COLONIAL GOVERNMENT MONEY MARKET FUND
This Proxy is Solicited on Behalf of the Trustees
PROXY
The undersigned shareholder hereby appoints Harold W. Cogger,
Michael H. Koonce, Nancy L. Conlin and William J. Ballou, each of
them, proxies of the undersigned, with power of substitution, to
vote at the Special Meeting of Shareholders of Colonial Government
Money Market Fund, to be held at Boston, Massachusetts, on Friday,
February 27, 1998 and at any adjournments, as follows on the
reverse side:
CONTINUED AND TO BE SIGNED ON REVERSE SIDE /SEE REVERSE SIDE/
/X/ Please mark votes as in this example.
This proxy when properly executed will be voted in the manner
directed herein and, absent direction, will be voted FOR Item 1
below. This proxy will be voted in accordance with the holder's
best judgment as to any other matter.
The Board of Trustees recommends a vote FOR the following Item:
THE CONVERSION OF THE FUND TO THE MASTER FUND/FEEDER FUND
STRUCTURE WITH NEW FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT
POLICIES. (Item 1 of the Notice)
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign exactly as name
or names appear hereon. Joint
owners should each sign
personally. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.
Signature-------------------
Date------------------
Signature-------------------
Date------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
COLONIAL GOVERNMENT MONEY MARKET FUND
One Financial Center, Boston, Massachusetts 02111
January 12, 1998
Dear Shareholder:
A Special Meeting of Shareholders (Meeting) of Colonial Government Money
Market Fund (Fund) will be held at 10:00 a.m. Eastern Time on February 27, 1998,
at the offices of Colonial Management Associates, Inc. (Colonial). Formal notice
of the Meeting appears on the next page, followed by the proxy statement. We
hope that you can attend the Meeting in person; however, we urge you in any
event to vote your shares by completing and returning the enclosed proxy card in
the envelope provided at your earliest convenience.
At the Meeting you will be asked to vote on the conversion of the Fund to
what is known as a master fund/feeder fund structure. As proposed, your Fund
(Feeder Fund) would pursue its objective by investing exclusively in the SR&F
Cash Reserves Portfolio (Portfolio), a money market mutual fund advised by Stein
Roe & Farnham Incorporated which is described in more detail under Proposal I.
You will incur no charges, fees or federal tax liability as a result of this
conversion. Your account number and checkwriting checks along with other Fund
services and privileges will remain the same and the Fund will continue to be
supervised by your Fund's Trustees.
This proposal has been carefully reviewed and approved by your Fund's
Trustees. Under this new structure, we believe that the Fund may benefit from
greater economies of scale as a result of its participation in a much larger
pool of assets. After carefully considering the proposal, your Fund's Trustees
recommend that you vote FOR the proposal.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
VOTE BY COMPLETING, DATING AND SIGNING THE ENCLOSED PROXY CARD. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE. IT
IS IMPORTANT THAT YOU VOTE AND THAT YOUR VOTE BE RECEIVED NO LATER THAN FEBRUARY
26, 1998.
Colonial is using Shareholder Communications Corporation (SCC), a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the Meeting approaches, if we have not yet received your
proxy card, you may receive a telephone call from SCC reminding you to exercise
your right to vote.
(continued)
<PAGE>
Please take a few moments to review the details of the proposal and return
your proxy at your earliest convenience. If you have any questions regarding the
proxy, please feel free to call Colonial Investors Service Center, Inc. at
1-800-345-6611. Our hearing impaired shareholders may call 1-800-528-6979 if you
have special TTD equipment.
We appreciate your participation and prompt response in this matter, and
thank you for your continued support.
Sincerely,
Harold W. Cogger
President
MM-85/550E-0198
2
<PAGE>
COLONIAL GOVERNMENT MONEY MARKET FUND
One Financial Center, Boston, Massachusetts 02111
(617) 426-3750
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1998
Dear Shareholder:
A Special Meeting (Meeting) of Shareholders of Colonial Government Money
Market Fund (Fund) will be held at the offices of Colonial Management
Associates, Inc. (Colonial), One Financial Center, Boston, Massachusetts,
02111-2621, on Friday, February 27, 1998, at 10:00 a.m. Eastern Time to:
I. Approve or disapprove the conversion of the Fund to the master
fund/feeder fund structure with new fundamental and
non-fundamental investment policies; and
II. Transact such other business as may properly come before the
Meeting or any adjournment thereof.
