As filed with the Securities and Exchange Commission on August 6, 1998.
Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Colonial Trust II*
(Exact name of Registrant as Specified in Charter)
One Financial Center, Boston, MA 02111
(Address of Principal Executive Offices)
(617) 426-3750
(Area Code and telephone Number)
----------
Nancy L. Conlin, Esq.
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111
---------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
----------
It is proposed that this filing will become effective on September 5, 1998
pursuant to Rule 488.
---------
Title of Securities Being Registered:
Shares of Beneficial Interest, no par value
----------
An indefinite amount of the Registrant's securities has been registered under
the Securities Act of 1933 pursuant to Rule 24f-2. In reliance upon such Rule,
no filing fee is being paid at this time. A Rule 24f-2 notice for the Registrant
for the year ended August 31, 1997 was filed on November 3, 1997.
- --------
* On behalf of its Colonial Money Market Fund and Colonial Short Duration
U.S. Government Fund series.
<PAGE>
Colonial Trust II
(Colonial Money Market Fund)
(Colonial Short Duration U.S. Government Fund)
Cross-Reference Sheet
as required by Rule 481(a)
<TABLE>
<CAPTION>
Part A
Form N-14 Item Caption in Prospectus/Proxy Statement
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 Front Cover; Back Cover
3 Cover Letter; Introduction; The Acquisition; The
Reorganization; Exhibit B
4 Cover Letter; Introduction; The Acquisition; The
Reorganization; Exhibit A
5, 6 Cover Letter; Introduction; The Acquisition; The
Reorganization; Exhibit B; Exhibit C; Exhibit D
7 Cover Letter; Notice of Joint Special Meeting;
Introduction; Voting and Solicitation
8 Principal Shareholders
9 Not Applicable
Part B
Form N-14 Item Caption in Statement of Additional Information
10, 11 Cover Page
12, 13 Not Applicable
14 Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part C
Form N-14 Item
<S> <C>
15 Indemnification
16 Exhibits
17 Undertakings
</TABLE>
<PAGE>
<PAGE>
September 5, 1998
Special Notice to Shareholders of the Crabbe Huson U.S. Government Income and
U.S. Government Money Market Funds
Dear Fellow Shareholder:
Enclosed is notice of a special meeting of shareholders of the Crabbe Huson U.S.
Government Income and U.S. Government Money Market Funds. The meeting is being
called for the purpose of voting on the reorganization of each fund into a
business trust sponsored by Liberty Financial Companies, Inc.
If the reorganization is completed, your fund would be merged with existing
mutual funds that are managed by Colonial Management Associates, Inc., the
Liberty Financial subsidiary that manages equity and fixed-income investments
for Colonial Funds shareholders. Shareholders of the U.S. Government Income Fund
would become shareholders of the Colonial Short Duration U.S. Government Fund,
while shareholders of the U.S. Government Money Market Fund would become
shareholders of the Colonial Money Market Fund. The investment objectives and
policies of these funds are similar to the objectives and policies of your fund.
The Board of Trustees of your fund has approved the reorganization and
recommends that shareholders vote in its favor.
Liberty Financial is an integrated company that offers its investors a wide
array of brand-name financial products, many of which become immediately
available to you as a Crabbe Huson Funds shareholder. Liberty Financial
maintains a significant presence in the mutual fund industry. The Board of your
fund believes that Liberty has the tools necessary to help broaden the
distribution of the funds to new investors, translating into new efficiencies,
cost savings and economies of scale for the funds' investors.
I encourage you to review the enclosed materials for all the details. You should
know that, if approved, the proposed reorganization will not affect the value of
your account or result in your paying any sales charge.
The Board believes this transaction is worthy of your confidence and urges you
to vote your proxy in favor of the funds' reorganization. Please complete the
enclosed proxy and return it as soon as possible in the envelope provided. To
ensure that all your votes are counted, you must vote, sign, and return each
proxy card you receive.
If you have any questions regarding the reorganization, you may contact D.F.
King & Co., our proxy solicitor, at (800) 848-3374 or our Investor Services
Center at (800) 541-9732. Representatives are available every business day from
6:30 a.m. to 5 p.m., Pacific time.
Best regards,
James E. Crabbe
<PAGE>
COLONIAL MONEY MARKET FUND
(a diversified open-end management company)
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
(a diversified open-end management company)
One Financial Center, Boston, MA 02111
617-426-3750
PROSPECTUS
This Prospectus relates to the proposed issuance of shares of Colonial Money
Market Fund (Colonial Money Market Fund) to Crabbe Huson U.S. Government Money
Market Fund (Crabbe Huson Money Market Fund), 121 S.W. Morrison, Suite 1400,
Portland, OR 97204, mailing address: P.O. Box 6559, Portland, OR 97228-6559, and
to the proposed issuance of shares of Colonial Short Duration U.S. Government
Fund (Colonial Government Fund) to Crabbe Huson U.S. Government Income Fund
(Crabbe Huson Government Fund) (together, Funds), 121 S.W. Morrison, Suite 1400,
Portland, OR 97204, mailing address: P.O. Box 6559, Portland, OR 97228-6559, in
connection with the proposed tax-free combinations (Combinations) of Crabbe
Huson Money Market Fund into Colonial Money Market Fund and of Crabbe Huson
Government Fund into Colonial Government Fund. Colonial Money Market Fund seeks
maximum current income, consistent with safety of capital and maintenance of
liquidity, while Crabbe Huson Money Market Fund seeks to provide investors with
a high level of current income while, at the same time, preserving capital and
allowing liquidity by investing in obligations of the United States Government
or its agencies or instrumentalities, and repurchase agreements with respect to
these obligations. Colonial Government Fund seeks as high a level of current
income as is consistent with very low volatility by investing primarily in U.S.
Government Securities and maintaining a weighted average portfolio duration of 3
years or less, while Crabbe Huson Government Fund seeks to provide shareholders
with a high level of current income and safety of principal.
This Prospectus explains concisely the information that shareholders of Crabbe
Huson Money Market Fund and Crabbe Huson Government Fund should know before
voting on their respective Combinations. Read it carefully and retain it for
future reference. For shareholders of the Crabbe Huson Money Market Fund, the
Colonial Money Market Fund's March 2, 1998 Prospectus is enclosed. Such
Prospectus is incorporated herein by reference. Crabbe Huson Money Market Fund's
March 1, 1998 Prospectus, June 11, 1998 Prospectus Supplement and March 1, 1998
Statement of Additional Information (SAI) and Colonial Money Market Fund's March
2, 1998, June 22, 1998 and September 5, 1998 SAIs, all of which have been filed
with the Securities and Exchange Commission (SEC), are incorporated herein by
reference and are available without charge from Liberty Funds Distributor, Inc.
(Colonial Distributor), One Financial Center, Boston, MA 02111, 1-800-426-3750,
the distributor for Colonial Money Market Fund, and from Crabbe Huson
Securities, Inc. (Crabbe Huson Distributor), 121 S.W. Morrison, Suite 1400,
Portland, OR 97204, 1-800-541-9732, the distributor for Crabbe Huson Money
Market Fund. For shareholders of the Crabbe Huson Government Fund, the Colonial
Government Fund's December 29, 1997 Prospectus is enclosed. Such Prospectus is
<PAGE>
incorporated herein by reference. Crabbe Huson Government Fund's March 1, 1998
Prospectus, June 11, 1998 Prospectus Supplement and March 1, 1998 SAI and
Colonial Government Fund's December 29, 1997, June 22, 1998 and September 5,
1998 SAIs are incorporated herein by reference and are available without charge
from the Colonial Distributor and Crabbe Huson Distributor at the respective
addresses and telephone numbers listed above. The Prospectuses, Supplements to
Prospectus and SAIs referred to above are also available on the SEC's Web site
(http:\\www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED 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.
Prospectus dated September 5, 1998
Crabbe Huson U.S. Government Fund (the "Crabbe Huson Government Fund")
Crabbe Huson Government Money Market Fund (the "Crabbe Huson Money Market Fund")
121 S.W. Morrison, Suite 1425
Portland, Oregon 97204
NOTICE OF JOINT SPECIAL MEETING
A special meeting of the shareholders of the Crabbe Huson Government Fund and
the Crabbe Huson Money Market Fund (each, a "Crabbe Huson Fund" and,
collectively, the "Crabbe Huson Funds") will be held jointly at 3:00 p.m.
Pacific Time, on September 30, 1998 at The Benson Hotel, 309 S.W. Broadway,
Portland, Oregon for the following purposes:
(1) To approve or disapprove an Agreement and Plan of
Reorganization for each Fund. Under each Agreement and Plan of Reorganization,
(i) all of the assets and liabilities of the Crabbe Huson Government Fund would
be transferred to the Colonial Short Duration U.S. Government Fund, a series of
Colonial Trust II, a Massachusetts business trust (the "Trust"); (ii) all of the
assets and liabilities of the Crabbe Huson Money Market Fund would be
transferred to the Colonial Money Market Fund, a series of the Trust; (iii) each
Crabbe Huson Fund would receive an amount of shares in the applicable series of
the Trust equal in net asset value to the net asset value of that Crabbe Huson
Fund; (iv) each Crabbe Huson Fund would liquidate and distribute the shares
received from the Trust to its shareholders on a pro rata basis; and (v) each
Crabbe Huson Fund would then be dissolved.
(2) To transact any other business that may properly be
presented at the meeting or any adjournment of the meeting.
All shareholders are invited to attend the meeting. Shareholders of record at
the close of business on August 4, 1998, the record date fixed by the Boards of
Trustees of the Crabbe Huson Funds, are entitled to notice of and to vote at the
meeting.
By Order of the
Board of Trustees
September 5, 1998 Craig P. Stuvland, Secretary
<PAGE>
YOUR VOTE IS IMPORTANT
PLEASE RETURN YOUR PROXY CARD
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. A SHAREHOLDER WHO
COMPLETES AND RETURNS THE PROXY AND SUBSEQUENTLY ATTENDS THE MEETING MAY ELECT
TO VOTE IN PERSON, SINCE A PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
TABLE OF CONTENTS
Page
----
Introduction
The Acquisition
Background
Summary of the Purchase Agreement
Compliance with Section 15(f) of
the Investment Company Act of 1940
The Reorganization
Procedure for Reorganization
Reasons for Reorganization
Investment Management and Other
Agreements
Comparative Fee Table
12b-1 Plans
Comparison of Crabbe Huson Funds
and Colonial Funds
Change in Fundamental Investment
Policies
Federal Tax Consequences
Waiver of Investment Restrictions
Dissenter' Rights
Board of Trustees
The Trust's Independent Accountants
Other Matters
Shareholder Proposals
Annual Reports
Voting and Solicitation
Voting, Quorum
Solicitation of Proxies
Principal Shareholders
Exhibit A
Exhibit B
Exhibit C
Exhibit D
<PAGE>
Crabbe Huson U.S. Government Fund (the "Crabbe Huson Government Fund")
Crabbe Huson Government Money Market Fund (the "Crabbe Huson Money Market Fund")
(collectively, the "Crabbe Huson Funds")
121 S.W. Morrison, Suite 1425
Portland, Oregon 97204
JOINT PROXY STATEMENT
The enclosed proxy is solicited by the Boards of Trustees of each of the Crabbe
Huson Government Fund and the Crabbe Huson Money Market Fund for use at the
joint special meeting of shareholders to be held at The Benson Hotel, 309 S.W.
Broadway, Portland, Oregon at 3:00 p.m., Pacific Time, on September 30, 1998 and
at any adjournment thereof. The Crabbe Huson Funds expect to mail this proxy
statement and the proxy to shareholders on or about September 5, 1998.
A holder of record of common stock of the Crabbe Huson Funds at the close of
business on August 4, 1998 (the "Record Date") will be entitled to vote at the
joint special meeting in person or by proxy. Shares represented at the meeting
by duly executed proxies will be voted in accordance with the instructions
contained in such proxies. If no instruction is given with respect to a
particular matter, shares will be voted in accordance with the recommendation of
the Trustees. Proxies may be revoked at any time before they are exercised by a
written revocation received by the Secretary of the Crabbe Huson Funds, by
properly executing a later dated proxy or by attending the meeting and voting in
person.
If you are a shareholder of more than one of the Crabbe Huson Funds, you will
receive this proxy statement and a separate proxy card for each Crabbe Huson
Fund. Please complete, sign and return all proxy cards promptly in the postage
paid envelope. In the alternative, you may vote by fax through D.F. King & Co.,
our proxy solicitor. To vote by fax, complete and sign the proxy card and fax
both sides to D.F. King at (212) 269-2796. PLEASE VOTE, SIGN AND RETURN EACH
PROXY CARD YOU RECEIVE TO ENSURE THAT ALL YOUR VOTES ARE COUNTED.
If you have any questions or would like more information about the matters
discussed in this proxy statement, please call our proxy solicitor, D.F. King &
Co., toll-free at 1-800-848-3374.
<PAGE>
INTRODUCTION
The Crabbe Huson Group, Inc. (the "Crabbe Huson Group"), LFC Acquisition Corp.
(the "Acquisition Corp."), Liberty Financial Companies, Inc. ("Liberty") and
certain shareholders of the Crabbe Huson Group have entered into an agreement,
dated as of June 10, 1998 (the "Purchase Agreement"), providing for the sale of
substantially all of the assets of the Crabbe Huson Group's mutual fund advisory
business to Acquisition Corp. (the "Acquisition"). Under the Purchase Agreement,
Acquisition Corp. would be renamed the "The Crabbe Huson Group, Inc." and would
continue to provide investment advisory services to certain of the other funds
in the Crabbe Huson fund group following the Acquisition.
The Purchase Agreement contemplates a reorganization of the Crabbe Huson Funds
(the "Reorganization"). The Reorganization would result, in substance, in the
shareholders of the Crabbe Huson Government Fund becoming shareholders of the
Colonial Short Duration U.S. Government Fund (the "Colonial Government Fund")
and the shareholders of the Crabbe Huson Money Market Fund becoming shareholders
of the Colonial Money Market Fund (the "Colonial Money Market Fund" and
collectively with the Colonial Government Fund, the "Colonial Funds"). The
Colonial Funds are series of Colonial Trust II, a Massachusetts business trust
(the "Trust").
At a joint special meeting of the Boards of Trustees of the Crabbe Huson Funds
held on July 17, 1998, the Trustees of each Crabbe Huson Fund, including the
disinterested Trustees, unanimously approved the Reorganization and determined
to recommend to the shareholders of each Crabbe Huson Fund that they approve an
Agreement and Plan of Reorganization for each Crabbe Huson Fund (the "Plans").
This proxy statement seeks the approval or disapproval of the Reorganization by
the shareholders of each of the Crabbe Huson Funds. It is a condition to the
obligations of the Crabbe Huson Group, the Acquisition Corp. and Liberty to
complete the Acquisition (which condition may be waived) that the shareholders
of each Crabbe Huson Fund approve the Reorganization. If shareholder approval of
the Reorganization of a Crabbe Huson Fund is not obtained, the existing
investment advisory contracts and distribution plans for that Fund would remain
in effect and the current trustees of that Fund would continue to serve until
further notice.
The Trustees believe that the new arrangements are in the best interests of the
shareholders of the Crabbe Huson Funds and recommend that the shareholders of
each Crabbe Huson Fund vote "FOR" the Reorganization.
<PAGE>
THE ACQUISITION
Background
The Crabbe Huson Group began discussions in the spring of 1998 regarding the
sale of the Crabbe Huson Group's investment advisory business, including its
mutual fund management business, to Liberty or one of its affiliates. The Crabbe
Huson Group's principal goal in considering the possible sale of its investment
advisory business was to find a way to focus on its core business of investment
management, while assuring that high quality shareholder servicing and other
administrative functions were maintained. A secondary goal was to achieve
liquidity in order to permit Dick Huson, one of the Crabbe Huson Group's
principal shareholders, to withdraw his equity from the Crabbe Huson Group.
Discussions culminated in the execution of the Purchase Agreement on June 10,
1998.
Liberty is a publicly traded, diversified asset management organization
headquartered in Boston, Massachusetts. Through its affiliates, it provides
fixed, indexed and variable annuities, mutual funds, private wealth management
and institutional money management services. At the end of its last fiscal year,
it had assets under management in excess of $51 billion. Affiliates of Liberty,
including Colonial Management Associates, Inc. ("Colonial"), Stein Roe & Farnham
Incorporated and Newport Pacific Management, Inc., act as investment advisors to
more than 75 mutual funds.
Summary of the Purchase Agreement
The Purchase Agreement provides that, upon the closing of the Acquisition, the
Crabbe Huson Group will transfer to Acquisition Corp. substantially all of its
assets, including the ownership of the name "Crabbe Huson." Acquisition Corp.
will assume certain of the Crabbe Huson Group's contractual obligations and will
pay Crabbe Huson Group a purchase price of $96 million (subject to adjustment in
the event of changes in excess of 10% in Crabbe Huson's annualized advisory fee
revenues between June 10, 1998 and the closing), 10% of which is payable in
shares of common stock of Liberty and the balance of which is payable in cash.
Additional purchase price amounts, up to a maximum of $51.5 million in the
aggregate, will be payable to Crabbe Huson Group if Acquisition Corp. meets
certain earnings targets during the five years following the closing. Ten
percent of any such additional contingent purchase price payments would likewise
be payable in shares of Liberty common stock and the balance in cash.
Acquisition Corp. will enter into an employment contract with James Crabbe and
certain other key employees of the Crabbe Huson Group. Mr. Crabbe will agree to
remain an employee of Acquisition Corp. for a period of five years. The Purchase
Agreement provides that Mr. Crabbe will invest substantial sums in mutual funds
sponsored by Liberty following closing of the Acquisition, and will maintain the
investment for approximately five years following the closing.
Acquisition Corp. has agreed to implement and fund a transition incentive
compensation plan providing for incentive compensation to employees of
Acquisition Corp. of up to a maximum of $12.5 million in the aggregate based on
Acquisition Corp.'s earnings during the five years following the closing.
The closing of the Acquisition is presently scheduled for September 30, 1998
(immediately following the conclusion of the joint special shareholders meeting)
subject to satisfaction of conditions to closing that include, among other
things, the consummation of the Reorganization, and the execution of an
employment agreement with Mr. Crabbe. The Purchase Agreement may be terminated
at any time prior to the closing by the mutual written consent of the parties,
or if the conditions to closing have not been satisfied or waived by December
31, 1998.
Liberty has agreed to bear the cost of preparing, printing and mailing the proxy
materials for the meeting to the shareholders of the Crabbe Huson Funds.
Compliance with Section 15(f) of the Investment Company Act of 1940
Section 15(f) of the 1940 Act provides that an investment adviser to a
registered investment company may receive any amount or benefit in connection
with a sale of an interest in such adviser which results in an assignment of an
investment advisory contract if two conditions are satisfied. The first
condition is that, for a period of three years after such assignment, at least
75% of the board of directors of the investment company not be "interested
persons" (as defined in the 1940 Act) of the new investment adviser or its
predecessor. The second condition is that no "unfair burden" be imposed on the
investment company as a result of the assignment or any express or implied
terms, conditions or undertakings applicable thereto. An "unfair burden" on an
investment company exists if, during the two-year period after any such
transaction occurs, the investment adviser or its predecessor or successor, or
any interested person of such adviser, predecessor or successor, receives or is
entitled to receive any compensation from any person in connection with the
purchase or sale of securities or other property from or on behalf of such
investment company, or from the investment company or its shareholders, other
than for bona fide underwriting, investment advisory or other services.
Acquisition Corp. has agreed to assure, to the extent within its control, that
both conditions of Section 15(f) are satisfied. The current Board of Trustees of
the Trust consists of nine individuals, none of whom are "interested persons" of
the Crabbe Huson Group and one of whom is an interested person of Colonial. The
Board of Trustees of the Trust has nominated four additional persons to the
Board of Trustees, subject to approval of the existing shareholders of the
Trust. None of the additional nominees are interested persons of the Crabbe
Huson Group and one of the additional nominees is an interested person of
Colonial.
<PAGE>
THE REORGANIZATION
Procedure for Reorganization
If approved by the shareholders of the Crabbe Huson Government Fund, the
Reorganization of the Crabbe Huson Government Fund will occur as follows:
The Crabbe Huson Government Fund will transfer all of its
portfolio securities and other assets to the Colonial Government
Fund, and the Colonial Government Fund will assume all the
liabilities of the Crabbe Huson Government Fund.
The Colonial Government Fund will issue to the Crabbe Huson
Government Fund full and fractional Class A shares of beneficial
interest in the Colonial Government Fund with a net asset value
equal to the net asset value of the Crabbe Huson Government Fund.
The Crabbe Huson Government Fund will distribute to its
shareholders the Class A shares in the Colonial Government Fund so
received, on a pro rata basis.
The Crabbe Huson Government Fund will dissolve and terminate.
If approved by the shareholders of the Crabbe Huson Money Market Fund, the
Reorganization of the Crabbe Huson Money Market Fund will occur as follows:
The Crabbe Huson Money Market Fund will transfer all of its
portfolio securities and other assets to the Colonial Money Market
Fund, and the Colonial Money Market Fund will assume all the
liabilities of the Crabbe Huson Money Market Fund.
The Colonial Money Market Fund will issue to the Crabbe Huson
Money Market Fund full and fractional Class A shares of beneficial
interest in the Colonial Money Market Fund with a net asset value
equal to the net asset value of the Crabbe Huson Money Market
Fund.
The Crabbe Huson Money Market Fund will distribute to its
shareholders the Class A shares in the Colonial Money Market Fund
so received, on a pro rata basis.
The Crabbe Huson Money Market Fund will dissolve and terminate.
On consummation of the Reorganization, an open account will be established on
the records of the appropriate Colonial Fund. Certificates representing shares
in the Colonial Funds will not be physically issued.
As promptly as practicable after the consummation of the Reorganization, the
Crabbe Huson Funds will be terminated pursuant to the laws of the State of
Delaware, and after the closing date, the Crabbe Huson Funds will not conduct
any business except in connection with their liquidation.
The Colonial Government Fund offers three classes of shares to its investors.
Class A shares are offered at net asset value plus a sales charge not to exceed
3.25% (as a percentage of the offering price), payable at the time of purchase,
and are subject to an annual asset-based service fee pursuant to Rule 12b-1
under the 1940 Act of 0.20%. Class B shares are offered at net asset value, and
are subject to an annual asset-based service fee of 0.20% and an annual
asset-based distribution fee of 0.65%, both assessed pursuant to Rule 12b-1
under the 1940 Act, and a contingent deferred sales charge upon redemptions made
within four years of purchase, not to exceed 4.00% (as a percentage of the
redemption price). Class C shares are offered at net asset value, and are
subject to an annual asset-based service fee of 0.25% and an annual asset-based
distribution fee of 0.15%, both assessed pursuant to Rule 12b-1 under the 1940
Act, and a contingent deferred sales charge upon redemptions made within one
year of purchase, not to exceed 1.00% (as a percentage of the redemption price).
The Colonial Money Market Fund offers three classes of shares to its investors.
Class A shares are offered at net asset value. Class B shares are offered at net
asset value, and are subject to an annual asset-based service fee pursuant to
Rule 12b-1 under the 1940 Act of 0.25%, a distribution fee of 0.75% and a
contingent deferred sales charge upon redemptions made within four years of
purchase, not to exceed 5.00% (as a percentage of the redemption price). Class C
shares are offered at net asset value, and are subject to an annual asset-based
service fee pursuant to Rule 12b-1 under the 1940 Act of 0.25%, a distribution
fee of 0.15% and a contingent deferred sales charge upon redemptions made within
one year of purchase, not to exceed 1.00% (as a percentage of the redemption
price).
The Class A shares that will be issued to the shareholders of the Crabbe Huson
Government Fund will have an asset-based service fee pursuant to Rule 12b-1
under the 1940 Act of up to 0.20% per annum, but will not be subject to any
sales charge, either upon issuance or on redemption. The Class A shares that
will be issued to shareholders of the Crabbe Huson Money Market Fund will not be
subject to any sales charge or service fee. Dividends and distributions payable
on Class A shares to those shareholders of the Crabbe Huson Funds who elect to
have such dividends and distributions reinvested would be reinvested without
sales charge in additional Class A shares. The Crabbe Huson Fund shareholders
will be permitted, so long as they were shareholders of a Crabbe Huson Fund on
September 30, 1998 and remain Class A shareholders of the Colonial Funds, to
purchase additional Class A shares of the Colonial Funds at net asset value
without a sales charge.
Shareholders will also have exchange privileges among most of the mutual funds
distributed by Liberty Funds Distributor, Inc. These exchange privileges are
described in detail in the prospectuses of the Funds.
If the Plans are approved by shareholders, it is expected that the
Reorganization will be made effective at 4:00 p.m., Boston time, on or about
October 16, 1998 or at such later time and date as the parties may mutually
agree (the "Closing Date"). At any time before the Reorganization is effective,
the Trust and the Crabbe Huson Funds may agree to terminate the Reorganization,
and, if the Reorganization has not been made effective by December 31, 1998, the
Plans will automatically terminate on that date unless a later date is agreed to
by both the Trust and the Crabbe Huson Funds.
The form of the Plans is attached as Exhibit A.
Reasons for Reorganization
The following factors were among those considered by the Boards of Trustees in
approving the proposed Reorganization:
Colonial has substantial experience and expertise in the management of
fixed income funds.
Shareholders of the Funds will have exchange privileges, without initial
or deferred sales charges, into 38 other open-end Colonial funds covering a
broad range of investment objectives and policies.
The proposed Reorganization would increase the asset size of the Colonial
Funds, which could enable the Colonial Funds to enjoy the possibility of
economies of scale resulting from the spreading of their fixed costs and
expenses over a larger asset base.
Colonial's wholesaling and marketing capabilities may further increase the
potential for growth of the Colonial Funds over time. The Colonial Funds
are marketed alongside the other Colonial funds through more than 25,000
investment executives associated with broker-dealers with whom the Colonial
funds distributor has selling agreements and approximately 180 investment
executives employed by the bank group of Liberty Securities Corporation, a
subsidiary of Liberty.
Investment Management and Other Agreements
The Colonial Government Fund employs Colonial Management Associates, Inc., a
subsidiary of Liberty, as its investment adviser. Under its agreement with
Colonial, the Colonial Government Fund pays a monthly management fee based on
the average daily net assets of the Colonial Government Fund, determined at the
close of each business day during the month, at the annual rate of 0.55%, plus
certain costs and expenses. Colonial has voluntarily agreed to waive this fee
until further notice.
The Colonial Government Fund is also party to a transfer agency agreement and a
shareholder servicing agreement with Colonial Investors Service Center, Inc., a
subsidiary of Liberty. The fee payable to Colonial Investors Service Center,
Inc. under the shareholder servicing and transfer agency agreement is paid at
the annual rate of 0.17% of the average daily net assets of the Fund, plus
certain out-of-pocket expenses. The Colonial Government Fund is also party to a
distributor's contract with Liberty Funds Distributor, Inc.
The Colonial Money Market Fund is a type of mutual fund known as a master/feeder
fund. Unlike a traditional mutual fund, which invests directly in individual
securities, the Colonial Money Market Fund invests all of its assets in the SR&F
Cash Reserves Portfolio (the "Portfolio"). The Portfolio is a series of the SR&F
Base Trust, an open ended diversified management investment company which was
organized as a trust under the laws of the Commonwealth of Massachusetts. The
Portfolio is managed by Stein Roe & Farnham Incorporated ("SR&F"), a subsidiary
of Liberty. The Portfolio is a party to an investment advisory agreement with
SR&F, under which it pays a monthly management fee based on the average daily
net assets of the Portfolio, determined at the close of each business day during
the month, at the annual rate of 0.25% for daily net assets up to $500 million,
and 0.225% thereafter, plus certain costs and expenses. The Colonial Money
Market Fund bears its proportionate share of fees and expenses paid by the
Portfolio to SR&F.
The Colonial Money Market Fund is also party to an administration agreement and
a pricing and bookkeeping agreement with Colonial, and a transfer agency
agreement and a shareholder servicing agreement with Colonial Investors Service
Center, Inc., a subsidiary of Liberty. Under the administration agreement with
Colonial, the Colonial Money Market Fund pays a monthly administration fee at an
annual rate of 0.25% of its average daily net assets. Colonial has voluntarily
agreed to waive 0.19% of the administration fee until further notice. Under the
pricing and bookkeeping agreement with Colonial, the Colonial Money Market Fund
pays a fee in the amount of $18,000 per year plus 0.0233% of average daily net
assets. The fee payable to Colonial Investors Service Center, Inc. under the
shareholder servicing and transfer agency agreement is paid at the annual rate
of 0.20% of the average daily net assets of the Fund, plus certain out-of-pocket
expenses. The Colonial Money Market Fund is also party to a distributor's
contract with Liberty Funds Distributor, Inc. The fees and expenses described in
this paragraph are paid directly by the Colonial Money Market Fund.
In addition, the Colonial Money Market Fund bears its proportionate share of
certain expenses of the Portfolio, which include an annual pricing and
bookkeeping fee of $25,000 plus 0.0025% of the Portfolio's average daily net
assets over $50 million, a monthly transfer agent fee of $500, and certain other
expenses.
While the investment management agreements for the Colonial Funds are different
in form and shorter than the existing investment management agreement between
the Crabbe Huson Group and the Crabbe Huson Funds, they are substantially the
same in effect. The investment management agreement for the Colonial Money
Market Fund contains provisions relating to the master-feeder fund structure
that are not contained in the Crabbe Huson investment management agreement. The
existing investment management agreement for the Crabbe Huson Funds contains an
indemnity by the Crabbe Huson Funds in favor of the Crabbe Huson Group. No such
indemnity inures to the benefit of Colonial or SR&F under their investment
management agreement.
It is anticipated that the Acquisition will be completed on September 30, 1998,
approximately two weeks prior to the scheduled closing date for the
Reorganization. Upon completion of the Acquisition, the current investment
management agreement between the Funds and the Crabbe Huson Group may terminate
by its express terms and as required by Section 15(a) of the 1940 Act. If the
Acquisition is completed as anticipated, the Funds will enter into interim
investment management agreements with Acquisition Corp. with the same terms and
in the same form as the proposed investment management agreement between
Acquisition Corp. and the New Crabbe Huson Funds (except that such interim
agreements would terminate upon completion of the Reorganization). By voting in
favor of the Plans, shareholders of the Funds will be approving such interim
investment management agreements.
