund's net assets attributed to its Class A,
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.
Because the Class B and Class C shares bear additional distribution fees, their
dividends will be lower than the dividends of Class A shares. Class B
shares automatically convert to Class A shares, approximately eight years after
the Class B shares were purchased. Class C shares do not convert. The multiple
class structure could be terminated should certain Internal Revenue Service
rulings be rescinded. See the Statement of Additional Information for more
information. The Distributor uses the fees to defray the cost of commissions and
service fees paid to financial service firms which have sold Fund shares, and to
defray other expenses such as sales literature, prospectus printing and
distribution, shareholder servicing costs and compensation to wholesalers.
Should the fees exceed the Distributor's expenses in any year, the Distributor
would realize a profit. The Plans also authorizes other payments to the
Distributor and its affiliates (including the Adviser and the Administrator)
which may be construed to be indirect financing of sales of Fund shares.
<PAGE>
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1980. The Fund
commenced investment operations in 1997 as a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
<PAGE>
Investment Adviser
Newport Fund Management, Inc.
580 California Street, Suite 1960
San Francisco, CA 94104
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Liberty Financial Investments, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A
December 12, 1997
NEWPORT GREATER CHINA FUND
PROSPECTUS
Newport Greater China Fund seeks long-term growth of capital by investing
primarily in equity securities of companies located in, or which derive a
substantial portion of their revenue from business activity with or in, the
Greater China Region (i.e., Hong Kong, the People's Republic of China and
Taiwan).
For more detailed information about the Fund, call the Administrator at
1-800-426-3750 for the December 12, 1997 Statement of Additional
Information.
- --------------------------------------------------------------------------------
NOT MAY LOSE VALUE
FDIC-INSURED NO BANK
GUARANTEE
- --------------------------------------------------------------------------------
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
______________________________________
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
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to reduce your sales charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial, 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
_____________________________________
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 TRUST II
Cross Reference Sheet (Newport Greater China Fund--Class Z)
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; How the Fund is managed; Organization
and history; The Fund's investment objective;
Back cover
6. Organization and history; Distributions and taxes;
How to buy shares
7. Summary of expenses; How to buy shares; How the
Fund values its shares; 12b-1 plans; Back cover
8. How to sell shares; How to exchange shares;
Telephone transactions
9. Not applicable
<PAGE>
<PAGE>
December 12, 1997 GC-XX-XXXX-1197
NEWPORT GREATER CHINA FUND
CLASS Z SHARES
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Administrator) and your
full-service financial adviser want you to understand both the risks and
benefits of mutual fund investing.
While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency.
Please consult your full-service financial adviser to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.
Newport Greater China Fund (Fund), a non-diversified portfolio of Colonial Trust
II (Trust), an open-end management investment company, seeks long-term growth of
capital by investing primarily in equity securities of companies located in, or
which derive a substantial portion of their revenue from business activity with
or in, the Greater China Region (i.e., Hong Kong, the People's Republic of China
and Taiwan).
The Fund is managed by Newport Fund Management, Inc. (Adviser), an
investment adviser since 1984 and an affiliate of the Administrator.
This Prospectus explains concisely what you should know before
investing in the Class Z shares of the Fund. Read it carefully and
retain it for future reference. More detailed information about the Fund is in
the December 12, 1997 Statement of Additional Information which has been filed
with the Securities and Exchange Commission and is obtainable free of charge by
calling the Administrator at 1-800-426-3750. The Statement of Additional
Information is incorporated by reference in (which means it is considered to be
a part of) this Prospectus.
Class Z shares may be purchased only by (i) certain institutions (including
certain insurance companies and banks investing for their own account, trusts,
endowment funds, foundations and investment companies) and defined benefit
retirement plans investing a minimum of $5 million in the Fund and (ii) the
Adviser and its affiliates.
Contents Page
Summary of Expenses
The Fund's Financial History
The Fund's Investment
Objective
How the Fund Pursues its
Objective
and Certain Risk Factors
How the Fund Measures its
Performance
How the Fund is Managed
How the Fund Values its Shares
Distributions and Taxes
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Telephone Transactions
Organization and History
- --------------------------------------------------------------------------------
NOT MAY LOSE VALUE
FDIC-INSURED NO BANK GUARANTEE
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your estimated
annual expenses for an investment in Class Z shares of the Fund. "Other
expenses" are based on estimated amounts for the current fiscal year. See "How
the Fund is Managed" for more complete descriptions of the Fund's various costs
and expenses.
Shareholder Transaction Expenses (1)(2)
Maximum Initial Sales Charge Imposed on a Purchase
(as a % of offering price) 0.00%
Maximum Contingent Deferred Sales Charge
(as a % of offering price) 0.00%
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."
(2) Redemption proceeds exceeding $1,000 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
Estimated Annual Operating Expenses (as a % of average net assets)
Management and administration fees (after expense reimbursement)(3) 0.81%
12b-1 fees 0.00
Other expenses 1.09
----
Total operating expenses (after expense reimbursement) (3) 1.90%
====
(3) The Adviser and Administrator have voluntarily agreed until further notice
to waive their fees and bear Fund expenses so that the Fund's total annual
operating expenses, excluding commissions, taxes, 12b-1 fees and any
extraordinary expenses will not exceed 1.90%. Absent such waiver,
"Management and Administration fees" would be 1.40% and "Total operating
expenses" would be 2.49%.
Example
The following Example shows the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in the Class Z shares of the
Fund for the periods specified, assuming a 5% annual return with or without
redemption at period end. The 5% return and expenses in this Example should not
be considered indicative of actual or expected Fund performance or expenses,
both of which will vary:
Period:
1 year $19
3 years $60
Without voluntary fee reductions by the Adviser and Administrator:
Period:
1 year $25
3 years $78
2
<PAGE>
THE FUND'S FINANCIAL HISTORY
The following financial highlights for a Class Z share outstanding throughout
the period from May 16, 1997 (effective date of registration) through August 31,
1997 have been derived from the Fund's financial statements, which 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.
Period ended August 31
1997(d)
----------------------
Class Z
-------
Net asset value - Beginning of period $13.340
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a)(b)(c) 0.065
Net realized and unrealized gain (b)(j) 4.505
-----
Total from Investment Operations 4.570
-----
Net asset value - End of period $17.910
-------
Total return (e)(f)(g) 34.29%
-----
RATIOS TO AVERAGE NET ASSETS
Expenses (h)(i) 1.90%
Net investment income (h)(i) 1.14%
Fees and expenses waived or borne by the
Adviser/Administrator (h)(i) 0.59%
Portfolio turnover (g) 4%
Average commission rate $0.0094
Net assets at end of period (000) $135
- ---------------------------------
(a) Net of fees and expenses waived or borne
by the Adviser/Administrator which amounted to: $ 0.034
(b) Per share data was calculated using average shares outstanding during
the period.
(c) Includes distributions from China Light & Power Co.
Ltd, Dah Sing Financial, Glorious Sun Enterprises and Hang Seng Bank
Limited which amounted to $0.078 per share.
(d) The Fund commenced investment operations on May 12, 1997. The activity
shown is from the effective date of registration (May 16, 1997) with
the Securities and Exchange Commission. The per share information
reflects the 1.5 for 1 stock split effective July 25, 1997.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(i) Annualized.
(j) The amount shown for a share outstanding does not correspond with the
aggregate net loss on investments for the period due to the timing of
sales and repurchase of Fund shares on relation to fluctuating market
values of the investments of the Fund.
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.
3
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital by investing primarily in equity
securities of companies located in, or which derive a substantial portion of
their revenue from business activity with or in, the Greater China Region (i.e.,
Hong Kong, the People's Republic of China and Taiwan).
HOW THE FUND PURSUES ITS OBJECTIVE AND CERTAIN RISK FACTORS
The Fund normally invests at least 80% of its total assets in equity securities
of companies located in, or which derive a substantial portion (at least 50%) of
their revenue from business activity with or in, the Greater China Region. The
remaining 20% may be invested in equity securities of companies that are
otherwise expected to benefit from the Greater China Region's anticipated
economic growth. The Adviser currently anticipates that the Fund will invest
primarily in companies whose securities are listed and traded in Hong Kong, but
that the Adviser believes will benefit from growth opportunities in mainland
China.
The Fund generally invests in companies with at least $100 million in equity
market capitalization at the time of purchase, as well as both seasoned
companies and those with limited operating histories. The equity securities in
which the Fund invests include common and preferred stock, warrants (rights) to
purchase stock, debt securities convertible into stock, sponsored and
unsponsored American Depository Receipts (receipts issued in the U.S. by banks
or trust companies evidencing ownership of underlying foreign securities),
Global Depositary Receipts (receipts issued by foreign banks or trust companies)
and shares of closed-end investment companies that invest primarily in the
foregoing securities. Dividend income will not be considered in choosing the
investments of the Fund.
An investment in the Fund involves a high degree of risk arising out of its
concentration of investments in companies located in or economically tied to the
Greater China Region. This Region currently is undergoing significant economic
and political change. The uncertainty surrounding such change, as well as any
adverse developments that may occur both within the Region as well as within
other parts of Southeast Asia, may negatively impact the Fund's return and the
value of the Fund's shares. See "The Greater China Region" below. An investment
in the Fund also involves special risks generally associated with foreign
investing and with investing in smaller, less-established companies. See
"Foreign Investing Generally" and "Small Companies" below.
The Greater China Region. Although Hong Kong, the People's Republic of China and
Taiwan are closely tied economically, they have different political and economic
systems and their markets and regulatory structures are at different stages of
development. Following is a summary of the major risks and uncertainties
associated with investing in each country.
Hong Kong. Although Hong Kong has the most developed securities markets of the
three countries in the Greater China Region, a substantial portion of its
economy is dependent on investments in or trade with China and other
less-developed Asian countries. Political and economic developments in those
countries including but not limited to inflation, recession or
5
<PAGE>
currency fluctuations, could adversely impact the Fund's Hong Kong investments.
As of July 1, 1997, sovereignty over Hong Kong was transferred from Great
Britain to China and Hong Kong became a Special Administrative Region of China.
In connection with this transfer, China has agreed to maintain for 50 years Hong
Kong's existing economic and social systems, as well as most of the personal
freedoms previously enjoyed by Hong Kong residents. Nevertheless, it is
impossible to predict with certainty the ultimate effect Chinese sovereignty
will have on Hong Kong's business environment. Chinese sovereignty could result
in the imposition of significant restrictions on social or economic activity
within Hong Kong. These or other potential actions by China could adversely
affect the Fund's Hong Kong investments.
China. Since 1978, China's leaders have implemented economic reforms which have
transformed China from a socialist economy to one that is increasingly
market-based. These changes have included the creation of two domestic stock
exchanges and have stimulated strong economic growth. The continued development
of China's industrial and service sectors will depend on, among other things,
the extent to which governmental policies continue to support such development
and the pace at which economic reforms are implemented.
Investments in China also are significantly affected by domestic political
developments. As evidenced by the government's actions during the 1989 crisis in
Tiananmen Square, the Chinese government's reaction to domestic and
international events is unpredictable. Uncertainty exists particularly with
respect to China's relationship with Taiwan and the ultimate impact on Hong Kong
of the assumption of sovereignty by China. Dramatic action by China's leaders
could cause extreme short-run volatility in the value of the Fund's investments
and the Fund's shares, and also could significantly and adversely affect the
Fund's returns in the long run. Similarly, China's relations with its important
trading partners in the West (including the United States) could be adversely
affected if the Chinese government's human rights policies are perceived to be
deteriorating. Even if trading relations are not actually affected, threats to
impose trading restrictions could cause substantial short-term volatility in the
value of the Fund's China investments and of the Fund's shares.