By order of the Trustees,
Michael H. Koonce, Secretary
January 12, 1998
NOTICE: YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE VOTE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
IMMEDIATELY.
3
<PAGE>
PROXY STATEMENT
January 12, 1998
General Information
The enclosed proxy, which was first mailed on or about January 12, 1998,
is solicited by the Board of Trustees of the Fund in connection with the Meeting
of the Fund's shareholders scheduled to be held at 10:00 a.m. Eastern Time,
Friday, February 27, 1998, for the purposes described in the accompanying
Notice. The purpose of this Proxy Statement is to provide you with additional
information regarding the proposal to be voted on at the Meeting and to request
your proxy to vote in favor of the proposal. By properly completing and
returning the enclosed proxy card, you will authorize the individuals named on
the card to vote your Fund shares in favor of the proposal and, in their
discretion, on any other matter properly to come before the Meeting. No other
matters are contemplated at this time. Additional information concerning the
proxy solicitation and voting process and who is eligible to vote is set forth
below; Section I contains additional information regarding the matter to be
voted on at the Meeting.
Voting; Proxies; Shareholders Entitled to Vote
The enclosed proxy, which was first mailed on or about January 12, 1998,
is solicited by the Board of Trustees for use at the Meeting. All properly
executed proxies received no later than February 26, 1998 will be voted as
specified in the proxy or, if no specification is made, in favor of the proposal
referred to in the Proxy Statement. The proxy may be revoked by voting in person
at the Meeting or by sending a later dated proxy card or a written revocation to
the Secretary which must be received prior to the Meeting. Solicitation may be
made by mail, telephone, telegraph, telecopy or personal interviews.
Authorization to execute proxies may be obtained by telephonically or
electronically transmitted instructions. Shareholder Communications Corporation
(SCC) has been engaged to assist in the solicitation of proxies. The cost of
this assistance is not expected to exceed $11,350. The cost of solicitation will
be paid by Colonial.
Shareholders of record at the close of business on January 2, 1998 will
have one vote for each share held. On such date, the Fund had the following
outstanding shares of beneficial interest: Class A shares: 128,512,900.561;
Class B shares: 58,611,823.846; and Class C shares: 3,333,093.352. Holders of
30% of the shares outstanding on such date constitute a quorum and must be
present in person or represented by proxy for business to be transacted at the
Meeting.
4
<PAGE>
As of January 2, 1998, the following shareholders owned more than 5% of a
class of the Fund's outstanding shares:
Number of Percentage of
Name and Address Shares Owned Shares Owned
---------------- ------------ ------------
Class A Shares:
- ---------------
Liberty Financial Investments, Inc. 19,539,840.260 15.20%
c/o Phil Iudice
One Financial Center
Boston, MA 02111
Liberty Financial Companies 11,022,736.010 8.58%
Attn: Michael Santilli
600 Atlantic Avenue
Boston, MA 02210
John A. McNeice, Jr., 10,289,661.410 8.01%
47 Green St.
Canton, MA 02021-1023
Class C Shares:
- ---------------
Colonial Management Associates, Inc. 972,495.820 29.18%
Attn: Phil Iudice/Controller
One Financial Center
Boston, MA 02111
Votes Required
Approval of the Conversion (as hereinafter defined) with new fundamental
investment policies, as described in Section I, requires the affirmative vote of
the holders of the lesser of (i) more than 50% of the Fund's outstanding shares
or (ii) 67% or more of the shares present at the Meeting if more than 50% of the
outstanding shares are represented at the Meeting in person or by proxy.
Votes cast by proxy or in person will be counted by persons appointed by
the Fund to act as election tellers for the Meeting. The tellers will count the
total number of votes cast "for" the proposal for purposes of determining
whether sufficient affirmative votes have been cast. Where a shareholder
withholds authority or abstains, or the proxy reflects a "broker non-vote"
(i.e., shares held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote and (ii)
the broker or nominee does not have discretionary voting power on a particular
matter), the shares will be counted as present and entitled to vote for purposes
of determining the presence of a quorum, but will have the effect of a negative
vote.