If it is determined at the special shareholders meeting that insufficient votes
are present in person or by proxy to either approve or disapprove the
Reorganization, the parties may elect to complete the Acquisition and adjourn
the meeting to a later date. In such event, the Funds would enter into interim
management agreements as described above. Section 15(a) of the 1940 Act requires
all investment advisory agreements between a registered investment company and
its investment adviser to be approved by a vote of a majority of the outstanding
securities of such registered investment company. The parties intend to apply
for an order from the Securities and Exchange Commission exempting the interim
management agreements from the shareholder approval requirements of Section
15(a). If such order is not issued, the closing of the Acquisition would be
delayed until the required shareholder approvals were obtained.
The following table reflects the anticipated effect of the Reorganization on the
operating expenses of the Crabbe Huson Funds and the Colonial Funds, based on
their expenses for the six months ended April 30, 1998. The Funds' expenses for
the full year ended October 31, 1998 may be different.
Comparative Fee Table for the Crabbe Huson Funds and the Class A Shares of the
Colonial Funds (for the semi-annual period ended April 30, 1998, annualized and
unaudited)
Annual Fund operating expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Crabbe Huson Colonial
Government Government Fund
Fund (Class A Shares)
<S> <C> <C>
Management and Administration Fees 0.55% 0.55%
12b-1 Fees 0.25% 0.20%
Transfer Agent Fees 0.51% 0.17%
Other Expenses 0.74% 1.04%
Total Expenses (based on 4/30/98 asset
levels) 2.05% 2.16%
Total Fund Operating Expenses (after
reimbursement or waiver) 0.75% 0.80%
<CAPTION>
Crabbe Huson Colonial Money
Money Market Fund
Market Fund (Class A Shares)
<S> <C> <C>
Management and Administration Fees 0.55% 0.49%
12b-1 Fees 0.25% 0.00%
Transfer Agent Fees 0.17% 0.20%
Other Expenses 0.25% 0.19%
Other Expenses of Hub N/A 0.03%
Other Expenses (based on 4/30/98 asset
levels) 1.22% 0.91%
Total Fund Operating Expenses (after
reimbursement or waiver) 0.70% 0.72%
</TABLE>
The purpose of the table is to assist shareholders in understanding the various
costs and expenses associated with an investment in shares of the Colonial
Funds. Future expenses may vary from year to year and may be higher or lower
than those shown above.
12b-1 Plans
The Colonial Government Fund has a 12b-1 plan providing for the payment by the
Colonial Government Fund of annual, asset-based service and distribution fees.
The amount of the fee payable annually with respect to the Class A shares to be
received by Crabbe Huson Government Fund shareholders will be 0.20% of average
daily net assets. The continuance of the 12b-1 plan must be approved annually by
the trustees of the Trust, including a majority of the disinterested trustees.
The Crabbe Huson Funds currently maintain a 12b-1 plan under which an annual fee
of 0.25% of average daily net assets is paid. The Crabbe Huson Funds' current
12b-1 plan provides that fees paid may be used to reimburse the distributor for
actual expenses incurred in providing shareholder services. Fees in excess of
actual expenses may not be assessed. The 12b-1 plan for the Class A shares of
the Colonial Government Fund provides that if fees exceed the actual expenses,
they may be retained by the distributor as additional compensation.
The Colonial Funds are parties to an existing custodian agreement between the
Trust and Chase Manhattan Bank. Following the Reorganization, the custodianship
of the existing IRA accounts would be changed to Bank of Boston, which currently
acts as custodian for IRA accounts invested in the Colonial Funds.
Comparison of Crabbe Huson Funds and Colonial Funds
The Trust has been established under Massachusetts law as a trust with
transferable shares of beneficial interest, commonly known as a Massachusetts
business trust, pursuant to a Declaration of Trust (the "Colonial Declaration of
Trust"). The Crabbe Huson Funds are series of a trust established under Delaware
law pursuant to a Declaration of Trust (the "Crabbe Huson Declaration of
Trust").
There are certain differences between the Colonial Declaration of Trust and the
Crabbe Huson Declaration of Trust; however, these differences should not result
in any substantial difference in the operation or administration of the Funds.
The operations of the Crabbe Huson Funds and the Colonial Funds are and will
continue to be subject to the provisions of the 1940 Act and rules and
regulations of the Securities and Exchange Commission thereunder.
Subject to the provisions of the applicable declaration of trust, the business
of the Crabbe Huson Funds and the Colonial Funds is managed by a Board of
Trustees who have all powers necessary or convenient to carry out that
responsibility.
Beneficial interests in the Crabbe Huson Funds and the Colonial Funds are
represented by transferable shares without par value. The Colonial Declaration
of Trust and the Crabbe Huson Declaration of Trust permit the trustees to create
an unlimited number of series and classes and, with respect to each series or
class, to issue an unlimited number of shares. Each share of each series
represents an equal proportionate interest in the trust with each other, none
having priority or preference over another.
The Colonial Declaration of Trust and the Crabbe Huson Declaration of Trust
provide that shareholders shall have power to vote only on the following
matters: (i) the election of trustees; (ii) the approval of any contract for
investment advisory or management services; (iii) the termination of the trust;
(iv) an amendment of the declaration of trust; (v) to the same extent as the
shareholders of a business corporation as to whether or not a court action,
proceeding or claim should not be brought or maintained as a derivative or as a
class action on behalf of the trust or its shareholders; and (vi) with respect
to such additional matters relating to the trust as may be required by the
applicable declaration of trust, any bylaws adopted by the trustees or any
registration statement of the trust filed with the Securities and Exchange
Commission (or any successor agency) or any state, or as the trustees may
consider necessary or desirable.
The Crabbe Huson Funds and the Colonial Funds operate as diversified open-end
investment companies registered with the Securities and Exchange Commission
under the 1940 Act. Shareholders of the Crabbe Huson Funds and the Colonial
Funds therefore have the power to vote at special meetings for, among other
things, changes in fundamental investment policies and restrictions of the
funds; ratification of the selection by the board of trustees of the auditors
for the funds; and such additional matters as may be required by law. If, at any
time, less than a majority of the trustees holding office have been elected by
shareholders, the trustees then in office are required, under the 1940 Act, to
call a shareholders' meeting for the purpose of electing new trustees.
Trustees of the Crabbe Huson Funds may be removed by a vote of a majority of the
Crabbe Huson Funds' outstanding shares. Trustees of the Colonial Funds may be
removed by a vote of two-thirds of the Trust's outstanding shares.
Each whole share of the Colonial Funds is entitled to one vote, with each
fraction being entitled to a proportionate fractional vote. Each share of the
Crabbe Huson Funds is entitled to one vote for each dollar of net asset value
attributable to that share, with each fraction of a dollar being entitled to a
proportionate fractional vote. Neither the Crabbe Huson Funds nor the Colonial
Funds permit cumulative voting for the election of trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Colonial Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Colonial Declaration of Trust also provides that it shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of shareholders incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust itself was unable to meet its obligations. Under
Delaware law and the Crabbe Huson Declaration of Trust, the Crabbe Huson Funds'
shareholders currently have no personal liability for its acts or obligations,
except to the extent of any improper dividend payments received by them.
The Colonial Declaration of Trust contains substantially the same provisions
regarding indemnification of Trustees and officers as are presently provided to
trustees and officers of the Funds under the Crabbe Huson Declaration of Trust.
Shareholders of the Crabbe Huson Funds may obtain copies of the Colonial
Declaration of Trust and the Crabbe Huson Declaration of Trust on written
request to the Secretary of the Crabbe Huson Funds.
Change in Fundamental Investment Policies.
The Crabbe Huson Government Fund and the Colonial Government Fund have similar
investment objectives. Likewise, the Crabbe Huson Money Market Fund and the
Colonial Money Market Fund have similar, but not identical, investment
objectives. The investment policies of the Crabbe Huson Funds and the Colonial
Funds are set forth in Exhibit B. Some of the principal differences between
policies and objectives of the Crabbe Huson Funds and the Colonial Funds are
summarized below.
Under the 1940 Act, investment policies are classified in two categories:
fundamental and non-fundamental. Fundamental investment policies may be changed
only with shareholder approval. Non-fundamental investment policies may be
changed with notice to shareholders, but no shareholder approval is required.
Certain investment policies are required by the 1940 Act to be fundamental
policies. Only those policies of the Colonial Funds that are required by the
1940 Act to be fundamental (i.e., changeable only with shareholder approval) are
designated as fundamental. All other investment policies of the Colonial Funds
(including those corresponding to some of the current fundamental policies of
the Crabbe Huson Funds) are classified as non-fundamental. All of the Crabbe
Huson Funds' investment policies are fundamental policies.
Both of the Crabbe Huson Funds are prohibited under their fundamental policies
from purchasing securities other than direct or indirect obligations of the
United States and its agencies and instrumentalities or repurchase agreements
with respect to those obligations. Although the Colonial Government Fund intends
to invest primarily in U.S. government securities, it is not required by its
fundamental policies to do so. The Colonial Money Market Fund does not invest
primarily in U.S. government securities. Investments held by the Colonial Money
Market Fund may include commercial paper, certificates of deposits, bankers'
acceptances, time deposits and corporate notes, bonds and debentures.
Federal Tax Consequences
It is anticipated that the Reorganization will be tax-free for federal tax
purposes. It is a condition to the consummation of the Reorganization that the
Funds and the Trust receive an opinion of Davis Wright Tremaine LLP
substantially to the effect that for federal income tax purposes: (i) no gain or
loss will be recognized by any Crabbe Huson Fund upon the exchange of its assets
for Colonial Fund shares and the assumption by the Colonial Funds of the
liabilities of such Crabbe Huson Fund; (ii) the basis in the hands of the
Colonial Fund of the assets of the Crabbe Huson Fund transferred to the Colonial
Fund will be the same as the basis of such assets in the hands of the Crabbe
Huson Fund immediately prior to the transfer; (iii) the holding periods of the
assets of any Crabbe Huson Fund in the hands of a Colonial Fund will include the
period during which such assets were held by the Crabbe Huson Fund; (iv) no gain
or loss will be recognized by any Colonial Fund upon the receipt of the assets
of a Crabbe Huson Fund in exchange for Colonial Fund shares and the assumption
by such Colonial Fund of the liabilities of such Crabbe Huson Fund; (v) no gain
or loss will be recognized by the shareholders of any Crabbe Huson Fund upon the
receipt of Colonial Fund shares in exchange for their shares in such Crabbe
Huson Fund; (vi) the basis of the Colonial Fund shares received by the
shareholders of the Crabbe Huson Funds will be the same as the basis of the
shares of the Crabbe Huson Funds exchanged therefor; and (vii) a Crabbe Huson
Fund shareholder's holding period for his or her shares in the Colonial Funds
will be determined by including the period for which he or she held the Crabbe
Huson Fund shares exchanged therefor, provided that he or she held such Crabbe
Huson Fund shares as capital assets.
Waiver of Investment Restrictions
The Crabbe Huson Funds have a fundamental investment restriction, which may not
be changed without shareholder approval, under which they may not own more than
10% of the outstanding voting securities of any one issuer. Such restriction
would prohibit the purchase by the Crabbe Huson Funds of shares of the Colonial
Funds, which is necessary to complete the Reorganization (see Procedures for
Reorganization above). Accordingly, a vote for the Reorganization will be deemed
also a vote to waive the above-described restriction and authorize the Crabbe
Huson Funds to acquire shares of the Colonial Funds to the extent (and only to
the extent) necessary to carry out the Reorganization. The waiver of the
investment restriction will be effective only for the purpose of completing the
Reorganization and will have no effect thereafter.
Dissenter's Rights
Shareholders are not entitled to any rights of share appraisal under the Crabbe
Huson Declaration of Trust or Delaware law. Shareholders have the right to
redeem their shares in the Crabbe Huson Funds at net asset value until the
closing of the Reorganization, and thereafter, shareholders may redeem from the
Colonial Funds Class A shares acquired by them in the Reorganization at net
asset value.
Board of Trustees
The current Board of Trustees of the Trust is comprised of Robert J. Birnbaum,
Tom Bleasdale, Lora S. Collins, James E. Grinnell, Richard W. Lowry, William E.
Mayer, James L. Moody, Jr., John J. Neuhauser and Robert L. Sullivan. Their
backgrounds and qualifications are described in Exhibit C. The Board of Trustees
of the Trust has nominated four additional persons to the Board of Trustees,
subject to approval by the existing shareholders of the Trust.
The Trust's Independent Accountants
PricewaterhouseCoopers LLP acts as independent accountants for the Colonial
Funds.
OTHER MATTERS
The Boards of Trustees of the Crabbe Huson Funds know of no other business to be
brought before the meeting. However, if any other matters properly come before
the meeting, it is the intention of the Boards of Trustees that proxies that do
not contain specific instructions to the contrary will be voted on such matters
in accordance with the judgment of the persons designated therein as proxies.
SHAREHOLDER PROPOSALS
Neither the Trust nor the Crabbe Huson Funds are required to hold annual
shareholder meetings. Proposals of shareholders which are intended to be
presented at future special meetings of the shareholders of the Trust (or, if
the Reorganization is not consummated, of the Crabbe Huson Funds) must be
received by the Secretary of the Trust a reasonable time prior to the
solicitation of proxies relating to such future meeting.
<PAGE>
ANNUAL REPORTS
The Crabbe Huson Funds' annual report to shareholders for its fiscal year ended
October 31, 1997, and its semi-annual report for the period ended April 30, 1998
containing financial statements for the Funds' fiscal year and semi-annual
period then ended, have been mailed to shareholders. Any shareholder who desires
an additional copy may obtain it upon request by writing to the Crabbe Huson
Funds or calling 1-800-638-3148.
VOTING AND SOLICITATION
Voting, Quorum
Shareholders of the Crabbe Huson Funds shall be entitled to one vote for each
dollar of net asset value standing in the name of the shareholder on the books
of the applicable Crabbe Huson Fund on the record date. Shareholders of each
Crabbe Huson Fund vote as a separate class.
Approval of the Reorganization by the Crabbe Huson Funds requires the
affirmative vote of the lesser of (i) 67% or more of the shares of each Crabbe
Huson Fund present in person at the meeting or represented by proxy, if holders
of more than 50% of the shares of such Fund outstanding on the record date are
present, in person or by proxy, or (ii) 50% of the outstanding shares of each
Crabbe Huson Fund on the record date.
A quorum for the transaction of business is constituted with respect to each
Crabbe Huson Fund by the presence in person or by proxy of the holders of not
less than a majority of the outstanding shares of that Fund entitled to vote at
the meeting. If, by the time scheduled for the meeting, a quorum of shareholders
of each Crabbe Huson Fund is not present or if a quorum of such Fund's
shareholders is present but sufficient votes in favor of the proposal described
in this proxy statement are not received, the persons named as proxies may
propose one or more adjournments of the meeting to permit further solicitation
of proxies from shareholders of the Crabbe Huson Funds. Any such adjournment
will require the affirmative vote of a majority of the shares of each Crabbe
Huson Fund, present in person or represented by proxy at the session of the
meeting to be adjourned. The persons named as proxies will vote in favor of any
such adjournment if they determine that such adjournment and additional
solicitation are reasonable and in the interests of the Crabbe Huson Funds'
shareholders. The meeting may be adjourned without further notice, to a date not
more than 120 days after the original record date.
In tallying shareholder votes, abstentions and broker non-votes (i.e. proxies
sent in by brokers and other nominees which cannot be voted because instructions
have not been received from the beneficial owners) will be counted for purposes
of determining whether a quorum is present for purposes of convening the
meeting. Abstentions and broker non-votes will be considered to be both present
and issued and outstanding. Abstentions and broker non-votes will, however, be
considered to be votes against the Reorganization.
If the accompanying form or forms of proxy are properly executed and returned in
time to be voted at the meeting, the shares convened thereby will be voted in
accordance with the instructions thereon by the shareholder. Executed proxies
that are unmarked will be voted for each proposal submitted to a vote of the
shareholders. Any proxy may be revoked at any time prior to its exercise by
providing written notice of revocation to the Crabbe Huson Funds, by delivering
a duly executed proxy bearing a later date, or by attending the meeting and
voting in person.
Solicitation of Proxies
In addition to the solicitation of proxies by mail or expedited delivery
service, the Trustees of the Crabbe Huson Funds and employees and agents of the
Crabbe Huson Group may solicit proxies in person or by telephone. The Crabbe
Huson Funds will request each bank or broker holding shares for others in its
name or custody, or in the names of one or more nominees, to forward copies of
the proxy materials to the persons for whom it holds such shares and to request
authorization to execute the proxies. Upon request, such banks, brokers, and
nominees will be reimbursed for their out-of-pocket expenses in connection
therewith. D. F. King & Co. has been retained to aid in the overall organization
of this proxy solicitation, including the proxy production, mailing, and vote
processing. It is anticipated that the costs of such solicitation shall be
approximately $15,000. The cost of preparing, assembling, mailing, and
transmitting proxy materials and of soliciting proxies on behalf of the Board of
Trustees will be borne by Liberty.
PRINCIPAL SHAREHOLDERS
As of August 4, 1998, the number of shares of common stock of each Crabbe Huson
Fund outstanding and entitled to vote are as set forth opposite the Fund's name
below:
Crabbe Huson U.S. Government Fund
Crabbe Huson U.S. Government Money Market Fund
As of July 21, 1998, the following are the record owners or are known by the
Crabbe Huson Funds to own beneficially five percent or more of a Fund, as
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934; and of the trustees of the Funds:
Crabbe Huson U. S. Government Fund
<TABLE>
<CAPTION>
Name and Address Shares Owned Percentage of Fund
<S> <C> <C>
Enele & Co Dividend Reinvest 118,560.67 33.70%
1211 SW 5th Ave, Suite 1900
Portland, OR 97204-3719
Enele & Co Dividend Acct 41,781.02 11.88%
1211 SW 5th Ave Ste 1900
Portland, OR 97204-3719
Tillamook Country Smoker, Inc. 41,537.24 11.81%
PO Box 3120
Bay City, OR 97107-3120
National Financial Services Corp 21,242.07 6.04%
FBO Our Customers
Attn: Mutual funds
200 Liberty Street, 5th Floor
One World Financial Center
New York, NY 10281-5500
June M. Birtchet 18,454.37 5.25%
Walter W. Birtchet JTWROS
9630 SW Summerfield Dr.
Tigard, OR 97224-5657
<CAPTION>
Crabbe Huson U. S. Government Money Market Fund
Name and Address Shares Owned Percentage of Fund
<S> <C> <C>
Enele Co 7,070,661.89 24.26%
c/o Pacific Northwest Trust Co.
1211 SW 5th Ave., Ste. 1900
Portland, OR 97204-3719
The Estate of Robert W. Chandler 3,250,013.08 11.15%
Jack E. Stevens Personal Rep
DTD 7-12-96
56100 Smock Rd
Wamic, OR 97063-8707
Richard Huson, Director 222,876.670 .76%
121 SW Morrison, Suite 1425
Portland, OR 97204
James E. Crabbe, Director 569,630.330 1.95%
121 SW Morrison, Suite 1425
Portland, OR 97204
Craig Stuvland 26,907.19 .13%
121 SW Morrison, Suite 1425
Portland, OR 97204
Officers and Directors as a Group 819,414.90 2.84%
</TABLE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of August __, 1998 by
and between Crabbe Huson Funds ("CHT"), a Delaware business trust established
under a Declaration of Trust dated [ ] as amended, on behalf of the [Name of
Merging Crabbe Huson Fund] ("Crabbe Huson Fund"), a series of CHT, and Colonial
Trust II (the "Colonial Trust"), a Massachusetts business trust established
under a Declaration of Trust dated February 14, 1980, as amended, on behalf of
[Name of surviving Colonial Fund] ("Colonial Fund"), a series of the Colonial
Trust, joined in for the purpose (and only for the purpose) of paragraphs 1.5
and 11.2 hereof by The Colonial Group, Inc. ("Colonial"), a Massachusetts
corporation, and The Crabbe Huson Group, Inc. ("Crabbe Huson"), an Oregon
corporation.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368 (a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), and any
successor provision. The reorganization will consist of the transfer of all of
the assets of Crabbe Huson Fund in exchange solely for Class A shares of
beneficial interest of Colonial Fund ("Colonial Shares") and the assumption by
Colonial Fund of the liabilities of Crabbe Huson Fund (other than certain
expenses of the reorganization contemplated hereby) and the distribution of such
Colonial Shares to the shareholders of Crabbe Huson Fund in liquidation of
Crabbe Huson Fund, all upon the terms and conditions hereinafter set forth in
this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF CRABBE HUSON FUND IN EXCHANGE FOR
ASSUMPTION OF LIABILITIES AND COLONIAL SHARES AND LIQUIDATION OF
CRABBE HUSON FUND.
1.1 Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein,
(a) Crabbe Huson Fund will transfer to Colonial Fund and Colonial
Fund will acquire all the assets of Crabbe Huson Fund as set forth
in paragraph 1.2, (b) Colonial will assume and pay the debts,
obligations and liabilities of Crabbe Huson Fund of every kind and
nature other than the expenses of the reorganization contemplated
hereby to be paid by Colonial and Liberty pursuant to paragraph 1.5,
and (c) Colonial Fund will issue and deliver to Crabbe Huson Fund in
exchange for such assets the number of Colonial Shares (including
fractional shares, if any) determined by dividing the net asset
value of Crabbe Huson Fund, computed in the manner and as of the
time and date set forth in paragraph 2.1, by the net asset value of
one Colonial Share, computed in the manner and as of the time and
date set forth in paragraph 2.2. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the "Closing").
<PAGE>
1.2 The assets of Crabbe Huson Fund to be acquired by Colonial
Fund shall consist of all cash, securities (other than securities
that Colonial Fund is not permitted to acquire), dividends and
interest receivable, receivables for shares sold and all other
assets which are owned by Crabbe Huson Fund on the closing date
provided in paragraph 3.1 (the "Closing Date") and any deferred
expenses, other than unamortized organizational expenses, shown as
an asset on the books of Crabbe Huson Fund on the Closing Date.
1.3 As provided in paragraph 3.4, as soon after the Closing
Date as is conveniently practicable (the "Liquidation Date"), Crabbe
Huson Fund will liquidate and distribute pro rata to its
shareholders of record ("Crabbe Huson Fund Shareholders"),
determined as of the close of business on the Valuation Date (as
defined in paragraph 2.1), the Colonial Shares received by Crabbe
Huson Fund pursuant to paragraph 1.1. Such liquidation and
distribution will be accomplished by the transfer of the Colonial
Shares then credited to the account of Crabbe Huson Fund on the
books of Colonial Fund to open accounts on the share records of
Colonial Fund in the names of the Crabbe Huson Fund shareholders and
representing the respective pro rata number of Colonial Shares due
such shareholders. Colonial Fund shall not be obligated to issue
certificates representing Colonial Shares in connection with such
exchange.
1.4 With respect to Colonial Shares distributable pursuant to
paragraph 1.3 to a Crabbe Huson Fund Shareholder holding a
certificate or certificates for shares of Crabbe Huson Fund, if any,
on the Valuation Date, Colonial Trust will not permit such
shareholder to receive Colonial Share certificates therefor,
exchange such Colonial Shares for shares of other investment
companies, effect an account transfer of such Colonial Shares, or
pledge or redeem such Colonial Shares until Colonial Trust has been
notified by Crabbe Huson Fund or its agent that such Shareholder has
surrendered all his or her outstanding certificates for Crabbe Huson
Fund shares or, in the event of lost certificates, posted adequate
bond.
1.5 Subject to the provisions of paragraph 11.2, Colonial will
pay or cause an affiliate to pay the expenses of Crabbe Huson Fund
and Colonial Fund incurred in connection with the consummation of
the reorganization contemplated hereby, including legal fees, costs
of filing, printing and mailing the Proxy Statement and the
Registration Statement referred to in paragraph 5.3, and proxy
solicitation costs.
1.6 As promptly as possible after the Closing Date, the Crabbe
Huson Fund shall be terminated pursuant to the provisions of the
laws of the State of Delaware, and, after the Closing Date, the
Crabbe Huson Fund shall not conduct any business except in
connection with its liquidation.
2. VALUATION.
2.1 For the purpose of paragraph 1, the value of Crabbe
Huson Fund's assets to be acquired by Colonial Fund hereunder shall
be the net asset value computed as of the close of business on the
New York Stock Exchange on the business day next preceding the
Closing (such time and date being herein
<PAGE>
called the "Valuation Date") using the valuation procedures set
forth in the Declaration of Trust of Colonial Trust and the then
current prospectus or statement of additional information of
Colonial Fund, without deduction for the expenses of the
reorganization contemplated hereby to be paid by Colonial and Crabbe
Huson pursuant to paragraph 1.5, and shall be certified by Crabbe
Huson Fund.
2.2 For the purpose of paragraph 2.1, the net asset
value of a Colonial Share shall be the net asset value per share
computed as of the close of business on the New York Stock Exchange
on the Valuation Date, using the valuation procedures set forth in
the Declaration of Trust of Colonial Trust and the then current
prospectus or statement of additional information of Colonial Fund,
without deduction for the expenses of the reorganization
contemplated hereby to be paid by Colonial and Crabbe Huson pursuant
to paragraph 1.5, and shall be certified by Colonial Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be such date as the parties
may agree in writing. If the transactions contemplated by this
Agreement have not been substantially completed by December 31,
1998, this Agreement shall automatically terminate on that date
unless a later date is agreed to by both CHT and Colonial Trust. The
Closing shall be held at 9:00 a.m. at the offices of Colonial
Management Associates, Inc., One Financial Center, Boston,
Massachusetts 02111, or at such other time and/or place as the
parties may agree.
3.2 The portfolio securities of Crabbe Huson Fund shall
be made available by Crabbe Huson Fund to The Chase Manhattan Bank,
as Custodian for Colonial Fund (the "Custodian"), for examination no
later than five business days preceding the Valuation Date. On the
Closing Date, such portfolio securities and all Crabbe Huson Fund's
cash shall be delivered by Crabbe Huson Fund to the Custodian for
the account of Colonial Fund, such portfolio securities to be duly
endorsed in proper form for transfer in such manner and condition as
to constitute good delivery thereof in accordance with the custom of
brokers or, in the case of portfolio securities held in the U.S.
Treasury Department's book-entry system or by Depository Trust
Company, Participants Trust Company or other third party
depositories, by transfer to the account of the Custodian in
accordance with Rule 17f-4 or Rule 17f-5, as the case may be, under
the 1940 Act, and accompanied by all necessary federal and state
stock transfer stamps or a check for the appropriate purchase price
thereof. The cash delivered shall be in the form of currency or
certified or official bank checks in Boston funds, payable to the
order of "The Chase Manhattan Bank, custodian for Colonial [name of
fund]".
3.3 In the event that on the Valuation Date (a) the New
York Stock Exchange shall be closed to trading or trading thereon
shall be restricted, or (b) trading or the reporting of trading on
said Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of Crabbe Huson Fund or
Colonial Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have
been
<PAGE>
fully resumed and reporting shall have been restored; provided that
if trading shall not be fully resumed and reporting restored within
three business days of the Valuation Date, this Agreement may be
terminated by either of CHT or Colonial Trust upon the giving of
written notice to the other party.
3.4 At the Closing, Crabbe Huson Fund or its transfer
agent shall deliver to Colonial Fund or its designated agent a list
of the names and addresses of the Crabbe Huson Fund Shareholders and
the number of outstanding shares of beneficial interest of Crabbe
Huson Fund owned by each Crabbe Huson Fund Shareholder, all as of
the close of business on the Valuation Date, certified by the
Secretary or Assistant Secretary of CHT. Colonial Trust will provide
to Crabbe Huson Fund evidence satisfactory to it that the Colonial
Shares issuable pursuant to paragraph 1.1 have been credited to
Crabbe Huson Fund's account on the books of Colonial Fund. On the
Liquidation Date, Colonial Trust will provide to Crabbe Huson Fund
evidence satisfactory to it that such Colonial Shares have been
credited pro rata to open accounts in the names of the Crabbe Huson
Fund shareholders as provided in paragraph 1.3.
3.5 At the Closing each party shall deliver to the other
such bills of sale, agreements of assumption of liabilities, checks,
assignments, stock certificates, receipts or other documents as such
other party or its counsel may reasonably request in connection with
the transfer of assets, assumption of liabilities and liquidation
contemplated by paragraph 1.
4. REPRESENTATIONS AND WARRANTIES.
4.1 CHT, on behalf of Crabbe Huson Fund, represents and
warrants to Colonial Fund as follows:
(a) CHT is a business trust duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) CHT is a duly registered investment company classified as
a management company of the open-end diversified type and its
registration with the Securities and Exchange Commission as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect, and Crabbe
Huson Fund is a separate series thereof duly designated in
accordance with the applicable provisions of the Declaration of
Trust of CHT and the 1940 Act;
(c) CHT is not in violation in any material respect of any
provision of its Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which CHT is a party or by which Crabbe Huson Fund is
bound, and the execution, delivery and performance of this Agreement
will not result in any such violation;
(d) CHT has no material contracts or other commitments (other
than this Agreement) which will not be terminated without liability
to Crabbe Huson Fund prior to the Closing Date or under which (if
not terminated) any material payments for periods subsequent to the
Closing Date will be due from Crabbe Huson Fund;
<PAGE>
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or threatened against Crabbe Huson Fund or any of
its properties or assets, except as previously disclosed in writing
to Colonial Fund. Crabbe Huson Fund knows of no facts which might
form the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions contemplated hereby;
(f) The statement of assets and liabilities, the statement of
operations, the statement of changes in net assets, and the schedule
of investments as at and for the two years ended October 31, 1997 of
Crabbe Huson Fund, audited by KPMG Peat Marwick LLP, and the
unaudited statement of assets and liabilities, statement of
operations, statement of change in net assets and schedule of
investments as at and for the six months ended April 30, 1998 of
Crabbe Huson Fund, copies of which have been furnished to Colonial
Fund, fairly reflect the financial condition and results of
operations of Crabbe Huson Fund as of such dates and for the periods
then ended in accordance with generally accepted accounting
principles consistently applied, and Crabbe Huson Fund has no known
liabilities of a material amount, contingent or otherwise, other
than those shown on the statements of assets referred to above or
those incurred in the ordinary course of its business since April
30, 1998;
(g) Since April 30, 1998, there has not been any material
adverse change in Crabbe Huson Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by Crabbe Huson Fund of
indebtedness, except as disclosed in writing to Colonial Fund. For
the purposes of this subparagraph (g), distributions of net
investment income and net realized capital gains, changes in
portfolio securities, changes in the market value of portfolio
securities or net redemptions shall be deemed to be in the ordinary
course of business;
(h) By the Closing Date, all federal and other tax returns and
reports of Crabbe Huson Fund required by law to have been filed by
such date (giving effect to extensions) shall have been filed, and
all federal and other taxes shown to be due on said returns and
reports shall have been paid so far as due, or provision shall have
been made for the payment thereof, and to the best of Crabbe Huson
Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For all taxable years and all applicable quarters of such
years from the date of its inception, Crabbe Huson Fund has met the
requirements of subchapter M of the Code, for treatment as a
"regulated investment company" within the meaning of Section 851(a)
of the Code. Neither CHT nor Crabbe Huson Fund has at any time since
its inception been liable for and is now liable for any material
excise tax pursuant to Section 4982 of the Code. Crabbe Huson Fund
has duly filed all federal, state, local and foreign tax returns
which are required to have been filed, and all taxes of Crabbe Huson
Fund which are due and payable have been paid except for amounts
that alone or in the aggregate would not reasonably be expected to
have a material adverse effect. Crabbe
<PAGE>
Huson Fund is in compliance in all material respects with applicable
regulations of the Internal Revenue Service pertaining to the
reporting of dividends and other distributions on and redemptions of
its capital stock and to withholding in respect of dividends and
other distributions to shareholders, and is not liable for any
material penalties which could be imposed thereunder.