Taiwan. The Taiwan Stock Exchange is owned by
government-controlled enterprises and private banks and has only recently begun
to allow direct foreign investment in listed Taiwan securities. Substantial
restrictions on such investment remain, including limitations on the percentage
of shares of a company that may be foreign-owned and prohibitions on foreign
ownership of companies in certain industries.
Taiwan's economy is heavily dependent on exports. Any deterioration in Taiwan's
relationships with its trading partners could adversely impact Taiwan's economy
and the Fund's Taiwan investments. In particular, Taiwan has become increasingly
dependent on direct and indirect trade with China and other Asian countries.
Adverse economic or political developments in those countries could negatively
impact the Fund's Taiwan investments.
Investments in Taiwan could be affected by Taiwan's political relationship with
China. Uncertainty over the prospects for political reunification between the
two countries could make the value of the Fund's Taiwan investments and of its
shares particularly volatile and
6
<PAGE>
could negatively impact returns, especially if China threatens political or
military action. Such reunification, if it were to occur, also could negatively
impact the Fund's Taiwan investments.
General. Countries both within the Greater China Region and in other parts of
Southeast Asia have experienced rapid economic growth. While these countries are
expected to continue to grow economically over the long term, they can be
expected to do so at varying rates and to experience periods of high inflation,
economic recession and currency fluctuations along the way. Such periods may be
associated with greater, and sometimes extreme, fluctuations in the value of
investments in the Region, compared to investments in more developed economies.
Further, events in one country may impact investments in other countries.
Monetary, fiscal and other governmental policies adopted by the countries in and
around the Region in response to such economic developments could exacerbate any
such fluctuations.
Foreign Investing Generally. In addition to the specific risks described above,
investing in foreign securities generally entails special risks not associated
with investing in U.S. securities. As a result, the prices of foreign securities
and, therefore, the value of Fund shares, may fluctuate substantially more than
the prices of securities of issuers based in the U.S. Special risks associated
with foreign investing include, among others, the possibility of unfavorable
movements in currency exchange rates, difficulties in enforcing judgments
abroad, the existence of less liquid and less regulated markets, the
unavailability of reliable information about issuers, the existence of different
accounting, auditing and legal standards in foreign countries, the existence (or
potential imposition) of exchange control regulations (including currency
blockage or other restrictions on repatriation of capital), and political and
economic instability. In addition, transactions in foreign securities may be
more costly due to currency conversion costs and higher brokerage and custodial
costs and may be subject to delays and disruptions in securities settlement
procedures. See "Foreign Securities" and "Foreign Currency Transactions" in the
Statement of Additional Information for more information about foreign
investments.
Small Companies. The smaller, less well-established companies in which the Fund
may invest may offer greater opportunities for capital appreciation than larger,
better-established companies, but may also involve certain special risks. Such
companies often have limited product lines, markets or financial resources and
depend heavily on a small management group. Their securities may trade less
frequently, in smaller volumes, and fluctuate more sharply in value than
exchange-listed securities of larger companies.
Other Investment Companies. Up to 10% of the Fund's total assets may be invested
in shares of closed-end investment companies. Such investments will involve the
payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such investment companies.
Foreign Currency Transactions. In connection with its investments in equity
securities, the Fund may purchase and sell (i) foreign currencies on a spot or
forward basis, (ii) foreign currency futures contracts, and (iii) options on
foreign currencies and foreign currency futures. Such transactions will be
entered into (i) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or
7
<PAGE>
dividend payments on a foreign security held by the Fund, or (ii) to hedge
against a decline in the value, in U.S. dollars or in another currency, of a
foreign currency in which securities held by the Fund are denominated. The Fund
will not attempt, nor would it be able, to eliminate all foreign currency risk.
Further, although hedging may lessen the risk of loss if the hedged currency's
value declines, it limits the potential gain from currency value increases. See
the Statement of Additional Information for information relating to the Fund's
obligations in entering into such transactions.
Futures Contracts and Options. The Fund may purchase and sell foreign stock
index futures contracts and options on such contracts. Such transactions will be
entered into to gain exposure to a particular foreign equity market pending
investment in individual securities or to hedge against market declines. A
futures contract creates an obligation by the seller to deliver and the buyer to
take delivery of a type of instrument at the time and in the amount specified in
the contract. A sale of a futures contract can be terminated in advance of the
specified delivery date by subsequently purchasing a similar contract; a
purchase of a futures contract can be terminated by a subsequent sale. Gain or
loss on a contract generally is realized upon such termination. An option on a
futures contract generally gives the option holder the right, but not the
obligation, to purchase or sell the futures contract prior to the option's
specified expiration date. If the option expires unexercised, the holder will
lose any amount it paid to acquire the option. Transactions in futures and
related options may not precisely achieve the goals of hedging or gaining market
exposure to the extent there is an imperfect correlation between the price
movements of the contracts and of the underlying securities. In addition,
hedging against a market decline will limit the Fund's return if the market
instead appreciates.
Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets. However, the Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.
Temporary/Defensive Investments. Temporarily available cash may be invested in
U.S. dollar or foreign currency denominated demand deposits, certificates of
deposit, bankers' acceptances and high-quality, short-term debt securities, as
well as in Treasury bills and repurchase agreements. Some or all of the Fund's
assets may be invested in such investments during periods of unusual market
conditions. Under a repurchase agreement, the Fund buys a security from a bank
or dealer, which is obligated to buy it back at a fixed price and time. The
security is held in a separate account at the Fund's custodian and constitutes
the Fund's collateral for the bank's or dealer's repurchase obligation.
Additional collateral will be added so that the obligation will at all times be
fully collateralized. However, if the bank or dealer defaults or enters
bankruptcy, the Fund may experience costs and delays in liquidating the
collateral and may experience a loss if it is unable to demonstrate its right to
the collateral in a bankruptcy proceeding. Not more than 15% of the Fund's net
assets will be invested in repurchase agreements maturing in more than seven
days and other illiquid assets.
Other. The Fund may not always achieve its investment objective. The Fund's
investment objective and non-fundamental investment policies may be changed
without shareholder approval. The Fund will notify investors in connection with
any material change in the Fund's investment
8
<PAGE>
objective. If there is a change in the investment objective or investment
policies, shareholders should consider whether the Fund remains an appropriate
investment in light of their financial position and needs. Shareholders may
incur a contingent deferred sales charge if shares are redeemed in response to a
change in investment objective or investment policies. The Fund's fundamental
investment policies listed in the Statement of Additional Information cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. Additional information concerning certain of the securities and
investment techniques described above is contained in the Statement of
Additional Information.
HOW THE FUND MEASURES ITS PERFORMANCE
Performance may be quoted in sales literature and advertisements. Average annual
total returns are calculated in accordance with the Securities and Exchange
Commission's formula and assume the reinvestment of all distributions. Other
total returns differ from average annual total return only in that they may
relate to different time periods and may represent aggregate as opposed to
average annual total returns.
Yield, which differs from total return because it does not consider changes in
net asset value, is calculated in accordance with the Securities and Exchange
Commission's formula. the distribution rate is calculated by dividing the most
recent twelve months' distributions by the net asset value at the end of the
period. Performance may be compared to various indices. Quotations from various
publications may be included in sales literature and advertisements. See
"Performance Measures" in the Statement of Additional Information.
All performance information is historical and does not predict future results.
HOW THE FUND IS MANAGED
The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Adviser.
Liberty Financial Investments, Inc. (Distributor), a subsidiary of the
Administrator, serves as the distributor for the Fund's shares. Colonial
Investors Service Center, Inc. (Transfer Agent), an affiliate of the
Administrator, serves as the shareholder services and transfer agent for the
Fund. Each of the Adviser, the Administrator, the Distributor and the Transfer
Agent 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 considered to be the controlling
entity of the Adviser, the Administrator and their affiliates. Liberty Mutual is
an underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S.
The Adviser furnishes the Fund with investment management services at the
Adviser's expense. For these services, the Fund pays the Adviser a monthly fee
at an annual rate of 1.15% of the Fund's average daily net assets.
9
<PAGE>
The Fund's portfolio management team consists of three co-managers: Thomas R.
Tuttle, as lead portfolio manager, and Xiaodong (Tony) Zhang and Christopher
Legallet.
Mr. Tuttle is Senior Vice President of the Adviser and of Newport Pacific
Management, Inc. (Newport Pacific), the Adviser's immediate parent. Mr. Tuttle
has been affiliated with the Adviser since 1983.
Mr. Zhang is a Senior Investment Officer and Greater China Analyst of the
Adviser and of Newport Pacific. Mr. Zhang has been affiliated with the Adviser
since 1993. Prior to his affiliation with the Adviser, Mr. Zhang was Project
Manager of overseas investments for Hongmei Electric Corporation in China from
1990 to 1992.
Mr. Legallet recently joined the Adviser as a Senior Vice President. Prior to
his affiliation with the Adviser, Mr. Legallet was a Managing Director of
Jupiter Tyndall (Asia) Ltd. in Hong Kong serving as lead manager for investment
in Asia and prior to 1992, a Vice President of Salomon Brothers Inc. in New
York.
The Administrator provides certain administrative services to the Fund, for
which the Fund pays the Administrator a monthly fee at the annual rate of 0.25%
of the Fund's average daily net assets. The Administrator also provides pricing
and bookkeeping services to the Fund for a monthly fee of $2,250 plus a
percentage of the Fund's average net assets over $50 million.
The Transfer Agent provides transfer agency and shareholder services to the Fund
for a monthly fee at the annual rate of 0.25% of average daily net assets plus
certain out-of-pocket expenses. In October, 1997, the fee for such transfer
agency and shareholder services began reducing monthly and will continue to do
so through September, 1998 until, the fee reaches 0.236%.
Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Adviser and its affiliates may agree.
The Adviser places all orders for the purchase and sale of portfolio securities.
In selecting broker-dealers, the Adviser may consider research and brokerage
services furnished by such broker-dealers to the Adviser and its affiliates. 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. The
Adviser may use the services of AlphaTrade Inc., its registered broker-dealer
subsidiary, when buying or selling equity securities for the Fund's portfolio,
pursuant to procedures adopted by the Trustees under Investment Company Act Rule
17e-1. Subject to seeking best execution, the Adviser may consider sales of
shares of the Fund (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
Fund expenses consist of management, administration, pricing and bookkeeping,
shareholder service and transfer agent fees discussed above, and all other
expenses, fees, charges, taxes, organization costs and liabilities incurred or
arising in connection with the Fund or Trust or in connection with the
management thereof, including but not limited to, trustees' compensation and
expenses and auditing, counsel, custodian and other expenses deemed necessary
and proper by the Trustees.
10
<PAGE>
HOW THE FUND VALUES ITS SHARES
Per share net asset value is calculated by dividing the total value attributable
to Class Z shares by the number of Class Z shares outstanding. Shares of the
Fund are valued as of the close of the New York Stock Exchange (Exchange)
(normally 4:00 p.m. Eastern time) each day the Exchange is open. Portfolio
securities for which market quotations are readily available are valued at
current market value. Short-term investments maturing in 60 days or less are
valued at amortized cost when the Adviser determines, pursuant to procedures
adopted by the Trustees, that such cost approximates current market value. In
certain countries, the Fund may hold shares designated for foreign ownership. If
market quotations for such shares are not readily available as a result of
limited trading activity, the securities are valued at the last sale price of
the local shares in the principal market in which such securities are normally
traded. All other securities and assets are valued at their fair value following
procedures adopted by the Trustees.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income and any net
realized gain, at least annually.