5
<PAGE>
Trustees, Officers and Other Information
The following table sets forth certain information about the Board of
Trustees of Colonial Trust II:
Shares Beneficially Owned
Name Trustee of the Fund at Percentage of Fund
(Age) Since January 2, 1998(1) Shares Owned
- ----- ----- ------------------ ------------
Robert J. Birnbaum --- (2)
(70) 1995
Tom Bleasdale --- (2)
(67) 1990
Lora S. Collins --- (2)
(62) 1983
James E. Grinnell --- (2)
(68) 1995
William D. Ireland, Jr. --- (2)
(73) 1981
Richard W. Lowry --- (2)
(61) 1995
William E. Mayer (3) --- (2)
(57) 1994
James L. Moody, Jr. --- (2)
(66) 1990
John J. Neuhauser --- (2)
(54) 1990
George L. Shinn --- (2)
(74) 1990
Robert L. Sullivan --- (2)
(69) 1990
Sinclair Weeks, Jr. --- (2)
(74) 1983
Trustees and officers
as a group --- (2)
(1) Except as otherwise noted, each Trustee has sole investment power and
sole voting power with respect to his or her shares of the Fund.
(2) Ownership is less than 1%.
(3) Mr. Mayer is an "interested person," as defined in the Investment Company
Act of 1940 (1940 Act), because of his affiliation with Hambrecht & Quist
Incorporated (a registered broker-dealer).
6
<PAGE>
The following table sets forth certain information about the executive
officers of the Fund:
<TABLE>
<CAPTION>
Executive Shares Beneficially Owned
Name Officer and Percent of Fund at
(Age) Since Office with Fund (4) January 2, 1998
- ---- ----- -------------------- ---------------
<S> <C> <C> <C>
Harold W. Cogger President ----
(61) 1996
Davey S. Scoon Vice President ----
(50) 1993
Timothy J. Jacoby Treasurer, Controller, ----
(44) 1996 Chief Financial Officer
and Chief Accounting
Officer (formerly Senior
Vice President, Fidelity
Accounting and Custody
Services from September,
1993 to September, 1996
and Assistant Treasurer
to the Fidelity Group of
Funds from August, 1990
to September, 1993).
Michael H. Koonce Secretary ----
(37) 1997
</TABLE>
(4) Except as otherwise noted, each individual has held the office indicated
or other offices in the same company for the last five years.
Further information concerning the Fund is contained in its Annual Report
to shareholders dated August 31, 1997, which is obtainable free of charge by
writing Colonial at One Financial Center, Boston, Massachusetts 02111-2621 or by
calling 1-800-426-3750.
7
<PAGE>
I. Approve or Disapprove the Conversion of the Fund to the Master Fund/Feeder
Fund Structure (Conversion) with New Fundamental and Non-Fundamental
Investment Policies
A. Introduction
On December 19, 1997, the Fund's Trustees unanimously approved and voted
to recommend the Conversion to shareholders. "Master fund/feeder fund" refers to
a structure in which a fund (a feeder fund) seeks to achieve its investment
objective by investing exclusively in shares of, or interests in, another fund
(the master fund) having a similar investment objective and policies as the
feeder fund. The master fund, in turn, invests in individual securities.
Typically, a master fund will have more than one feeder fund, with each feeder
fund marketed to a particular class or classes of investors or through a
different distribution channel. For example, shares of one feeder fund might be
offered to individual investors, shares of another feeder fund to institutions,
and shares of a third to retirement plans or their participants. The primary
reason to use the master fund/feeder fund structure is to provide a mechanism to
pool, in a single master fund, investments of different investor classes,
resulting in a larger portfolio, investment and administrative efficiencies and
economies of scale. The diagram below compares the Fund's current structure to
the proposed master fund/feeder fund structure.