(j) The authorized capital of CHT consists of an unlimited
number of shares of beneficial interest without par value, of such
number of different series or classes as the Board of Trustees may
authorize from time to time, eight series of which (including Crabbe
Huson Fund) are currently authorized and outstanding. All issued and
outstanding shares of Crabbe Huson Fund are, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and
(except as set forth in Crabbe Huson Fund's Prospectus)
non-assessable by Crabbe Huson Fund and will have been issued in
compliance with all applicable registration or qualification
requirements of federal and state securities laws. No options,
warrants or other rights to subscribe for or purchase, or securities
convertible into or exchangeable for, any shares of beneficial
interest of Crabbe Huson Fund are outstanding and none will be
outstanding on the Closing Date;
(k) At the Closing Date, Crabbe Huson Fund will have good and
marketable title to its assets to be transferred to Colonial Fund
pursuant to paragraph 1.2, and full right, power, and authority to
sell, assign, transfer and deliver such assets as contemplated
hereby, and upon delivery and payment for such assets Colonial Fund
will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including such
restrictions as might arise under the Securities Act of 1933, as
amended (the "1933 Act");
(l) The Crabbe Huson Fund's investment operations from
inception to the date hereof have been in compliance with the
investment policies and investment restrictions set forth in its
prospectus and statement of additional information as in effect from
time to time, except as previously disclosed in writing to Colonial
Fund;
(m) The execution, delivery and performance of this Agreement
has been duly authorized by the Trustees of CHT, and, upon approval
thereof by the required majority of the shareholders of Crabbe Huson
Fund, this Agreement will constitute the valid and binding
obligation of Crabbe Huson Fund enforceable in accordance with its
terms;
(n) The information to be furnished by Crabbe Huson Fund for
use in the Registration Statement referred to in paragraph 5.3 shall
be accurate and complete in all material respects and shall comply
with federal securities and other laws and regulations thereunder
applicable thereto; and
(o) The Colonial Shares to be issued to Crabbe Huson Fund
pursuant to paragraph 1 will not be acquired for the purpose of
making any distribution thereof other than to the Crabbe Huson Fund
Shareholders as provided in paragraph 1.3.
4.2 Colonial Trust, on behalf of Colonial Fund,
represents and warrants to Crabbe Huson Fund as follows:
<PAGE>
(a) Colonial Trust is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(b) Colonial Trust is a duly registered investment company
classified as a management company of the open-end diversified type
and its registration with the Securities and Exchange Commission as
an investment company under the 1940 Act is in full force and
effect, and Colonial Fund is a separate series thereof duly
designated in accordance with the applicable provisions of the
Declaration of Trust of Colonial Trust and the 1940 Act;
(c) The current prospectus and statement of additional
information dated [date of current prospectus] of Colonial Fund
conform in all material respects to the applicable requirements of
the 1933 Act and the rules and regulations of the Securities and
Exchange Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, and there are no material contracts to which
Colonial Fund is a party that are not referred to in such prospectus
and statement of additional information or in the registration
statement of which they are a part;
(d) At the Closing Date, Colonial Fund will have good and
marketable title to its assets;
(e) Colonial Trust is not in violation in any material respect
of any provisions of its Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which Colonial Trust is a party or by which Colonial
Fund is bound, and the execution, delivery and performance of this
Agreement will not result in any such violation;
(f) No litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or threatened against Colonial Fund or any of its
properties or assets, except as previously disclosed in writing to
Crabbe Huson Fund. Colonial Fund knows of no facts which might form
the basis for the institution of such proceedings, and is not a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions contemplated hereby;
(g) The statement of assets, the statement of operations, the
statement of changes in assets, and the schedule of investments as
at and for the two years ended October 31, 1997 of Colonial Fund,
audited by Price Waterhouse LLP, copies of which have been furnished
to Crabbe Huson Fund, fairly reflect the financial condition and
results of operations of Colonial Fund as of such dates and the
results of its operations for the periods then ended in accordance
with generally accepted accounting principles consistently applied,
and Colonial Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the statements of
assets referred to above or those incurred in the ordinary course of
its business since October 31, 1997;
<PAGE>
(h) Since October 31, 1997, there has not been any material
adverse change in Colonial Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by Colonial Fund of
indebtedness, except as disclosed in writing to Crabbe Huson Fund.
For the purposes of this subparagraph (h), changes in portfolio
securities, changes in the market value of portfolio securities or
net redemptions shall be deemed to be in the ordinary course of
business.
(i) By the Closing Date, all federal and other tax returns and
reports of Colonial Fund required by law to have been be filed by
such date (giving effect to extensions) shall have been filed, and
all federal and other taxes shown to be due on said returns and
reports shall have been paid so far as due, or provision shall have
been made for the payment thereof, and to the best of Colonial
Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) For each fiscal year of its operation, Colonial Fund has
met the requirements of Subchapter M of the Code for qualification
as a regulated investment company;
(k) The authorized capital of Colonial Trust consists of an
unlimited number of shares of beneficial interest, no par value, of
such number of different series as the Board of Trustees may
authorize from time to time, - six series of which (including
Colonial Fund) are currently authorized and outstanding. The
outstanding shares of beneficial interest in Colonial Fund are, and
at the Closing Date will be, divided into Class A shares, Class B
shares, Class C shares and Class [ ] shares, each having the
characteristics described in the prospectus and statement of
additional information referred to in paragraph 4.2(c). All issued
and outstanding shares of the Colonial Fund are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by Colonial Trust, and will have been issued in
compliance with all applicable registration or qualification
requirements of federal and state securities laws. Except for Class
B shares which convert to Class A shares after the expiration of a
period of time, no options, warrants or other rights to subscribe
for or purchase, or securities convertible into or exchangeable for,
any shares of beneficial interest in Colonial Fund of any class are
outstanding and none will be outstanding on the Closing Date;
(l) The Colonial Fund's investment operations from inception
to the date hereof have been in compliance with the investment
policies and investment restrictions set forth in its prospectus and
statement of additional information as in effect from time to time.
(m) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of
Colonial Trust, and this Agreement constitutes the valid and binding
obligation of Colonial Trust and Colonial Fund enforceable in
accordance with its terms;
(n) The Colonial Shares to be issued and delivered to Crabbe
Huson Fund pursuant to the terms of this Agreement will at the
Closing Date have been duly authorized and, when so issued and
delivered, will be duly and validly
<PAGE>
issued Class A shares of beneficial interest in Colonial Fund, and
will be fully paid and non-assessable (except as set forth in
Colonial Fund's Statement of Additional Information) by Colonial
Trust, and no shareholder of Colonial Trust will have any preemptive
right of subscription or purchase in respect thereof.
(o) The information to be furnished by Colonial Fund for use
in the Registration Statement referred to in paragraph 5.3 shall be
accurate and complete in all material respects and shall comply with
federal securities and other laws and regulations applicable
thereto; and
(p) Colonial Fund will use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940
Act and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing
Date.
5. COVENANTS OF CRABBE HUSON FUND AND COLONIAL FUND.
Colonial Trust, on behalf of Colonial Fund, and CHT, on behalf of Crabbe
Huson Fund, each hereby covenants and agrees with the other as follows:
5.1 Colonial Fund and Crabbe Huson Fund each will
operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course
of business will include regular and customary periodic dividends
and distributions.
5.2 Crabbe Huson Fund will call a meeting of its
shareholders to be held prior to the Closing Date to consider and
act upon this Agreement and take all other action necessary to
obtain the required shareholder approval of the transactions
contemplated hereby.
5.3 In connection with the Crabbe Huson Fund
shareholders' meeting referred to in paragraph 5.2, Crabbe Huson
Fund will prepare a Proxy Statement for such meeting, to be included
in a Registration Statement on Form N-14 which Colonial Trust will
prepare and file for the registration under the 1933 Act of the
Colonial Shares to be distributed to the Crabbe Huson Fund
Shareholders pursuant hereto, all in compliance with the applicable
requirements of the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), and the 1940 Act.
5.4 Colonial Fund will advise Crabbe Huson Fund promptly
if at any time prior to the Closing Date the assets of Crabbe Huson
Fund include any securities which Colonial Fund is not permitted to
acquire.
5.5 Subject to the provisions of this Agreement, Crabbe
Huson Fund and Colonial Fund will each take, or cause to be taken,
all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to cause the conditions to the other
party's obligations to consummate the transactions contemplated
hereby to be met or fulfilled and otherwise to consummate and make
effective such transactions.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CRABBE HUSON
<PAGE>
FUND.
The obligations of Crabbe Huson Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Colonial Trust and Colonial Fund of all the obligations to be performed by them
hereunder on or before the Closing Date and, in addition thereto, to the
following further conditions:
6.1 Colonial Trust, on behalf of Colonial Fund, shall
have delivered to CHT a certificate executed in its name by its
President or Vice President and its Treasurer or Assistant
Treasurer, in form satisfactory to CHT and dated as of the Closing
Date, to the effect that the representations and warranties of
Colonial Trust on behalf of Colonial Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and
that Colonial Trust and Colonial Fund have complied with all the
covenants and agreements and satisfied all of the conditions on
their parts to be performed or satisfied under this Agreement at or
prior to the Closing Date;
6.2 CHT shall have received a favorable opinion from
Ropes & Gray, counsel to Colonial Trust for the transactions
contemplated hereby, dated the Closing Date and, in a form
satisfactory to Davis Wright Tremaine, counsel to Crabbe Huson Fund,
to the following effect:
(a) Colonial Trust is a business trust duly organized and
validly existing under the laws of The Commonwealth of Massachusetts
and has power to own all of its properties and assets and to carry
on its business as presently conducted, and Colonial Fund is a
separate series thereof duly constituted in accordance with the
applicable provisions of the 1940 Act and the Declaration of Trust
and By-laws of Colonial Trust; (b) this Agreement has been duly
authorized, executed and delivered on behalf of Colonial Fund and,
assuming the Prospectus and Registration Statement referred to in
paragraph 5.3 complies with applicable federal securities laws and
assuming the due authorization, execution and delivery thereof by
CHT on behalf of Crabbe Huson Fund, is the valid and binding
obligation of Colonial Fund enforceable against Colonial Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles; (c) Colonial Fund has the power to assume the
liabilities to be assumed by it hereunder and upon consummation of
the transactions contemplated hereby Colonial Fund will have duly
assumed such liabilities; (d) the Colonial Shares to be issued for
transfer to the shareholders of Crabbe Huson Fund as provided by
this Agreement are duly authorized and upon such transfer and
delivery will be validly issued and outstanding and fully paid and
nonassessable (except as set forth in Colonial Fund's Statement of
Additional Information) Class A shares of beneficial interest in
Colonial Fund, and no shareholder of Colonial Fund has any
preemptive right of subscription or purchase in respect thereof; (e)
the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
violate Colonial Trust's Declaration of Trust or By-Laws, or any
provision of any agreement known to such counsel to which Colonial
Trust or Colonial Fund is a party or by which it is bound or, to the
knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any
<PAGE>
penalty under any agreement, judgment, or decree to which Colonial
Trust or Colonial Fund is a party or by which it is bound; (f) to
the knowledge of such counsel, no consent, approval, authorization
or order of any court or governmental authority is required for the
consummation by Colonial Trust or Colonial Fund of the transactions
contemplated by this Agreement except such as have been obtained;
(g) such counsel does not know of any legal or governmental
proceedings relating to Colonial Trust or Colonial Fund existing on
or before the date of mailing of the Prospectus referred to in
paragraph 5.3 or the Closing Date required to be described in the
Registration Statement referred to in paragraph 5.3 which are not
described as required; (h) Colonial Trust is registered with the
Securities and Exchange Commission as an investment company under
the 1940 Act; and (i) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or
threatened as to Colonial Trust or Colonial Fund or any of their
properties or assets and neither Colonial Trust nor Colonial Fund is
a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and
adversely affects its business.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF COLONIAL FUND.
The obligations of Colonial Fund to complete the transactions provided for
herein shall be subject, at its election, to the performance by Crabbe Huson
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, to the following further conditions:
7.1 CHT, on behalf of Crabbe Huson Fund, shall have
delivered to Colonial Trust a certificate executed in its name by
its President or Vice President and its Treasurer or Assistant
Treasurer, in form and substance satisfactory to Colonial Trust and
dated the Closing Date, to the effect that the representations and
warranties of Crabbe Huson Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and
that CHT and Crabbe Huson Fund have complied with all the covenants
and agreements and satisfied all of the conditions on its part to be
performed or satisfied under this Agreement at or prior to the
Closing Date;
7.2 Colonial Trust shall have received a favorable
opinion of Davis Wright Tremaine, counsel to CHT, dated the Closing
Date and in a form satisfactory to Ropes & Gray, counsel to Colonial
Fund, to the following effect:
(a) CHT is a business trust duly organized and validly
existing under the laws of the State of Delaware and has power to
own all of its properties and assets and to carry on its business as
presently conducted, and Crabbe Huson Fund is a separate series
thereof duly constituted in accordance with the applicable
provisions of the 1940 Act and the Declaration of Trust of CHT; (b)
this Agreement has been duly authorized, executed and delivered on
behalf of Liberty Financial Fund and, assuming the Proxy Statement
referred to in paragraph 5.3 complies with applicable federal
securities laws and assuming the due authorization, execution and
delivery thereof by Colonial Trust on behalf of Colonial Fund, is
the valid and binding obligation of Crabbe Huson Fund
<PAGE>
enforceable against Crabbe Huson Fund in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles; (c)
Crabbe Huson Fund has the power to sell, assign, transfer and
deliver the assets to be transferred by it hereunder, and, upon
consummation of the transactions contemplated hereby, Crabbe Huson
Fund will have duly transferred such assets to Colonial Fund; (d)
the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
violate CHT's Declaration of Trust or By-Laws, or any provision of
any agreement known to such counsel to which CHT or Crabbe Huson
Fund is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the
imposition of any penalty under any agreement, judgment, or decree
to which CHT or Crabbe Huson Fund is a party or by which it is
bound; (e) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by CHT or Crabbe Huson Fund of the
transactions contemplated by this Agreement, except such as have
been obtained; (f) such counsel does not know of any legal or
governmental proceedings relating to CHT or Crabbe Huson Fund
existing on or before the date of mailing of the Prospectus referred
to in paragraph 5.3 or the Closing Date required to be described in
the Registration Statement referred to in paragraph 5.3 which are
not described as required; (g) CHT is registered with the Securities
and Exchange Commission as an investment company under the 1940 Act;
and (h) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to CHT or
Crabbe Huson Fund or any of its properties or assets and neither CHT
nor Crabbe Huson Fund is a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body,
which materially and adversely affects its business.
7.3 Crabbe Huson Fund shall have furnished to Colonial
Fund pro forma tax returns, signed by a partner of KPMG Peat Marwick
LLP, for the fiscal year ended October 31, 1997 and for the period
from November 1, 1997 to the Closing Date.
7.4 Prior to the Closing Date, Crabbe Huson Fund shall
have declared a dividend or dividends which, together with all
previous dividends, shall have the effect of distributing all of
Crabbe Huson Fund's investment company taxable income for its
taxable years ending on or after October 31, 1997 and on or prior to
the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gains realized in each
of its taxable years ending on or after October 31, 1997 and on or
prior to the Closing Date.
7.5 Crabbe Huson Fund shall have furnished to Colonial
Fund a certificate, signed by the President (or any Vice President)
and the Treasurer of CHT, as to the adjusted tax basis in the hands
of Crabbe Huson Fund of the securities delivered to Colonial Fund
pursuant to this Agreement.
7.6 The custodian of Crabbe Huson Fund shall have
delivered to Colonial Fund a certificate identifying all of the
assets of Crabbe Huson Fund
<PAGE>
held by such custodian as of the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF COLONIAL FUND AND
CRABBE HUSON FUND.
The respective obligations of CHT and Colonial Trust hereunder are, unless
waived by the mutual agreement of both parties hereto, each subject to the
further conditions that on or before the Closing Date
8.1 This Agreement and the transactions contemplated
herein shall have been approved by the vote of the required majority
of the holders of the outstanding shares of Crabbe Huson Fund of
record on the record date for the meeting of its shareholders
referred to in paragraph 5.2;
8.2 The transactions contemplated by the Asset
Acquisition Agreement dated June 10, 1998 between The Crabbe Huson
Group, Inc., James E. Crabbe, Richard F. Huson, Liberty Financial
Investments, Inc. and LFC Acquisition Corp. shall have been
consummated.
8.3 On the Closing Date no action, suit or other
preceding shall be pending before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the transactions
contemplated hereby;
8.4 All consents of other parties and all other
consents, orders and permits of federal, state and local regulatory
authorities (including those of the Securities and Exchange
Commission and of state Blue Sky and securities authorities) deemed
necessary by CHT or Colonial Trust to permit consummation, in all
material respects, of the transactions contemplated hereby shall
have been obtained, except where failure to obtain any such consent,
order or permit would not involve a risk of a material adverse
effect on the assets or properties of Colonial Fund or Crabbe Huson
Fund, provided that either party hereto may for itself waive any of
such conditions;
8.5 The Registration Statement referred to in paragraph
5.3 shall have become effective under the 1933 Act and no stop order
suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act;
8.6 The parties shall have received a favorable opinion
of Davis Wright Tremaine satisfactory to CHT and Colonial Trust,
substantially to the effect that, for federal income tax purposes:
(a) The acquisition by Colonial Fund of the assets of Crabbe
Huson Fund in exchange for Colonial Fund's assumption of the
liabilities of Crabbe Huson Fund and issuance of Colonial Shares,
followed by the distribution by Crabbe Huson Fund of such Colonial
Shares to the shareholders of Crabbe Huson Fund in exchange for
their shares of Crabbe Huson Fund, all as provided in paragraph 1
hereof, will constitute a reorganization within the meaning of
Section 368(a) of the Code, and Crabbe Huson Fund and Colonial Fund
will
<PAGE>
each be "a party to a reorganization" within the meaning of Section
368(b) of the Code.
(b) No gain or loss will be recognized to Crabbe Huson Fund
(i) upon the transfer of its assets to Colonial Fund in exchange for
Colonial Shares or (ii) upon the distribution of the Colonial shares
to the shareholders of the Crabbe Huson Fund as contemplated in
paragraph 1 hereof.
(c) No gain or loss will be recognized to Colonial Fund upon
the receipt of the assets of Crabbe Huson Fund in exchange for the
assumption of liabilities and issuance of Colonial Shares as
contemplated in paragraph 1 hereof.
(d) The tax basis of the assets of Crabbe Huson Fund acquired
by Colonial Fund will be the same as the basis of those assets in
the hands of Crabbe Huson Fund immediately prior to the transfer,
and the holding period of the assets of Crabbe Huson Fund in the
hands of Colonial Fund will include the period during which those
assets were held by Crabbe Huson Fund.
(e) The shareholders of Crabbe Huson Fund will recognize no
gain or loss upon the exchange of all of their shares of Crabbe
Huson Fund for Colonial Shares.
(f) The tax basis of the Colonial Shares to be received by the
shareholders of Crabbe Huson Fund will be the same as the tax basis
of the shares of Crabbe Huson Fund surrendered in exchange therefor.
(g) The holding period of the Colonial Shares to be received
by the shareholders of Crabbe Huson Fund will include the period
during which the shares of Crabbe Huson Fund surrendered in exchange
therefor were held, provided such shares of Crabbe Huson Fund were
held as a capital asset on the date of the exchange.
8.7 At any time prior to the Closing, any of the
foregoing conditions other than that set forth in 8.2 above may be
waived jointly by the Board of Trustees of CHT and the Board of
Trustees of the Colonial Trust if, in their judgment, such waiver
will not have a material adverse effect on the interests of the
shareholders of the Crabbe Huson Fund and the Colonial Fund. If the
transactions contemplated by this Agreement and Plan of
Reorganization have not been substantially completed by December 31,
1998, this Agreement and Plan of Reorganization shall automatically
terminate on that date unless a later date is agreed to by both CHT
and the Colonial Trust acting by their respective Trustees.
9. BROKERAGE FEES AND EXPENSES.
9.1 CHT, on behalf of Crabbe Huson Fund, and Colonial
Trust, on behalf of Colonial Fund, each represents and warrants to
the other that there are no brokers or finders entitled to receive
any payments in connection with the transactions provided for
herein.
9.2 CHT, on behalf of Crabbe Huson Fund, and Colonial
Trust,
<PAGE>
on behalf of Colonial Fund, shall each be liable for all expenses
incurred by such party in connection with entering into and carrying
out the provisions of this Agreement other than those to be paid by
Colonial and Liberty as provided in paragraph 1.5, whether or not
the transactions contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES.
10.1 CHT on behalf of Crabbe Huson Fund and Colonial
Trust on behalf of Colonial Fund agree that neither party has made
any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the
parties.
10.2 The representations, warranties and covenants
contained in this Agreement or in any document delivered pursuant
hereto or in connection herewith shall not survive the consummation
of the transactions contemplated hereunder.
11. TERMINATION.
11.1 This Agreement may be terminated by the mutual
agreement of Colonial Trust and CHT. In addition, either Colonial
Trust or CHT may at its option terminate this Agreement at or prior
to the Closing Date because:
(a) of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed by
the other party at or prior to the Closing Date; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
11.2 In the event that the transactions contemplated by
this Agreement are not consummated by reason of CHT's or Crabbe
Huson Fund's unwillingness or inability to go forward therewith
other than by reason of the nonfulfillment or failure of any
condition to CHT's or Crabbe Huson Fund's obligations referred to in
paragraphs 6 and 8, or by reason of Colonial Trust's or Colonial
Fund's unwillingness or inability to go forward therewith other than
by reason of the nonfulfillment or failure of any conditions to
Colonial Trust's or Colonial Fund's obligations referred to in
paragraphs 7 and 8, then, Colonial or Crabbe Huson, as the case may
be, shall reimburse the other for the expenses incurred by them
pursuant to paragraph 1.5.
11.3 If for any reason the transactions contemplated by
this Agreement are not consummated, no party shall be liable to any
other party for any damages resulting therefrom, including without
limitation consequential damages, except as specifically set forth
in paragraph 11.2.
12. AMENDMENTS.
<PAGE>
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of CHT on
behalf of Crabbe Huson Fund and Colonial Trust on behalf of Colonial Fund;
provided, however, that following the shareholders' meeting called by Crabbe
Huson Fund pursuant to paragraph 5.2 no such amendment may have the effect of
changing the provisions for determining the number of Colonial Shares to be
issued to shareholders of Crabbe Huson Fund under this Agreement to the
detriment of such shareholders without their further approval.
13. NOTICES.
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to CHT, 121 SW Morrison, Suite
1400, Portland, OR 97204, attention Charles Davidson, or to Colonial Trust, One
Financial Center, Boston, Massachusetts 02111, attention Nancy L. Conlin.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT NON-RECOURSE.
14.1 The article and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit
of the parties hereto and their respective successors and assigns,
but no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of
the other party. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of
this Agreement.
14.5 A copy of the Declarations of Trust of CHT and
Colonial Trust are on file with the Secretary of the State of
Delaware, and notice is hereby given that no trustee, officer, agent
or employee of either CHT or Colonial Trust shall have any personal
liability under this Agreement, and that this Agreement is binding
only upon the assets and properties of Crabbe Huson Fund and
Colonial Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as a sealed instrument by its President or Vice President and its
corporate seal to be affixed thereto and attested by its Secretary or Assistant
Secretary.
COLONIAL TRUST II,
on behalf of [Colonial Fund]
<PAGE>
By:__________________________
ATTEST:
_______________________ CRABBE HUSON FUNDS,
Assistant Secretary on behalf of [Crabbe Huson Fund]
ATTEST:
_______________________
Joined in for the purpose of
paragraphs 1.5 and 11.2
THE COLONIAL GROUP, INC.
By: _________________________
THE CRABBE HUSON GROUP, INC.
By: _________________________
<PAGE>
EXHIBIT B
CERTAIN INFORMATION REGARDING FINANCIAL AND ORGANIZATIONAL
HISTORY AND INVESTMENT POLICIES OF CRABBE HUSON U.S. GOVERNMENT
INCOME FUND AND CRABBE HUSON U.S. GOVERNMENT MONEY
MARKET FUND AND INVESTMENT POLICIES OF COLONIAL SHORT DURATION
U.S. GOVERNMENT FUND AND COLONIAL MONEY MARKET FUND
THE FUND'S FINANCIAL HISTORY
The following information for a Crabbe Huson Government Fund share outstanding
through October 31, 1997 has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors, whose report dated December 3, 1997 is incorporated by
reference in the Fund's Statement of Additional Information. For the years or
periods ended on or after October 31, 1996, calculations are based on a share
outstanding during the period. For years or periods ending prior to November 1,
1995, calculations are based on average number of shares outstanding for each
year or period.
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD
ENDED YEAR ENDED
-------------- ---------------------------------
4/30/98 10/31/97 10/31/96 10/31/95
--------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $10.81 $10.66 $10.66 $10.27
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................................. 0.27 0.53 0.47 0.51
Net Realized & Unrealized Gain (Loss) on Investments... 0.01 0.16 0.00 0.40
--------------------------------------------------
Total from Investment Operations................... 0.28 0.69 0.47 0.91
LESS DISTRIBUTIONS
Distributions from Net Investment Income............... 0.32 0.54 0.47 0.51
Distributions in excess of Net Investment Income....... 0.00 0.00 0.00 0.01
Distributions from Capital Gains....................... 0.00 0.00 0.00 0.00
--------------------------------------------------
Total Distributions................................ 0.32 0.54 0.47 0.52
--------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................... $10.77 $10.81 $10.66 $10.66
--------------------------------------------------
--------------------------------------------------
TOTAL RETURN........................................... 2.65% 6.65% 4.55% 9.12%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)...................... $4,030 $4,494 $8,517 $8,426
Ratio of Expenses to Average Net Assets................ 0.75%(b)(c) 0.75% 0.75% 0.75%
Ratio of Net Investment Income to Average Net Assets... 5.03%(c) 4.82% 4.44% 4.85%
Portfolio Turnover Rate................................ 59.15% 45.42% 226.37% 230.43%
Average Number of Shares Outstanding................... 420,204* 602,738 -- --
Amount of Debt Outstanding............................. -- -- -- --
Average Amount of Debt Outstanding During the Period... $1,943* $50 -- --
Average Amount of Debt Per Share During the Period..... $0.00 $0.00 -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets................ 2.05%(b)(c) 1.78% 1.63% 1.46%
Ratio of Net Investment Income to Average Net Assets... 3.73%(c) 3.79% 3.56% 4.14%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets................ 0.75%(c) 0.75% 0.75% --
Ratio of Net Investment Income to Average Net Assets... 5.03%(c) 4.82% 4.44% --
</TABLE>
<PAGE>
CRABBE HUSON GOVERNMENT FUND
THE FUND'S FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
---------------------------------------------------------- ------------
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89(a)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $11.04 $10.91 $10.69 $10.24 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.46 0.47 0.58 0.67 0.68 0.56
Net Realized & Unrealized Gain (Loss) on
Investments................................ (0.65) 0.22 0.29 0.45 (0.04) 0.29
-------------------------------------------------------------------------
Total from Investment Operations......... (0.19) 0.69 0.87 1.12 0.64 0.85
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.47 0.48 0.58 0.67 0.67 0.57
Distributions in excess of Net Investment
Income..................................... 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains............. 0.11 0.08 0.07 0.00 0.01 0.00
-------------------------------------------------------------------------
Total Distributions...................... 0.58 0.56 0.65 0.67 0.68 0.57
-------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $10.27 $11.04 $10.91 $10.69 $10.24 $10.28
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL RETURN................................. (1.78)% 6.71% 8.70% 11.17% 6.40% 11.15%(c)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $9,249 $11,218 $8,959 $3,748 $2,069 $1,717
Ratio of Expenses to Average Net Assets...... 0.75% 0.75% 0.80% 0.96% 1.42% 1.14%(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 4.39% 4.33% 5.35% 6.44% 6.72% 7.35%(c)
Portfolio Turnover Rate...................... 76.09% 81.74% 105.52% 114.81% 87.71% 40.42%
Average Number of Shares Outstanding......... -- -- -- -- -- --
Amount of Debt Outstanding................... -- -- -- -- -- --
Average Amount of Debt Outstanding During the
Period..................................... -- -- -- -- -- --
Average Amount of Debt Per Share During the
Period..................................... -- -- -- -- -- --
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.47% 1.26% 1.52% 2.15% 2.84% 3.40%(c)
Ratio of Net Investment Income to Average Net
Assets..................................... 3.66% 3.81% 4.63% 5.25% 5.31% 5.09%(c)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... -- -- -- -- -- --
Ratio of Net Investment Income to Average Net
Assets..................................... -- -- -- -- -- --
</TABLE>
(a) Commencement of operations - 1/31/89.
(b) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(c) Computed on an annualized basis.
<PAGE>
CRABBE HUSON GOVERNMENT FUND'S INVESTMENT OBJECTIVE
Crabbe Huson Government Fund seeks to provide shareholders with a high
level of current income and safety of principal.