Distributions are invested in additional Class Z shares at net asset value
unless the shareholder elects to receive cash. Regardless of the shareholder's
election, distributions of $10 or less will not be paid in cash to shareholders
but will be invested in additional Class Z shares at net asset value. 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. If you
buy shares shortly before a distribution is declared, the distribution will be
taxable although it is, in effect, a partial return of the amount invested. Each
January, information on the amount and nature of distributions for the prior
year is sent to shareholders.
HOW TO BUY SHARES
Class Z shares are offered continuously at net asset value without a sales
charge. Orders received in good form prior to the time at which the Fund values
its shares (or placed with the financial service firm before such time and
transmitted by the financial service firm before the Fund processes that day's
share transactions) will be processed based on that day's closing net asset
value. Certificates will not be issued for Class Z shares. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.
Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account call
11
<PAGE>
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 deduct annual maintenance and processing fees (payable to
the Transfer Agent) in connection with certain retirement plan accounts. See
"Special Purchase Programs/Investor Services" in the Statement of Additional
Information for more information.
Other Classes of Shares. In addition to Class Z shares, the Fund offers three
other classes of shares, Classes A, B and C, through a separate Prospectus.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. In general, anyone eligible to purchase Class Z
shares, which do not bear 12b-1 fees or contingent deferred sales charges,
should do so in preference over other classes.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. Initial
or contingent deferred sales charges may be reduced or eliminated for certain
persons or organizations purchasing Fund shares alone or in combination with
certain other Colonial funds. See the Statement of Additional Information for
more information.
HOW TO SELL SHARES
Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will send proceeds as soon as the check has cleared (which may take up to
15 days).
Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value next calculated after the Fund
receives the request in proper form. Signatures must be guaranteed by a bank, a
member firm of a national stock exchange or another eligible guarantor
institution. Stock power forms are available from financial service firms, the
Transfer Agent and many banks. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and individual
retirement account holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722\
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes.
See the Statement of Additional Information for more information. Under unusual
12
<PAGE>
circumstances, the Fund may suspend repurchases or postpone payment for up to
seven days or longer, as permitted by federal securities law.
13
<PAGE>
HOW TO EXCHANGE SHARES
Class Z shares may be exchanged at net asset value for the Class A shares of any
other Colonial fund. Carefully read the prospectus of the fund into which the
exchange will go before submitting the request. Call 1-800-426-3750 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction. The exchange
service may be changed, suspended or eliminated on 60 days' written notice. The
Fund will terminate the exchange privilege as to a particular shareholder if the
Adviser determines in its sole and absolute discretion, that the shareholder's
exchange activity is likely to adversely impact the Adviser's ability to manage
the Fund's investments in accordance with its investment objectives or otherwise
harm the Fund or its remaining shareholders.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares by calling 1-800-422-3737 toll-free any business day
between 9:00 a.m. and the time at which the Fund values its shares. Telephone
redemption privileges for larger amounts may be elected on the account
application. The Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and may be liable for
losses related to unauthorized or fraudulent transactions in the event
reasonable procedures are not employed. Such procedure include restrictions on
where proceeds of telephone redemptions may be sent, limitations on the ability
to redeem by telephone lines and requirements that the redeeming shareholder
and/or his or her financial adviser provide certain identifying information.
Shareholders and/or their financial advisers wishing to redeem or exchange
shares by telephone may experience difficulty in reaching the Fund at its
toll-free telephone number during periods of drastic economic or market changes.
In that event, shareholders and/or their financial advisers should follow the
procedures for redemption or exchange by mail as described above under "How to
Sell Shares." The Adviser, the Administrator, the Transfer Agent and the Fund
reserve the right to change, modify or terminate the telephone redemption or
exchange services at any time upon prior written notice to shareholders.
Shareholders and/or their financial advisers are not obligated to transact by
telephone.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1980. The Fund
commenced investment operations in 1997 as a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Trust vote together except when required by law
to vote separately by fund or by class. Shareholders owning in the aggregate ten
percent of Trust shares may call meetings to consider removal of Trustees. Under
certain circumstances, the Trust will provide information to assist shareholders
in calling such a meeting. See the Statement of Additional Information for more
information.
14
<PAGE>
Investment Adviser
Newport Fund Management, Inc.
580 California Street, Suite 1960
San Francisco, CA 94104
Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Liberty Financial Investments, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A
December 12, 1997
NEWPORT GREATER
CHINA FUND
CLASS Z SHARES
PROSPECTUS
Newport Greater China Fund seeks long-term growth of capital by investing
primarily in equity securities of companies located in, or which derive a
substantial portion of revenue from business activity with or in, the Greater
China Region (i.e., Hong Kong, the People's Republic of China and Taiwan).
For more detailed information about the Fund, call the Administrator at
1-800-426-3750 for the December 12, 1997 Statement of Additional Information.
- --------------------------------------------------------------------------------
NOT MAY LOSE VALUE
FDIC-INSURED NO BANK GUARANTEE
- --------------------------------------------------------------------------------
COLONIAL TRUST II
Cross Reference Sheet (Newport Greater China Fund)
Item Number of Form N-1A Statement of Additional Information
- ------------------------ -----------------------------------
Location or Caption
- -------------------
Part B
- ------
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies; Fundamental
Investment Policies; Other Investment Policies;
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
NEWPORT GREATER CHINA FUND
Statement of Additional Information
December 12, 1997
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Newport
Greater China Fund (Fund). This SAI is not a prospectus and is authorized for
distribution only when accompanied or preceded by the Prospectus of the Fund
dated December 12, 1997. 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
Independent Accountants
Management of the Fund
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
GC-XX/XXXX-1297
<PAGE>
Part 1
NEWPORT GREATER CHINA FUND
Statement of Additional Information
December 12, 1997
DEFINITIONS
"Trust" Colonial Trust II
"Fund" Newport Greater China Fund
"Adviser" Newport Fund Management, Inc., the Fund's investment
advise
"Administrator" Colonial Management Associates, Inc., the Fund's
administrator
"LFII" Liberty Financial Investments, Inc., the Fund's
distributor
"CISC" Colonial Investors Service Center, Inc., the Fund's
shareholder services and transfer agent
INVESTMENT OBJECTIVE AND POLICIES
The Fund's Prospectus describes its investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the fundamental investment policies of the Fund. Part 2 contains
additional information about the following securities and investment techniques
that are described or referred to in the Prospectus:
Small Companies
Foreign Securities
Repurchase Agreements
Futures Contracts and Related Options
Foreign Currency Transactions
Except as indicated below under "Fundamental Investment Policies," the Fund's
investment policies are not fundamental and the Trustees may change the policies
without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act's
diversification requirement, an issuer is the entity whose revenues support the
security.
The Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets;
2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets;
3. Purchase and sell futures contracts and related options as long as the total
initial margin and premiums on contracts do not exceed 5% of total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans through lending of securities not exceeding 30% of total assets,
through the purchase of debt instruments or similar evidences of
indebtedness typically sold privately to financial institutions and through
repurchase agreements; and
6. Not concentrate more than 25% of its total assets in any one industry or,
with respect to 50% of total assets, purchase any security (other than
obligations of the U.S. government and cash items including receivables) if
as a result more than 5% of its total assets would then be invested in
securities of a single issuer or purchase the voting securities of an issuer
if, as a result of such purchases, the Fund would own more than 10% of the
outstanding voting shares of such issuer.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund may not: 1. Purchase securities on margin, but it may
receive short-term credit to clear securities transactions and may make initial
or maintenance margin deposits in connection with futures transactions; and
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities.
b
<PAGE>
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Adviser a monthly fee
based on the average daily net assets of the Fund at the annual rate of 1.15%.
Under the Fund's administration agreement, the Fund pays the Administrator a
monthly fee at the annual rate of 0.25% of the average daily net assets and a
monthly pricing and bookkeeping fee of $2,250 plus the following percentages of
the Fund's average daily net assets over $50 million:
0.035% on the next $950 million
0.025% on the next $1 billion
0.015% on the next $1 billion
0.001% on the excess over $3 billion
Under the Fund's transfer agency and shareholder servicing agreement, the Fund
pays CISC a monthly fee at the annual rate of 0.25% of average daily net assets,
plus certain out-of-pocket expenses. In October 1997, the fee for such transfer
agency and shareholder services began reducing monthly and will continue to do
so through September 1998 until the fee reaches 0.236%.
Recent Fees paid to the Adviser, Administrator, LFII and CISC (dollars in
thousands)
Period May 16, 1997
(effective date of registration)
through August 31, 1997
Management fee $154
Administration fee 32
Bookkeeping fee 10
Shareholder services and transfer agent fee 35
12b-1 fees:
Service fee - Classes A, B and C 26
Distribution fee - Classes B and C 1
Brokerage Commissions (dollars in thousands)
Period May 16, 1997
(effective date of registration)
through August 31, 1997
Total commissions $543
Directed transactions(a) 0
Commissions on directed transactions 0
(a) See "Management of the Colonial Funds - Portfolio Transactions - Brokerage
and research services" in Part 2 of this SAI.
Trustees' Fees
For the period ended August 31, 1997 and the calendar year ended December 31,
1996, the Trustees received the following compensation for serving as Trustees
(b):
<TABLE>
<CAPTION>
Total Compensation From Trust And
Aggregate Compensation Fund Complex Paid To The Trustees
From Fund For The Period For The Calendar Year Ended
Ended August 31, 1997 December 31, 1996(c)
<S> <C> <C>
Trustee
Robert J. Birnbaum $44 $ 92,000
Tom Bleasdale 61(d) 104,500(e)
Lora S. Collins 44 92,000
James E. Grinnell 45 93,000
William D. Ireland, Jr. 48 109,000
Richard W. Lowry 45 95,000
William E. Mayer 37 91,000
</TABLE>
c
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
James L. Moody, Jr. 46(f) 106,500(g)
John J. Neuhauser 45 94,500
George L. Shinn 50 105,500
Robert L. Sullivan 48 102,000
Sinclair Weeks, Jr. 48 110,000
</TABLE>
(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(c) At December 31, 1996, the Colonial Funds complex consisted of 38 open-end
and 5 closed-end management investment company portfolios
(d) Includes $46 payable in later years as deferred compensation.
(e) Includes $51,500 payable in later years as deferred compensation.
(f) Total compensation of $46 payable in later years as deferred compensation.
(g) Total compensation of $106,500 for the calendar year ended December 31,
1996 will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(formerly known as The Charles Allmon Trust, Inc.) (together, Liberty Funds) for
service during the calendar year ended December 31, 1996:
Total Compensation From Liberty
Funds For The Calendar Year
Trustee Ended December 31, 1996(h)
Robert J. Birnbaum $25,000
James E. Grinnell 25,000
Richard W. Lowry 25,000
(h) The Liberty Funds are advised by Liberty Asset Management Company (LAMCO).
LAMCO is an indirect wholly-owned subsidiary of Liberty Financial
Companies, Inc. (Liberty Financial) (an intermediate parent of the
Adviser).