CURRENT STRUCTURE PROPOSED MASTER FUND/FEEDER FUND STRUCTURE
Fund Shareholders Fund Shareholders Other Feeder Fund Shareholders
------------ ------------ -------------- --------------
Individual Other Feeder Other Feeder
Securities Fund Fund* Fund* Fund*
------------ ------------ -------------- --------------
--------------
Individual
Securities Master Fund
--------------
*Each feeder fund holds only interests in the master fund
If approved by Fund shareholders, the Conversion would be accomplished by
transferring substantially all of the Fund's assets to SR&F Cash Reserves
Portfolio (Portfolio), a money market master fund managed by Stein Roe & Farnham
Incorporated (Stein Roe), in exchange for an interest in the Portfolio equal in
value to the assets transferred. The Conversion itself will not affect the net
asset value of your shares. Unless canceled or delayed,
8
<PAGE>
such transfer would be effective on or about March 2, 1998 (Effective Time). It
currently is anticipated that the Fund's security holdings will be transferred
in kind to the Portfolio, valued in the manner described under "How the Fund
Values its Shares" on page 7 of the Fund's Prospectus which has been delivered
previously to each shareholder. In the alternative, Colonial may liquidate all
or a portion of the Fund's securities shortly before the Effective Time, in
which case assets transferred to the Portfolio may include cash. In either
event, no material taxable gain or loss is expected to be realized by the Fund
or its shareholders (as described in Section I.F. below). After the Conversion,
the Fund will pursue its objective by investing exclusively in the Portfolio.
All costs of the Conversion will be borne by Colonial.
At the time the Trust's Board of Trustees approved the Conversion, they
also approved and voted to recommend to shareholders the adoption by the Fund of
the Portfolio's fundamental investment policies. The Fund's and the Portfolio's
current fundamental policies are set forth in Exhibit A and are discussed in
Section I.C. below.
Finally, in connection with the Conversion, the Board of Trustees has made
certain changes to the Fund's name, fiscal year end, investment objective,
investment techniques, non-fundamental investment policies and service
arrangements to be effective subject to your approval of the Conversion. These
changes, along with additional information concerning the Portfolio, Stein Roe
and the Conversion, are described below in Section I.D.
Dissenting shareholders have no appraisal rights, but may redeem their
shares for cash at net asset value, subject to any applicable contingent
deferred sales charge. The Conversion may be canceled or delayed under certain
circumstances.
B. Certain Information Concerning the Portfolio
The Portfolio is a series of the SR&F Base Trust, which is a no-load,
diversified open-end investment management company organized as a common law
trust under the laws of The Commonwealth of Massachusetts on August 23, 1993.
The Portfolio intends to commence operations on or about March 2, 1998. At that
time, the Stein Roe Cash Reserves Fund (SRF Feeder) is scheduled to convert to a
feeder fund of the Portfolio. Therefore, the Portfolio will have two feeder
funds upon consummation of the Conversion: the SRF Feeder and the Fund.
Investments in the Portfolio may only be made by investment companies (such as
the Fund), common or commingled trust funds or similar organizations or entities
acceptable to the Portfolio's trustees. The estimated expenses of the Portfolio,
which will be paid indirectly by shareholders of the Fund, are summarized below
under Section D.7, "Effect of the Conversion on the Fund's Expense Ratios."
1. Adviser and Administrator
Stein Roe serves as investment adviser to the Portfolio under a portfolio
management agreement (Management Agreement) and, in such capacity, makes
day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Portfolio's investments. Jane M. Naeseth
has managed the SRF Feeder since 1980 and will manage the Portfolio upon
commencement of investment operations. She has been associated with Stein Roe
since 1977.
9
<PAGE>
Stein Roe's offices are located at One South Wacker Drive, Chicago,
Illinois 60606. Except to the extent assumed by Stein Roe, the Portfolio pays
all costs and expenses incidental to its organization, operations and business.
Such expenses include, for example, legal and accounting costs, insurance
premiums, trustees' compensation (other than those affiliated with Stein Roe),
expenses of printing and mailing reports, notices and other materials and
registration fees.
Under the Management Agreement, Stein Roe also provides administrative
services to the Portfolio. In such capacity, Stein Roe supervises the business
and affairs of the Portfolio and provides such services and facilities as may be
required for effective administration of the Portfolio including, without
limitation, all executive and other personnel, office space and other facilities
required to render investment management and administrative services.
Under the Management Agreement, the Portfolio pays Stein Roe a monthly fee
at an annual rate of 0.250% of average net assets up to $500 million and 0.225%
thereafter. Stein Roe is a wholly-owned subsidiary of Stein Roe Services Inc.