HOW CRABBE HUSON GOVERNMENT FUND PURSUES ITS OBJECTIVE AND
CERTAIN RISK FACTORS
Crabbe Huson Government Fund intends to concentrate its investments in
direct obligations of the U.S. Government (treasury bills, treasury notes and
treasury bonds), which are supported by the full faith and credit of the United
States. Shares of Crabbe Huson Government Fund are not issued or guaranteed by
the U.S. Government. Crabbe Huson Government Fund may also invest in indirect
obligations of the U.S. Government which are debt obligations of various
agencies or instrumentalities of the U.S. Government, such as debt obligations
issued by the Government National Mortgage Association (GNMA), which are
supported by the full faith and credit of the United States, or debt obligations
issued by the Federal National Mortgage Association (FNMA), which are supported
only by the credit of the issuing agency or instrumentality. Under normal
circumstances, at least 65% of the value of Crabbe Huson Government Fund's
assets will be invested in these U.S. Government securities. Crabbe Huson
Government Fund may invest up to 10% of its total assets in repurchase
agreements whereby the Fund acquires a U.S. Government security from a financial
institution that simultaneously agrees to repurchase the same security at a
specified time and price.
Crabbe Huson Government Fund may not invest more than 25% of its total
assets in U.S. Government securities with maturities in excess of five years.
Crabbe Huson Government Fund will purchase securities based generally on the
Adviser's assessment of interest rate trends. If the Adviser expects interest
rates to rise, Crabbe Huson Government Fund may purchase securities with shorter
maturities. Conversely, if interest rates are expected to decline, Crabbe Huson
Government Fund may purchase securities with longer maturities.
Fixed Income Securities. Crabbe Huson Government Fund may invest up to
20% of its total assets in fixed income securities, including convertible
securities, that are either unrated or rated below the fourth highest category
by Moody's Investors Service (Moody's) or Standard & Poor's Corporation (S&P),
although not more than 5% of Crabbe Huson Government Fund's total assets may be
invested in fixed income securities that are unrated. Securities rated below the
fourth highest category are commonly referred to as "junk bonds." Such
securities are predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal. Investment in such securities normally
involves a greater degree
<PAGE>
of investment and credit risk than does investment in a high-rated security. In
addition, the market for such securities is usually less broad than the market
for higher-rated securities, which could affect their marketability. The market
prices of such securities may fluctuate more than the market prices of
higher-rated securities in response to changes in interest rates and economic
conditions. Moreover, with such securities, there is a greater possibility that
an adverse change in the financial condition of the issuer, particularly a
highly leveraged issuer, may affect its ability to make payments of principal
and interest.
Repurchase Agreements. Crabbe Huson Government Fund may engage in
repurchase agreements. Repurchase agreements are agreements under which a person
purchases a security and simultaneously commits to resell that security to the
seller (a commercial bank or recognized securities dealer) at an agreed upon
price on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest that is unrelated to the coupon rate
or maturity of the purchased security. Crabbe Huson Government Fund will engage
in repurchase agreements only with banks or broker-dealers whose obligations
would qualify for direct purchase by the Crabbe Huson Government Fund. A
repurchase agreement involves the obligation of the seller to pay an agreed-upon
price, which obligation is, in effect, secured by the value of the underlying
security. All repurchase agreements are fully collateralized and marked to
market daily, and may therefore be viewed by the SEC or the courts as loans
collateralized by the underlying security. There are some risks associated with
repurchase agreements. For instance, in the case of default by the seller,
Crabbe Huson Government Fund could incur a loss or, if bankruptcy proceedings
are commenced against the seller, Crabbe Huson Government Fund could incur costs
and delays in realizing upon the collateral.
When Issued and/or Delayed Delivery. Crabbe Huson Government Fund may
purchase and sell securities on a when-issued or delayed-delivery basis.
When-issued or delayed-delivery transactions arise when securities are purchased
or sold by Crabbe Huson Government Fund, with payment and delivery taking place
in the future in order to secure what is considered to be an advantageous price
and yield to Crabbe Huson Government Fund at the time of entering into the
transaction. Such securities are subject to market fluctuations, and no interest
accrues to Crabbe Huson Government Fund until the time of delivery. The value of
the securities may be less at the time of delivery than the value of the
securities when the commitment was made. When Crabbe Huson Government Fund
engages in when-issued and delayed-delivery transactions, it relies on the buyer
or seller, as the case may be, to consummate the sale. Failure to do so may
result in Crabbe Huson Government Fund missing the opportunity of obtaining a
price or yield considered to be advantageous. To the extent Crabbe Huson
Government Fund engages in when-issued and delayed-delivery transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies, and not for the purpose of investment
leverage. Crabbe Huson Government Fund may not commit more than 25% of its total
assets to the purchase of when-issued and delayed-delivery securities. A
separate account of liquid assets consisting of cash, U.S. Government securities
or other high grade debt obligations equal to the value of any
<PAGE>
purchase commitment of Crabbe Huson Government Fund shall be maintained by
Crabbe Huson Government Fund's custodian until payment is made.
Illiquid Securities. Crabbe Huson Government Fund may invest in
illiquid securities, which may be difficult to sell promptly at an acceptable
price. This difficulty may result in a loss or be costly to Crabbe Huson
Government Fund.
Interest Rates. Crabbe Huson Government Fund may invest in debt
securities. The market value of debt securities that are sensitive to prevailing
interest rates is inversely related to actual changes in interest rates. That
is, an interest rate decline produces an increase in a security's market value
and an interest rate increase produces a decrease in value. The longer the
remaining maturity of a security, the greater the effect of an interest rate
change. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of its creditworthiness also affect the
market value of that issuer's debt securities.
U.S. Government Securities. Although U.S. Government securities and
high-quality debt securities are issued or guaranteed by the U.S. Treasury or an
agency or instrumentality of the U.S. Government, not all U.S. Government
securities are backed by the full faith and credit of the United States. For
example, securities issued by the Federal Farm Credit Bank or by the Federal
National Mortgage Association are supported by the instrumentality's right to
borrow money from the U.S. Treasury under certain circumstances. On the other
hand, securities issued by the Student Loan Marketing Association are supported
only by the credit of the instrumentality.
Lending of Portfolio Securities. Crabbe Huson Government Fund may loan
portfolio securities to broker-dealers or other institutional investors if at
least 100% cash (or cash equivalent) collateral is pledged and maintained by the
borrower. Crabbe Huson Government Fund believes that the cash collateral
minimizes the risk of lending their portfolio securities. Such loans of
portfolio securities may not be made, under current lending arrangements, if the
aggregate of such loans would exceed 20% of the value of Crabbe Huson Government
Fund's total assets. If the borrower defaults, there may be delays in recovery
of loaned securities or even a loss of the securities loaned, in which case
Crabbe Huson Government Fund would pursue the cash (or cash equivalent)
collateral. While there is some risk in loaning portfolio securities, loans will
be made only to firms or broker-dealers deemed by the Adviser to be of good
standing and will not be made unless, in the judgment of the Adviser, the
consideration to be earned from such loans would justify the risk. For
additional disclosure, see the Statement of Additional Information of Crabbe
Huson Government Fund.
<PAGE>
THE FUND'S FINANCIAL HISTORY
The following information for a Crabbe Huson Money Market Fund share outstanding
through October 31, 1997 has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors, whose report dated December 3, 1997 is incorporated by
reference in the Fund's Statement of Additional Information. For the years or
periods ended on or after October 31, 1996, calculations are based on a share
outstanding during the period. For years or periods ending prior to November 1,
1995, calculations are based on average number of shares outstanding for each
year or period.
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD
ENDED YEAR ENDED
----------- ------------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95
--------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................................. 0.02 0.05 0.05 0.05
Net Realized & Unrealized Gain (Loss) on Investments... 0.00 0.00 0.00 0.00
--------------------------------------------------------
Total from Investment Operations................... 0.02 0.05 0.05 0.05
LESS DISTRIBUTIONS
Distributions from Net Investment Income............... 0.02 0.05 0.05 0.05
Distributions in excess of Net Investment Income....... 0.00 0.00 0.00 0.00
--------------------------------------------------------
Total Distributions................................ 0.02 0.05 0.05 0.05
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................... $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------
--------------------------------------------------------
TOTAL RETURN........................................... 2.41% 4.83% 4.81% 5.30%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)...................... $27,607 $28,538 $42,171 $54,714
Ratio of Expenses to Average Net Assets................ 0.70%(b) 0.70%(c) 0.70%(c) 0.70%
Ratio of Net Investment Income to Average Net Assets... 4.81%(b) 4.73% 4.74% 5.21%
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets................ 1.22%(b) 1.14%(c) 1.06%(c) 1.16%
Ratio of Net Investment Income to Average Net Assets... 4.29%(b) 4.29% 4.38% 4.75%
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets................ 0.70%(b) 0.70% 0.70% --
Ratio of Net Investment Income to Average Net Assets... 4.81%(b) 4.73% 4.74% --
</TABLE>
<PAGE>
CRABBE HUSON MONEY MARKET FUND
THE FUND'S FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
--------------------------------------------------------- ------------
10/31/94 10/31/93 10/31/92 10/31/91 10/31/90 10/31/89(a)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income........................ 0.03 0.03 0.03 0.06 0.07 0.06
Net Realized & Unrealized Gain (Loss) on
Investments................................. 0.00 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------
Total from Investment Operations......... 0.03 0.03 0.03 0.06 0.07 0.06
LESS DISTRIBUTIONS
Distributions from Net Investment Income..... 0.03 0.03 0.03 0.06 0.07 0.06
Distributions in excess of Net Investment
Income...................................... 0.00 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------
Total Distributions...................... 0.03 0.03 0.03 0.06 0.07 0.06
------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL RETURN................................. 3.28% 2.53% 3.36% 13.76% 7.62% 10.05%(c)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $32,383 $14,784 $12,395 $14,907 $21,406 $10,735
Ratio of Expenses to Average Net Assets...... 0.70% 0.70% 0.75% 0.81% 0.80% 0.60%(c)
Ratio of Net Investment Income to Average Net
Assets...................................... 3.39% 2.51% 3.32% 5.76% 7.57% 8.43%(c)
RATIOS IF FEES HAD NOT BEEN WAIVED AND/OR REIMBURSED
Ratio of Expenses to Average Net Assets...... 1.29% 1.32% 1.09% 1.18% 1.33% 1.34%(c)
Ratio of Net Investment Income to Average Net
Assets...................................... 2.81% 1.88% 2.98% 5.38% 7.04% 7.69%(c)
RATIOS NET OF FEES PAID INDIRECTLY
Ratio of Expenses to Average Net Assets...... -- -- -- -- -- --
Ratio of Net Investment Income to Average Net
Assets...................................... -- -- -- -- -- --
</TABLE>
(a) Commencement of operations - 1/31/89.
(b) Computed on an annualized basis.
(c) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
<PAGE>
CRABBE HUSON MONEY MARKET FUND'S INVESTMENT OBJECTIVE
Crabbe Huson Money Market Fund seeks to provide investors with a high
level of current income while, at the same time, preserving capital and allowing
liquidity by investing in obligations of the United States Government, or its
agencies or instrumentalities, and repurchase agreements with respect to those
obligations.
HOW CRABBE HUSON MONEY MARKET FUND PURSUES ITS OBJECTIVE AND
CERTAIN RISK FACTORS
The dollar weighted, average maturity of Crabbe Huson Money Market
Fund's portfolio may not exceed 90 days, and Crabbe Huson Money Market Fund will
not purchase any security with a maturity in excess of one year from the date of
purchase. Crabbe Huson Money Market Fund intends to hold most of the securities
in its portfolio until maturity. However, securities may be traded if, in the
opinion of the Adviser, increases in current income can be achieved consistent
with the objectives and restrictions of Crabbe Huson Money Market Fund. Shares
of Crabbe Huson Money Market Fund are not issued or guaranteed by the U.S.
Government. It is Crabbe Huson Money Market Fund's intent to maintain a constant
one dollar per share net asset value, but there is no assurance Crabbe Huson
Money Market Fund will be able to do so.
Due to its nature of maintaining a stable net asset value, the fixed
income securities selected by Crabbe Huson Money Market Fund must be deemed to
be of the highest quality. An instrument will be considered to be highest
quality (1) if rated in the highest rating category (i) by any two nationally
recognized statistical rating organizations (NRSROs) (e.g., Aaa or Prime-1 by
Moody's, AAA or A-1 by S&P) or (ii) if rated by only one NRSRO, by that NRSRO,
and whose acquisition is approved or ratified by the Board of Trustees; (2) if
unrated but issued by an issuer that has short-term debt obligations of
comparable, priority, and security, and that are rated in the highest rating
category by (i) any two NRSROs or (ii) if rated by only one NRSRO, by that
NRSRO, and whose acquisition is approved or ratified by the Board of Trustees;
or (3) an unrated security that is of comparable quality to a security rated in
the highest rating category as determined by the Adviser and whose acquisition
is approved or ratified by the Board of Trustees. A description of the ratings
assigned to securities by Moody's and S&P is included in Appendix A to this
Prospectus.
Stripped Securities. The Crabbe Huson Money Market Fund may invest in
"Stripped Securities." A Stripped Security is a security consisting of the
separate income or principal components of a debt security. Stripped Securities
are issued at a discount to their face value and generally experience greater
price volatility than ordinary debt securities because of the manner in which
the principal and interest components of the underlying U.S. Government
obligation are separated.
Repurchase Agreements. Crabbe Huson Money Market Fund may engage in
repurchase agreements. Repurchase agreements are agreements under which a
person purchases a security and simultaneously commits to resell that security
to the seller (a
<PAGE>
commercial bank or recognized securities dealer) at an agreed upon price on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon market rate of interest that is unrelated to the coupon rate or maturity of
the purchased security. Crabbe Huson Money Market Fund will engage in repurchase
agreements only with banks or broker-dealers whose obligations would qualify for
direct purchase by that Crabbe Huson Money Market Fund. A repurchase agreement
involves the obligation of the seller to pay an agreed-upon price, which
obligation is, in effect, secured by the value of the underlying security. All
repurchase agreements are fully collateralized and marked to market daily, and
may therefore be viewed by the SEC or the courts as loans collateralized by the
underlying security. There are some risks associated with repurchase agreements.
For instance, in the case of default by the seller, Crabbe Huson Money Market
Fund could incur a loss or, if bankruptcy proceedings are commenced against the
seller, Crabbe Huson Money Market Fund could incur costs and delays in realizing
upon the collateral.
Illiquid Securities. Crabbe Huson Money Market Fund may invest in
illiquid securities, which may be difficult to sell promptly at an acceptable
price. This difficulty may result in a loss or be costly to Crabbe Huson Money
Market Fund.
Interest Rates. Crabbe Huson Money Market Fund may invest in debt
securities. The market value of debt securities that are sensitive to prevailing
interest rates is inversely related to actual changes in interest rates. That
is, an interest rate decline produces an increase in a security's market value
and an interest rate increase produces a decrease in value. The longer the
remaining maturity of a security, the greater the effect of an interest rate
change. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of its creditworthiness also affect the
market value of that issuer's debt securities.
U.S. Government Securities. Although U.S. Government securities and
high-quality debt securities are issued or guaranteed by the U.S. Treasury or an
agency or instrumentality of the U.S. Government, not all U.S. Government
securities are backed by the full faith and credit of the United States. For
example, securities issued by the Federal Farm Credit Bank or by the Federal
National Mortgage Association are supported by the instrumentality's right to
borrow money from the U.S. Treasury under certain circumstances. On the other
hand, securities issued by the Student Loan Marketing Association are supported
only by the credit of the instrumentality.
Lending of Portfolio Securities. Crabbe Huson Money Market Fund may
loan portfolio securities to broker-dealers or other institutional investors if
at least 100% cash (or cash equivalent) collateral is pledged and maintained by
the borrower. Crabbe Huson Money Market Fund believe that the cash collateral
minimizes the risk of lending their portfolio securities. Such loans of
portfolio securities may not be made, under current lending arrangements, if the
aggregate of such loans would exceed 20% of the value of Crabbe Huson Money
Market Fund's total assets. If the borrower defaults, there may be delays in
recovery
<PAGE>
of loaned securities or even a loss of the securities loaned, in which case
Crabbe Huson Money Market Fund would pursue the cash (or cash equivalent)
collateral. While there is some risk in loaning portfolio securities, loans will
be made only to firms or broker-dealers deemed by the Adviser to be of good
standing and will not be made unless, in the judgment of the Adviser, the
consideration to be earned from such loans would justify the risk. For
additional disclosure, see the Statement of Additional Information of Crabbe
Huson Money Market Fund.
Fundamental Investment Policies of Crabbe Huson Government Fund and Money Market
Fund
Each Fund is prohibited from purchasing securities when the total
borrowings of that Fund exceed 5% of its total assets and may not invest more
than 20% of its total assets in fixed income securities, including convertible
stock, that are rated less than Moody's Baa or S&P BBB, or in commercial paper
that is rated less than B-1 by Moody's or A- by S&P. In addition, not more than
5% of its total assets may be invested in fixed income securities that are
unrated.
Fundamental Investment Policies of Crabbe Huson Government Fund
As fundamental investment policies which may not be changed without
the approval of a majority of its outstanding voting securities, this Fund may
not:
1 Buy or sell common stock.
2. Issue any senior securities, as defined in the 1940 Act.
3. Sell securities short.
4. Purchase securities on margin.
5. Invest in any security that would subject the Fund to unlimited
liability.
6. Underwrite the securities of other issuers or invest more than
10% of its net assets in illiquid securities, such as repurchase
agreements with a maturity in excess of seven days. Notwithstanding
the above, the Fund may not invest in restricted securities
(including, but not limited to, nonpublicly traded debt
securities).
7. Invest in securities of other investment companies.
8. Write uncovered put or uncovered call options.
9. Purchase securities that are other than direct or indirect
obligations of the United States Government or its agencies or
instrumentalities and repurchase agreements with respect to those
obligations.
<PAGE>
10. Borrow money, except in an emergency. In no case will borrowing
exceed one-third of the value of the Fund's total assets
immediately after any such borrowing. If, for any reason, the
current value of the Fund's total assets falls below an amount
equal to three times the amount of its indebtedness of money
borrowed, the Fund will, within three days (not including
Saturdays, Sundays and holidays), reduce its indebtedness to the
extent necessary to satisfy the one-third test.
11. Purchase portfolio securities from or sell securities directly to
any of the Fund's, or the Adviser's, officers, directors, or
employees as principal for their own account.
12. Purchase or sell commodities or commodity contracts.
13. Lend portfolio securities, except as described in the Statement
of Additional Information under "Loans of Portfolio Securities."
14. Invest more than 10% of the Fund's total assets in repurchase
agreements.
15 Invest more than 25% of the Fund's total assets in government
securities maturing in more than five years.
16. Purchase or sell real estate or real estate mortgages, provided
that the Fund may invest in marketable fixed income securities
that are secured by real estate or interests therein.
Fundamental Investment Policies of Crabbe Huson Money Market Fund
As fundamental investment policies which may not be changed without the
approval of a majority of its outstanding voting securities, this Fund may not:
1. Buy or sell common stock.
2. Issue any senior securities, as defined in the 1940 Act.
3. Sell securities short.
4. Purchase securities on margin.
5. Purchase or sell commodities or commodity contracts.
<PAGE>
6. Invest an amount that exceeds 5% of the value of the Fund's total
assets in the securities of any one issuer (excluding U.S.
Government securities).
7. Invest more than 25% of its total assets in any one industry
(excluding U.S. Government securities).
8. Purchase securities that are other than direct or indirect
obligations of the United States Government or its agencies or
instrumentalities and repurchase agreements with respect to those
obligations.
9. Purchase the securities of any issuer for the purpose of
exercising control of management, and the Fund may not acquire or
own more than 10% of any class of the securities of any issuer.
10. Invest in any security that would subject the Fund to unlimited
liability.
11. Underwrite the securities of other issuers or invest more than
10% of its net assets in illiquid securities, such as repurchase
agreements with a maturity in excess of seven days.
Notwithstanding the above, the Fund may not invest in restricted
securities (including, but not limited to, nonpublicly traded
debt securities).
12. Invest in securities of other investment companies.
13. Write uncovered put or uncovered call options.
14. Purchase portfolio securities from or sell securities directly to
any of the Fund's, or the Adviser's, officers, directors, or
employees as principal for their own account.
15. Purchase or sell real estate or real estate mortgages, provided
that the Fund may invest in marketable securities that are
secured by real estate or interests therein or are issued by
companies which invest in real estate or interests therein, such
as publicly traded real estate investment trusts.
16. Purchase or sell interests in oil, gas, or other mineral
exploration or development programs.
17. Lend portfolio securities, except as described in Crabbe Huson
Money Market Fund's Statement of Additional Information under
"LOANS OF PORTFOLIO SECURITIES."
<PAGE>
18. Make loans to other persons, provided that, for purposes of this
restriction, the acquisition of bonds, debentures, or other
corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of
deposit, bankers' acceptances, and repurchase agreements will not
be deemed to be the making of a loan.
19. Borrow money, except as set forth in the Fund's Prospectus. In no
case will borrowing exceed one third of the value of a Fund's
total assets immediately after any such borrowing. If, for any
reason, the current value of the Fund's total assets falls below
an amount equal to three times the amount of its indebtedness of
money borrowed, the Fund will, within three days (not including
Saturdays, Sundays and holidays), reduce its indebtedness to the
extent necessary to satisfy the one-third test.
20. Purchase any corporate debt security rated less than AA by S&P or
Aa by Moody's.
21. Purchase any debt security with a maturity in excess of one year
from the date of purchase.
22. Purchase any short-term, unsecured promissory notes of
corporations, including variable amount master demand notes,
which at the date of investment are rated less than A-1 by S&P or
B-1 by Moody's or, if not so rated, which the Board has
determined are of comparable quality to such rated securities.
On October 30, 1998, Special Meetings of Shareholders (Meetings) of
Colonial Mutual Funds (including Colonial Government Fund and Colonial Money
Market Fund) have been scheduled to consider, among other proposals, the
election of Trustees and the amendment or reclassification of fundamental
investment policies of certain Colonial Mutual Funds. Shareholders of Colonial
Money Market Fund are scheduled to consider only the election of Trustees.
Record date shareholders of Crabbe Huson Government Fund will not have an
opportunity to vote on such matters. However, if the transactions contemplated
by the Agreement and Plan of Reorganization attached as Exhibit A to the
Prospectus/Proxy Statement are approved by vote of such shareholders and the
proposals to amend the fundamental investment policies of Colonial Government
Fund are also approved, the shareholders of Crabbe Huson Government Fund will be
bound by such amendments.
Set forth below is the list of current fundamental investment policies
of each of Colonial Government Fund and Colonial Money Market Fund, followed by
explanations, and the full text of the amendments which would be made to the
Colonial Government Fund's fundamental
<PAGE>
investment policies if the shareholders of such Fund vote in favor of the
proposals at the Meetings.
Fundamental Investment Policies of Colonial Government Fund
As fundamental investment policies which may not be changed without the
approval of a majority of its outstanding voting securities, this 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. Invest up to 15% of its net assets in illiquid assets;
4. 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;
5. Underwrite securities issued by others only when disposing of
portfolio securities;
6. Make loans through lending of securities not exceeding 30% of
total assets, through the purchase of debt instruments or similar
evidences of indebtedness typically sold privately to financial
institutions and through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any one
industry or, with respect to 75% of total assets, purchase any
security (other than obligations of the U.S. Government and cash
items including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchases, the Fund would own more than 10% of the
outstanding voting shares of such issuer.
Proposed Amendments to Fundamental Investment Policies of Colonial Government
Fund
One proposal to be considered by shareholders of Colonial Government
Fund is to amend the current borrowing and lending restrictions of such Fund to
permit its participation in an interfund lending program among the Colonial
Mutual Funds. If the proposal is approved by shareholders of Colonial Government
Fund at its meeting, the Fund's fundamental investment policy listed as number 1
above would be replaced with the following fundamental investment policy:
<PAGE>
"The Fund may borrow from banks, other affiliated funds and other
entities to the extent permitted by applicable law, provided that the
Fund's borrowings shall not exceed 33 1/3% of the value of its total
assets (including the amount borrowed) less liabilities (other than
borrowings) or such other percentage permitted by law."
In addition, if the proposal is approved by the shareholders of
Colonial Government Fund, the Fund's fundamental investment policy listed as
number 6 above would be replaced with the following fundamental investment
policy:
"The Fund may make loans (a) through lending of securities, (b) through
the purchase of debt instruments or similar evidences of indebtedness
typically sold privately to financial institutions, (c) through an
interfund lending program with other affiliated funds provided that no
such loan may be made if, as a result, the aggregate of such loans
would exceed 33 1/3% of the value of its total assets (taken at market
value at the time of such loans) and (d) through repurchase
agreements."
In addition, another proposal to be considered by shareholders of
Colonial Government Fund is to approve the addition of a fundamental investment
policy expressly permitting such Fund to organize as a master fund/feeder fund.
If such proposal is approved by the shareholders of Colonial Government Fund,
the following will become a fundamental investment policy of the Fund:
"Notwithstanding the investment policies and restrictions of the Fund,
the Fund may invest all or a portion of its investable assets in an
open-end management investment company with substantially the same
investment objective, policies and restrictions as the Fund."
Fundamental Investment Policies of Colonial Money Market Fund
As fundamental investment policies which may not be changed without the
approval of a majority of its outstanding voting securities, this Fund may not:
1. Invest in a security if, as a result of such investment, more
than 25% of its total assets (taken at market value at the time
of each investment) would be invested in the securities of
issuers in any particular industry, except that this restriction
does not apply to (i) U.S. Government securities, (ii) repurchase
agreements, or (iii) securities of issuers in the financial
services industry, and except that all or substantially all of
the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
2. Invest in a security if, with respect to 75% of its assets, as a
result of such investment, more than 5% of its total assets
(taken at market value at the time of
<PAGE>
such investment) would be invested in the securities of any one
issuer, except that this restriction does not apply to U.S.
Government securities or repurchase agreements for such
securities and except that all or substantially all of the assets
of the Fund may be invested in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund;**
3. Invest in a security if, as a result of such investment, it would
hold more than 10% (taken at the time of such investment) of the
outstanding voting securities of any one issuer, except that all
or substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
4. Purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued
by companies which invest in real estate, or interests therein);
5. Purchase or sell commodities or commodities contracts or oil, gas
or mineral programs;
6. Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases and sales of
portfolio securities;
7. Make loans, although it may (a) participate in an interfund
lending program with other affiliated funds provided that no such
loan may be made if, as a result, the aggregate of such loans
would exceed 33-1/3% of the value of its total assets (taken at
market value at the time of such loans); (b) purchase money
market instruments and enter into repurchase agreements; and (c)
acquire publicly distributed or privately placed debt securities;
8. Borrow except that it may (a) borrow for non-leveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law;
- --------
** Notwithstanding the foregoing, and in accordance with Rule 2a-7 of the
Act (the "Rule"), the Portfolio will not, immediately after the acquisition of
any security (other than a Government Security or certain other securities as
permitted under the Rule), invest more than 5% of its total assets in the
securities of any one issuer; provided, however, that it may invest up to 25% of
its total assets in First Tier Securities (as that term is defined in the Rule)
of a single issuer for a period of up to three business days after the purchase
thereof.
<PAGE>
9. Act as an underwriter of securities, except insofar as it may be
deemed to be an "underwriter" for purposes of the Securities Act
of 1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund; or
10. Issue any senior securities except to the extent permitted under
the Act.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT C
COLONIAL BOARD OF TRUSTEES
Name and Address Principal Occupation During Past Five Years
---------------- -------------------------------------------
<S> <C>
Robert J. Birnbaum Consultant (formerly Special Counsel, Dechert Price & Rhoads
313 Bedford Road from September, 1988 to December, 1993, President, New York
Ridgewood, NJ 07450 Stock Exchange from May, 1985 to June, 1988, President,
Age: 70 American Stock Exchange, Inc. from 1977 to May, 1985).
Tom Bleasdale Retired (formerly Chairman of the Board and Chief Executive
11 Carriage Way Officer, Shore Bank & Trust Company from 1992-1993), is a
Danvers, MA 01923 Director of The Empire Company since June, 1995.
Age: 67
Lora S. Collins Attorney (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road Frankel from September, 1986 to November, 1996).
Southold, NY 11971
Age: 62
James E. Grinnell Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
Age: 68
Richard W. Lowry Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
Age: 61
William E. Mayer Partner, Development Capital, LLC (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
Age: 57 of Business, University of Rochester from October, 1991 to
July, 1992).
James L. Moody, Jr. Retired (formerly Chairman of the Board, Hannaford Bros. Co.
16 Running Tide Road from May, 1984 to May, 1997, and Chief Executive Officer,
Cape Elizabeth, ME 04107 Hannaford Bros. Co. from May, 1973 to May, 1992).
Age: 66
John J. Neuhauser Dean, Boston College School of Management since September,
140 Commonwealth Avenue 1977.
Chestnut Hill, MA 02167
Age: 54
Robert L. Sullivan Retired Partner, KPMG Peat Marwick LLP
7121 Natelli Woods Lane
Bethesda, MD 20817
Age: 70
</TABLE>
The Board of Trustees has 6 standing committees; governance, audit, advisory
fees and expenses, transfer agency, trading oversight/brokerage and
compensation. Each Trustee serves on 3 committees.
<PAGE>
EXHIBIT D
MANAGEMENT'S DISCUSSION OF INVESTMENT PERFORMANCE OF CRABBE
HUSON U.S GOVERNMENT INCOME FUND AND COLONIAL SHORT DURATION
U.S. GOVERNMENT FUND
CRABBE HUSON U.S. GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE: TO PROVIDE A HIGH LEVEL OF CURRENT INCOME, CONSISTENT WITH
CAPITAL PRESERVATION, THROUGH A PORTFOLIO OF SHORT- AND INTERMEDIATE-TERM DEBT
OBLIGATIONS OF THE UNITED STATES GOVERNMENT AND ITS AGENCIES OR
INSTRUMENTALITIES. AT LEAST 75% OF THE FUND'S ASSETS MUST HAVE MATURITIES OF
FIVE YEARS OR LESS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN
THE CRABBE HUSON U.S. GOVERNMENT INCOME FUND AND THE
RYAN LABS 3-YEAR TREASURY INDEX
(RESULTS ARE FOR FISCAL YEARS ENDING OCTOBER 31)
<S> <C> <C>
U.S. Govt. Ryan Lab
Begin $ 10,000 $ 10,000
1989 $ 10,825 $ 10,966
1990 $ 11,518 $ 11,830
1991 $ 12,804 $ 13,336
1992 $ 13,918 $ 14,611
1993 $ 14,852 $ 15,719
1994 $ 14,588 $ 15,576
1995 $ 15,918 $ 17,283
1996 $ 16,643 $ 18,245
1997 $ 17,669 $ 19,513
Annualized Total Return
1 Year: 6.65%
5 Year: 4.98%
Life of Fund: 6.78%
Fund Inception: 1/31/89
</TABLE>
HISTORICAL RESULTS ARE NOT INDICATIVE OF FUTURE RETURNS. FUTURE RETURNS
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE
ACCOMPANYING CHART COMPARES THE PERFORMANCE OF THE U.S. GOVERNMENT
INCOME FUND WITH THE RYAN LABS 3-YEAR TREASURY INDEX, WHICH IS AN
UNMANAGED, BROAD-BASE INDEX OF BONDS; THE U.S. GOVERNMENT INCOME FUND IS
A PROFESSIONALLY MANAGED MUTUAL FUND. THE INDEX PRESENTED HERE IS NOT
MANAGED, DOES NOT INCUR EXPENSES AND IS NOT AVAILABLE FOR DIRECT
INVESTMENT. HAD THE INDEX INCURRED TYPICAL OPERATING EXPENSES, ITS
PERFORMANCE WOULD HAVE BEEN LOWER.