Ownership of the Fund
At November 1, 1997, the officers and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of the Fund.
At November 9, 1997 the following shareholders owned more than 5% of the Fund's
outstanding shares:
Class A
Merrill Lynch Pierce Fenner & Smith 26.99%
for the Sole Benefit of its Customers
Attn.: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, FL 32246
Class B
Colonial Management Associates, Inc. 14.04%
Attn.: Phil Iudice
One Financial Center, 11th Floor
Boston, MA 02111-2621
Merrill Lynch Pierce Fenner & Smith 34.75%
for the Sole Benefit of its Customers
Attn.: Fund Administration
4800 Deer Lake Drive East, Third Floor
Jacksonville, Florida 32246
Ronald T. Schwed TTEE 7.69%
Ronald T. Schwed Trust
U/A Dated 10/28/93
704 Ambriance
Burr Ridge, IL 60521-0807
d
<PAGE>
PJH Prime Account 8.22%
Joyce C. Marfield TTEE
Joyce C. Marfield Revocable Trust
U/A Dated 12/07/92
2455 North Shore Drive
Wayzata, MN 55391-9391
PJH Prime Account 8.22%
Mary Ann Ressmeyer
18579 St. Mellion Place
Eden Prairie, MN 55347
Class C
Colonial Management Associates, Inc. 89.38%
Attn.: Phil Iudice
One Financial Center, 11th Floor
Boston, MA 02111-2621
PJH Prime Account 8.18%
Doris & John Simenstad TTEES
Doris A. Simenstad Revocable Trust
U/A 06/22/94
P.O. Box 218
Osceola, WI 54020-0218
Class Z
Colonial Management Associates, Inc. 100.00%
Attn.: Phil Iudice
One Financial Center, 11th Floor
Boston, MA 02111-2621
Sales Charges (dollars in thousands)
Class A Shares
Aggregate initial sales charges on Fund
share sales $0
Initial sales charges retained by LFII 0
Aggregate contingent deferred sales
charge (CDSC)
on Fund redemptions 21
Class B Shares Class C Shares
Aggregate CDSC on Fund redemptions $0 $0
12b-1 Plan, CDSC and Conversion of Shares
The Fund offers four classes of shares - Class A, Class B, Class C and Class Z.
The Fund may in the future offer other classes of shares. The Trustees have
approved 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 net
assets attributed to Class A, Class B and Class C shares. The Fund also pays
LFII monthly a distribution fee at an annual rate of 0.75% of average daily net
assets attributed to Class B and Class C shares. LFII may use the entire amount
of such fees to defray the cost of commissions and service fees paid to
financial service firms (FSFs) and for certain other purposes. Since the
distribution and service fees are payable regardless of the amount of LFII's
expenses, LFII may realize a profit from the fees. The Plan authorizes any other
payments by the Fund to LFII and its affiliates (including the Adviser and the
Administrator) to the extent that such payments might be construed to be
indirect financing of the distribution of Fund shares.
The Trustees believe the Plan could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding
e
<PAGE>
voting securities of the relevant class of shares and all material amendments of
the Plan must be approved by the Trustees in the manner provided in the
foregoing sentence. The Plan may be terminated at any time by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the relevant class of shares. The continuance of the Plan will
only be effective if the selection and nomination of the Trustees who are not
interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase. Class C shares
are offered at net asset value and are subject to a 1.00% CDSC on redemptions
within one year after purchase. Class Z shares are offered at net asset value
and are not subject to a CDSC. The sales charges are described in the
Prospectus
No CDSC will be imposed on shares derived from reinvestment of distributions or
amounts representing capital appreciation. In determining the applicability and
rate of any CDSC, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder for the
longest period of time.
Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares, having an
equal value, which are not subject to the distribution fee.
Sales-related expenses (dollars in thousands) of LFII relating to the Fund for
the period May 16, 1997 (effective date of registration) through August 31, 1997
were:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Fees to FSFs $(i) $(i) $0
Cost of sales material relating to the Fund
(including printing and mailing expenses) 671 (i) 0
Allocated travel, entertainment and other promotional
expenses (including advertising) 35 (i) 0
</TABLE>
(i) Rounds to less than one.
INVESTMENT PERFORMANCE
The Fund's yields for the period ended August 31, 1997 were:
Yield Yield without Waiver
Class A: (0.09)% (0.25)%
Class B: (0.93)% (1.10)%
Class C: (0.93)% (1.10)%
Class Z: (0.10)% (0.27)%
The Fund's total returns at August 31, 1997 were:
Class A Shares
Period May 16, 1997
(effective date of registration)
through August 31, 1997
With sales charge of 5.75% 26.50%
Without sales charge 34.22%
Class B Shares
Period May 16, 1997
(effective date of registration)
through August 31, 1997
With CDSC of 5.00% 28.98
Without CDSC 33.98%
Class C Shares
Period May 16, 1997
f
<PAGE>
(effective date of registration)
through August 31, 199
With CDSC of 1.00% 32.98%
Without CDSC 33.98%
Class Z Shares
Period May 16, 1997
(effective date of registration)
through August 31, 1997
34.29%
The Fund's distribution rate at August 31, 1997, which is based on the most
recent twelve months' distributions, and the maximum offering price at the end
of the twelve months was 0% for Classes A, B, C and Z.
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
The Chase Manhattan Bank is the Fund's custodian. The custodian is responsible
for safeguarding the Fund's cash and securities, receiving and delivering
securities and collecting the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Fund's independent accountants providing audit and
tax return preparation services and assistance and consultation in connection
with the review of various Securities and Exchange Commission filings. The
financial statements incorporated by reference in this SAI have been so
incorporated and the financial highlights included in the Prospectuses 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 FUND
Officers of the Fund (in addition to those listed in Part 2 of this SAI).
<TABLE>
<CAPTION>
Name Age Position with Fund Principal Occupation During Past Five Years
- ---- --- ------------------ -------------------------------------------
<S> <C> <C> <C>
Robert B. Cameron(j) 43 Vice President Senior Vice President of the Adviser and Newport Pacific since 1996 (formerly
branch manager - equity sales at CS First Boston, Swiss Bank Corp., and
Baring Securities)
Lynda Couch(j) 54 Vice President Senior Vice President of the Adviser and Newport Pacific since 1996
(formerly Vice President of the Adviser and Newport Pacific and Vice
President - Research at Global Strategies and at Smith Bellingham
International, Inc.
Pamela Frantz(j) 49 Vice President Executive Vice President, Treasurer and Secretary of the Adviser and Newport
Pacific since 1988 and 1983, respectively
John M. Mussey(j) 55 Vice President President of the Adviser since 1988 and President and Director of Newport
Pacific since 1983
DavidSmith(j) 55 Vice President Senior Vice President of the Adviser since 1996 and Director of North Asian
Strategies of Newport Pacific since 1994 (formerly analyst at Newport
Pacific, Executive Vice President at Carnegie Investor Services and a Vice
President at Global Strategies, Redwood Securities and Smith Bellingham
International, Inc.
Thomas R. Tuttle(j) 55 Vice President Senior Vice President of the Adviser and Newport Pacific since 1994 and 1983,
respectively
</TABLE>
The other officers and the trustees of the Fund are described under "Management
of the Colonial Funds" in Part 2 of this SAI.
g
<PAGE>
(j) The address of each officer is 580 California Street, Suite 1960, San
Francisco, CA 94104.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most Colonial funds. "Colonial
funds" or "funds" include each series of Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI and
Colonial Trust VII. In certain cases, the discussion applies to some but not all
of the Colonial funds, and you should refer to your Fund's Prospectus and to
Part 1 of this SAI to determine whether the matter is applicable to your Fund.
You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P, or
comparable unrated debt securities. Relative to debt securities of higher
quality,
1. an economic downturn or increased interest rates may have a more significant
effect on the yield, price and potential for default for lower rated bonds;
2. the secondary market for lower rated bonds may at times become less liquid or
respond to adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
3. the Adviser's credit analysis of lower rated bonds may have a greater impact
on the fund's achievement of its investment objective and
4. lower rated bonds are less sensitive to interest rate changes, but are more
sensitive to adverse economic developments.
In addition, certain lower rated bonds do not pay interest in cash on a current
basis. However, the fund will accrue and distribute this interest on a current
basis, and may have to sell securities to generate cash for distributions.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
1
<PAGE>
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. See "Taxation" below.
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
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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 ("When-Issued" and "Delayed Delivery" Securities)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where such purchases are made
through dealers, the fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the fund of an advantageous
yield or price. Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the Adviser deems it appropriate to do so. The
fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
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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
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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 or liquid securities, equal in value to
the amount of the fund's obligation under the contract (less any applicable
margin deposits and any assets that constitute "cover" for such obligation),
will be segregated with the fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets"
- -approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the
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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
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account of the fund's
custodian. The fund may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. The fund may use such options on
futures contracts in lieu of writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser's ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options
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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.
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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 or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
8
<PAGE>
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.
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<PAGE>
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.
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Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax adviser for state and local tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.
Alternative Minimum Tax. Distributions derived from interest which is exempt
from regular federal income tax may subject corporate shareholders to or
increase their liability under the corporate alternative minimum tax (AMT). A
portion of such distributions may constitute a tax preference item for
individual shareholders and may subject them to or increase their liability
under the AMT.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT. The dividends received
deduction for eligible dividends is subject to a holding period requirement
imposed pursuant to the Taxpayer Relief Act of 1997 (the "1997 Act").
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Fund Distributions. Distributions from the fund (other than exempt-interest
dividends, as discussed below) will be taxable to shareholders as ordinary
income to the extent derived from the fund's investment income and net
short-term gains. Pursuant to the 1997 Act, two different tax rates apply to net
capital gains (that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year). One rate (generally 28%) generally applies to net gains on capital
assets held for more than one year but not more than 18 months ("mid-term
gains") and a second, preferred rate (generally 20%) applies to the balance of
such net capital gains ("adjusted net capital gains"). Distributions of net
capital gains will be treated in the hands of shareholders as mid-term gains to
the extent designated by the fund as deriving from net gains from assets held
for more than one year but not more than 18 months, and the balance will be
treated as adjusted net capital gains. Distributions of mid-term gains and
adjusted net capital gains will be taxable to shareholders as such, regardless
of how long a shareholder has held the shares in the fund. Distributions will be
taxed as described above whether received in cash or in fund shares.
Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
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The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy- five percent of the
excess of adjusted current earnings over the amount of income otherwise subject
to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term gains will in general be
taxable to shareholders as long-term capital gains regardless of the length of
time fund shares are held.
A tax-exempt fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the fund's ordinary income which
will be taxable when distributed.
Any market discount recognized on a tax-exempt bond purchased after April 30,
1993 with a term at time of issue of one year or more is taxable as ordinary
income. A market discount bond is a bond acquired in the secondary market at a
price below its "stated redemption price" (in the case of a bond with original
issue discount, its"revised issue price").
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. The sale, exchange or redemption of fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares will be treated as mid-term capital gain if the shares have been held for
more than 12 months but not more than 18 months, and as adjusted net capital
gains if the shares have been held for more than 18 months. Otherwise the gain
on the sale, exchange or redemption of fund shares will be treated as short-term
capital gain. In general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held for more than 12
months, and otherwise as short-term capital gain. However, any loss realized
upon a taxable disposition of shares held for six months or less will be treated
as long-term, rather than short-term, capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
those shares. All or a portion of any loss realized upon a taxable disposition
of shares will be disallowed if other shares are purchased within 30 days before
or after the disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock securities or foreign currencies or other income (including
but not limited to gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition
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of certain assets held less than three months for tax years beginning on or
before August 5, 1997; (c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. Government securities, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the fund and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any issuer (other than U.S. Government
securities).