(SSI), the Portfolio's transfer agent, which in turn is a wholly-owned direct
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial). Liberty
Financial is an indirect, majority-owned subsidiary of Liberty Mutual Insurance
Company (Liberty Mutual), through an intervening wholly-owned subsidiary,
Liberty Mutual Equity Corporation.
Stein Roe and its predecessor have been providing investment advisory
services since 1932. Stein Roe acts as investment adviser to wealthy
individuals, trustees, pension and profit sharing plans, charitable
organizations and other institutional investors. As of September 30, 1997, Stein
Roe managed over $29 billion in assets: over $5 billion in equities and over $17
billion in fixed-income securities (including $1.7 billion in municipal
securities). The $29 billion in managed assets included over $7 billion held by
open-end mutual funds managed by Stein Roe. These mutual funds were owned by
over 265,000 shareholders. The $7 billion in mutual fund assets included over
$728 million in over 42,000 IRA accounts. In managing those assets, Stein Roe
utilizes a proprietary computer-based information system that maintains and
regularly updates information on approximately 9,000 companies. Stein Roe also
monitors over 1,400 issues via a proprietary credit analysis system. At
September 30, 1997, Stein Roe employed 16 research analysts and 55 account
managers. The average investment-related experience of these individuals is 24
years.
Liberty Financial is a diversified and integrated asset management
organization which provides insurance and investment products to individuals and
institutions. Its principal executive offices are located at 600 Atlantic
Avenue, 24th Floor, Boston, Massachusetts 02210. Liberty Mutual is a
Massachusetts-headquartered, multi-line insurance company with over $47.3
billion in assets and $6.3 billion in surplus at September 30, 1997. The
principal business activities of Liberty Mutual's subsidiaries other than
Liberty Financial are property-casualty insurance, insurance services and life
insurance (including group life and health insurance products) marketed through
its own sales force.
10
<PAGE>
Liberty Mutual's principal executive offices are located at 175 Berkeley Street,
Boston, Massachusetts 02117.
Colonial, the current investment adviser to the Fund, is also an indirect
subsidiary of Liberty Mutual through Colonial's parent, The Colonial Group, Inc.
(TCG), a wholly-owned subsidiary of Liberty Financial.
2. Transfer Agent
Under an investor service agreement with SSI, SSI has responsibility for
the establishment and maintenance of accounts of beneficial interest of the
Portfolio. For these services, the Portfolio pays SSI a monthly fee of $500.
3. Accounting and Bookkeeping Agent
Stein Roe serves as the Portfolio's accounting and bookkeeping agent
pursuant to an Accounting and Bookkeeping Agreement (Agreement). Pursuant to the
Agreement, Stein Roe is responsible for certain accounting and bookkeeping
services provided to the Portfolio, including the Portfolio's net asset value
and calculation of its net income, yields and capital gains and losses on
disposition of Portfolio assets. The Portfolio pays Stein Roe a fee of $25,000
plus 0.0025% per annum of the average daily net assets of the Portfolio in
excess of $50 million under the Agreement.
4. Miscellaneous
State Street Bank and Trust Company serves as custodian of the Portfolio
and Ernst & Young LLP serves as auditors of the Portfolio.
C. Changes In Fundamental Investment Policies
Assuming shareholder approval of the Conversion is obtained, the Board of
Trustees will cause the Fund to adopt the Portfolio's fundamental investment
policies. Fundamental investment policies are those which can be changed only if
approved by shareholders. The Fund's current fundamental policies, along with
those of the Portfolio which the Fund will adopt simultaneously with
consummation of the Conversion, are shown in Exhibit A.
Adoption of the Portfolio's fundamental policies does not present any
significant additional risks to Fund shareholders. Except with respect to
policies governing borrowing, the Portfolio's fundamental policies are generally
as restrictive as, or more restrictive than, those of the Fund currently.
11
<PAGE>
The Fund limits borrowings from banks for temporary or emergency purposes
to 10% of net assets and will not purchase portfolio securities while borrowings
exceed 5% of net assets. The Portfolio's policy regarding borrowing permits
borrowings up to 33 1/3% of total assets for non-leveraging, temporary or
emergency purposes or reverse repurchase agreements. In addition, the Portfolio
may borrow from, and make loans to, other Stein Roe funds pursuant to an
interfund lending arrangement.