The U.S. Government(1) Income Fund posted a return of 6.65% for fiscal year
1997. The Ryan Labs Three-Year Treasury Index, the appropriate benchmark for the
fund, slightly outpaced the fund with a return of 6.95% for the year.
The average maturity for the fund's content is slightly longer than that of the
index. At present, maturities approximate a three-year average, versus two to
two and a half years for most competitor portfolios. Our election is to stay
relatively long (three years for this short-term category) and is based on our
constructive view of the market for the last 18 months.
The fund's approach, both in absolute terms and relative to other markets, is
highly conservative. We take no credit risk, expose the portfolio to very little
interest rate risk, and avoid high-yield ("junk") or emerging-market debt
completely. In light of the fund's name, this would seem obvious. However, there
has been an unfortunate trend in the past several years by some bond funds to
hold securities with risks higher than the "name" of the fund would suggest. We
advise all shareholders to re-examine their bond fund holdings to ensure that
they own a bond fund that is consistent with the risks they expect.
- - -------------------
(1) An investment in the fund is neither insured nor guaranteed by the U.S.
Government.
<PAGE>
Our positioning for the fund going forward remains constructive. We'll continue
to scan the horizon for attractive opportunities, particularly during times of
bond or equity market volatility, which usually are good times to find
contrarian bargains.
We're also monitoring the economy's potential deflationary trends. If the
Federal Reserve realizes that the economy is slowing and reacts accordingly, or
if recessionary forces become further pronounced, the fund will be positioned to
perform well over the next fiscal year. In light of our conservative approach
and the growing potential for volatility in the equity market, the fund offers
an excellent option for short-term capital preservation and current income.
<TABLE>
<S> <C>
[SIGNATURE] [SIGNATURE]
Garth R. Nisbet, CFA Richard S. Huson, CFA
</TABLE>
<PAGE>
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO OF COGGER]
I am pleased to present your Fund's annual report for the year ended August 31,
1997. This report reflects on the investment environment of the past 12 months
and the performance of your Fund.
In the beginning of the period, the environment was favorable to the bond
market. The economy slowed without major Federal Reserve Board (Fed)
intervention and inflation remained low.
The economy picked up momentum in late 1996 and continued to grow at a healthy
pace in 1997. The long awaited budget agreement in Washington and a firm job
market increased consumer confidence. Consumers were more upbeat about their
finances than at any time in the past 28 years and the rate of unemployment was
the lowest since 1973. In March, the Fed raised short-term interest rates in
response to a growing concern about future wage and price inflation.
In the second half of the Fund's fiscal year, the economy continued to grow, yet
inflation remained in control. The low level of inflation has been the result of
a general increase in economic productivity. This has allowed the Fed to keep
monetary policy on hold. Short-term interest rates have remained stable yet firm
over the period. According to a poll conducted by Reuters, most economists
anticipate at least one increase in interest rates by the Fed before the end of
1997.
In anticipation of a Fed increase, the Fund has held a portfolio of shorter
maturity securities and repurchase agreements. The Fund has been positioned so
that if the Fed raises interest rates, the yield of the Fund may reflect that
increase. Given the current economic environment, we believe short-term interest
rates should rise as the Fed intervenes to slow the pace of economic growth and
the threat of inflation. Our strategy is to maintain the Fund's current short
portfolio at least until the outcome of the upcoming Federal Reserve Board
meeting in November.
Thank you for the opportunity to help you meet your investment goals.
Sincerely,
/s/ Harold W. Cogger
- --------------------
Harold W. Cogger
President
October 13, 1997
Because market conditions change frequently, there can be no assurance that the
trends described in this report will continue.
<PAGE>
DEAR SHAREHOLDERS
[photo -- Cogger] During the last year, the U.S. has been experiencing a very
unusual economic environment: Strong economic growth
with low inflation. This has resulted in a prolonged
"honeymoon" period for U.S. markets.
This stronger-than-expected economic growth caused some concern in fixed-income
markets that the Federal Reserve Board might take action. And, indeed, the Fed
did raise interest rates slightly in March as a preemptive strike against
inflation. Despite the March increase, the general trend for interest rates was
down over the year in response to low inflation.
Your Fund was positioned to take advantage of this declining interest rate
environment. First, the managers actively managed the Fund's sensitivity to
interest rate fluctuations. They also invested heavily in mortgage-backed
securities, which tend to benefit from low volatility. These strategies worked
well; for the year ended August 31, 1997, Class A shares achieved the following
pre-load total return:
o Colonial Short Duration U.S. Government Fund - 6.79%
We thank you for giving us the opportunity to help you meet your financial
goals, and we hope to continue serving you in the years to come. Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger, President
October 13, 1997
Because market conditions change frequently, there can be no assurance that
the trends described in this report will continue.
<PAGE>
Portfolio Managers' Report
A GOOD MARKET ENVIRONMENT FOR BONDS
WHEN YOU LOOK AT BOTH RISK AND RETURN, TREASURY BONDS HAVE BEEN ATTRACTIVE FOR
SEVERAL REASONS.
1. REAL RATES OF RETURN HAVE BEEN HIGH. While current interest rates seem low,
they are high relative to inflation. When compared to other periods in history,
current inflation-adjusted interest rates are attractive, as shown in the chart
below.
2. U.S. RATES ARE ATTRACTIVE TO FOREIGN INVESTORS. Compared to interest rates in
many other parts of the world, U.S. rates have remained high, drawing foreign
investors. In fact, between December of 1996 and July of this year, foreign
ownership of U.S. Treasurys increased by $124 billion.
3. WE EXPECT THE TREND OF FEWER GOVERNMENT BOND ISSUES TO CONTINUE. As the
deficit decreases, the Treasury has issued fewer bonds. If this trend continues,
and the supply of Treasurys drops, demand for these bonds may enable the
government to pay lower interest rates. In a low interest rate environment
accompanied by decreased supply and strong foreign demand, prices could rally,
producing attractive total returns.
INFLATION VS. A 10-YEAR TREASURY NOTE 1987 TO 1997 Today's interest rates may
seem low. However, when you compare interest rates to inflation over the last 10
years, you will see that your post-inflation return -- or real rate of return --
is higher today than when interest rates were over 8% in the early '90s.
10 YEAR TREASURY INFLATION
6.34 2.2
6.01 2.2
6.5 2.3
6.66 2.2
6.72 2.5
6.9 2.8
6.55 3
6.49 3
6.42 3.3
6.04 3.3
6.34 3
6.7 3
6.94 2.9
6.79 3
6.71 2.8
6.85 2.9
6.67 2.9
6.33 2.8
6.1 2.7
5.58 2.7
5.57 2.5
5.74 2.6
6.02 2.8
6.18 2.5
6.28 2.6
6.43 2.8
6.2 3
6.28 3.2
7.05 3.1
7.2 2.9
7.2 2.9
7.58 2.8
7.82 2.7
7.91 2.7
7.81 2.6
7.6 3
7.17 2.9
7.11 2.8
7.32 2.5
7.15 2.3
7.04 2.4
6.74 2.5
6.13 2.5
5.64 2.5
5.79 2.7
5.82 2.7
5.43 2.8
5.38 2.7
5.45 2.8
5.81 2.8
5.78 3
6.15 3.2
6.01 3.2
6.02 3.1
6.02 3.2
6.36 3.3
6.69 2.9
6.94 3
6.79 3.2
6.35 3
6.6 3.1
6.71 3.2
7.12 3.1
7.32 3
7.58 3.2
7.53 3.2
7.25 2.8
7.27 2.6
6.7 3.1
7.38 3
7.46 2.9
7.45 3.4
7.82 3.8
8.15 4.4
8.23 4.7
8.06 5
8.01 4.9
8.06 4.9
8.03 5.3
8.01 5.7
8.07 6.1
8.25 6.3
8.62 6.3
8.79 6.2
8.85 5.6
8.34 4.8
8.41 4.7
8.6 4.4
9.02 4.7
8.63 5.2
8.52 5.3
8.42 5.2
7.93 4.6
7.83 4.7
7.91 4.5
8.29 4.3
8.25 4.7
7.8 5
8.08 5.2
8.6 5.4
9.05 5.1
9.27 5
9.3 4.8
8.98 4.7
9.14 4.4
9.05 4.2
8.64 4.2
8.94 4.2
9.24 4
9.1 4.1
8.87 4
9.15 3.9
8.89 3.9
8.54 3.9
8.15 3.9
8.26 4
8.86 4.4
8.97 4.5
8.88 4.5
9.59 4.4
8.97 4.3
Source: Bloomberg -- all rights reserved.
<PAGE>
Portfolio managers' report
WHAT IS DURATION?
Duration is a measure of a bond mutual fund's price sensitivity to interest rate
movements. It is a mathematical calculation that assesses such factors as the
maturities of the bonds in a fund's portfolio, coupon rates and how often they
are paid, and prevailing market interest rates. In government bond funds,
interest rate risk is the primary consideration. Therefore, the specific
benefits and risks of these funds vary by their duration.
DURATION MANAGEMENT HELPS FUNDS BEAT PEERS
AS WE ENTERED 1997, OUR ANALYSIS SUGGESTED THAT INTEREST RATES SHOULD NOT RISE
SIGNIFICANTLY. In fact, in the spring of 1997 we believed they had peaked and
adjusted the portfolios to benefit by increasing their duration. When our
analysis proved correct, the Funds performed well in a rallying bond market.
Each Fund generated price gains consistent with its respective risk profile.
WE INVESTED HEAVILY IN MORTGAGE-BACKED SECURITIES BECAUSE THESE SECURITIES TEND
TO DO WELL IN A STABLE RATE ENVIRONMENT. This stable interest rate environment
combined with active duration management helped mortgage-backed securities
outperform Treasurys during the year.
WE TOOK ADVANTAGE OF INTEREST RATE PEAKS AND VALLEYS. When we felt rates were
bottoming out, we took a conservative stance, lowering interest rate risk to
reduce losses. Then, as rates peaked in April 1997 and were on the verge of
falling, we aggressively increased duration in anticipation of declining rates
and rallying bond prices. In fact, the Federal Reserve Board did not raise rates
again, and the bond market rallied from April through July. Consequently, all of
Colonial's government bond funds beat their respective Lipper peer group average
for the 12 months ended September 30, 1997.
LIPPER RANKINGS AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COLONIAL SHORT DURATION
U.S. GOVERNMENT FUND
Rank out of
total number of funds
<S> <C>
1 year 16th
out of 65
- ------------------------------------
3 years 10th
out of 52
- ------------------------------------
5 years n/a
- ------------------------------------
10 years n/a
- ------------------------------------
</TABLE>
These rankings are as of month-end as calculated by Lipper Analytical Services,
Inc. Rankings are based on total returns for Class A shares, and reflect
reinvestment of dividends and capital gains and do not assume deduction of sales
charges.
4
<PAGE>
Portfolio managers' report
- --------------------------------------------------------------------------------
THE ECONOMY HAS BEEN RIDING A WAVE OF STRONG GROWTH COMBINED WITH LOW INFLATION.
In this environment, the bond market rallied as interest rates declined. This
has resulted in strong total returns across bond markets. Stocks have also
produced impressive returns, and investors who took on the additional risk of
the stock market were rewarded during this period.
A CENTRAL TENET OF PORTFOLIO THEORY IS THAT DIVERSIFICATION REDUCES RISK.
HISTORICAL EXPERIENCE SHOWS THAT GOVERNMENT BONDS PROVIDED A HIGHER AVERAGE
TOTAL RETURN THAN LARGE-CAP STOCKS IN BEAR MARKETS SINCE 1929(1). Even in a
strong growth market, such as the last 10 years, having a portion of your
portfolio invested in bonds would have provided returns similar to stocks, with
reduced risk as shown in the chart below.
SIMILAR RETURN WITH REDUCED VOLATILITY Historically, diversifying a hypothetical
stock portfolio with 25% government bonds has provided 95% of the return of the
stock market and has reduced volatility by almost 20% over the last 10 years.
[graphic omitted -- bar chart]
100% large-cap stocks 75% large-cap stocks, 25% bonds
Total Return 13.87% 13.15%
Risk 14.38% 11.60%
(1) Bear market is defined as a price-only change of at least 20% over a
six-month period. Colonial's government bond funds invest a portion of their
portfolios in bonds with significantly shorter durations than long-term
government bonds. Stocks are represented by the Standard & Poor's 500 Index.
Long-term bond performance was provided by Ibbotson Associates. Volatility is
measured by standard deviation. Both returns and volatility are annualized and
cover the 10-year period ended 8/31/97. Unlike mutual funds, indexes are not
investments, do not incur fees and it is not possible to invest in an index.
These results do not represent past, current or future performance of any fund.
Past performance cannot guarantee future results.
<PAGE>
Portfolio managers' report
YOUR MANAGEMENT TEAM Leslie W. Finnemore, Ann T. Peterson and William C. Hill
are vice presidents of Colonial Management Associates, Inc. Ms. Finnemore has
served as manager or co-manager of Colonial Short Duration U.S. Government Fund
since inception. Ms. Peterson has managed or co-managed Colonial Short Duration
U.S. Government Fund since 1993. Prior to 1993, she was an associate portfolio
manager and taxable bond analyst for the firm. Prior to joining Colonial in
1996, Mr. Hill was a mortgage analyst. Together, they have more than 32 years'
experience in professional money management.
- --------------------------------------------------------------------------------
AS A MUTUAL FUND INVESTOR, YOU CAN TAKE ADVANTAGE OF PROFESSIONAL EXPERTISE, NOT
ONLY IN SELECTING A DIVERSIFIED PORTFOLIO OF BONDS, BUT ALSO IN ACTIVELY
MANAGING THE PORTFOLIO TO REDUCE RISK. Interest rate risk is the chance that
interest rates will rise, causing existing bonds to lose principal value. As
portfolio managers, we work to anticipate and respond to interest rate changes
and adjust each Fund's portfolio within its duration range. We also make
adjustments in sector weightings to manage the overall credit and interest rate
risk/return potential of each Fund.
COLONIAL PROVIDES THREE DIFFERENT GOVERNMENT BOND PORTFOLIOS, EACH FOCUSED ON A
DIFFERENT DURATION RANGE. Colonial Short Duration U.S. Government Fund is the
most conservative of the three Funds and is managed for low price volatility.
/s/Leslie W. Finnemore /s/Ann T. Peterson /s/William C. Hill
Leslie W. Finnemore Ann T. Peterson William C. Hill
COLONIAL'S GOVERNMENT BOND FUNDS
Over time, you can expect a longer duration fund to deliver more return, but it
also carries more risk.
[graphic omitted -- chart]
Total Return Potential Duration Range
Colonial Short Duration
U.S. Government Fund 6.79% Less than 3 years
Source: Colonial Management Associates. Results shown are Class A share total
returns for one year versus the duration range for each Fund. Interest rates
generally declined during the period. While you can expect longer duration funds
to produce better returns over the long term, short-term results may vary
significantly. Past performance cannot predict future results.
<PAGE>
Fund Facts: 8/31/97
DURATION
1.37 years
LAST 12 MONTHS' DISTRIBUTIONS
Class A $0.551
- ----------------------------------
Class B $0.487
- ----------------------------------
Class C $0.532
- ----------------------------------
SEC YIELD (1)
Class A 5.57%
- ----------------------------------
Class B 5.09%
- ----------------------------------
Class C 5.61%
- ----------------------------------
AVERAGE LIFE BREAKDOWN
(As a percentage of net assets)
0 - 2 years 44.36%
- ----------------------------------
2 - 4 years 9.97%
- ----------------------------------
4 - 6 years 30.40%
- ----------------------------------
6 - 8 years 12.66%
- ----------------------------------
8 - 10 years 0.85%
- ----------------------------------
More than 10 years 1.76%
- ----------------------------------
SECTOR BREAKDOWN
(As a percentage of net assets)
[pie chart omitted]
Adjustable Rate
Mortgage Securities - 28.50%
Cash & Other - 26.32%
Treasury Securities - 16.79%
Fixed-rate Mortgage
Securities - 16.40%
Other Agency
Securities - 11.99%
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
INVESTING EXCLUSIVELY IN U.S. GOVERNMENT SECURITIES, THIS FUND IS DESIGNED FOR
RELATIVELY LOW VOLATILITY. IT IS THE MOST CONSERVATIVE OF COLONIAL'S THREE
GOVERNMENT FUNDS, DESIGNED FOR RISK-AVERSE INVESTORS OR THOSE WITH A SHORT-TERM
TIME HORIZON.
Formerly called Colonial Adjustable Rate U.S. Government Fund, the Fund expanded
its investment flexibility in January to allow greater investment in fixed-rate
securities. This gave us more versatility to seek relative value, while
maintaining the same general risk profile. We concentrated on selecting
securities that we expected to offer greater returns without significantly
increased risk.
Because we believed interest rate fluctuations would remain muted during the
year, we invested a significant portion of your portfolio in mortgage-backed
securities which perform well in that environment. With our expanded investment
flexibility, we decreased the amount of adjustable-rate mortgages while
increasing our investments in fixed-rate mortgages. The rest of the portfolio
was invested in cash, Treasurys, and government agency bonds. These securities
provided the flexibility to adjust the duration of the portfolio to take
advantage of interest rate changes.
The Fund's expanded investment flexibility, mortgage-backed concentration and
duration management all contributed to the portfolio's strong performance
results.
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 10/1/92 - 8/31/97
MOP NAV LEHMAN GOVT
9675 10000 10000 10000
9666.33 9991.04 9943 9936
9666.25 9990.96 9932 9921
9724.78 10051.5 10021 10003
9773.71 10102 10126 10104
9832.21 10162.5 10206 10183
9860.34 10191.6 10238 10210
9908.41 10241.2 10300 10267
9916.86 10250 10275 10255
9973.83 10308.9 10351 10329
9998.89 10334.8 10374 10356
10044.2 10381.6 10460 10431
10059.3 10397.2 10494 10456
10083.2 10421.9 10517 10472
10075.1 10413.5 10519 10463
10107.7 10447.3 10560 10501
10161 10502.3 10626 10568
10163.1 10504.5 10562 10502
10113.8 10453.6 10508 10427
10055.6 10393.4 10468 10389
10069.4 10407.7 10482 10398
10083.5 10422.3 10509 10413
10129.1 10469.3 10603 10489
10164.7 10506.1 10638 10516
10149 10489.9 10614 10496
10149.1 10490 10638 10516
10138.5 10479 10594 10484
10191.7 10534 10615 10506
10310.1 10656.4 10759 10626
10438.9 10789.6 10906 10754
10546.6 10900.9 10967 10810
10632.9 10990.1 11065 10892
10753.5 11114.7 11254 11059
10800.3 11163.1 11315 11110
10814.6 11177.9 11360 11141
10883.8 11249.4 11427 11208
10956.7 11324.7 11483 11260
11028.8 11399.3 11578 11342
11112.5 11485.8 11677 11432
11179.8 11555.3 11765 11514
11247.4 11625.2 11865 11593
11246.2 11624 11819 11551
11231.6 11608.9 11810 11542
11272.8 11651.5 11821 11554
11314.1 11694.2 11848 11568
11390.4 11773 11934 11643
11445.3 11829.7 11980 11685
11490.1 11876.1 12024 11714
11570.1 11958.8 12134 11810
11674.1 12066.3 12270 11925
11765.2 12160.4 1236l 12011
11773.4 12168.9 12363 12008
11839 12236.7 12422 12062
11880.9 12280 12452 12092
11886.9 12286.2 12443 12081
11977.6 12379.9 12544 12171
12056.5 12461.5 12632 12244
12135.7 12543.3 12718 12320
12252.2 12663.8 12857 12447
12271 12683 12871 12455
AVERAGE ANNUAL TOTAL RETURNS AS OF 9/30/97
SHARE CLASS A B C
INCEPTION 10/1/92 2/1/93 1/4/95
NAV MOP NAV w/CDSC NAV w/CDSC
- ---------------------------------------------------------------------
1 year 6.89% 3.42% 6.21% 2.21% 6.69% 5.69%
- ---------------------------------------------------------------------
Since inception 5.03% 4.34% 4.50% 4.50% 7.04% 7.04%
- ---------------------------------------------------------------------
(1) SEC yields reflect the portfolio's earning power net of expenses, expressed
as an annualized percentage of the maximum offering price per share. If the
advisor had not borne certain expenses, the yields would have been 3.97% for
Class A, 3.44% for Class B and 3.95% for Class C and returns would have been
lower.
A $10,000 investment in Class B shares made on 2/1/93 (inception), at net asset
value (NAV) would have grown to $12,188 on 8/31/97 and Class C shares made on
1/4/95 (inception), NAV would have grown to $11,960 on 8/31/97. The Lehman
Brothers ARM Index, used in prior annual reports, was changed as a result of the
Fund's expanded investment flexibility, and a hypothetical $10,000 investment
made on 10/1/92, would have grown to $13,259 on 8/31/97. The Fund's current and
former indexes are unmanaged and track the performance of short-term U.S.
government securities and ARM securities, respectively. The Lipper Short U.S.
Government Fund Average is the average return of funds in the Lipper Short U.S.
Government Fund category. Unlike mutual funds, indexes are not investments, do
not incur fees or charges, and it is not possible to invest in indexes.
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. NAV returns do not include the maximum
sales charge of 3.25% for Class A shares. The CDSC returns reflect the maximum
charge of 4% for one year for Class B shares and 1% for one year for Class C
shares.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
<PAGE>
COLONIAL MONEY MARKET FUND
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
Statement of Additional Information
September 5, 1998
This Statement of Additional Information (SAI) is not a prospectus and is
authorized for distribution only when accompanied or preceded by (a) the
Prospectus of Colonial Money Market Fund (CMMF) dated September 5, 1998
relating to the proposed combination of Crabbe Huson Government Money Market
Fund (CHGMMF) and CMMF and (b) the Prospectus of Colonial Short Duration U.S.
Government Fund (CSDUSGF) dated September 5, 1998 relating to the proposed
combination of Crabbe Huson U.S. Government Income Fund (CHUSGIF) and CSDUSGF.
This SAI should be read together with the Prospectuses. SAIs for CMMF dated
March 2, 1998 and supplements dated June 22, 1998 and CHGMMF dated March 1,
1998, each filed with the Securities and Exchange Commission, are herein
incorporated by reference. SAIs for CSDUSGF dated December 29, 1997 and
supplements dated June 22, 1998 and CHUSGIF dated March 1, 1998, each filed with
the Securities and Exchange Commission, are herein incorporated by reference.
Copies of each Prospectus and SAI relating to CMMF and CSDUSGF are available
without charge and may be obtained by writing to Liberty Funds Distributor,
Inc., One Financial Center, Boston, MA 02111-2621 or by calling (800) 426-3750.
Copies of each Prospectus and SAI relating to CHGMMF and CHUSGIF are available
without charge and may be obtained by writing Crabbe Huson Securities, Inc., 121
S.W. Morrison, Suite 1400, Portland, OR 97204, or by calling 1-800- 541-9732.
This SAI consists of the information set forth herein and the following
described documents, each of which is herein incorporated by reference:
Page
----
1. The financial statements and Report of Independent
Accountants of Colonial Government Money Market Fund
(CMMF'S former name) included in the Fund's Annual Report
to Shareholders for the fiscal year ended August 31, 1997
and the Fund's unaudited Semi-Annual Report to Shareholders
for the period ended February 28, 1998.
2. The financial statements and Independent Auditor's Report of
CHGMMF included in the Fund's Annual Report to Shareholders for
the fiscal year ended October 31, 1997 (SEC Accession Number
000104769-001184) and the Fund's unaudited Semi-Annual Report to
Shareholders for
<PAGE>
the period ended April 30, 1998 (SEC Accession Number
00010047469-98-025156).
3. Pro Forma Combined Financial Statements for CMMF and CHGMMF
prepared for the year ended April 30, 1998.
4. The financial statements and Independent Auditor's Report
Accountants of CSDUSGF included in the Fund's Annual Report to
Shareholders for the fiscal year ended August 31, 1997 and the
Fund's Semi-Annual Report to Shareholders for the period ended
February 28, 1998.
5. The financial statements and Report of Independent Accountants of
CHUSGIF included in the Fund's Annual Report to Shareholders for
the fiscal year ended October 31, 1997 (SEC Accession Number
000104769-98- 001184) and the Fund's Semi-Annual Report to
Shareholders for the period ended April 30, 1998 (SEC Accession
Number 0001047469-98-025156).
6. Pro Forma Combined Financial Statements for CSDUSGF and CHUSGIF
prepared for the year ended April 30, 1998.
<PAGE>
<TABLE>
PRO FORMA INVESTMENT PORTFOLIO
CRABBE HUSON U.S. GOVERNMENT MONEY MARKET FUND (CHUSGMMF)
AND
COLONIAL MONEY MARKET FUND (CMMF)
(UNAUDITED, DOLLARS IN THOUSANDS)
<CAPTION>
CHUSGMMF CMMF Pro Forma Pro Forma
April 30, 1998 April 30, 1998 Adjustment Combined
----------------------------------------------------------- --------------- ----------------------------------------
ANNUALIZED
YIELD AT TIME (unaudited) (unaudited)
FIXED-INCOME SECURITIES - 61.6% MATURITY OF PURCHASE PAR VALUE PAR VALUE PAR VALUE
------------------------------------------------------------ ---------------- ---------------- ---------------
------------------------------------------------------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT & AGENCY - 61.6%
DISCOUNT NOTES - 61.6%
Federal Home Loan
Bank
05/01/98 5.430% 850 $ 850 850 $ 850
05/05/98 5.340% 1,000 999 1,000 999
05/06/98 5.350% 2,000 1,999 2,000 1,999
05/11/98 5.360% 1,000 999 1,000 999
05/20/98 5.360% 1,000 997 1,000 997
05/21/98 5.340% 1,000 997 1,000 997
05/27/98 5.350% 1,000 996 1,000 996
06/02/98 5.230% 1,000 995 1,000 995
06/05/98 5.380% 2,000 1,990 2,000 1,990
06/09/98 5.290% 1,500 1,491 1,500 1,491
06/15/98 5.220% 1,500 1,490 1,500 1,490
06/29/98 5.220% 1,000 991 1,000 991
06/30/98 5.280% 2,000 1,982 2,000 1,982
07/09/98 5.320% 1,000 990 1,000 990
07/31/98 5.370% 1,500 1,480 1,500 1,480
08/03/98 5.310% 2,000 1,972 2,000 1,972
09/16/98 5.240% 1,500 1,470 1,500 1,470
10/01/98 5.260% 1,500 1,467 1,500 1,467
-------- --------
24,155 24,155
-------- --------
Federal Farm
Credit Bureau
07/13/98 5.250% 2,000 1,979 2,000 1,979
08/17/98 5.220% 1,500 1,476 1,500 1,476
-------- --------
3,455 3,455
-------- --------
TOTAL FIXED-INCOME SECURITIES - 100.0%
(cost of $27,610) 27,610 27,610
-------- --------
------------------------------------------------------------
OTHER INVESMENTS - 38.5%
------------------------------------------------------------
Stein Roe & Farnham Cash Reserves Fund (a) 196,301 (a) 196,301
------------ ------------
SHORT-TERM OBLIGATIONS - 0.1%
------------------------------------------------------------
Repurchase agreement with State
Street Bank and Trust
Company, dated 04/30/98 due
05/01/98 at 4.250%,
collateralized by a U.S.
Treasury note maturing
02/15/16, with a
market value of $41,063 $ 38 38 $ 38 38
----------- -----------
OTHER ASSETS & LIABILITIES, NET- (0.2)% (41) (777) 21 (797)
------------------------------------------------------------ ------------ ----------- ---- ------------
NET ASSETS - 100% $ 27,607 $ 195,524 $21 $ 223,152
============ =========== ==== ============
NOTES TO INVESTMENT
PORTFOLIO:
-------------------------------------------------------------------------------------------------------
(a) Rounds to less than one.
</TABLE>
<PAGE>
CRABBE HUSON U.S. GOVERNMENT MONEY MARKET FUND (CHUSGMMF)
AND
COLONIAL MONEY MARKET FUND (CMMF)
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHUSGMMF CMMF PRO-FORMA
April 30, 1998 April 30, 1998 COMBINED ADJUSTMENT PRO-FORMA
ASSETS
<S> <C> <C> <C> <C> <C>
Investments at market $ 27,610 $ 196,301 $ 223,911 $ 223,911
Short-term obligations 38 - 38 38
-------------- ------------- -------------- ----------------
27,648 196,301 223,949 223,949
Receivable for:
Fund shares sold 333 70 $ 403 $ 403
Dividends & Interest (a) - (a) (a)
Receivable from Advisor - - - -
Other 1 11 12 12
-------------- ------------- -------------- ----------------
Total Assets 27,982 196,382 224,364 224,364
LIABILITIES
Payable for:
Fund shares repurchased 299 129 428 428
Distributions 20 695 715 715
Payable to Adviser 1 - 1 1
Accrued:
Distribution fee 21 - 21 (21) (b) -
Other 34 34 68 68
-------------- ------------- -------------- ------------- ---------------
Total Liabilities 375 858 1,233 (21) 1,212
NET ASSETS $ 27,607 $ 195,524 $ 223,131 $ 223,152
============== ============= ============== ================
</TABLE>
(a) Rounds to less the one.
(b) Elimination of distribution fee.