Hedging Transactions. If the fund engages in hedging transactions, including
hedging transactions in options, futures contracts, and straddles, or other
similar transactions it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's securities, or
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the fund may make
an election permitting its shareholders to take a deduction or credit for
federal tax purposes for their portion of certain qualified foreign taxes paid
by the fund. The Adviser will consider the value of the benefit to a typical
shareholder, the cost to the fund of compliance with the election, and
incidental costs to shareholders in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit will be subject to
certain limitations imposed by the Code (including a holding period requirement
imposed pursuant to the 1997 Act), as a result of which a shareholder may not
get a full credit for the amount of foreign taxes so paid by the fund.
Shareholders who do not itemize on their federal income tax returns may claim a
credit (but no deduction) for such foreign taxes.
Investment by the fund in certain "passive foreign investment companies" could
subject the fund to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to fund shareholders. However, the fund may elect to treat a
passive foreign investment company as a "qualified electing fund," in which case
the fund will be required to include its share of the company's income and net
capital gain annually, regardless of whether it receives any distribution from
the company. The fund also may make an election to mark the gains (and to a
limited extent losses) in such holdings "to the market" as though it had sold
and repurchased its holdings in those passive foreign investment companies on
the last day of the fund's taxable year. Such gains and losses are treated as
ordinary income and loss. The qualified electing fund and mark-to-market
elections may have the effect of accelerating the recognition of income (without
the receipt of cash) and increase the amount required to be distributed for the
fund to avoid taxation. Making either of these elections therefore may require a
fund to liquidate other investments (including when it is not advantageous to do
so) to meet its distribution requirement, which also may accelerate the
recognition of gain and affect a fund's total return.
MANAGEMENT OF THE COLONIAL FUNDS (in this section, and the following sections
entitled "Trustees and Officers," "The Management Agreement," "Administration
Agreement," "The Pricing and Bookkeeping Agreement," "Portfolio Transactions,"
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"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, Newport Japan Opportunities Fund and Newport
Greater China Fund - see Part I of each Fund's respective SAI for a description
of the investment adviser). The Adviser is a subsidiary of The Colonial Group,
Inc. (TCG), One Financial Center, Boston, MA 02111. TCG is a direct subsidiary
of Liberty Financial Companies, Inc. (Liberty Financial), which in turn is a
direct subsidiary of LFC Holdings, Inc., which in turn is a direct subsidiary of
Liberty Mutual Equity Corporation, which in turn is a wholly-owned subsidiary of
Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is an
underwriter of workers' compensation insurance and a property and casualty
insurer in the U.S. Liberty Financial's address is 600 Atlantic Avenue, Boston,
MA 02210. Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117.
Trustees and Officers (this section applies to all of the Colonial funds)
<TABLE>
<CAPTION>
Name and Address Age Position with Fund Principal Occupation
<S> <C> <C> <C>
Robert J. Birnbaum 69 Trustee Retired (formerly Special Counsel, Dechert Price &
313 Bedford Road Rhoads from September, 1998 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 1992-
Naples, FL 34105 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 & Franklin from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 67 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
William D. Ireland, Jr. 73 Trustee Retired, is a Trustee of certain charitable and non-charitable
103 Springline Drive organizations since February, 1990.
Vero Beach, FL 32963
Richard W. Lowry 61 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 56 Trustee Partner, Development Capital, LLP (formerly Dean, College of
500 Park Avenue, 5th Floor Business and Management, University of Maryland from
New York, NY 10022 October, 1992 to November, 1996, (Dean, Simon
Graduate School of Busines, University of Rochester from
October, 1991 to July, 1992).
James L. Moody, Jr. 65 Trustee Retired (formerly Chairman of the Board, Hannaford Bros. Co.
P.O. Box 1000 from May, 1994 to May, 1997 and 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
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<PAGE>
George L. Shinn 74 Trustee Financial Consultant since 1989.
Credit Suisse First Boston
Corp.
Eleven Madison Avenue
25th Floor
New York, NY 10010-3629
Robert L. Sullivan 69 Trustee Retired Partner, Peat Marwick Main & Co.
7121 Natelli Woods Lane
Bethesda, MD 20817
Sinclair Weeks, Jr. 73 Trustee Chairman of the Board, Reed & Barton Corporation since 1987.
Bay Colony Corporate Ctr.
Suite 4550
1000 Winter Street
Waltham, MA 02154
Harold W. Cogger 61 President (formerly President of Colonial funds since March, 1996 (formerly
Vice President Vice President from July, 1993 to March, 1996); is
Director, since March, 1984 and Chairman of the Board
since March, 1996 of the Adviser (formerly President
from July, 1993 to December, 1996, Chief Executive Officer
from March, 1995 to December, 1996 and Executive Vice
President from October, 1989 to July, 1993); Director since
October, 1991 and Chairman of the Board since March, 1996
of TCG (formerly President from October, 1994 to December,
1996 and Chief Executive Officer from March, 1995 to December,
1996); Executive Vice President and Director since March, 1995,
Liberty Financial; Director since November, 1996 of Stein Roe &
Farnham Incorporated.
Timothy J. Jacoby 44 Treasurer and Treasurer and Chief Financial Officer of Colonial funds since
Chief Financial October, 1996, is Senior Vice President of the Adviser since
Officer September, 1996 (formerly Senior Vice President, Fidelity
Accounting and Custody Services from September, 1993 to
September, 1996 and Assistant Treasurer to the Fidelity
Group of Funds from August, 1990 to September, 1993).
Michael H. Koonce 37 Secretary Secretary of Colonial funds since 1997 (formerly Assistant
Secretary from June, 1992 to July, 1997), is Senior Vice
President, General Counsel, Clerk and Secretary of the
Adviser (formerly Vice President, Counsel, Assistant Secretary
and Assistant Clerk from June, 1992 to July, 1997), Vice
President - Legal and Clerk of TCG (formerly Assistant
Clerk from April, 1993 to July, 1997).
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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).
</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,
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<PAGE>
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,
Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund or Newport
Greater China Fund)
Under a Management Agreement (Agreement), the Adviser has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each Colonial fund pays a monthly fee based on the average of the daily closing
value of the total net assets of each fund for such month. Under the Agreement,
any liability of the Adviser to the Trust, a fund and/or its shareholders is
limited to situations involving the Adviser's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders. LFII pays the cost of printing and distributing all other
Prospectuses.
Administration Agreement (this section applies only to the Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Colonial Newport Tiger Fund,
Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport
Greater China Fund and their respective Trusts).
Under an Administration Agreement with each Fund named above, the Adviser, in
its capacity as the Administrator to each Fund, has contracted to perform the
following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its Directors,
officers and employees to serve as Trustees, officers or agents of each
Fund;
(c) preparing and, if applicable, filing all documents required for
compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of
meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other
third-party service providers; and
(f) maintaining certain books and records of each Fund.
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<PAGE>
With respect to the Colonial Municipal Money Market Fund, the Administration
Agreement for this Fund provides for the following services in addition to the
services referenced above:
(g) monitoring compliance by the Fund with Rule 2a-7 under the Investment
Company Act of 1940 (the "1940 Act") and reporting to the Trustees from
time to time with respect thereto; and
(h) monitoring the investments and operations of the SR&F Municipal Money
Market Portfolio (Municipal Money Market Portfolio) in which Colonial
Municipal Money Market Fund is invested and the LFC Utilities Trust (LFC
Portfolio) in which Colonial Global Utilities Fund is invested and
reporting to the Trustees from time to time with respect thereto.
The Adviser is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each Colonial fund
pursuant to a Pricing and Bookkeeping Agreement. The Adviser, in its capacity as
the Administrator to each of Colonial Municipal Money Market Fund and Colonial
Global Utilities Fund, is paid an annual fee of $18,000, plus 0.0233% of average
daily net assets in excess of $50 million. For each of the other Colonial funds
(except for Colonial Newport Tiger Fund, Newport Japan Opportunities Fund,
Colonial Newport Tiger Cub Fund and Newport Greater China Fund), the Adviser is
paid monthly a fee of $2,250 by each fund, plus a monthly percentage fee based
on net assets of the fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion; 1/12
of 0.015% of the next $1 billion; and 1/12
of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Colonial Newport Tiger
Fund, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and
Newport Greater China Fund for an annual fee of $27,000, plus 0.035% of each
Fund's average daily net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Municipal Money Market Fund, and
Colonial Global Utilities Fund. For each of these funds, see Part 1 of its
respective SAI. The Adviser of Colonial Newport Tiger Fund, Newport Japan
Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport Greater China
Fund follows the same procedures as those set forth under "Brokerage and
research services."
Investment decisions. The Adviser acts as investment adviser to each of the
Colonial funds (except for the Colonial Municipal Money Market Fund, Colonial
Global Utilities Fund, Colonial Newport Tiger Fund, Newport Japan Opportunities
Fund, Colonial Newport Tiger Cub Fund and Newport Greater China Fund, each of
which is administered by the Adviser. The Adviser's affiliate, CASI, advises
other institutional, corporate, fiduciary and individual clients for which CASI
performs various services. Various officers and Trustees of the Trust also serve
as officers or Trustees of other Colonial funds and the other corporate or
fiduciary clients of the Adviser. The Colonial funds and clients advised by the
Adviser or the funds administered by the Adviser sometimes invest in securities
in which the Fund also invests and sometimes engage in covered option writing
programs and enter into transactions utilizing stock index options and stock
index and financial futures and related options ("other instruments"). If the
Fund, such other Colonial funds and such other clients desire to buy or sell the
same portfolio securities, options or other instruments at about the same time,
the purchases and sales are normally made as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold by each.
Although in some cases these practices could have a detrimental effect on the
price or volume of the securities, options or other instruments as far as the
Fund is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the Trustees that the
desirability of retaining the Adviser as investment adviser to the Colonial
funds outweighs the disadvantages, if any, which might result from these
practices.
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<PAGE>
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.
The Adviser may use the services of AlphaTrade Inc. (ATI), its registered
broker-dealer subsidiary, when buying or selling equity securities for a Fund's
portfolio, pursuant to procedures adopted by the Trustees and Investment Company
Act Rule 17e-1. Under the Rule, the Adviser must ensure that commissions a Fund
pays ATI on portfolio transactions are reasonable and fair compared to
commissions received by other broker-dealers in connection with comparable
transactions involving similar securities being bought or sold at about the same
time. The Adviser will report quarterly to the Trustees on all securities
transactions placed through ATI so that the Trustees may consider whether such
trades complied with these procedures and the Rule. ATI employs electronic
trading methods by which it seeks to obtain best price and execution for the
Fund, and will use a clearing broker to settle trades.
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<PAGE>
Principal Underwriter
LFII is the principal underwriter of the Trust's shares. LFII has no obligation
to buy the Colonial funds' shares, and purchases the Colonial funds' shares only
upon receipt of orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
Colonial fund plus reimbursement for certain out-of-pocket expenses. See "Fund
Charges and Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by 90 days'
notice by the Fund to CISC or generally by 6 months' notice by CISC to the Fund.