D. Changes to the Fund's Name, Fiscal Year End, Investment Objective,
Investment Techniques, Non-Fundamental Investment Policies, Service
Arrangements and Expense Ratios in Connection with or Resulting from the
Conversion to the Master Fund/Feeder Fund Structure
If the Conversion is approved by the Fund's shareholders, then, as of the
Effective Time, the Board of Trustees will change the Fund's name, fiscal year
end, investment objective, investment techniques and investment policies to
conform to those of the Portfolio, and certain changes to the Fund's service
arrangements will be made. The Portfolio's fundamental policies that would be
adopted by the Fund are set forth in Exhibit A and are described in Section I.C.
above. The other changes referenced above, are as follows:
1. Change in Name
The name of the Fund will change from "Colonial Government Money Market
Fund" to "Colonial Money Market Fund." The name change reflects the ability of
the Portfolio to invest in a wide range of money market instruments.
2. Change in Fiscal Year End
The fiscal year end of the Fund will change from August 31 to June 30 in
order to match the fiscal year end of the Portfolio.
3. Change in Investment Objective
The Fund's current investment objective is to seek current income,
consistent with capital preservation and liquidity, by investing exclusively in
short-term U.S. government securities. The Portfolio's investment objective is
to seek maximum current income consistent with safety of capital and maintenance
of liquidity. As of the Effective Time, the Fund will adopt the Portfolio's
objective.
12
<PAGE>
4. Changes in Certain Investment Techniques
The Fund currently invests exclusively in short-term securities issued or
guaranteed by the U.S. government or its subsidiaries, agencies, authorities and
instrumentalities, as well as repurchase agreements collateralized by such
securities. Although the Portfolio may also invest in securities issued or
guaranteed by the U.S. government, agencies and instrumentalities, it invests in
a wide range of high quality U.S. dollar denominated money market instruments.
For example, the Portfolio may invest in commercial paper of U.S. or foreign
issuers and in securities issued or guaranteed by the government of any foreign
country that are rated at the time of purchase A or better (or equivalent
rating) by at least one nationally recognized statistical rating organization
(NRSRO). In addition, the Portfolio has a policy of investing at least 25% of
its total assets in securities of issuers in the financial services industry.
The Fund currently does not have a similar policy. Exhibit B sets forth certain
of the types of instruments that the Portfolio may invest in.
The Fund currently qualifies as an eligible investment for federal credit
unions and national banks, whereas the Portfolio does not. Therefore, after the
Conversion the Fund will no longer qualify as an eligible investment.
5. Changes in Non-Fundamental Investment Policies
Although the Portfolio's non-fundamental investment policies are
substantially similar to the Fund's current policies, several changes to the
Fund's policies will be made as of the Effective Time to conform the Fund's
policies to those of the Portfolio. The material differences between the Fund's
current non-fundamental policies and those of the Portfolio are described below.
Investment in Other Investment Companies. The Fund currently may not
purchase shares of another investment company. After the Conversion, the Fund
will adopt the Portfolio's non-fundamental policy of not purchasing more than 3%
of the stock of another investment company or purchase stock of other investment
companies equal to more than 5% of its total assets (valued at time of purchase)
in the case of any other investment company and 10% of such assets (valued at
the time of purchase) in the case of all other investment companies in the
aggregate; any such purchases are to be made in the open market where no profit
to a sponsor or dealer results from the purchase, other than the customary
broker's commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets. In addition, the Portfolio may not
purchase shares of other open-end investment companies, except in connection
with a merger, consolidation, acquisition or reorganization. These restrictions
do not apply to purchases by the Portfolio of shares of another investment
company with the same investment objective and substantially similar investment
policies as the Portfolio.
13
<PAGE>
Exercise Control or Management. The Portfolio may not invest in companies
for the purpose of exercising control or management. After the Conversion, the
Fund, which currently does not have such a policy, will adopt this policy of the
Portfolio.