<PAGE>
CRABBE HUSON U.S. GOVERNMENT MONEY MARKET FUND (CHUSGMMF)
AND
COLONIAL MONEY MARKET FUND (Class A) (CMMF)
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
CMMF
CHUSGMMF (Class A)
4/30/98 4/30/98 COMBINED ADJUST COMBINED (New Class A)
----------------------- -------------------- ------------------ ----------- -------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest 1,676,883 5.74% 10,573,233 5.44% 12,250,116 5.48% - 12,250,116 5.48%
------------- ------- ------------ ------- ------------ ------ ----------- ----------- -----------
1,676,883 5.74% 10,573,233 5.44% 12,250,116 5.48% - 12,250,116 5.48%
EXPENSES
Management fee (152,188) -0.52% (471,643) -0.24% (623,831) -0.28% 623,831 (a) - 0.00%
Transfer agent (55,579) -0.19% (374,611) -0.19% (430,190) -0.19% (17,007)(b) (447,197) -0.20%
Transfer agent out-of-pocket - 0.00% (99,751) -0.05% (99,751) -0.04% (249) (100,000) -0.04%
Administration fee (12,459) -0.04% (18,055) -0.01% (30,514) -0.01% (528,483)(c) (558,997) -0.25%
Bookkeeping fee - 0.00% (71,012) -0.04% (71,012) -0.03% (16,747)(d) (87,759) -0.03%
Trustees fee (2,221) -0.01% (20,103) -0.01% (22,324) -0.01% 2,324 (e) (20,000) -0.01%
Custodian fee (25,819) -0.09% (10,184) -0.01% (36,003) -0.02% 29,739 (f) (6,264) 0.00%
Audit fee (4,630) -0.02% (25,177) -0.01% (29,807) -0.01% 1,807 (g) (28,000) -0.01%
Legal fee (1,954) -0.01% (8,685) 0.00% (10,639) 0.00% 982 (h) (9,657) 0.00%
Registration fee (19,339) -0.07% (153,540) -0.08% (172,879) -0.08% 17,879 (i) (155,000) -0.07%
Reports to shareholders (4,882) -0.02% (8,317) 0.00% (13,199) -0.01% (7,801)(j) (21,000) -0.01%
Interest expense (2) 0.00% - 0.00% (2) 0.00% 2 (k) - 0.00%
Amortization of org. costs (18,163) -0.06% - 0.00% (18,163) -0.01% 18,163 (l) - -
Hub expense - 0.00% (73,588) -0.04% (73,588) -0.03% (486,412)(m) (560,000) -0.25%
Other (12,659) -0.04% (8,391) 0.00% (21,050) -0.01% 2,050 (19,000) -0.01%
------------ --------- ------------ ------- ----------- ------ --------- ---------- -----------
Total operating expenses (309,895) -1.06% (1,343,057) -0.69% (1,652,952) -0.74% (359,921) (2,012,873) -0.89%
------------ --------- ------------ ------- ----------- ------ --------- ---------- -----------
Pre 12b-1 operating income 1,327,330 4.68% 9,230,176 4.75% 10,597,164 4.74% (359,921) 10,237,243 4.59%
12b-1 fees:
Service fee (73,096) -0.25% - 0.00% (73,096) -0.03% 73,096 (n) - 0.00%
Pre reimbursement income 1,254,234 4.43% 9,230,176 4.75% 10,524,068 4.71% (286,825) 10,237,243 4.59%
------------- --------- ------------ ------- ----------- ------ ---------- ----------- -----------
Reimbursement 152,116 0.52% - 0.00% 152,116 0.07% (152,116)(o) - 0.00%
------------- --------- ------------ ------- ----------- ------ ---------- ----------- -----------
Net Income 1,406,350 4.95% 9,230,176 4.75% 10,676,184 4.77% (438,941) 10,237,243 4.59%
============= ========= ============ ======= =========== ====== ========== =========== ===========
NOTE: All percentages shown are as a percent of the respective average net assets shown below each column.
Average Net Assets (Total Fund) $ 29,238,000 $ 194,360,605 $223,598,605 $ 223,598,605
</TABLE>
(a) Elimination of CHUSGMMF and CMMF management fee. Under a Hub/Spoke
arrangement.
(b) Based on the CMMF's Transfer Agent fee schedule.
(c) Based on a full year of the CMMF's Administration fee schedule. The amount
shown for 4/30/98 is only a partial year, due to the fund becoming hub/
spoke mid year.
(d) Based on the CMMF's Bookkeeping fee schedule.
(e) Elimination of CHUSGMMF trustee fee and adjustment for new net assets under
the Colonial Trustee Plan.
(f) Elimination of CHUSGMMF custody bills and adjusted for new assets.
(g) Elimination of CHUSGMMF audit and adjusted for increase in assets.
(h) Elimination of CHUSGMMF legal bills.
(i) Adjustment due to the elimination of duplicate registration in some states.
(j) Elimination of the duplicate portion of shareholder reports cost.
(k) Elimination of CHUSGMMF interest expense.
(l) Adjustment to Hub expenses for new asset base.
(m) Elimination of CHUSGMMF organization costs.
(n) Elimination of CHUSGMMF 12b-1 fees.
(o) Elimination of CHUSGMMF reimbursement plan.
<PAGE>
CRABBE HUSON U.S. GOVERNMENT MONEY MARKET FUND (CHUSGMMF)
AND
COLONIAL MONEY MARKET FUND (Class A) (CMMF)
PRO FORMA COMBINING SCHEDULE OF
ACCUMULATED REALIZED AND UNREALIZED GAINS/LOSSES
APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
CMMMF COMBINED
CHUSGMMF % OF NAV (Class A) % OF NAV COMBINED NAV
--------------- ------------- ------------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net realized gain/(loss)* (2,942) 0.00% 0 0.00% (2,942) 0.00%
Net unrealized gain/(loss) - 0.00% - 0.00% 0 0.00%
--------------- ------------- ------------- ------------- ------------- -----------
(2,942) 0.00% 0 0.00% (2,942) 0.00%
=============== ============= ============= ============= ============= ===========
</TABLE>
*CHUSGMMF have capital loss carryforwards of $2,942 that expire in 2005.
<PAGE>
CAPITALIZATION
APRIL 30, 1998
(UNAUDITED)
The capitalization of CHUSGMMF and CMMF (Class A), and the pro forma
capitalization of CMMF (Class A) after giving effect to the combination, are as
follows:
<TABLE>
<CAPTION>
CMMF PRO FORMA PRO FORMA
CHUSGMMF (Class A) ADJUSTMENTS COMBINED
---------------- ---------------- ------------------------------------
<S> <C> <C> <C> <C>
Net Assets $27,607,177 $195,523,723 $21,226 $223,152,126
Shares Outstanding 27,607,177 195,521,379 - 223,128,556
Share Value $1.00 $1.00 - $1.00
</TABLE>
Thus, based on April 30, 1998 values, each holder of a share of CHUSGMMF with a
net asset value of $1.00 would receive 1 share of CMMF (Class A) in the
combination with an aggregate net asset value of $1.00.
<TABLE>
<CAPTION>
PRO FORMA INVESTMENT PORTFOLIO
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND (CSDUSGF)
AND
CRABBE HUSON U.S. GOVERNMENT INCOME FUND (CHUSGIF)
(UNAUDITED, DOLLARS IN THOUSANDS)
APRIL 30,1998
Pro Forma Pro Forma
CSDUSGF CHUSGIF Adjustment Combined
- ------------------------------------------------------------------------------------------ -------------- -------- ---------
ANNUALIZED
YIELD AT TIME (unaudited) (unaudited)
FIXED-INCOME SECURITIES - 100.0% MATURITY OF PURCHASE PAR VALUE PAR VALUE PAR VALUE
- ------------------------------------------------------------------------------------------ -------------- -----------------
U.S. GOVERNMENT AGENCIES - 100.0%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Farm Credit Bank 01/16/02 6.400% 250 $ 254 250 $ 254
Federal Home Loan Bank 02/21/02 6.290% 220 223 220 223
Federal Home Loan Bank 01/08/04 6.490% 200 206 200 206
Federal Home Loan Bank 03/10/05 7.590% 50 55 50 55
Federal National Mortgage Association 09/30/98 4.950% 150 149 150 149
Federal National Mortgage Association 09/25/00 6.080% 120 121 120 121
Federal National Mortgage Association 12/18/00 8.250% 300 318 300 318
Federal National Mortgage Association 07/18/02 6.230% 200 203 200 203
Federal National Mortgage Association 03/28/05 7.375% 50 54 50 54
Federal National Mortgage Association 02/02/06 5.875% 200 198 200 198
-------- ---------
1,781 1,781
-------- ---------
Government National Mortgage Association 01/13/24 6.500% 500 495 500 495
Government National Mortgage Association 03/15/09 9.000% 230 248 230 248
-------------
743
-------------
Federal National Mortgage Association 12/01/08 6.000% 452 445 452 445
Federal National Mortgage Association 01/01/10 6.000% 500 493 500 493
Federal National Mortgage Association 12/01/06 9.500% 127 135 127 135
Federal National Mortgage Association 04/01/27 7.500% 500 513 500 513
Federal National Mortgage Association 09/07/00 6.240% 400 404 400 404
------------- ---------
1,990 1,990
------------- ---------
-------------
Federal Home Loan Mortgage Corporation 03/01/09 9.250% 217 232 217 232
-------------
GNMA Adjustable Rate Mortgage 08/20/22 6.875% 47 48 47 48
GNMA Adjustable Rate Mortgage 05/20/02 7.000% 457 468 457 468
GNMA Adjustable Rate Mortgage 06/20/23 7.375% 362 372 362 371
------------- ---------
888 887
------------- ---------
FHLMC Adjustable Rate Mortgage 07/01/19 7.391% 244 249 244 248
FHLMC Adjustable Rate Mortgage 11/01/18 6.577% 184 185 184 185
FHLMC Adjustable Rate Mortgage 02/01/18 6.096% 135 136 135 136
------------- ---------
570 569
------------- ---------
FNMA Adjustable Rate Mortgage 07/01/27 6.391% 152 152 152 152
FNMA Adjustable Rate Mortgage 12/01/17 8.105% 80 82 80 82
FNMA Adjustable Rate Mortgage 06/01/19 8.366% 220 232 220 231
FNMA Adjustable Rate Mortgage 07/01/20 7.614% 122 125 122 125
FNMA Adjustable Rate Mortgage 08/01/19 7.296% 199 204 199 204
FNMA Adjustable Rate Mortgage 11/01/19 7.435% 145 150 145 150
FNMA Adjustable Rate Mortgage 08/01/22 7.995% 89 92 89 92
FNMA Adjustable Rate Mortgage 11/01/23 7.583% 236 243 236 243
------------- ---------
1,280 1,279
------------- ---------
SLMA Float Rate Note 02/22/99 5.372% 1,000 999 1,000 999
U.S. GOVERNMENT BONDS AND NOTES - 100.0%
U.S. Treasury Note 10/31/98 5.875% 280 280 280 280
U.S. Treasury Note 12/31/98 5.750% 415 416 415 416
U.S. Treasury Note 01/31/99 5.875% 265 266 265 266
U.S. Treasury Note 07/31/99 5.875% 15 15 15 15
U.S. Treasury Note 09/30/99 5.750% 794 796 794 796
U.S. Treasury Note 11/30/99 5.625% 670 670 670 670
U.S. Treasury Note 12/31/99 5.625% 375 375 375 375
U.S. Treasury Note 03/31/00 5.500% 35 35 35 35
U.S. Treasury Note 08/15/00 6.000% 305 307 305 307
U.S. Treasury Note 08/31/00 6.250% 140 142 140 142
U.S. Treasury Note 11/30/00 5.625% 100 100 100 100
U.S. Treasury Note 02/28/01 5.625% 100 100 100 100
U.S. Treasury Note 05/31/01 6.500% 726 743 726 743
U.S. Treasury Note 12/31/01 6.125% 63 64 63 64
U.S. Treasury Note 06/30/02 6.250% 225 230 225 230
U.S. Treasury Note 10/31/02 5.750% 160 160 160 160
U.S. Treasury Note 12/31/02 5.625% 935 933 935 933
U.S. Treasury Note 03/31/03 5.500% 70 70 70 70
U.S. Treasury Note 11/15/05 5.875% 242 244 242 244
U.S. Treasury Note 05/15/06 6.875% 96 103 96 103
U.S. Treasury Note 10/15/06 6.500% 210 221 210 220
U.S. Treasury Bond 02/15/21 7.875% 147 180 147 180
U.S. Treasury Note 11/15/26 6.500% 19 20 19 20
U.S. Treasury Bond 11/15/27 6.125% 31 32 31 32
------------- --------
4,581 1,921
------------- --------
MORTGAGE PASS-THROUGH SECURITIES - 100.0% --------
Government National Mortgage Association 10/15/27 7.000% 249 253 249 253
--------
TOTAL FIXED-INCOME SECURITIES - 100.0% (cost of $27,610) 11,283 3,955 15,238
SHORT-TERM OBLIGATIONS - 4.1%
- ----------------------------------------------------------------------------------------- --------- ----------
Repurchase agreement with State Street Bank and Trust Company, dated
04/30/98 due 05/01/98 at 4.250%, collateralized by a U.S. Treasury note $ 33 33 $ 33 33
--------- ----------
Repurchase agreement with ABN Amro Chicago Corp.,
dated 04/30/98 due 05/01/98 at 5.520%,
collateralized by a U.S. Treasury note $ 2,800 2,800 $2,800 2,800
------------- ----------
OTHER ASSETS & LIABILITIES, NET- (0.6)% (1,390) 42 (1) (1,349)
- ----------------------------------------------------------------------------------------- ------------ ----------
NET ASSETS - 100% $ 12,693 $ 4,030 $ 16,722
------------- ------------ ----------
NOTES TO INVESTMENT PORTFOLIO:
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Rounds to less than one.
</TABLE>
<PAGE>
<TABLE>
CRABBE HUSON U.S. GOVERNMENT INCOME FUND (CHUSGIF)
AND
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND (Class A) (CSDUSGF)
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS)
<CAPTION>
PRO-FORMA
CHUSGIF CSDUSGF COMBINED ADJUSTMENT PRO-FORMA
ASSETS
<S> <C> <C> <C> <C>
Investments at market $3,955 $11,283 $15,238 $15,238
Short-term obligations 33 2,800 2,833 2,833
-------------- ------------- -------------- ----------------
3,988 14,083 18,071 18,071
Receivable for:
Investments sold
- 2,801 2,801 2,801
Fund shares sold
- 100 100 100
Dividends & Interest
61 144 205 205
Receivable from Advisor
- 73 73 73
Other (a)
5 3 3
-------------- ------------- -------------- ----------------
Total Assets
4,049 17,206 21,253 21,253
LIABILITIES
Payable for:
Investments Purchased
- 4,301 4,301 4,301
Fund shares repurchased
3 89 92 92
Distributions
4 55 59 59
Payable to Adviser (a) (a) (a)
-
Accrued:
Distribution fee
1 - 1 (1) (b) -
Other
11 68 79 79
-------------- ------------- -------------- ------------- ----------------
Total Liabilities 19 4,513 4,532 (1) 4,531
NET ASSETS $4,030 $12,693 $16,721 $16,722
============== ============= ============== ================
</TABLE>
(a) Rounds to less than one.
(b) Elimination of the distribution fee.
<PAGE>
<TABLE>
<CAPTION>
CRABBE HUSON U.S. GOVERNMENT INCOME FUND (CHUSGIF)
AND
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND (Class A)
(CSDUSGF)
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
CSDUSGF
CHUSGIF (Class A)
4/30/98 4/30/98 COMBINED
--------------------------------- --------------------------- ------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Interest 275,211 5.85% 730,162 5.90% 1,005,373 5.89%
------------- --------------- ---------------- ------- ------------- ---------------
275,211 5.85% 730,162 5.90% 1,005,373 5.89%
EXPENSES
Management fee (23,858) -0.51% (66,803) -0.54% (90,661) -0.53%
Transfer agent (23,302) -0.50% (20,870) -0.17% (44,172) -0.26%
Transfer agent out-of-pockets - 0.00% (2,816) -0.02% (2,816) -0.02%
Bookkeeping fee - 0.00% (27,010) -0.22% (27,010) -0.16%
Trustees fee (417) -0.01% (11,188) -0.09% (11,605) -0.07%
Custodian fee (12,030) -0.26% (2,256) -0.02% (14,286) -0.08%
Audit fee (2,640) -0.06% (19,895) -0.16% (22,535) -0.13%
Legal fee (417) -0.01% (12,675) -0.10% (13,092) -0.08%
Registration fee (12,839) -0.27% (33,312) -0.27% (46,151) -0.27%
Reports to shareholders (645) -0.01% (6,208) -0.05% (6,853) -0.04%
Administration fee (2,072) -0.04% - 0.00% (2,072) -0.01%
Interest Expense (114) 0.00% - 0.00% (114) 0.00%
Amortization of deferred
organization costs (6,253) 0.00% (6,631) -0.05% (12,884) -0.08%
Other (1,823) -0.02% (5,840) -0.05% (7,663) -0.04%
------------- --------------- ---------------- ------- ---------- -----------
Total operating expenses (86,410) -1.84% (215,504) -1.75% (301,914) -1.77%
------------- --------------- ---------------- ------- ---------- -----------
Pre 12b-1 operating income 188,801 4.02% 514,658 4.16% 703,459 4.12%
12b-1 fees:
Service Fee (8,233) -0.18% (24,291) -0.20% (32,524) -0.19%
Pre reimbursement income 180,568 3.84% 490,367 3.96% 670,935 3.93%
------------- --------------- ---------------- ------- ---------- -----------
Reimbursement 59,052 1.26% 175,969 1.42% 235,021 1.38%
------------- --------------- ---------------- ------- ---------- -----------
Net Income 239,620 5.10% 666,336 5.38% 905,956 5.30%
============= =============== ================ ======= ========== ===========
NOTE: All percentages shown are as a percent of the respective average net assets shown below each column.
Average Net Assets (Total Fund) $4,702,000 $ 12,378,000 $ 17,080,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CRABBE HUSON U.S. GOVERNMENT INCOME FUND (CHUSGIF)
AND
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND (Class A) (CSDUSGF)
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
(Continued from above)
ADJUST COMBINED
------------ ---------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest - 1,005,373 5.89%
---------- --------------- ------------
- 1,005,373 5.89%
EXPENSES
Management fee (3,279) (a) (93,940) -0.55%
Transfer agent 15,136 (b) (29,036) -0.17%
Transfer agent out-of-pockets (2,308) (c) (5,124) -0.03%
Bookkeeping fee 10 (27,000) -0.16%
Trustees fee 405 (11,200) -0.07%
Custodian fee 10,786 (d) (3,500) -0.02%
Audit fee 2,535 (e) (20,000) -0.12%
Legal fee 342 (12,750) -0.07%
Registration fee 6,151 (f) (40,000) -0.23%
Reports to shareholders 53 (g) (6,800) -0.04%
Administration fee 2,072 (h) - 0.00%
Interest Expense 114 (i) - 0.00%
Amortization of deferred
organization costs 12,884 (j) - 0.00%
Other 13 (7,650) -0.04%
------------- -------------- -------------
Total operating expenses 44,914 (257,000) -1.50%
------------- -------------- -------------
Pre 12b-1 operating income 44,914 748,373 4.38%
12b-1 fees:
Service Fee (1,636)(k) (34,160) -0.20%
Pre reimbursement income 33,144 714,213 4.18%
------------- -------------- -------------
Reimbursement (38,601)(l) 196,420 1.15%
------------- -------------- ------------------
Net Income (5,457) 910,633 5.33%
============= ============== ==================
NOTE: All percentages shown are as a percent of the respective average net assets shown below each column.
Average Net Assets (Total Fund) $ 17,080,000
</TABLE>
(a) Based on CSDUSGF's management/administration contract.
(b) Based on CSDUSGF's transfer agent contract.
(c) Based on combined number of accounts.
(d) Elimination of CHUSGIF custodian contract (which included bookkeeping costs)
and replacing with CSDUSGF contract.
(e) Elimination of CHUSGIF audit costs.
(f) Adjustment due to elimination of duplicate registration in some states.
(g) Elimination of the duplicate portion of shareholder reports cost.
(h) Elimination of CHUSGIF administration contract.
(i) Elimination of CHUSGIF interest expense.
(j) Elimination of CHUSGIF org. costs and CSDUSGF no longer has org. costs.
(k) Based on CSDUSGF's 12b-1 contract.
(l) Based on CSDUSGF's reimbursement agreement.
<PAGE>
<TABLE>
CRABBE HUSON U.S. GOVERNMENT INCOME FUND (CHUSGIF)
AND
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND (Class A) (CSDUSGF)
PRO FORMA COMBINING SCHEDULE OF
ACCUMULATED REALIZED AND UNREALIZED GAINS/LOSSES
APRIL 30, 1998
(UNAUDITED)
<CAPTION>
% OF
CSDUSGF COMBINED
CHUSGIF % OF NAV (Class A) % OF NAV COMBINED NAV
-------------- ------------ ------------ ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net realized gain/(loss)* 7,731 0.19% (55,676) -0.78% (47,945) -0.43%
Net unrealized gain/(loss) 5,215 0.13% 32,167 0.45% 37,382 0.34%
-------------- ------------ ------------ ------------ ------------ ------------
12,946 0.32% (23,509) -0.33% (10,563) -0.09%
============== ============ ============ ============ ============ ============
</TABLE>
*CHUSGIF have capital loss carryforwards of $29,862 that expire in 2002.
<PAGE>
CAPITALIZATION
APRIL 30, 1998
(UNAUDITED)
The capitalization of CHUSGIF and CSDUSGF (Class A), and the pro forma
capitalization of CSDUSGF (Class A) after giving effect to the combination, are
as follows:
<TABLE>
<CAPTION>
CSDUSGF PRO FORMA PRO FORMA
CHUSGIF (Class A) ADJUSTMENTS COMBINED
---------------- ---------------- ------------------------------------
<S> <C> <C> <C> <C>
Net Assets $4,030,267 $7,119,943 $1,207 $11,151,417
Shares Outstanding 374,070 714,935 -- 1,119,305
Share Value $10.77 $9.96 $9.96
</TABLE>
Thus, based on April 30, 1998 values, each holder of a share of CHUSGIF with a
net asset value of $10.77 would receive 1.081 shares of CSDUSGF (Class A) in the
combination with an aggregate net asset value of $9.96.
Part C. OTHER INFORMATION
Item 15. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust, as amended,
provides for indemnification of the Registrant's Trustees and officers. The
effect of the relevant section of Article VIII of the Registrant's Agreement and
Declaration of Trust, as amended, is to provide indemnification for each of the
Registrant's Trustees and officers against liabilities and counsel fees
reasonably incurred in connection with the defense of any legal proceeding in
which such Trustee or officer may be involved by reason of being or having been
a Trustee or officer, except with respect to any matter as to which such Trustee
or officer shall have been adjudicated not to have acted in good faith in the
reasonable belief that such Trustee's or officer's action was in the best
interest of the Registrant, and except that no Trustee or officer shall be
indemnified against any liability to the Registrant or its shareholders to which
such Trustee or officer shall otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Trustee's or officers's office.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 16. Financial Statements and Exhibits.
1. Amendment No. 5 to the Agreement and Declaration of Trust
(incorporated by reference to Post-Effective Amendment No. 28 to
the Registration Statement of Colonial Trust II, Registration
Nos. 2-66976 and 811-3009, filed with the Commission on December
13, 1996)
2. By-Laws, as amended, (incorporated by reference from
Post-Effective Amendment No. 25 to the Registration Statement of
Colonial Trust II, Registration Nos. 2- 66976 and 811-3009, filed
with the Commission on March 20, 1996)
3. Not applicable
<PAGE>
4. Agreement and Plan of Reorganization constitutes Exhibit A in
Part A of this Registration Statement
5. Not applicable
6. Form of Management Agreement (CSDUSGF) (incorporated by reference
from Post-Effective Amendment No. 24 to the Registration
Statement of Colonial Trust II, Registration Nos. 2-66976 and
811-3009, filed with the Commission on December 11, 1995)
7.(a) Form of Distributor's Contract (incorporated herein by reference
to Exhibit 6.(a) to Post-Effective Amendment No. 101 to the
Registration Statement of Colonial Trust III, Registration Nos.
2-15184 and 811-881, filed with the Commission on July 24, 1998)
7.(b) 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)
7.(c) 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)
7.(d) Form of Asset Retention Agreement (incorporated herein by
reference to Exhibit 6.(d) to Post-Effective Amendment No. 10 to
Registration Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529, filed with the Commission on September 27,
1996)
8. Not applicable
9. Custody Agreement with The Chase Manhattan Bank (incorporated
herein by reference 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 October 24, 1997)
10. Form of Distribution Plan adopted pursuant to Section 12b-1 of
the Investment Company Act of 1940 (incorporated by reference to
the Distributor's Contract filed as Exhibit 7.(a) hereto)
11.(a) Opinion and Consent of Counsel to Colonial Money Market Fund as
to Legality of the Securities Being Registered
<PAGE>
11.(b) Opinion and Consent of Counsel to Colonial Short Duration U.S.
Government Fund as to Legality of Securities Being Registered
12.(a) Opinion and Consent of Counsel to Colonial Money Market Fund
Supporting Tax Matters and Consequences to Shareholders
12.(b) Opinion and Consent of Counsel to Colonial Short Duration U.S.
Government Fund Supporting Tax Matters and Consequences to
Shareholders
13.(a) 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)
13.(b) Amendment to Appendix I of Pricing and Bookkeeping Agreement
(incorporated by reference to Post-Effective Amendment No. 29 to
the Registration Statement of Colonial Trust II, Registration
Nos. 2-66976 and 811-3009, filed on March 11, 1997)
13.(c) 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.(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)
13.(d) 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 October 24, 1997)
13.(e) Amendment No. 15 to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement dated
October 1, 1997 (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 October 24, 1997)
13.(f) Credit Agreement (incorporated herein by reference to Exhibit
9.(f) to Post- Effective Amendment No. 19 to the Registration
Statement of Colonial Trust V, Registration Nos. 811-5030 and
33-12109, filed with the Commission on May 20, 1996)
<PAGE>
13.(g) Amendment No. 1 to the Credit Agreement (incorporated herein by
reference to Exhibit 9.(f) to Post-Effective Amendment No. 99 to
the Registration Statement of Colonial Trust III, Registration
Nos. 811-881 and 2-15184, filed with the Commission on December
17, 1997)
13.(h) Amendment No. 2 to the Credit Agreement (incorporated herein by
reference to Exhibit 9.(g) to Post-Effective Amendment No. 99 to
the Registration Statement of Colonial Trust III, Registration
Nos. 811-881 and 2-15184, filed with the Commission on December
17, 1997)
13.(i) Amendment No. 3 to the Credit Agreement (incorporated herein by
reference to Exhibit 9.(h) to Post-Effective Amendment No. 99 to
the Registration Statement of Colonial Trust III, Registration
Nos. 811-881 and 2-15184, filed with the Commission on December
17, 1997)
13.(j) Form of Administration Agreement with Colonial Management
Associates, Inc. (CMMF) (incorporated herein by reference to
Exhibit 9.(iii) to Post-Effective Amendment No. 34 to the
Registration Statement of Colonial Trust II, Registration Nos.
2-66976 and 811-3009, filed with the Commission on December 31,
1997)
13.(k) Form of Indemnification Agreement (CMMF) (incorporated by
reference to Exhibit 9.(v) to Post-Effective Amendment No. 34 to
the Registration Statement of Colonial Trust II Registration Nos.
2-66976 and 811-3009, filed with the Commission on December 31,
1997)
14.(a) Consent of Independent Accountants (PricewaterhouseCoopers LLP)
14.(b) Consent of Independent Auditors (KPMG Peat Marwick LLP)
15. Not applicable
16. Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale, Lora S.
Collins, James A. Grinnell, Richard W. Lowry, William E. Mayer,
James L. Moody, Jr., John J. Neuhauser, and Robert L. Sullivan
(incorporated herein by reference to Exhibit 18.(a) to
Post-Effective Amendment No. 99 to the Registration Statement of
Colonial Trust III, Registration Nos. 2-15184 and 811-881, filed
with the Commission on December 17, 1997)
17. Form of Proxy
Item 17. Undertakings.
<PAGE>
1. The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that
is filed under paragraph 1 above will be filed as a part of an
amendment to this Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
NOTICE
A copy of the Agreement and Declaration of Trust of Colonial Trust II (Trust),
as amended, is on file with the Secretary of The Commonwealth of Massachusetts
and notice is hereby given that this Registration Statement has been executed on
behalf of the Trust by officers of the Trust as officers and by its Trustees as
trustees and not individually, and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually but are binding only upon the assets and
property of Colonial Trust II.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant, in the City of Boston and Commonwealth of
Massachusetts, on the 4th day of August, 1998.
COLONIAL TRUST II
By: /s/ STEPHEN E. GIBSON
----------------------
Stephen E. Gibson
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ STEPHEN E. GIBSON President (chief executive officer) August 4, 1998
- ---------------------------
Stephen E. Gibson
/s/ TIMOTHY J. JACOBY Treasurer and Chief Financial
- ---------------------------- Officer (principal financial officer) August 4, 1998
Timothy J. Jacoby
/s/ J. KEVIN CONNAUGHTON Controller and Chief Accounting August 4, 1998
- ---------------------------- Officer (principal accounting officer)
J. Kevin Connaughton
/s/ ROBERT J. BIRNBAUM* Trustee August 4, 1998
- ---------------------------
/s/ TOM BLEASDALE* Trustee August 4, 1998
- ---------------------------
Tom Bleasdale
/s/ LORA S. COLLINS* Trustee August 4, 1998
- -------------------------------
Lora S. Collins
/s/ JAMES E. GRINNELL* Trustee August 4, 1998
- ----------------------------
James E. Grinnell
<PAGE>
/s/ RICHARD W. LOWRY* Trustee August 4, 1998
- --------------------------
Richard W. Lowry
/s/ WILLIAM E. MAYER* Trustee August 4, 1998
- ----------------------------
William E. Mayer
/s/ JAMES L. MOODY, JR.* Trustee August 4, 1998
- ----------------------------
James L. Moody, Jr.