The agreement limits the liability of CISC to the Fund for loss or damage
incurred by the Fund to situations involving a failure of CISC to use reasonable
care or to act in good faith in performing its duties under the agreement. It
also provides that the Fund will indemnify CISC against, among other things,
loss or damage incurred by CISC on account of any claim, demand, action or suit
made on or against CISC not resulting from CISC's bad faith or negligence and
arising out of, or in connection with, its duties under the agreement.
DETERMINATION OF NET ASSET VALUE
Each Colonial fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m.
Eastern time, 3:00 p.m. 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, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and
Newport Greater China Fund - "Adviser" in these two paragraphs refers to each
fund's Adviser, Newport Fund Management, Inc.)
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would
20
<PAGE>
materially affect the Fund's NAV, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the NAV of the Fund's shares into
U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently applies only to
Colonial Government Money Market Fund, a series of Colonial Trust II - see
"Amortized Cost for Money Market Funds" under "Other Information Concerning the
Portfolio" in Part 1 of the SAI of Colonial Municipal Money Market Fund for
information relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting to the market value method (in which
case the NAV per share may differ from $1.00). All investments will be
determined pursuant to procedures approved by the Trust's Trustees to present
minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Government Money Market Fund for a specimen price sheet showing the
computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFII's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFII retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFII generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFII for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with LFII.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, T or Z
shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
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<PAGE>
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 LFII receives the proceeds from the draft (normally the 5th or
the 20th of each month, or the next business day thereafter). If your Fundamatic
purchase is by electronic funds transfer, you may request the Fundamatic
purchase for any day. Further information and application forms are available
from FSFs or from LFII.
Automated Dollar Cost Averaging (Classes A, B and C). Colonial's Automated
Dollar Cost Averaging program allows you to exchange $100 or more on a monthly
basis from any Colonial fund 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.
LFII offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. LFII offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. The First National Bank of
Boston is the Trustee of LFII prototype plans and charges a $10 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from LFII.
Participants in non-Colonial prototype Retirement Plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
CISC. Participants in Colonial prototype Plans (other than IRAs) who liquidate
the total value of their account will also be charged a $15 close-out processing
fee payable to CISC. The fee is in addition to any applicable CDSC. The fee will
not apply if the participant uses the proceeds to open a Colonial IRA Rollover
account in any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Colonial Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another Colonial fund. An ADD account must be in the same name as the
shareholder's existing open account with the particular fund. Call CISC for more
information at 1-800-422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
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Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Colonial Newport
Tiger Fund who already own Class T shares). Reduced sales charges on Class A and
T shares can be effected by combining a current purchase with prior purchases of
Class A, B, C, T and Z shares of the Colonial funds. The applicable sales charge
is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the
previous day of all Colonial funds' Class A shares held by the shareholder
(except shares of any Colonial money market fund, unless such shares were
acquired by exchange from Class A shares of another Colonial fund other than
a money market fund and Class B, C, T and Z shares).
LFII must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A Colonial fund may
terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in Colonial funds (except
shares of any Colonial money market fund, unless such shares were acquired by
exchange from Class A shares of another non-money market Colonial fund). The
value is determined at the public offering price on the date of the Statement.
Purchases made through reinvestment of distributions do not count toward
satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFII the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFII an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800-345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Growth Shares Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain Colonial funds' Class A shares under a Statement of Intent for the
Colonial Asset Builder Investment Program. The Program offer may be withdrawn at
any time without notice. A completed Program may serve as the initial investment
for a new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a Colonial fund in which an investor has a Program account. The
following services are not available to Program accounts until a Program has
ended:
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
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Statement of Intent
*Exchanges may be made to other Colonial funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. LFII may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, C or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any Colonial fund at the NAV next
determined after CISC receives a written reinstatement request and payment. Any
CDSC paid at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to the Colonial Funds). Class A shares of certain
funds may be sold at NAV to the following individuals whether currently employed
or retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, LFII and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with LFII; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Colonial Newport Tiger Fund who already own
Class T shares) of certain funds may be purchased at reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The Colonial funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Colonial Newport Tiger Fund who already own Class T shares) of
certain funds may also be purchased at reduced or no sales charge by clients of
dealers, brokers or registered investment advisers that have entered into
agreements with LFII pursuant to which the Colonial funds are included as
investment options in programs involving fee-based compensation arrangements,
and by participants in certain retirement plans.
Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to the Colonial Funds) (Classes A, B, and C) CDSCs may
be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii)
the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers
to Minors Act (UTMA) or other custodial account. If, upon the occurrence of
one of the foregoing, the account is transferred to an account registered in
the name of the deceased's estate, the CDSC will be waived on any redemption
from the estate account occurring within one year after the death. If the
Class B shares are not redeemed within one year of the death, they will
remain subject to the applicable CDSC, when
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redeemed from the transferee's account. If the account is transferred
to a new registration and then a redemption is requested, the applicable
CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP established
with CISC, to the extent the redemptions do not exceed, on an annual basis,
12% of the account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a period at
least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement does not apply
if the SWP is set up at the time the account is established, and
distributions are being reinvested. See below under "Investor Services -
Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be charged
upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required
to return excess contributions made to retirement plans or individual
retirement accounts, so long as the FSF agrees to return the applicable
portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following (i) normal
retirement (as stated in the Plan document) or (ii) separation from service.
CDSCs also will be waived on SWP redemptions made to make required minimum
distributions from qualified retirement plans that have invested in Colonial
funds for at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will send
proceeds only after the check has cleared (which may take up to 15 days).
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any Colonial fund designated by
the shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election, of the shareholder's investment. Withdrawals from Class B
and Class C shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the
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shareholder's base amount. Qualified plan participants who are required by
Internal Revenue Service regulation to withdraw more than 12%, on an annual
basis, of the value of their Class B and Class C share account may do so but
will be subject to a CDSC ranging from 1% to 5% of the amount withdrawn. If a
shareholder wishes to participate in a SWP, the shareholder must elect to have
all of the shareholder's income dividends and other fund distributions payable
in shares of the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All Colonial fund shareholders and/or their FSFs (except
for Colonial Newport Tiger Cub Fund, Colonial Newport Japan Fund and Newport
Greater China Fund) are automatically eligible to redeem up to $50,000 of the
fund's shares by calling 1-800-422-3737 toll-free any business day between 9:00
a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time).
Transactions received after 4:00 p.m. Eastern time will receive the next
business day's closing price. Telephone redemption privileges for larger amounts
and for the Colonial Newport Tiger Cub Fund, Newport Japan Opportunities Fund
and the Newport Greater China Fund may be elected on the Application. CISC will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Telephone redemptions are not available on accounts with
an address change in the preceding 30 days and proceeds and confirmations will
only be mailed or sent to the address of record unless the redemption proceeds
are being sent to a pre- designated bank account. Shareholders and/or their FSFs
will be required to provide their name, address and account number. FSFs will
also be required to provide their broker number. All telephone transactions are
recorded. A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to
execute the telephone authorization form or to use the telephone to execute
transactions.
Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of the Colonial
Funds) (Available only on the Class A shares of certain Colonial funds) Shares
may be redeemed by check if a shareholder has previously completed an
Application and Signature Card. CISC will provide checks to be drawn on The
First National Bank of Boston (the "Bank"). These checks may be made payable to
the order of any person in the amount of not less than $500 nor more than
$100,000. The shareholder will continue to earn dividends on shares until a
check is presented to the Bank for payment. At such time a sufficient number of
full and fractional shares will be redeemed at the next determined net asset
value to cover the amount of the check. Certificate shares may not be redeemed
in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.
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Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a Colonial fund's net
asset value, a Colonial fund may make the payment or a portion of the payment
with portfolio securities held by that Colonial fund instead of cash, in which
case the redeeming shareholder may incur brokerage and other costs in selling
the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial 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
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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 shares of a fund is
calculated by annualizing the most current period's distributions and dividing
by the maximum offering price on the last day of the period. Generally, the
fund's distribution rate reflects total amounts actually paid to shareholders,
while yield reflects the current earning power of the fund's portfolio
securities (net of the fund's expenses). The fund's yield for any period may be
more or less than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as are listed in Appendix II.
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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.
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APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
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Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
31
<PAGE>
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Conditional Ratings. Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience,
32
<PAGE>
(c) rentals which begin when facilities are completed, or (d) payments to which
some other limiting conditions attach. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Note: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1, and B 1.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICES
Investment Grade Bond Ratings
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds rated in the
'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse
33
<PAGE>
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.