Short Sales. The Fund currently may not have a short securities position,
unless it owns or owns rights (exercisable without payment) to acquire an equal
amount of such securities. After the Conversion, the Fund will adopt the
Portfolio's non-fundamental policy that the Portfolio may not sell securities
short unless (i) the Portfolio owns or has the right to obtain securities
equivalent in kind and amount to those sold short at no added cost or (ii) the
securities sold are "when issued" or "when distributed" securities which the
Portfolio expects to receive in a recapitalization, reorganization, or other
exchange for securities the Portfolio contemporaneously owns or has the right to
obtain.
6. Changes in Service Arrangements
In connection with the Conversion, the following changes to the Fund's
service arrangements will be made as of the Effective Time.
Administrative Services. Currently the Fund's day-to-day investment
operations are managed by Colonial pursuant to a management agreement that
provides for the payment to Colonial of a monthly fee at the annual rate of
0.30% of the Fund's average daily net assets. The management agreement also
requires Colonial to perform certain administrative services for the Fund
including (a) the provision of office space, supplies, facilities and equipment;
(b) the provision of executive and other personnel for managing the Fund's
affairs (including preparing financial information and reports and tax returns
required to be filed with public authorities); and (c) compensating the Trust's
Board of Trustees who are directors, officers or employees of Colonial. In
addition, the Trustees have delegated to Colonial the responsibility of
monitoring the Fund's compliance with Rule 2a-7 under the Investment Company Act
of 1940 (1940 Act), pursuant to procedures adopted by the Trustees. Rule 2a-7
permits the Fund to determine the value of its assets and shares under a special
method called "amortized cost" as described on page 7 of the Fund's Prospectus,
which has been previously delivered to each shareholder.
Upon consummation of the Conversion, the management agreement with
Colonial will be terminated. Thereafter, the Fund no longer will require the
services of an investment adviser or manager, since its investments will consist
solely of interests in the Portfolio. Colonial will enter into a separate
Administration Agreement with the Fund pursuant to which Colonial will continue
to provide the Fund with certain administrative services, including (a)
providing office space, equipment and clerical personnel; (b) arranging, if
desired by the Board of Trustees, for
14
<PAGE>
directors, officers and employees of Colonial to serve as Trustees, officers or
agents of the Fund; (c) preparing and filing all documents required for
compliance by the Fund with applicable laws and regulations; (d) preparing
agendas and supporting documents for and minutes of meetings of the Board of
Trustees, committees of Trustees and shareholders; (e) monitoring compliance by
the Fund with Rule 2a-7 under the 1940 Act and reporting to the Board of
Trustees from time to time with respect thereto; (f) monitoring the investments
and operations of the Portfolio and reporting to the Board of Trustees from time
to time with respect thereto; (g) coordinating and overseeing the activities of
the Fund's other third-party service providers; and (h) maintaining certain
books and records of the Fund. The Administration Agreement provides for a fee
to be paid by the Fund to Colonial for such services at an annual rate of 0.25%
of the Fund's average daily net assets. After the Conversion, this fee will be
voluntarily reduced by Colonial to an annual rate of 0.06% of the Fund's average
daily net assets. The Board of Trustees voted unanimously on December 19, 1997
to approve the Administration Agreement subject to shareholder approval of the
Conversion.
Pricing and Bookkeeping Services. Under a separate agreement, Colonial
currently provides the Fund with pricing and bookkeeping services for a fee of
$27,000 for the first $50 million of the Fund's average daily net assets plus a
monthly fee at the following annual rates (calculated on the basis of the Fund's
average daily net assets): 0.035% of the next $950 million; 0.025% of the next
$1 billion; 0.015% of the next $1 billion; and 0.001% of the excess over $3
billion. After the Conversion, this fee will be reduced to $18,000 per annum
plus 0.0233% of the Fund's assets in excess of $50 million.
Transfer Agency Services. Colonial Investors Service Center, Inc. (CISC),
an affiliate of Colonial, currently provides the Fund with transfer agency and
shareholder services for a fee at an annual rate of 0.20% of average daily net
assets. CISC will continue to provide such services to the Fund for the same fee
following the Conversion.