/s/ JOHN J. NEUHAUSER* Trustee August 4, 1998
- ---------------------------
John J. Neuhauser
/s/ ROBERT L. SULLIVAN* Trustee August 4, 1998
- --------------------------
Robert L. Sullivan
/s/ WILLIAM J. BALLOU August 4, 1998
- ----------------------------
William J. Ballou
Attorney-in-fact for each
trustee
</TABLE>
SIGNATURES
As required by the Securities Act of 1933 this Registration Statement has
been signed by the SR&F Base Trust, insofar as it relates tothe Colonial Money
Market Fund series of the Registrant, in the City of Chicago and the State of
Illinois on the 4th day of August, 1998.
SR&F BASE TRUST
By: /s/ THOMAS W. BUTCH
Thomas W. Butch, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following trustees and officers of SR&F Base Trust in their
capacities and on the date indicated.
SIGNATURES TITLE DATE
/s/ THOMAS W. BUTCH President (Principal August 4, 1998
Thomas W. Butch Executive Officer and
Trustee)
/s/ GARY A. ANETSBERGER Senior Vice President August 4, 1998
Gary A. Anetsberger and Chief Financial
Officer (Principal
Financial Officer)
/s/ SHARON R. ROBERTSON Controller (Principal August 4, 1998
Sharon R. Robertson Accounting Officer)
<PAGE>
/s/ WILLIAM W. BOYD Trustee August 4, 1998
William W. Boyd
/s/ LINDSAY COOK Trustee August 4, 1998
Lindsay Cook
/s/ DOUGLAS A. HACKER Trustee August 4, 1998
Douglas A. Hacker
/s/ JANET LANGFORD KELLY Trustee August 4, 1998
Janet Langford Kelly
/s/ CHARLES R. NELSON Trustee August 4, 1998
Charles R. Nelson
/s/ THOMAS C. THEOBALD Trustee August 4, 1998
Thomas C. Theobald
EXHIBIT INDEX
11.(a) Opinion and Consent of Counsel to Colonial Money Market Fund
as to Legality of the Securities Being Registered
11.(b) Opinion and Consent of Counsel to Colonial Short Duration U.S.
Government Fund as to Legality of Securities Being Registered
12.(a) Opinion and Consent of Counsel to Colonial Money Market Fund
Supporting Tax Matters and Consequences to Shareholders
12.(b) Opinion and Consent of Counsel to Colonial Short Duration U.S.
Government Fund Supporting Tax Matters and Consequences to
Shareholders
14.(a) Consent of Independent Accountants (PricewaterhouseCoopers
LLP)
14.(b) Consent of Independent Auditors (KPMG Peat Marwick LLP)
17. Form of Proxy
[letterhead]
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX: (617) 951-7050
ONE FRANKLIN SQUARE
1301 K STREET, N. W.
30 KENNEDY PLAZA SUITE 800 EAST
PROVIDENCE, RI 02903-2328 WASHINGTON, DC 20005-3333
(401) 455-4400 (202) 626-3900
FAX: (401) 455-4401 FAX: (202) 626-3961
August 6, 1998
Colonial Money Market Fund
One Financial Center
Boston, MA 02111
Re: Registration Statement on Form N-14
Ladies and Gentlemen:
We have acted as counsel to Colonial Trust II (the "Trust"), in
connection with the Registration Statement of the Trust on Form N-14 (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Act"), relating to the proposed combination of Colonial Money Market Fund (the
"Fund"), a series of the Trust, with Crabbe Huson U.S. Government Money Market
Fund (the "Crabbe Huson Fund"), a series of Crabbe Huson Funds (the "Crabbe
Huson Trust"), and the issuance of shares of the Fund in connection therewith
(the "Shares"), all in accordance with the terms of the form of Agreement and
Plan of Reorganization by and between the Trust, on behalf of the Fund, Crabbe
Huson Trust, on behalf of Crabbe Huson Fund, The Crabbe Huson Group, Inc. (the
"Crabbe Huson Adviser") and Colonial Management Associates, Inc. (the "Adviser")
that was approved by the Board of Trustees of the Trust at a meeting held on
June 18, 1998.
We have examined the Trust's Agreement and Declaration of Trust on file
in the office of the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston and the Trust's By-Laws, as amended, and are
familiar with the actions taken by the Trustees of the Trust in connection with
the issuance and sale of the Shares. We have also examined such other documents
and records as we have deemed necessary for the purposes of this opinion.
We have assumed for purposes of this opinion that, prior to the
issuance of the Shares, the Agreement will have been duly executed and delivered
on behalf of the Trust, and will have been duly approved, executed and delivered
on behalf of each of the Crabbe Huson Trust, the Crabbe Huson Adviser and the
Adviser.
<PAGE>
Colonial Money Market Fund -2- August 6, 1998
Based upon the foregoing, we are of the opinion that:
1. The Trust is a duly organized and validly existing unincorporated
association under the laws of The Commonwealth of Massachusetts and is
authorized to issue an unlimited number of its shares of beneficial interest.
2. The Shares have been duly authorized and, when issued in accordance
with the Agreement, will be validly issued, fully paid and nonassessable by the
Fund.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that a notice of such
disclaimer be given in each note, bond, contract, instrument, certificate or
undertaking entered into or executed by the Trust or its Trustees. The Agreement
and Declaration of Trust provides for indemnification out of the property of the
Trust for all loss and expense of any shareholder of the Trust held personally
liable solely by reason of his being or having been a shareholder. Thus, the
risk of a shareholder's incurring financial loss on account of being a
shareholder is limited to circumstances in which the Trust itself would be
unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Act. We consent
to the filing of this opinion with and as part of the Registration Statement.
Very truly yours,
Ropes & Gray
[letterhead]
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
(617) 951-7000
FAX: (617) 951-7050
ONE FRANKLIN SQUARE
1301 K STREET, N. W.
30 KENNEDY PLAZA SUITE 800 EAST
PROVIDENCE, RI 02903-2328 WASHINGTON, DC 20005-3333
(401) 455-4400 (202) 626-3900
FAX: (401) 455-4401 FAX: (202) 626-3961
August 6, 1998
Colonial Short Duration U.S. Government Fund
One Financial Center
Boston, MA 02111
Re: Registration Statement on Form N-14
Ladies and Gentlemen:
We have acted as counsel to Colonial Trust II (the "Trust"), in
connection with the Registration Statement of the Trust on Form N-14 (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Act"), relating to the proposed combination of Colonial Short Duration U.S.
Government Fund (the "Fund"), a series of the Trust, with Crabbe Huson U.S.
Government Income Fund (the "Crabbe Huson Fund"), a series of Crabbe Huson Funds
(the "Crabbe Huson Trust"), and the issuance of shares of the Fund in connection
therewith (the "Shares"), all in accordance with the terms of the form of
Agreement and Plan of Reorganization by and between the Trust, on behalf of the
Fund, Crabbe Huson Trust, on behalf of Crabbe Huson Fund, The Crabbe Huson
Group, Inc. (the "Crabbe Huson Adviser") and Colonial Management Associates,
Inc. (the "Adviser") that was approved by the Board of Trustees of the Trust at
a meeting held on June 18, 1998 (the "Agreement").
We have examined the Trust's Agreement and Declaration of Trust on file
in the office of the Secretary of State of The Commonwealth of Massachusetts and
the Clerk of the City of Boston and the Trust's By-Laws, as amended, and are
familiar with the actions taken by the Trustees of the Trust in connection with
the issuance and sale of the Shares. We have also examined such other documents
and records as we have deemed necessary for the purposes of this opinion.
We have assumed for purposes of this opinion that, prior to the
issuance of the Shares, the Agreement will have been duly executed and delivered
on behalf of the Trust, and will have been duly approved, executed and delivered
on behalf of each of the Crabbe Huson Trust, the Crabbe Huson Adviser and the
Adviser.
<PAGE>
Colonial Short Duration U.S. -2- August 6, 1998
Government Fund
Based upon the foregoing, we are of the opinion that:
1. The Trust is a duly organized and validly existing unincorporated
association under the laws of The Commonwealth of Massachusetts and is
authorized to issue an unlimited number of its shares of beneficial interest.
2. The Shares have been duly authorized and, when issued in accordance
with the Agreement, will be validly issued, fully paid and nonassessable by the
Fund.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that a notice of such
disclaimer be given in each note, bond, contract, instrument, certificate or
undertaking entered into or executed by the Trust or its Trustees. The Agreement
and Declaration of Trust provides for indemnification out of the property of the
Trust for all loss and expense of any shareholder of the Trust held personally
liable solely by reason of his being or having been a shareholder. Thus, the
risk of a shareholder's incurring financial loss on account of being a
shareholder is limited to circumstances in which the Trust itself would be
unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of the Shares for offering and sale pursuant to the Act. We consent
to the filing of this opinion with and as part of the Registration Statement.
Very truly yours,
Ropes & Gray
ANCHORAGE BELLEVUE BOISE CHARLOTTE HONOLULU LOS ANGELES PORTLAND RICHLAND
SAN FRANCISCO SEATTLE WASHINGTON, D.C. SHANGHAI
SUITE 2300 TEL (503) 241-2300
Direct (503) 1300 SW FIFTH AVENUE FAX (503) 778-5299
@dwt.com PORTLAND, OR 97201-5682 www.dwt.com
, 1998
- ------------------
Portland
LAWYERS
[GRAPHIC OMITTED]
Davis Wright Tremaine LLP
Re:
Dear Ladies and Gentlemen:
You have asked for our opinion regarding the federal income tax consequences of
the proposed transfer of all of the assets of Crabbe Huson Government Money
Market Fund ("Crabbe Huson Fund"), a series of Crabbe Huson Funds ("CHT"), in
exchange solely for Class [ ] shares of beneficial interest of Colonial Money
Market Fund ("Colonial Fund"), a series of the Colonial Trust III ("Colonial
Trust") (the "Reorganization").
Based upon our evaluation of the facts and law set forth in more detail below,
it is our opinion that the Reorganization will qualify as a reorganization under
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
"Code"). In rendering such opinion, we have relied upon the following documents:
1. Agreement and Plan of Reorganization dated as of , 1998,
by and among CHT and Colonial Trust , joined in for the sole purpose
of paragraph 1.5 thereof by The Colonial Group, Inc. and The Crabbe
Huson Group, Inc. (the "Agreement");
2. Joint Proxy Statement of the Crabbe Huson Government Fund and the
Crabbe Huson Money Market Fund dated , 1998; and
3. Registration Statement and items incorporated by reference therein.
Our opinion represents our best legal judgment as to the probable federal income
tax consequences of the transaction described herein, based upon existing law.
Our opinion is not intended to be a conclusive statement as to all of the tax
consequences of the transaction and is expressly limited to the matters
addressed, and we express no opinion as to tax consequences of the transaction
under any state or local laws. Further, our opinion is not binding upon the
Internal Revenue Service (the "IRS") or any court and has no official status of
any kind, and no private ruling regarding the matters discussed herein has been
or will be requested from the IRS.
FACTS
In rendering this opinion, we have assumed with your permission the following
facts:
CHT is a business trust duly organized, validly existing and in good
standing under the laws of the State of Delaware, and it has the power
to carry on its business as it is now being conducted. The authorized
capital of CHT consists of an unlimited number of shares of beneficial
interest without par value, of such number of different series or
classes as CHT's Board of Trustees may authorize from time to time,
eight series of which (including Crabbe Huson Fund) are currently
authorized and outstanding, each with only one class of shares. All
issued and outstanding shares of beneficial interest of Crabbe Huson
Fund are, and at the closing date set forth in the Agreement (the
"Closing Date") will be, duly and validly issued and outstanding, fully
paid and (except as set forth in Crabbe Huson Fund's Prospectus)
non-assessable by Crabbe Huson Fund and will have been issued in
compliance with all applicable registration or qualification
requirements of federal and state securities laws. No options, warrants
or other rights to subscribe for or purchase, or securities convertible
into or exchangeable for, any shares of beneficial interest of Crabbe
Huson Fund are outstanding, and none will be outstanding on the Closing
Date.
CHT is a duly registered investment company classified as a
management company of the open-end diversified type under the
Investment Company Act of 1940, as amended (the "1940 Act"), and Crabbe
Huson Fund is a separate series thereof, duly designated in accordance
with the applicable provisions of the Declaration of Trust of CHT and
the 1940 Act. Crabbe Huson Fund seeks to provide a high level of
current income and preserve capital while maintaining shareholder
liquidity. It pursues this objective by investing in short-term money
market instruments that are direct or indirect obligations of the
United States Government or its agencies or instrumentalities, and
repurchase agreements with respect to those obligations.
Colonial Trust is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and has the power to carry on its business as it is now
being conducted and currently proposed to be conducted. The authorized
capital of Colonial Trust consists of an unlimited number of shares of
beneficial interest, no par value, of such number of different series
as Colonial Trust's Board of Trustees may authorize from time to time,
[ ] series of which (including Colonial Fund) are currently authorized
and outstanding. The outstanding shares of beneficial interest in
Colonial Fund are, and at the Closing Date will be, divided into Class
A shares, Class B shares, Class C shares and Class [ ] shares, each
having the characteristics described in the prospectus and statement of
additional information referred to in paragraph 4.2(c) of the
Agreement. All issued and outstanding shares of beneficial interest of
Colonial Fund are, and at the Closing Date will be, duly and validly
issued and outstanding fully paid and non-assessable by Colonial Trust,
and will have been issued in compliance with all applicable
registration or qualification requirements of federal and state
securities laws. Except for Class B shares which convert to Class A
shares after the expiration of a period of time, no options, warrants
or other rights to subscribe for or purchase, or securities convertible
into or exchangeable for, any shares of beneficial interest in Colonial
Fund of any class are outstanding and none will be outstanding on the
Closing Date.
Colonial Trust is a duly registered investment company
classified as a management company of the open-end diversified type
under the 1940 Act, and Colonial Fund is a separate series thereof,
duly designated in accordance with the applicable provisions of the
Declaration of Trust of Colonial Trust and the 1940 Act. Colonial Fund
seeks maximum current income, consistent with safety of capital and
maintenance of liquidity, by investing exclusively in short-term money
market instruments. Colonial Fund is a feeder fund that seeks to
achieve its objectives by investing all of its assets in Stein Roe &
Farnham Cash Base Reserves Portfolio ("Master Fund"), a series of the
Stein Roe & Farnham Base Trust ("SR & F Base Trust"). SR & F Base Trust
is an open-end diversified management investment company which was
organized as a trust under the laws of the Commonwealth of
Massachusetts with the same objective as the Colonial Fund. Except for
certain separate expenses, Colonial Fund's investment experience will
correspond directly to that of the Master Fund. Colonial Fund's sole
assets are beneficial interests in the Master Fund ("Master Fund
Shares"). Colonial Fund has a less than eighty percent (80%) ownership
in the Master Fund and does not significantly participate in the
management of the Master Fund.
In early 1997, The Crabbe Huson Group, Inc. ("CHG") began examining
strategic business options relating to its investment advisory services
and the distribution of its mutual funds. Liberty Financial Companies,
Inc. ("Liberty") is a publicly traded diversified asset management
organization, with affiliates and subsidiaries across the county.
Liberty, through its affiliates, has developed extensive resources to
provide efficient management of fund operations, shareholder servicing,
legal support to mutual funds, and provide an effective platform for
promoting and increasing sales of mutual funds. Liberty seeks to
acquire brand name investment managers with reputations for expertise
in specific investment areas.
Pursuant to an Asset Acquisition Agreement entered into on
June 10, 1998 ("Acquisition Agreement"), The Colonial Group, Inc., a
subsidiary of Liberty ("Colonial Group"), will acquire all of the
assets of CHG ("Acquisition"). In related transactions, certain mutual
funds advised by CHG will be merged into existing mutual funds advised
by a member of Colonial Group, while others will be reorganized to
become part of existing business trusts advised by a member of Colonial
Group. From CHG's perspective, the Acquisition and related transactions
are designed to provide enhanced shareholder services to the
shareholders of the funds, and to improve distribution of the fund
shares, which is intended to increase the quantity of assets under
management and thereby reduce the expense borne by each shareholder
through economies of scale. The Acquisition should provide numerous
opportunities for synergy among CHG and Liberty's existing investment
managers. This Reorganization is one of the transactions related to the
Acquisition.
Under the terms of the Agreement, Crabbe Huson Fund will transfer to
Colonial Fund all of the assets of Crabbe Huson Fund (the "Assets"),
Colonial Fund will assume and pay the debts, obligations and
liabilities of Crabbe Huson Fund of every kind, except for the expenses
of the Reorganization, each as of the Closing Date, and Colonial Fund
will issue and deliver to Crabbe Huson Fund in exchange for the Assets
the number of Class [ ] shares of beneficial interest of Colonial Fund
(the "Colonial Shares") (including fractional shares, if any)
determined by dividing the net asset value of Crabbe Huson Fund by the
net asset value of one Colonial Share, each as of the Closing Date.
Consistent with its current investment practices as described in
paragraph B above, immediately after the transfer described in
paragraph D above, Colonial Fund will transfer all of the Assets to the
Master Fund in exchange for Master Fund Shares. The fair market value
of the Master Fund Shares received by the Colonial Fund will be
approximately equal to the fair market value of the Assets. After the
transfer of Assets to the Master Fund, Colonial Fund will continue to
have less than eighty percent (80%) ownership interest in the Master
Fund and will not actively participate in the management of the Master
Fund.
Colonial Fund will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market
value of the gross assets held by Crabbe Huson Fund immediately prior
to the Reorganization. For purposes of this representation, (a) amounts
paid by Crabbe Huson Fund, out of the assets of Crabbe Huson Fund, to
Crabbe Huson Shareholders in redemption of Crabbe Huson Shares, where
such redemptions, if any, appear to be initiated by Crabbe Huson Fund
Shareholders in connection with or as a result of the Agreement or
Reorganization, (b) amounts used by Crabbe Huson Fund to pay expenses
of the Reorganization, and (c) amounts used to effect all redemptions
and distributions (except for regular, normal dividends declared and
paid in order to ensure Crabbe Huson Fund's continued qualification as
a regulated investment company and to avoid fund-level tax (including
for this purpose any dividends referred to in paragraph L herein)) made
by Crabbe Huson Fund immediately preceding the transfer will be
included as assets of Crabbe Huson Fund immediately prior to the
Reorganization. For purposes of this representation, the amounts, if
any, that Colonial Fund pays after the Reorganization to holders of
beneficial interest of Colonial Fund ("Colonial Fund Shareholders") who
are former holders of beneficial interest of Crabbe Huson ("Crabbe
Huson Shareholders") in redemption of Colonial Fund Shares received in
exchange for Crabbe Huson Shares, where such redemptions, if any,
appear to be initiated by such shareholders in connection with or as a
result of the Agreement or Reorganization, will be considered to be
assets of Crabbe Huson Fund that were not transferred to Colonial Fund.
The fair market value of the Assets will equal or exceed the sum of
the liabilities to be assumed by Colonial Fund, including the amount of
liabilities, if any, to which the Assets are subject.
The liabilities of Crabbe Huson Fund to be assumed by Colonial Fund,
including the amount of liabilities, if any, to which the transferred
assets are subject, were incurred by Crabbe Huson Fund in the ordinary
course of its business and are associated with the Assets. For purposes
of this paragraph, expenses of the Reorganization are not treated as
liabilities.
All Colonial Shares received by Crabbe Huson Fund will be distributed
to the Crabbe Huson Shareholders pursuant to this Agreement. The fair
market value of the Colonial Shares received by each Crabbe Huson
Shareholder will be approximately equal to the fair market value of the
shares of the beneficial interest of Crabbe Huson Fund ("Crabbe Huson
Shares") surrendered in exchange therefor. The Crabbe Huson
Shareholders will receive no consideration other than Colonial Shares
(which may include fractional shares) in exchange for their Crabbe
Huson Shares.
The expenses of the Reorganization will be paid by Liberty, the parent
of Colonial Group which includes the adviser to the Colonial Fund.
Crabbe Huson Fund and Colonial Fund agree to pay the expenses
preliminarily allocated to them. All such fees and expenses incurred
and borne by Colonial Fund or Crabbe Huson Fund shall be solely and
directly related to the Reorganization and shall be paid directly by
Liberty, Crabbe Huson Fund or Colonial Fund, as the case may be, to the
relevant providers of services or other payees, in accordance with the
principles set forth in Revenue Ruling 73-54, 1973-1 C.B. 187. Crabbe
Huson Shareholders will be responsible for their expenses, if any,
incurred in connection with the Reorganization.
There is no plan or intention by any Crabbe Huson Fund Shareholder who
owns 5% or more of the total outstanding Crabbe Huson Fund Shares, and
to the best of the knowledge of the management of Crabbe Huson Fund,
there is no plan or intention on the part of the remaining Crabbe Huson
Fund Shareholders to sell, exchange, or otherwise dispose of a number
of Colonial Fund Shares received in the Reorganization that would
reduce Crabbe Huson Fund Shareholders' ownership of Colonial Fund
Shares to a number of Colonial Fund Shares having a value, as of the
date of the Reorganization, of less than fifty percent (50%) of the
value of all of the formerly outstanding Crabbe Huson Fund Shares as of
the same date. For purposes of this representation, Colonial Fund
Shares or Crabbe Huson Fund Shares surrendered by Crabbe Huson Fund
Shareholders in redemption or otherwise disposed of, where such
dispositions, if any appear to be initiated by Crabbe Huson Fund
Shareholders in connection with or as a result of the Agreement or the
Reorganization, will be treated as outstanding Crabbe Huson Fund Shares
on the date of the Reorganization. Moreover, Crabbe Huson Fund Shares
and Colonial Fund Shares held by Crabbe Huson Fund Shareholders and
otherwise sold, redeemed, or disposed of prior to or subsequent to the
Reorganization will be considered in making this representation.
For federal income tax purposes, Crabbe Huson Fund qualifies as a
regulated investment company, and the provisions of Code Sections 851
through 855 apply to Crabbe Huson Fund for its current taxable year
beginning [ ] and will continue to apply to it through the Closing
Date. Crabbe Huson will declare to Crabbe Huson Shareholders of record
on or prior to the Closing Date a dividend or dividends which together
with all previous such dividends shall have the effect of distributing
all of Crabbe Huson's "investment company taxable income", as that term
is defined in Code Section 852, (computed without regard to any
deduction for dividends paid) and all of Crabbe Huson Fund's net
realized capital gain (after reduction for any capital loss carryover)
in each case for both the taxable year ending [ ] and the short taxable
period beginning on [ ] and ending on the Closing Date. Such dividends
shall be made to ensure continued qualification of Crabbe Huson Fund as
a regulated investment company for tax purposes and to eliminate
fund-level tax.
For federal income tax purposes, Colonial Fund qualifies as a
regulated investment company, and the provisions of Code Sections 851
through 855 apply to Colonial Fund for its current taxable year
beginning [ ] and will continue to apply to it through the Closing
Date.
For federal income tax purposes, Master Fund qualifies as a
partnership.
There is no indebtedness existing between Crabbe Huson Fund and
Colonial Fund.
There is no plan or arrangement for Colonial Fund or any person
related thereto (within the meaning of Code ss.ss.707(b)(1) or 267(b),
without regard to Code ss.267(e)) to redeem or acquire any of the
Colonial Shares received by the Crabbe Huson Shareholders in the
Reorganization, and none of the Crabbe Huson Shares was redeemed or
acquired by Crabbe Huson Fund or a person related thereto in
contemplation of the Reorganization in each case, except for Colonial
Fund Shares reacquired in the ordinary course of its business as an
open-end investment company.
None of the compensation received by any Crabbe Huson Fund employee
who is also a Crabbe Huson Shareholder ("Crabbe Huson
Shareholder-Employee"), if any, will be separate consideration for, or
allocable to, any of their Crabbe Huson Shares; none of the Colonial
Shares received by any Crabbe Huson Shareholder-Employee will be
separate consideration for, or allocable to, any employment; and the
compensation paid to any Crabbe Huson Shareholder-Employee or Colonial
Fund employee who is also a Colonial Fund Shareholder ("Colonial Fund
Shareholder-Employee"), if any, will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
After the Reorganization, Colonial Fund, directly or indirectly by
holding interests in Master Fund, will continue Crabbe Huson Fund's
historic business as an open-end investment company that invests
substantially all of its assets in short-term money market instruments
including those that are direct or indirect obligations of the United
States Government or its agencies or instrumentalities. Colonial Fund
will continue Crabbe Huson's historic business by directly or
indirectly investing in short-term money market instruments, including
such government obligations. In addition, following the Reorganization,
Colonial Fund will use at least fifty percent (50%) of Crabbe Huson's
historic business assets in a business through Colonial Fund's
ownership of Master Fund Shares. Specifically, Colonial Fund will use
such portion of Crabbe Huson's historic business in its business by
continuing to hold or by transferring to Master Fund all of the Assets.
Accordingly, Colonial Fund will continue to hold historic business
assets of Crabbe Huson, directly or indirectly through its percentage
ownership in Master Fund, defined for purposes of this opinion as those
assets transferred to it on the Closing Date, which were either (a)
acquired by Crabbe Huson Fund prior to its management's decision to
propose to its trustees that it transfer any or all of its assets to
Colonial Fund, or (b) acquired subsequent to such decision but not with
a view to the Agreement or Reorganization, in an amount equal to at
least fifty percent (50%) of the assets in Crabbe Huson Fund's
portfolio held on the Closing Date, as increased by the amounts, if
any, that Crabbe Huson paid to its shareholders in redemption of its
shares, where such redemptions, if any appear to have been initiated by
such Shareholders in connection with or as a result of the Agreement or
Reorganization. In making this determination, dispositions made in the
ordinary course of Colonial Fund's business as an open-end investment
company (i.e., dispositions made in the ordinary course of business
independent of the Reorganization) shall not be taken into account.
Colonial Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Crabbe Huson
Shares.
Colonial Fund has no plan or intention to sell or otherwise dispose of
any of the Assets, except for (i) the transfer to the Master Fund
described in paragraphs E and R and (ii) dispositions made in the
ordinary course of its business as a series of open-end investment
company and independent of the Reorganization.
Crabbe Huson is not under the jurisdiction of a court in a Title 11 or
similar case withing the meaning of Code Section 368(a)(3)(A).
ANALYSIS OF THE TAX CONSEQUENCES OF THE REORGANIZATION
General Principles.
The Code sets forth several instances in which a corporate
acquisition, a "reorganization" in the Code's terms, is free from federal income
tax. These reorganizations typically include mergers, consolidations,
recapitalizations, and acquisitions by one corporation of the stock or assets of
another corporation. Generally, if the corporate readjustment qualifies as a
reorganization under the Code, the shareholders of a corporation that is
acquired by another corporation may exchange their stock of the target
corporation for stock of the acquiring corporation without recognizing gain or
loss on the transaction. A trust taxed as a corporation may avail itself of the
provisions of Code Section 368. Regulations ss.ss.301.7701-2(b)(7) & 1.852-1(b).
An acquisition of substantially all of a target corporation's assets
solely in exchange for an acquiring corporation's voting stock may qualify as a
reorganization under Section 368(a)(1)(C) of the Code (a "Type C
reorganization"). The IRS has privately ruled that "voting stock" includes
beneficial interests in an unincorporated business trust. Private Letter Ruling
8217079. "Substantially all" is generally interpreted as ninety percent (90%) of
the value of the net assets of the target corporation and seventy percent (70%)
of the value of the gross assets of the target corporation. The assumption of
the target corporation's liabilities is disregarded for purposes of determining
whether the exchange is solely of voting stock, so long as the acquiring
corporation exchanges no money or other property besides its voting stock. Code
ss. 368(a)(1)(C). Payment or assumption of the target corporation's valid
reorganization expenses will not violate the "solely for voting stock"
requirement. Revenue Ruling 73-54, 1973-1 CB 187.
The target corporation in a Type C reorganization must distribute to
its shareholders under the reorganization plan the stock, securities and other
property it receives in the reorganization. Code ss.368(a)(2)(G)(i). While there
is no specific time deadline for distribution, the distribution should take
place reasonably promptly and the target corporation should not engage in the
active conduct of a trade or business after the reorganization, except to the
extent necessary to wind up its affairs.
A reorganization involving two or more investment companies may
qualify for tax-free reorganization treatment if the investment companies are
"diversified investment companies." Code ss.368(a)(2)(F). An investment company
is a regulated investment company whose total assets meet certain investment
asset limitation tests. A diversified investment company is a company that meets
certain investment diversification tests.
Type C reorganization requirements.
A Type C reorganization must meet the following requirements in addition to
requirements under applicable state law. Failure to meet any requirement may
disqualify the reorganization and can result in income or gain recognition by
the target corporation and its shareholders.
Business purpose. The reorganization must be for a bona fide
business purpose. Section 1.368-1(c) of the Income Tax
Regulations ("Regulations"). We are of the opinion that the
Reorganization serves the genuine business purpose summarized
in Paragraph C, above.
Plan of Reorganization. There must be a plan of
reorganization. Code ss.354(a)(1). We are of the opinion that
the Agreement meets this requirement.
Continuity of Business Enterprise. A reorganization must
satisfy the "continuity of business" enterprise requirement of
Regulations ss.1.368-1(d). The acquiring corporation must
continue the target corporation's "historic business" or use a
significant portion of the target corporation's "historic
business assets" in another business. Regulations provide that
a partner will be treated as owning its proportionate share of
business assets used in a partnership. These regulations also
provide that a partner will be treated as conducting the
business of a partnership if such partner holds a significant
interest in such partnership or such partner has active and
substantial management functions as a partner with respect to
such partnership business. Even though we do not expect
Colonial Fund either to hold a significant interest or to have
an active and substantial management function with respect to
Master Fund, based upon the assumptions set forth in
paragraphs E and R above, we are of the opinion that the
Reorganization will satisfy the continuity of business
enterprise requirement.
Continuity of Proprietary Interest. In order for a
reorganization to be a nontaxable transaction, a substantial
part of the proprietary interest in the target corporation
must be preserved. In this case, since the consideration that
will be received by Crabbe Huson Shareholders will consist
solely of the Colonial Shares, and the level of pre- and
post-organization redemptions will be limited as described in
paragraph J, the "continuity of proprietary interest"
requirement set forth in Regulations ss.1.368-1(b) will be
satisfied.
Post-Acquisition Continuity of Interest. There is no
requirement that the shareholders of the target corporation
hold the stock of the acquiring corporation for a definite
period of time following the reorganization. Regulations
ss.1.368-1(e)(1). However, if the shareholders of the target
corporation sell the stock they receive in the reorganization
to a party related to the acquiring corporation, the sale may
be characterized as a redemption of the acquired corporation's
stock for purposes of the "continuity of interest" test. Based
on the factual assumption set forth in paragraphs I and K
above, we are of the opinion that the post-acquisition
"continuity of interest" requirement will be met.