34
<PAGE>
APPENDIX II
1996
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
Donoghue Tax-Free Funds 4.95
Donoghue U.S. Treasury Funds 4.71
Dow Jones & Company Industrial Index 28.91
Morgan Stanley Capital International EAFE Index 6.05
Morgan Stanley Capital International EAFE GDP Index 7.63
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 4.36
Lipper California Municipal Bond Funds 3.65
Lipper Connecticut Municipal Bond Funds 3.48
Lipper Closed End Bond Funds 8.13
Lipper Florida Municipal Bond Funds 3.00
Lipper General Bond Fund 6.16
Lipper General Municipal Bonds 3.30
Lipper Global Funds 16.51
Lipper Growth Funds 19.24
Lipper Growth & Income Funds 20.78
Lipper High Current Yield Bond Funds 13.67
Lipper High Yield Municipal Bond Debt 4.17
Lipper Fixed Income Funds 10.24
Lipper Insured Municipal Bond Average 2.83
Lipper Intermediate Muni Bonds 3.70
Lipper Intermediate (5-10) U.S. Government Funds 2.68
Lipper Massachusetts Municipal Bond Funds 3.39
Lipper Michigan Municipal Bond Funds 3.17
Lipper Mid Cap Funds 18.10
Lipper Minnesota Municipal Bond Funds 3.11
Lipper U.S. Government Money Market Funds 4.75
Lipper New York Municipal Bond Funds 3.15
Lipper North Carolina Municipal Bond Funds 2.78
Lipper Ohio Municipal Bond Funds 3.35
Lipper Small Company Growth Funds 20.20
Lipper U.S. Government Funds 1.72
Lipper Pacific Region Funds-Ex-Japan 11.11
Lipper Pacific Region (4.45)
Lipper International Funds 11.78
Lipper Balanced Funds 13.76
Lipper Tax-Exempt Money Market 2.93
Shearson Lehman Composite Government Index 2.77
Shearson Lehman Government/Corporate Index 2.90
Shearson Lehman Long-term Government Index (0.84)
S&P S&P 500 Index 22.95
S&P Utility Index 3.12
S&P Barra Growth 23.98
S&P Barra Value 21.99
S&P Midcap 400 19.20
First Boston High Yield Index 12.40
Swiss Bank 10 Year U.S. Government (Corporate Bond) 0.30
Swiss Bank 10 Year United Kingdom (Corporate Bond) 19.10
Swiss Bank 10 Year France (Corporate Bond) 7.80
Swiss Bank 10 Year Germany (Corporate Bond) 1.00
Swiss Bank 10 Year Japan (Corporate Bond) (3.40)
35
<PAGE>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
Swiss Bank 10 Year Canada (Corporate Bond) 10.5
Swiss Bank 10 Year Australia (Corporate Bond) 20.6
Morgan Stanley
Capital International 10 Year Hong Kong (Equity) 21.87
Morgan Stanley
Capital International 10 Year Belgium (Equity) 15.16
Morgan Stanley
Capital International 10 Year Austria (Equity) 7.65
Morgan Stanley
Capital International 10 Year France (Equity) 10.35
Morgan Stanley
Capital International 10 Year Netherlands (Equity) 16.90
Morgan Stanley
Capital International 10 Year Japan (Equity) 3.39
Morgan Stanley
Capital International 10 Year Switzerland (Equity) 13.14
Morgan Stanley
Capital International 10 Year United Kingdom (Equity) 15.06
Morgan Stanley
Capital International 10 Year Germany (Equity) 8.16
Morgan Stanley
Capital International 10 Year Italy (Equity) 0.53
Morgan Stanley
Capital International 10 Year Sweden (Equity) 16.42
Morgan Stanley
Capital International 10 Year United States (Equity) 14.39
Morgan Stanley
Capital International 10 Year Australia (Equity) 11.44
Morgan Stanley
Capital International 10 Year Norway (Equity) 13.23
Morgan Stanley
Capital International 10 Year Spain (Equity) 11.55
Morgan Stanley
Capital International World GDP Index 11.50
Morgan Stanley
Capital International Pacific Region Funds Ex-Japan 20.54
Bureau of
Labor Statistics Consumer Price Index (Inflation) 3.32
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Federal Reserve Six-Month Treasury Bill N/A
Federal Reserve One-Year Constant-Maturity Treasury Rate N/A
Federal Reserve Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell & Co. Russell 2000 16.50
Frank Russell & Co. Russell 1000 Value 21.64
Frank Russell & Co. Russell 1000 Growth 11.26
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract
of the U.S. NA NA
World Economic
Outlook NA NA
*in U.S. currency
36
<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 Newport Greater China 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
---- ----------------
Newport Greater China Fund 0000883163-97-000032
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 (g)
2. By-Laws, as amended (e)
3. Not Applicable
4. Form of Specimen Share Certificate (e)
5. Form of proposed Management Agreement (h)
6. (i) Form of Distributor's Contract (incorporated herein
by reference to Exhibit 6.(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)
<PAGE>
6. (iv) Form of Bank and Bank Affiliated Selling Agreement
(incorporated herein by reference to Exhibit 6.(c) to
Post Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-
45117 and 811-6529, filed with the Commission on
September 27, 1996)
6. (v) Form of Asset Retention Agreement (incorporated
herein by reference to Exhibit 6.(d) to Post-Effective
Amendment No. 10 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-
6529, filed with the Commission on September 27, 1996)
6. (vi) Form of Dealer Manager Agreement (i)
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 (h)
9. (ii) Amended and Restated Shareholders' Servicing and
Transfer Agent Agreement as amended with Colonial
Management Associates, Inc. and Colonial Investors
Service Center, Inc. (incorporated herein by reference
to Exhibit 9.(a) to Post-Effective Amendment No. 10 to
the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on September 27, 1996)
9. (ii)(a) 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)(b) 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)
<PAGE>
9. (iii) Form of proposed Administration Agreement with
Colonial Management Associates, Inc. (h)
10. Opinion and Consent of Counsel(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 Trust Agreement
(incorporated herein by reference to Exhibit 14(a) to
Post-Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on
October 11, 1994)
14. (ii) Form of Colonial Mutual Funds Money Purchase
Pension and Profit Sharing Plan Establishment Booklet
(incorporated herein by reference to Exhibit 14(b) to
Post-Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on
October 11, 1994)
14. (iii) Form of Colonial Mutual Funds Individual Retirement
Account and Application (incorporated herein by
reference to Exhibit 14(c) to Post-Effective Amendment
No. 5 to the Registration Statement of Colonial Trust
VI, Registration Nos. 33-45117 and 811-6529, filed
with the Commission on October 11, 1994)
14. (iv) Form of Colonial Mutual Funds Simplified Employee
Plan and Salary Reduction Simplified Employee Pension
Plan (incorporated herein by reference to Exhibit 14(d)
to Post-Effective Amendment No. 5 to the Registration
Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on
October 11, 1994)
14. (v) Form of Colonial Mutual Funds 401(k) Plan Document,
Trust Agreement and IRS Opinion Letter (incorporated by
reference to Exhibit 14.(v) of Post-Effective Amendment
No. 27 to the Registration Statement of Colonial Trust
II, Registration Nos. 2-66976 and 811- 3009, filed with
the Commission on November 18, 1996)
14. (vi) Form of Colonial Mutual Funds 401(k) Plan
Establishment Booklet and Employee Communications Kit
(incorporated by reference to Exhibit 14.(vi) of Post-
Effective Amendment No. 27 to the Registration Statement
of Colonial Trust II, Registration Nos. 2-66976 and
811-3009, filed with the Commission on November 18,
1996)
15. Form of proposed Distribution Plan adopted pursuant to
Section 12b-1 of the Investment Company
<PAGE>
Act of 1940, incorporated by reference to the
Distributor's Contract filed as Exhibit 6(i) and
6(i)(a) hereto
16. (i)(a) Calculation of Performance Information (Class A)
16. (i)(b) Calculation of Performance Information (Class B)
16. (i)(c) Calculation of Performance Information (Class C)
16. (i)(d) Calculation of Performance Information (Class Z)
16. (ii) Calculation of Yield Information
17. (i) Financial Data Schedule (Class A)
17. (ii) Financial Data Schedule (Class B)
17. (iii) Financial Data Schedule (Class C)
17. (iv) Financial Data Schedule (Class Z)
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.
(c) Incorporated by reference from Post-Effective Amendment No. 19 filed on
February 19, 1993.
(d) Incorporated by reference from Post-Effective Amendment No. 24 filed on
December 11, 1995.
(e) Incorporated by reference from Post-Effective Amendment No. 25 filed on
March 20, 1996.
(f) Incorporated by reference from Post-Effective Amendment No. 26 filed on
October 28, 1996.
(g) Incorporated by reference to Post-Effective Amendment No. 28 filed on
December 13, 1996.
(h) Incorporated by reference to Post-Effective Amendment No. 29 filed on
March 11, 1997.
<PAGE>
(i) Incorporated by reference to Post-Effective Amendment No. 30 filed on
June 23, 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 10/31/97
-------------- ------------------------------------
Shares of Beneficial Interest 9,792 Class A recordholders
13 Class B recordholders
4 Class C recordholders
1 Class Z recordholders
Item 27. Indemnification
See Article VIII of Amendment No. 5 to the Agreement and Declaration
of Trust filed as Exhibit 1 hereto.
<PAGE>
Item 28.
The following sets forth business and other connections of each Director and
officer of Newport Fund Management, Inc. (Newport), which in turn is a wholly-
owned subsidiary of Liberty Financial Companies, Inc. (LFCI), which in turn is a
subsidiary of Liberty Mutual Equity Corporation, which in turn is a subsidiary
of Liberty Mutual Insurance Company. Newport serves as investment adviser to
Colonial Newport Japan Fund and Colonial Newport Tiger Cub Fund, series of
Colonial Trust II, and Colonial Newport Tiger Fund, a series of Colonial Trust
VII, and serves as sub-adviser to Newport-Keyport Tiger Fund, a series of
Keyport Variable Investment Trust. In addition, Newport advises its parent,
Newport Pacific Management, Inc.(NPM), which manages institutional and private
accounts and offshore funds.
During the past two years, neither Newport nor any of its directors or officers,
except for Lindsay Cook, Kenneth R. Leibler, and Gerald Rush, have been engaged
in any business, profession, vocation or employment of a substantial nature
either on their own account or in the capacity of director, officer, partner or
trustee, other than as an director or officer of Newport. Lindsay Cook is Senior
Vice President of LFCI, Kenneth R. Leibler is President, Chief Executive Officer
and Director of LFCI, and Gerald Rush is Vice President-Finance of LFCI.
<TABLE>
<CAPTION>
Positions with Position Formerly Held
Name Newport and NPM within Past Two Years
- ---- --------------- ---------------------
<S> <C> <C>
Robert B. Cameron Senior Vice President Branch manager - equity
of Newport and NPM sales at CS First Boston,
Swiss Bank Corp., and
Baring Securities
Lindsay Cook Senior Vice President
of Newport
Lynda Couch Senior Vice President Vice President of Newport
of Newport and NPM and NPM and Vice
President - Research at
Global Strategies and at
Smith Bellingham
International, Inc.
Pamela Frantz Executive Vice President, Same
Treasurer and Secretary
of Newport and NPM
Christopher Legallet Senior Vice President Managing Director of
of Newport and NPM Jupiter Tyndall
(Asis) LTD.
Kenneth R. Leibler Director of Newport
and NPM
John M. Mussey President of Newport Same
and President and
Director of NPM
Gerald Rush Vice President-
Finance of Newport
<PAGE>
David Smith Senior Vice President Analyst at NPM, Executive
of Newport and Director Vice President at
of North Asian Strategies Carnegie Investor
of NPM Services and a Vice
President at Global
Strategies, Redwood
Securities and Smith
Bellingham International,
Inc.
Thomas R. Tuttle Senior Vice President Same
of Newport and NPM
</TABLE>
The business address of each individual listed in the foregoing table is
Newport Fund Management, Inc., 580 California Street, Suite 1960,
San Francisco, CA 94104.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
The following sets forth business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(see next page)
<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.
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. 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.
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
Mbr. IPC; 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
Rie, Daniel Sr.V.P.; Colonial Advisory Services,
IPC Mbr.; Inc. Exec. V.P.
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.
- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.
Item 29 Principal Underwriter
- ------- ---------------------
(a) Colonial Investment Services, Inc. a subsidiary of Colonial
Management Associates, Inc., Registrant's principal
underwriter, also acts in the same capacity to
Colonial Trust I, Colonial Trust III, Colonial
Trust IV, Colonial Trust V, Colonial Trust VI and Colonial Trust
VII; and sponsor for Colony Growth Plans (public offering of which
were discontinued June 14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Name and Principal Position and Offices Positions and
Business Address* with Principal Offices with
Underwriter Registrant
- ------------------ ------------------- --------------
Ballou, Rich Regional V.P. None
Balzano, Christine R. V.P. None
Barsokas, David Regional V.P. None
Cairns, David Regional V.P. None
Chrzanowski, Regional V.P. None
Daniel
Clapp, Elizabeth A. V.P. None
Crossfield, Andrew Regional V.P. None
Daniszewski, V.P. None
Joseph J.
Davey, Cynthia Sr. V.P. None
Donovan, John Regional V.P. None
Eckelman, Bryan Sr. V.P. None
Emerson, Kim P. Regional V.P. None
Erickson, Cynthia G. V.P. None
Evans, C. Frazier Sr. V.P. None
Feldman, David Regional V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Goldberg, Matthew Regional V.P. None
Hannon, Lisa Regional V.P. None
Harasimowicz, V.P. None
Stephen
Hodgkins, Joseph Regional V.P. None
Karagiannis, Sr. V.P. None
Marilyn
Kavolius, Mark Regional V.P. None
Kelley, Terry M. Regional V.P. None
Kelson, David W. Sr. V.P. None
Lloyd, Judith H. Sr. V.P. None
McGregor, Jeffrey L. Director, CEO, None
President
Meriwether, Jan V.P.
Moberly, Ann R. Sr. V.P. None
Murphy, Robert F. Sr. V.P. None
O'Neill, Charles A. Exec. V.P. None
Palmer, Laura V.P. None
Potter, Cheryl Regional V.P. None
Reed, Christopher B. Regional V.P. None
Scoon, Davey Director V.P.