Conclusions.
Based upon the forgoing, we conclude that, for federal income tax purposes:
The acquisition by Colonial Fund of the Assets and Colonial
Fund's assumption of the liabilities of Crabbe Huson Fund in
exchange for the Colonial Shares, followed by the distribution
by Crabbe Huson Fund of the Colonial Shares to the Crabbe
Huson Shareholders in exchange for the Crabbe Huson Shares
will constitute a reorganization within the meaning of Section
368(a) of the Code, and Crabbe Huson Fund and Colonial Fund
will each be a "party to a reorganization" within the meaning
of Section 368(b) of the Code.
No gain or loss will be recognized by Crabbe Huson Fund upon
its transfer of the Assets to Colonial Fund in exchange for
the Colonial Shares and the assumption by Colonial Fund of the
liabilities of Crabbe Huson Fund, or upon the distribution of
the Colonial Shares by Crabbe Huson Fund to the Crabbe Huson
Shareholders.
No gain or loss will be recognized by Colonial Fund upon its
receipt of the Assets and its assumption of the liabilities of
Crabbe Huson Fund in exchange for the Colonial Shares.
The income tax basis of Colonial Fund in the Assets acquired
by it will be the same as the income tax basis of Crabbe Huson
Fund in the Assets in the hands of Crabbe Huson Fund
immediately prior to the Reorganization, and the holding
periods of the Assets in the hands of Colonial Fund will
include the periods during which the Assets were held by
Crabbe Huson Fund.
The Crabbe Huson Shareholders will not recognize gain or loss
upon the exchange of all of the Crabbe Huson Shares for the
Colonial Shares.
The income tax basis of the Crabbe Huson Shareholders in the
Colonial Shares which will be received by them will be the
same as their respective income tax bases in the Crabbe Huson
Shares surrendered by them in exchange therefor, and the
holding periods of the Colonial Shares which will be received
by the Crabbe Huson Shareholders will include the periods
during which the Crabbe Huson Shares surrendered by them in
exchange therefor were held, provided such Crabbe Huson Shares
were held as capital assets on the date of the exchange.
The opinions set forth in this letter are based on the provisions of the Code,
Treasury Regulations promulgated under the Code, the published revenue rulings
and revenue procedures of the IRS, private letter rulings, existing court
decisions and other authorities available as of the date of this letter. Future
legislative or administrative changes or court decisions may significantly
modify the opinions set forth above.
We hereby consent to the filing of this opinion letter with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
references to us in the Joint Proxy Statement. In giving such consent, we do not
hereby admit that we are in the category of person whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
Davis Wright Tremaine LLP
ANCHORAGE BELLEVUE BOISE CHARLOTTE HONOLULU LOS ANGELES PORTLAND RICHLAND
SAN FRANCISCO SEATTLE WASHINGTON, D.C. SHANGHAI
SUITE 2300 TEL (503) 241-2300
Direct (503) 1300 SW FIFTH AVENUE FAX (503) 778-5299
@dwt.com PORTLAND, OR 97201-5682 www.dwt.com
, 1998
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Portland
LAWYERS
[GRAPHIC OMITTED]
Davis Wright Tremaine LLP
Re:
Dear Ladies and Gentlemen:
You have asked for our opinion regarding the federal income tax consequences of
the proposed transfer of all of the assets of Crabbe Huson Government Fund
("Crabbe Huson Fund"), a series of Crabbe Huson Funds ("CHT"), in exchange
solely for Class [ ] shares of beneficial interest of Colonial Short Duration
U.S. Government Fund ("Colonial Fund"), a series of the Colonial Trust III
("Colonial Trust") (the "Reorganization").
Based upon our evaluation of the facts and law set forth in more detail below,
it is our opinion that the Reorganization will qualify as a reorganization under
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
"Code"). In rendering such opinion, we have relied upon the following documents:
1. Agreement and Plan of Reorganization dated as of , 1998,
by and among CHT and Colonial Trust , joined in for the sole purpose
of paragraph 1.5 thereof by The Colonial Group, Inc. and
The Crabbe Huson Group, Inc. (the "Agreement");
2. Joint Proxy Statement of the Crabbe Huson Government Fund and the
Crabbe Huson Money Market Fund dated , 1998; and
3. Registration Statement and items incorporated by reference therein.
Our opinion represents our best legal judgment as to the probable federal income
tax consequences of the transaction described herein, based upon existing law.
Our opinion is not intended to be a conclusive statement as to all of the tax
consequences of the transaction and is expressly limited to the matters
addressed, and we express no opinion as to tax consequences of the transaction
under any state or local laws. Further, our opinion is not binding upon the
Internal Revenue Service (the "IRS") or any court and has no official status of
any kind, and no private ruling regarding the matters discussed herein has been
or will be requested from the IRS.
FACTS
In rendering this opinion, we have assumed with your permission the following
facts:
CHT is a business trust duly organized, validly existing and in good
standing under the laws of the State of Delaware, and it has the power
to carry on its business as it is now being conducted. The authorized
capital of CHT consists of an unlimited number of shares of beneficial
interest without par value, of such number of different series or
classes as CHT's Board of Trustees may authorize from time to time,
eight series of which (including Crabbe Huson Fund) are currently
authorized and outstanding, each with only one class of shares. All
issued and outstanding shares of beneficial interest of Crabbe Huson
Fund are, and at the closing date set forth in the Agreement (the
"Closing Date") will be, duly and validly issued and outstanding, fully
paid and (except as set forth in Crabbe Huson Fund's Prospectus)
non-assessable by Crabbe Huson Fund and will have been issued in
compliance with all applicable registration or qualification
requirements of federal and state securities laws. No options, warrants
or other rights to subscribe for or purchase, or securities convertible
into or exchangeable for, any shares of beneficial interest of Crabbe
Huson Fund are outstanding, and none will be outstanding on the Closing
Date.
CHT is a duly registered investment company classified as a
management company of the open-end diversified type under the
Investment Company Act of 1940, as amended (the "1940 Act"), and Crabbe
Huson Fund is a separate series thereof, duly designated in accordance
with the applicable provisions of the Declaration of Trust of CHT and
the 1940 Act. Crabbe Huson Fund seeks to provide a high level of
current income while preserving investment capital. It pursues this
objective by investing substantially all of its assets in short-term
and intermediate-term debt obligations of the United States Government
and its agencies or instrumentalities.
Colonial Trust is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and has the power to carry on its business as it is now
being conducted and currently proposed to be conducted. The authorized
capital of Colonial Trust consists of an unlimited number of shares of
beneficial interest, no par value, of such number of different series
as Colonial Trust's Board of Trustees may authorize from time to time,
[ ] series of which (including Colonial Fund) are currently authorized
and outstanding. The outstanding shares of beneficial interest in
Colonial Fund are, and at the Closing Date will be, divided into Class
A shares, Class B shares, Class C shares and Class [ ] shares, each
having the characteristics described in the prospectus and statement of
additional information referred to in paragraph 4.2(c) of the
Agreement. All issued and outstanding shares of beneficial interest of
Colonial Fund are, and at the Closing Date will be, duly and validly
issued and outstanding fully paid and non-assessable by Colonial Trust,
and will have been issued in compliance with all applicable
registration or qualification requirements of federal and state
securities laws. Except for Class B shares which convert to Class A
shares after the expiration of a period of time, no options, warrants
or other rights to subscribe for or purchase, or securities convertible
into or exchangeable for, any shares of beneficial interest in Colonial
Fund of any class are outstanding and none will be outstanding on the
Closing Date.
Colonial Trust is a duly registered investment company
classified as a management company of the open-end diversified type
under the 1940 Act, and Colonial Fund is a separate series thereof,
duly designated in accordance with the applicable provisions of the
Declaration of Trust of Colonial Trust and the 1940 Act. Colonial Fund
seeks as high a level of current income as is consistent with very low
volatility by investing primarily in U.S. Government securities and
maintaining a weighted average portfolio duration of three (3) years or
less. Colonial Fund meets the needs of an investor with a short
investment horizon by looking for relative value within the Treasury,
agency and mortgage-backed markets while maintaining a low risk
profile.
In early 1997, The Crabbe Huson Group, Inc. ("CHG") began examining
strategic business options relating to its investment advisory services
and the distribution of its mutual funds. Liberty Financial Companies,
Inc. ("Liberty") is a publicly traded diversified asset management
organization, with affiliates and subsidiaries across the county.
Liberty, through its affiliates, has developed extensive resources to
provide efficient management of fund operations, shareholder servicing,
legal support to mutual funds, and provide an effective platform for
promoting and increasing sales of mutual funds. Liberty seeks to
acquire brand name investment managers with reputations for expertise
in specific investment areas.
Pursuant to an Asset Acquisition Agreement entered into on
June 10, 1998 ("Acquisition Agreement"), The Colonial Group, Inc., a
subsidiary of Liberty ("Colonial Group"), will acquire all of the
assets of CHG ("Acquisition"). In related transactions, certain mutual
funds advised by CHG will be merged into existing mutual funds advised
by a member of Colonial Group, while others will be reorganized to
become part of existing business trusts advised by a member of Colonial
Group. From CHG's perspective, the Acquisition and related transactions
are designed to provide enhanced shareholder services to the
shareholders of the funds, and to improve distribution of the fund
shares, which is intended to increase the quantity of assets under
management and thereby reduce the expense borne by each shareholder
through economies of scale. The Acquisition should provide numerous
opportunities for synergy among CHG and Liberty's existing investment
managers. This Reorganization is one of the transactions related to the
Acquisition.
Under the terms of the Agreement, Crabbe Huson Fund will transfer to
Colonial Fund all of the assets of Crabbe Huson Fund (the "Assets"),
Colonial Fund will assume and pay the debts, obligations and
liabilities of Crabbe Huson Fund of every kind, except for the expenses
of the Reorganization, each as of the Closing Date, and Colonial Fund
will issue and deliver to Crabbe Huson Fund in exchange for the Assets
the number of Class [ ] shares of beneficial interest of Colonial Fund
(the "Colonial Shares") (including fractional shares, if any)
determined by dividing the net asset value of Crabbe Huson Fund by the
net asset value of one Colonial Share, each as of the Closing Date.
Colonial Fund will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market
value of the gross assets held by Crabbe Huson Fund immediately prior
to the Reorganization. For purposes of this representation, (a) amounts
paid by Crabbe Huson Fund, out of the assets of Crabbe Huson Fund, to
Crabbe Huson Shareholders in redemption of Crabbe Huson Shares, where
such redemptions, if any, appear to be initiated by Crabbe Huson Fund
Shareholders in connection with or as a result of the Agreement or
Reorganization, (b) amounts used by Crabbe Huson Fund to pay expenses
of the Reorganization, and (c) amounts used to effect all redemptions
and distributions (except for regular, normal dividends declared and
paid in order to ensure Crabbe Huson Fund's continued qualification as
a regulated investment company and to avoid fund-level tax (including
for this purpose any dividends referred to in paragraph K herein)) made
by Crabbe Huson Fund immediately preceding the transfer will be
included as assets of Crabbe Huson Fund immediately prior to the
Reorganization. For purposes of this representation, the amounts, if
any, that Colonial Fund pays after the Reorganization to holders of
beneficial interest of Colonial Fund ("Colonial Fund Shareholders") who
are former holders of beneficial interest of Crabbe Huson ("Crabbe
Huson Shareholders") in redemption of Colonial Fund Shares received in
exchange for Crabbe Huson Shares, where such redemptions, if any,
appear to be initiated by such shareholders in connection with or as a
result of the Agreement or Reorganization, will be considered to be
assets of Crabbe Huson Fund that were not transferred to Colonial Fund.
The fair market value of the Assets will equal or exceed the sum of
the liabilities to be assumed by Colonial Fund, including the amount of
liabilities, if any, to which the Assets are subject.
The liabilities of Crabbe Huson Fund to be assumed by Colonial Fund,
including the amount of liabilities, if any, to which the transferred
assets are subject, were incurred by Crabbe Huson Fund in the ordinary
course of its business and are associated with the Assets. For purposes
of this paragraph, expenses of the Reorganization are not treated as
liabilities.
All Colonial Shares received by Crabbe Huson Fund will be distributed
to the Crabbe Huson Shareholders pursuant to the Agreement. The fair
market value of the Colonial Shares received by each Crabbe Huson
Shareholder will be approximately equal to the fair market value of the
Crabbe Huson Shares surrendered in exchange therefor. The Crabbe Huson
Shareholders will receive no consideration other than Colonial Shares
(which may include fractional shares) in exchange for their Crabbe
Huson Shares.
The expenses of the Reorganization will be paid by Liberty, the parent
of Colonial Group which includes the adviser to the Colonial Fund.
Crabbe Huson Fund and Colonial Fund agree to pay the expenses
preliminarily allocated to them. All such fees and expenses incurred
and borne by Colonial Fund or Crabbe Huson Fund shall be solely and
directly related to the Reorganization and shall be paid directly by
Liberty, Crabbe Huson Fund or Colonial Fund, as the case may be, to the
relevant providers of services or other payees, in accordance with the
principles set forth in Revenue Ruling 73-54, 1973-1 C.B. 187. Crabbe
Huson Shareholders will be responsible for their expenses, if any,
incurred in connection with the Reorganization.
There is no plan or intention by any Crabbe Huson Fund Shareholder who
owns 5% or more of the total outstanding Crabbe Huson Fund Shares, and
to the best of the knowledge of the management of Crabbe Huson Fund,
there is no plan or intention on the part of the remaining Crabbe Huson
Fund Shareholders to sell, exchange, or otherwise dispose of a number
of Colonial Fund Shares received in the Reorganization that would
reduce Crabbe Huson Fund Shareholders' ownership of Colonial Fund
Shares to a number of Colonial Fund Shares having a value, as of the
date of the Reorganization, of less than fifty percent (50%) of the
value of all of the formerly outstanding Crabbe Huson Fund Shares as of
the same date. For purposes of this representation, Colonial Fund
Shares or Crabbe Huson Fund Shares surrendered by Crabbe Huson Fund
Shareholders in redemption or otherwise disposed of, where such
dispositions, if any, appear to be initiated by Crabbe Huson Fund
Shareholders in connection with or as a result of the Agreement or the
Reorganization, will be treated as outstanding Crabbe Huson Fund Shares
on the date of the Reorganization. Moreover, Crabbe Huson Fund Shares
and Colonial Fund Shares held by Crabbe Huson Fund Shareholders and
otherwise sold, redeemed, or disposed of prior to or subsequent to the
Reorganization will be considered in making this representation.
For federal income tax purposes, Crabbe Huson Fund qualifies as a
regulated investment company, and the provisions of Code Sections 851
through 855 apply to Crabbe Huson Fund for its current taxable year
beginning [ ] and will continue to apply to it through the Closing
Date. Crabbe Huson will declare to Crabbe Huson Shareholders of record
on or prior to the Closing Date a dividend or dividends which together
with all previous such dividends shall have the effect of distributing
all of Crabbe Huson's "investment company taxable income", as that term
is defined in Code Section 852, (computed without regard to any
deduction for dividends paid) and all of Crabbe Huson Fund's net
realized capital gain (after reduction for any capital loss carryover)
in each case for both the taxable year ending [ ] and the short taxable
period beginning on [ ] and ending on the Closing Date. Such dividends
shall be made to ensure continued qualification of Crabbe Huson Fund as
a regulated investment company for tax purposes and to eliminate
fund-level tax.
For federal income tax purposes, Colonial Fund qualifies as a
regulated investment company, and the provisions of Code Sections 851
through 855 apply to Colonial Fund for its current taxable year
beginning [ ] and will continue to apply to it through the Closing
Date.
There is no indebtedness existing between Crabbe Huson Fund and
Colonial Fund.
There is no plan or arrangement for Colonial Fund or any person
related thereto (within the meaning of Code ss.ss.707(b)(1) or 267(b),
without regard to Code ss.267(e)) to redeem or acquire any of the
Colonial Shares received by the Crabbe Huson Shareholders in the
Reorganization, and none of the Crabbe Huson Shares was redeemed or
acquired by Crabbe Huson Fund or a person related thereto in
contemplation of the Reorganization in each case, except for Colonial
Fund Shares reacquired in the ordinary course of its business as an
open-end investment company.
None of the compensation received by any Crabbe Huson Fund employee
who is also a Crabbe Huson Shareholder ("Crabbe Huson
Shareholder-Employee"), if any, will be separate consideration for, or
allocable to, any of their Crabbe Huson Shares; none of the Colonial
Shares received by any Crabbe Huson Shareholder-Employee will be
separate consideration for, or allocable to, any employment; and the
compensation paid to any Crabbe Huson Shareholder-Employee or Colonial
Fund employee who is also a Colonial Fund Shareholder ("Colonial Fund
Shareholder-Employee"), if any, will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
After the Reorganization, Colonial Fund will continue Crabbe Huson
Fund's historic business as an open-end investment company that invests
substantially all of its assets in short-term or intermediate-term debt
obligations of the United States Government. In addition, following the
Reorganization, Colonial Fund will continue to use at least fifty
percent (50%) of Crabbe Huson's historic business assets in a business
conducted by Colonial Fund. Specifically, Colonial Fund will use such
portion of Crabbe Huson Fund's historic business assets in its business
by continuing to hold at least fifty percent (50%) of the total assets
transferred to it by Crabbe Huson Fund. That is, Colonial Fund will
continue to hold historic business assets of Crabbe Huson Fund, defined
for purposes of this opinion as those assets transferred to it on the
Closing Date, which were either (a) acquired by Crabbe Huson Fund prior
to its management's decision to propose to its trustees that it
transfer any or all of its assets to Colonial Fund, or (b) acquired
subsequent to such decision but not with a view to the Agreement or the
Reorganization, in an amount equal to at least fifty percent (50%) of
the assets in Crabbe Huson Fund's portfolio held on the Closing Date,
as increased by the amounts, if any, that Crabbe Huson paid to its
shareholders in redemption of its shares, where such redemptions, if
any appear to have been initiated by such Shareholders in connection
with or as a result of the Agreement or Reorganization. In making this
determination, dispositions made in the ordinary course of Colonial
Fund's business as an open-end investment company (i.e., dispositions
made in the ordinary course of business and independent of the
Reorganization) shall not be taken into account.
Colonial Fund does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any Crabbe Huson
Shares.
Colonial Fund has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course
of its business as a series of open-end investment company and
independent of the Reorganization.
Crabbe Huson is not under the jurisdiction of a court in a Title 11 or
similar case withing the meaning of Code Section 368(a)(3)(A).
ANALYSIS OF THE TAX CONSEQUENCES OF THE REORGANIZATION
General Principles.
The Code sets forth several instances in which a corporate
acquisition, a "reorganization" in the Code's terms, is free from federal income
tax. These reorganizations typically include mergers, consolidations,
recapitalizations, and acquisitions by one corporation of the stock or assets of
another corporation. Generally, if the corporate readjustment qualifies as a
reorganization under the Code, the shareholders of a corporation that is
acquired by another corporation may exchange their stock of the target
corporation for stock of the acquiring corporation without recognizing gain or
loss on the transaction. A trust taxed as a corporation may avail itself of the
provisions of Code Section 368. Regulations ss.ss.301.7701-2(b)(7) & 1.852-1(b).
An acquisition of substantially all of a target corporation's assets
solely in exchange for an acquiring corporation's voting stock may qualify as a
reorganization under Section 368(a)(1)(C) of the Code (a "Type C
reorganization"). The IRS has privately ruled that "voting stock" includes
beneficial interests in an unincorporated business trust. Private Letter Ruling
8217079. "Substantially all" is generally interpreted as ninety percent (90%) of
the value of the net assets of the target corporation and seventy percent (70%)
of the value of the gross assets of the target corporation. The assumption of
the target corporation's liabilities is disregarded for purposes of determining
whether the exchange is solely of voting stock, so long as the acquiring
corporation exchanges no money or other property besides its voting stock. Code
ss. 368(a)(1)(C). Payment or assumption of the target corporation's valid
reorganization expenses will not violate the "solely for voting stock"
requirement. Revenue Ruling 73-54, 1973-1 CB 187.
The target corporation in a Type C reorganization must distribute to
its shareholders under the reorganization plan the stock, securities and other
property it receives in the reorganization. Code ss.368(a)(2)(G)(i). While there
is no specific time deadline for distribution, the distribution should take
place reasonably promptly and the target corporation should not engage in the
active conduct of a trade or business after the reorganization, except to the
extent necessary to wind up its affairs.
A reorganization involving two or more investment companies may
qualify for tax-free reorganization treatment if the investment companies are
"diversified investment companies." Code ss.368(a)(2)(F). An investment company
is a regulated investment company whose total assets meet certain investment
asset limitation tests. A diversified investment company is a company that meets
certain investment diversification tests.
Type C reorganization requirements.
A Type C reorganization must meet the following requirements in addition to
requirements under applicable state law. Failure to meet any requirement may
disqualify the reorganization and can result in income or gain recognition by
the target corporation and its shareholders.
Business purpose. The reorganization must be for a bona fide
business purpose. Section 1.368-1(c) of the Income Tax
Regulations ("Regulations"). We are of the opinion that the
Reorganization serves the genuine business purpose summarized
in Paragraph C, above.
Plan of Reorganization. There must be a plan of
reorganization. Code ss.354(a)(1). We are of the opinion that
the Agreement meets this requirement.
Continuity of Business Enterprise. A reorganization must
satisfy the "continuity of business" enterprise requirement of
Regulations ss.1.368-1(d). The acquiring corporation must
continue the target corporation's "historic business" or use a
significant portion of the target corporation's "historic
business assets" in another business. Based upon the
assumptions set forth in paragraph P above, we are of the
opinion that the Reorganization will satisfy the continuity of
business enterprise requirement.
Continuity of Proprietary Interest. In order for a
reorganization to be a nontaxable transaction, a substantial
part of the proprietary interest in the target corporation
must be preserved. In this case, since the consideration that
will be received by Crabbe Huson Shareholders will consist
solely of the Colonial Shares, and the level of pre- and
post-reorganization redemptions will be limited as described
in paragraph J, the "continuity of proprietary interest"
requirement set forth in Regulations ss.1.368-1(b) will be
satisfied.
Post-Acquisition Continuity of Interest. There is no
requirement that the shareholders of the target corporation
hold the stock of the acquiring corporation for a definite
period of time following the reorganization. Regulations
ss.1.368-1(e)(1). However, if the shareholders of the target
corporation sell the stock they receive in the reorganization
to a party related to the acquiring corporation, the sale may
be characterized as a redemption of the acquired corporation's
stock for purposes of the "continuity of interest" test. Based
on the factual assumption set forth in paragraphs H and J
above, we are of the opinion that the post-acquisition
"continuity of interest" requirement will be met.
Conclusions.
Based upon the forgoing, we conclude that, for federal income tax purposes:
The acquisition by Colonial Fund of the Assets and Colonial
Fund's assumption of the liabilities of Crabbe Huson Fund in
exchange for the Colonial Shares, followed by the distribution
by Crabbe Huson Fund of the Colonial Shares to the Crabbe
Huson Shareholders in exchange for the Crabbe Huson Shares
will constitute a reorganization within the meaning of Section
368(a) of the Code, and Crabbe Huson Fund and Colonial Fund
will each be a "party to a reorganization" within the meaning
of Section 368(b) of the Code.
No gain or loss will be recognized by Crabbe Huson Fund upon
its transfer of the Assets to Colonial Fund in exchange for
the Colonial Shares and the assumption by Colonial Fund of the
liabilities of Crabbe Huson Fund, or upon the distribution of
the Colonial Shares by Crabbe Huson Fund to the Crabbe Huson
Shareholders.
No gain or loss will be recognized by Colonial Fund upon its
receipt of the Assets and its assumption of the liabilities of
Crabbe Huson Fund in exchange for the Colonial Shares.
The income tax basis of Colonial Fund in the Assets acquired
by it will be the same as the income tax basis of Crabbe Huson
Fund in the Assets in the hands of Crabbe Huson Fund
immediately prior to the Reorganization, and the holding
periods of the Assets in the hands of Colonial Fund will
include the periods during which the Assets were held by
Crabbe Huson Fund.
The Crabbe Huson Shareholders will not recognize gain or loss
upon the exchange of all of the Crabbe Huson Shares for the
Colonial Shares.
The income tax basis of the Crabbe Huson Shareholders in the
Colonial Shares which will be received by them will be the
same as their respective income tax bases in the Crabbe Huson
Shares surrendered by them in exchange therefor, and the
holding periods of the Colonial Shares which will be received
by the Crabbe Huson Shareholders will include the periods
during which the Crabbe Huson Shares surrendered by them in
exchange therefor were held, provided such Crabbe Huson Shares
were held as capital assets on the date of the exchange.
The opinions set forth in this letter are based on the provisions of Code,
Treasury Regulations promulgated under the Code, the published revenue rulings
and revenue procedures of the IRS, private letter rulings, existing court
decisions and other authorities available as of the date of this letter. Future
legislative or administrative changes or court decisions may significantly
modify the opinions set forth above.
We hereby consent to the filing of this opinion letter with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
references to us in the Joint Proxy Statement. In giving such consent, we do not
hereby admit that we are in the category of person whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
Davis Wright Tremaine LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this registration statement on Form
N-14 (the "Registration Statement") of our reports dated October 13, 1997
relating to the financial statements and financial highlights appearing in the
August 31, 1997 Annual Reports to Shareholders of Colonial Government Money
Market Fund and Colonial Short Duration U.S. Government Fund, each a series of
Colonial Trust II, which are incorporated by reference into the Registration
Statement. We also consent to the reference to us under the heading "The Trust's
Independent Accountants" in the Joint Proxy Statement, which also constitutes
part of this Registration Statement.
PricewaterhouseCoopers LLP
Boston, MA
August 3, 1998
Independent Auditors' Consent
-----------------------------
The Board of Directors
The Crabbe Huson Special Fund, Inc.
The Board of Trustees
Crabbe Huson Funds
We consent to the incorporation herein by reference of our report dated December
3, 1997 relating to the financial statements and financial highlights of The
Crabbe Huson Special Fund, Inc. and The Crabbe Huson Funds (comprised of Crabbe
Huson Small Cap Fund, Crabbe Huson Real Estate Investment Fund, Crabbe Huson
Equity Fund, Crabbe Huson Asset Allocation Fund, Crabbe Huson Oregon Tax-Free
Fund, Crabbe Huson Income Fund, Crabbe Huson U.S. Government Income Fund and
Crabbe Huson U.S. Government Money Market Fund) as of October 31, 1997 and for
the periods indicated therein. We also consent to the references to our firm
under the headings "The Fund's Financial History" in the Joint Proxy Statement.
KPMG Peat Marwick LLP
San Francisco, California
July 31, 1998
PROXY PROXY
THE CRABBE HUSON U.S. GOVERNMENT INCOME FUND
(the "Fund")
Joint Special Meeting
September 30, 1998
at 3:00 p.m., Pacific Time
The Benson Hotel, 309 S.W. Broadway
Portland, Oregon 97205
The undersigned shareholder hereby appoints Richard S. Huson and Craig
P. Stuvland, or either of them, proxies for the undersigned to vote on behalf of
the shareholder at the joint special meeting of the shareholders of the Crabbe
Huson U.S. Government Income Fund and the Crabbe Huson U.S. Government Money
Market Fund, and any adjournment thereof, to be held at 3:00 p.m., Pacific Time,
September 30, 1998, The Benson Hotel, 309 S.W. Broadway, Portland, Oregon 97205,
on the proposals described in the Notice of Joint Special Meeting of
Shareholders and the accompanying Joint Proxy Statement for said meeting.
(1) To approve or disapprove an Agreement and Plan of Reorganization for
the Fund, pursuant to which (i) all of the assets and liabilities of
the Fund would be transferred to the Colonial Short Duration U.S.
Government Fund, a series of the Colonial Trust II, a Massachusetts
business trust (the "Trust"); (ii) the Fund would receive an amount of
shares in the Trust equal in net asset value to the net asset value of
the Fund; (iii) the Fund would liquidate and distribute the shares
received from the Trust to its shareholders on a pro rata basis; and
(iv) the Fund would then be dissolved.
FOR [ ] AGAINST [ ] WITHHOLD [ ]
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED
The Proxy is solicited by the Board of Trustees of the Fund and will be
voted as specified. Unless otherwise specified in the squares provided, the
undersigned's vote is to be cast FOR Proposal No. 1. Discretionary authority is
hereby granted as to any other matters that may come before the meeting.
Management knows of no other matters to be considered by the Shareholders.
x_______________________________________
x_______________________________________
Sign here as name(s) appear at left.
Date __________________________, 199__
<PAGE>
PROXY PROXY
THE CRABBE HUSON U.S. GOVERNMENT MONEY MARKET FUND
(the "Fund")
Joint Special Meeting
September 30, 1998
at 3:00 p.m., Pacific Time
The Benson Hotel, 309 S.W. Broadway
Portland, Oregon 97205
The undersigned shareholder hereby appoints Richard S. Huson and Craig
P. Stuvland, or either of them, proxies for the undersigned to vote on behalf of
the shareholder at the joint special meeting of the shareholders of the Crabbe
Huson U.S. Government Income Fund and the Crabbe Huson U.S. Government Money
Market Fund, and any adjournment thereof, to be held at 3:00 p.m., Pacific Time,
September 30, 1998, The Benson Hotel, 309 S.W. Broadway, Portland, Oregon 97205,
on the proposals described in the Notice of Joint Special Meeting of
Shareholders and the accompanying Joint Proxy Statement for said meeting.
(1) To approve or disapprove an Agreement and Plan of Reorganization for
the Fund, pursuant to which (i) all of the assets and liabilities of
the Fund would be transferred to the Colonial Money Market Fund, a
series of the Colonial Trust II, a Massachusetts business trust (the
"Trust"); (ii) the Fund would receive an amount of shares in the Trust
equal in net asset value to the net asset value of the Fund; (iii) the
Fund would liquidate and distribute the shares received from the Trust
to its shareholders on a pro rata basis; and (iv) the Fund would then
be dissolved.
FOR [ ] AGAINST [ ] WITHHOLD [ ]
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED
The Proxy is solicited by the Board of Trustees of the Fund and will be
voted as specified. Unless otherwise specified in the squares provided, the
undersigned's vote is to be cast FOR Proposal No. 1. Discretionary authority is
hereby granted as to any other matters that may come before the meeting.
Management knows of no other matters to be considered by the Shareholders.
x_______________________________________
x_______________________________________
Sign here as name(s) appear at left.
Date __________________________, 199__