Scott, Michael W. Sr. V.P. None
Sorrells, Sr. V.P. None
Elizabeth
Stern, Arthur O. Clerk and Secretary
Counsel, Dir.,
Chairman
VanEtten, Keith H. V.P. None
Villanova, Paul Regional V.P. None
Wallace, John V.P. None
Welsh, Stephen Treasurer Asst. Treasurer
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
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 undertakes to file a post-effective amemdment,
including financial statements which need not be certified,
within 4 to 6 months from the effective date of this Registration
Statement under the Securities Act of 1933, as amended.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Colonial
Trust II is on file with the Secretary of The Commonwealth of Massachusetts and
notice is hereby given that the instrument has been executed on behalf of the
Trust by an officer of the Trust as an officer and by the Trust's Trustees as
trustees and not individually and the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers, or shareholders
individually but are binding only upon the assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 31 to its Registration Statement under the Securities Act of 1933
and the Post-Effective Amendment No. 31 under the Investment Company Act of
1940, to be signed in this City of Boston, and The Commonwealth of Massachusetts
on this 10th day of November, 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
- --------------------- (chief executive officer) November 10, 1997
Harold W. Cogger
/s/ TIMOTHY J. JACOBY Treasurer and Chief November 10, 1997
- ---------------------- Financial Officer
Timothy J. Jacoby
/s/ TIMOTHY J. JACOBY Controller and Chief November 10, 1997
- ---------------------- Accounting Officer
Timothy J. Jacoby
<PAGE>
SIGNATURES TITLE DATE
- ---------- ----- ----
/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 *Michael H. Koonce
- ------------------------ Attorney-in-fact
James L. Moody, Jr. November 10, 1997
/s/ WILLIAM E. MAYER* Trustee
- ---------------------
William E. Mayer
/s/ JOHN J. NEUHAUSER* Trustee
- ----------------------
John J. Neuhauser
/s/ GEORGE L. SHINN* Trustee
- --------------------
George L. Shinn
/s/ ROBERT L. SULLIVAN* Trustee
- -----------------------
Robert L. Sullivan
/s/ SINCLAIR WEEKS, JR.* Trustee
- ------------------------
Sinclair Weeks, Jr.
<PAGE>
EXHIBITS
11. Consent of Independent Accountants
16.(i)(a) Calculation of Performance Information (Class A)
16.(i)(b) Calculation of Performance Information (Class B)
16.(i)(c) Calculation of Performance Information (Class C)
16.(i)(d) Calculation of Performance Information (Class Z)
16. (ii) Calculation of Yield Information
17. (i) Financial Data Schedule (Class A)
17. (ii) Financial Data Schedule (Class B)
17. (iii) Financial Data Schedule (Class C)
17. (iV) Financial Data Schedule (Class Z)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statements of
Additional Information constituting parts of this Post-Effective Amendment No.31
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
Newport Greater China Fund, a series of Colonial Trust II, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "The Fund's Financial History" in the
Prospectuses and "Independent Accountants" in the Statements of Additional
Information.
Price Waterhouse LLP
Boston, Massachusetts
November 14, 1997
</TABLE>
PERFORMANCE CALCULATION
NEWPORT GREATER CHINA FUND -CLASS A
Period Ended: 8/31/97
Inception Date: 5/16/97
SINCE INCEPTION
5/16/97 TO 8/31/97
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Max. Load 5.75%
Amt. Invested $942.50 $1,000.00
Initial NAV 13.34 13.34
Initial Shares 70.670 74.981
Shares From Dist. 0.000 0.000
End of Period NAV 17.90 17.90
Total Return 26.50% 34.22%
Average Annual
Total Return N/A N/A
35673
35566
108
PERFORMANCE CALCULATION
NEWPORT GREATER CHINA FUND -CLASS B
Period Ended: 8/31/97
Inception Date: 5/16/97
SINCE INCEPTION
5/16/97 TO 8/31/97
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV 13.33 13.33
Initial Shares 75.019 75.019
Shares From Dist. 0.000 0.000
End of Period NAV 17.86 17.86
CDSC 5.00%
Total Return 28.98% 33.98%
Average Annual
Total Return N/A N/A
PERFORMANCE CALCULATION
NEWPORT GREATER CHINA FUND -CLASS C
Period Ended: 8/31/97
Inception Date: 5/16/97
SINCE INCEPTION
5/16/97 TO 8/31/97
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV 13.33 13.33
Initial Shares 75.019 75.019
Shares From Dist. 0.000 0.000
End of Period NAV 17.86 17.86
CDSC 1.00%
Total Return 32.98% 33.98%
Average Annual
Total Return N/A N/A
PERFORMANCE CALCULATION
NEWPORT GREATER CHINA FUND -CLASS Z
Period Ended: 8/31/97
Inception Date: 5/16/97
SINCE INCEPTION
5/16/97 TO 8/31/97
Non-Standard
Initial Inv. $1,000.00
Amt. Invested $1,000.00
Initial NAV 13.34
Initial Shares 74.981
Shares From Dist. 0.000
End of Period NAV 17.91
Total Return 34.29%
Average Annual
Total Return N/A
NEWPORT GREATER CHINA FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 8/31/97
6
FUND YIELD = 2 ----- +1 -1
c-d
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Z
<S> <C> <C> <C> <C>
a = dividends and interest earned during
the month ................................ $219,731 $269 $268 $269
b = expenses accrued during the month 228,505 373 371 279
c = average dividend shares outstanding
during the month ......................... 6,147,543 7,525 7,502 7,502
d = class maximum offering price per share
on the last day of the month ............. $18.99 $17.86 $17.86 $17.91
YIELD .................................. -0.09% -0.93% -0.93% -0.10%
YIELD WITHOUT WAIVER.......... -0.25% -1.10% -1.10% -0.27%
</TABLE>
[ARTICLE] 6
[CIK] 0000315665
[NAME] COLONIAL NEWPORT GREATER CHINA FUND, CLASS A
[SERIES]
[NUMBER] 6
[NAME] TRUST II
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] AUG-31-1997
[PERIOD-START] MAY-12-1997
[PERIOD-END] AUG-31-1997
[INVESTMENTS-AT-COST] 130115
[INVESTMENTS-AT-VALUE] 116880
[RECEIVABLES] 293
[ASSETS-OTHER] 1589
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 118762
[PAYABLE-FOR-SECURITIES] 2389
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 270
[TOTAL-LIABILITIES] 2659
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 129203
[SHARES-COMMON-STOCK] 6464
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 134
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (13236)
[NET-ASSETS] 116103
[DIVIDEND-INCOME] 197
[INTEREST-INCOME] 177
[OTHER-INCOME] 0
[EXPENSES-NET] 263
[NET-INVESTMENT-INCOME] 111
[REALIZED-GAINS-CURRENT] 578
[APPREC-INCREASE-CURRENT] (13236)
[NET-CHANGE-FROM-OPS] (12547)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 6708
[NUMBER-OF-SHARES-REDEEMED] (372)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 114103
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 154
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 335
[AVERAGE-NET-ASSETS] 12594
[PER-SHARE-NAV-BEGIN] 13.340
[PER-SHARE-NII] 0.052
[PER-SHARE-GAIN-APPREC] 4.508
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 17.900
[EXPENSE-RATIO] 2.15
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000315665
[NAME] COLONIAL NEWPORT GREATER FUND, CLASS B
[SERIES]
[NUMBER] 6
[NAME] TRUST II
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] AUG-31-1997
[PERIOD-START] MAY-12-1997
[PERIOD-END] AUG-31-1997
[INVESTMENTS-AT-COST] 130115
[INVESTMENTS-AT-VALUE] 116880
[RECEIVABLES] 293
[ASSETS-OTHER] 1589
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 118762
[PAYABLE-FOR-SECURITIES] 2389
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 270
[TOTAL-LIABILITIES] 2659
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 129203
[SHARES-COMMON-STOCK] 8
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 134
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (13236)
[NET-ASSETS] 116103
[DIVIDEND-INCOME] 197
[INTEREST-INCOME] 177
[OTHER-INCOME] 0
[EXPENSES-NET] 263
[NET-INVESTMENT-INCOME] 111
[REALIZED-GAINS-CURRENT] 578
[APPREC-INCREASE-CURRENT] (13236)
[NET-CHANGE-FROM-OPS] (12547)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 114103
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 154
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 335
[AVERAGE-NET-ASSETS] 12594
[PER-SHARE-NAV-BEGIN] 13.330
[PER-SHARE-NII] (0.004)
[PER-SHARE-GAIN-APPREC] 4.534
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 17.860
[EXPENSE-RATIO] 2.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000315665
[NAME] COLONIAL NEWPORT GREATER CHINA FUND, CLASS C
[SERIES]
[NUMBER] 6
[NAME] TRUST II
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] AUG-31-1997
[PERIOD-START] MAY-12-1997
[PERIOD-END] AUG-31-1997
[INVESTMENTS-AT-COST] 130115
[INVESTMENTS-AT-VALUE] 116880
[RECEIVABLES] 293
[ASSETS-OTHER] 1589
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 118762
[PAYABLE-FOR-SECURITIES] 2389
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 270
[TOTAL-LIABILITIES] 2659
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 129203
[SHARES-COMMON-STOCK] 8
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 134
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (13236)
[NET-ASSETS] 116103
[DIVIDEND-INCOME] 197
[INTEREST-INCOME] 177
[OTHER-INCOME] 0
[EXPENSES-NET] 263
[NET-INVESTMENT-INCOME] 111
[REALIZED-GAINS-CURRENT] 578
[APPREC-INCREASE-CURRENT] (13236)
[NET-CHANGE-FROM-OPS] (12547)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 114103
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 154
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 335
[AVERAGE-NET-ASSETS] 12594
[PER-SHARE-NAV-BEGIN] 13.330
[PER-SHARE-NII] (0.004)
[PER-SHARE-GAIN-APPREC] 4.534
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 17.860
[EXPENSE-RATIO] 2.9
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000315665
[NAME] COLONIAL NEWPORT GREATER FUND, CLASS Z
[SERIES]
[NUMBER] 6
[NAME] TRUST II
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] AUG-31-1997
[PERIOD-START] MAY-12-1997
[PERIOD-END] AUG-31-1997
[INVESTMENTS-AT-COST] 130115
[INVESTMENTS-AT-VALUE] 116880
[RECEIVABLES] 293
[ASSETS-OTHER] 1589
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 118762
[PAYABLE-FOR-SECURITIES] 2389
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 270
[TOTAL-LIABILITIES] 2659
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 129203
[SHARES-COMMON-STOCK] 8
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 134
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (13236)
[NET-ASSETS] 116103
[DIVIDEND-INCOME] 197
[INTEREST-INCOME] 177
[OTHER-INCOME] 0
[EXPENSES-NET] 263
[NET-INVESTMENT-INCOME] 111
[REALIZED-GAINS-CURRENT] 578
[APPREC-INCREASE-CURRENT] (13236)
[NET-CHANGE-FROM-OPS] (12547)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 114103
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 154
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 335
[AVERAGE-NET-ASSETS] 12594
[PER-SHARE-NAV-BEGIN] 13.340
[PER-SHARE-NII] 0.065
[PER-SHARE-GAIN-APPREC] 4.505
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 17.910
[EXPENSE-RATIO] 1.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