7. Effect of the Conversion on the Fund's Expense Ratios
The ratios of the Fund's expenses to average net assets for the fiscal
year ended August 31, 1997 were 0.72% on Class A shares; 1.72% on Class B
shares; and 1.12% on Class C shares. During such period, Liberty Financial
Investments, Inc. (Distributor) voluntarily agreed to waive 0.60% of the Class C
share Rule 12b-1 distribution fee. In order to maintain expenses at the
pre-Conversion rates, Colonial has voluntarily agreed to waive 0.19% per annum
of the 0.25% per annum administration fee. Colonial may revise or terminate this
arrangement at any time without notice to shareholders. The following table
compares the Fund's current fees and expenses for the fiscal year ended August
31, 1997, with the pro forma fees and expenses had the Conversion been effected
at September 1, 1996:
15
<PAGE>
Annual Fees and Expenses
Class A Shares:
- ---------------
<TABLE>
<CAPTION>
Before Conversion to
Master/Feeder (for the After Conversion to Master/Feeder
Expenses year ended August 31, 1997 (expenses are estimates)
-------- -------------------------- ------------------------
Master Feeder Total
------ ------ -----
<S> <C> <C> <C> <C>
Management 0.30% 0.236%(1) --- 0.236%(1)
Administration --- --- 0.06%(2) 0.06%(2)
12b-1 Fees 0.00% --- 0.00% 0.00%
Transfer Agency 0.20% --- 0.20% 0.20%
Bookkeeping 0.04% 0.006% 0.027% 0.033%
Other 0.18% 0.03% 0.16% 0.19%
---- ----
Total Operating Expenses 0.72% 0.72%(3)
==== ====
</TABLE>
Class B Shares:
- ---------------
<TABLE>
<CAPTION>
Before Conversion to
Master/Feeder (for the After Conversion to Master/Feeder
Expenses year ended August 31, 1997 (expenses are estimates)
-------- -------------------------- ------------------------
Master Feeder Total
------ ------ -----
<S> <C> <C> <C> <C>
Management 0.30% 0.236%(1) --- 0.236%(1)
Administration --- --- 0.06%(2) 0.06%(2)
12b-1 Fees 1.00% --- 1.00% 1.00%
Transfer Agency 0.20% --- 0.20% 0.20%
Bookkeeping 0.04% 0.006% 0.027% 0.033%
Other 0.18% 0.03% 0.16% 0.19%
---- ----
Total Operating Expenses 1.72% 1.72%(3)
==== ====
</TABLE>
16
<PAGE>
Class C Shares:
- ---------------
<TABLE>
<CAPTION>
Before Conversion to
Master/Feeder (for the After Conversion to Master/Feeder
Expenses year ended August 31, 1997 (expenses are estimates)
-------- -------------------------- ------------------------
Master Feeder Total
------ ------ -----
<S> <C> <C> <C> <C>
Management 0.30% 0.236%(1) --- 0.236%(1)
Administration --- --- 0.06%(2) 0.06%(2)
12b-1 Fees 0.40% --- 0.40%(4) 0.40%(4)
Transfer Agency 0.20% --- 0.20% 0.20%
Bookkeeping 0.04% 0.006% 0.027% 0.033%
Other 0.18% 0.03% 0.16% 0.19%
---- ----
Total Operating Expenses 1.12% 1.12%(3)
==== ====
</TABLE>
(1) Fee subject to the following breakpoints: 0.25% for the first $500 million
of average net assets and 0.225% thereafter.
(2) Contractual fee of 0.25% per annum would be voluntarily waived to 0.06%.
(3) Absent the waivers discussed above and below, "Total Operating Expenses"
would have been 0.91%, 1.91% and 1.91% for the Fund's Class A, Class B and
Class C shares, respectively.
(4) The Distributor has voluntarily agreed to waive 0.60% of the Class C share
Rule 12b-1 fee.
Example
The following Example shows the cumulative transaction and operating
expenses attributable to a hypothetical $1,000 investment in each Class of
shares of the Fund for the periods specified, assuming a 5% annual return and,
unless otherwise noted, redemption at period end. The expense numbers in the
Example assume the fee waivers described above are in effect. The following
expenses would be the same after the Conversion because the Fund intends to
maintain the pre-Conversion total rates, as reflected in the "Annual Fees and
Expenses" table above. The 5% return and expenses used in this Example should
not be considered indicative of actual or expected Fund performance or expenses,
both of which will vary.
Period: Class A Class B Class C
(5) (6) (5) (6)
1 year $ 7 $ 67 $ 17 $ 21 $ 11
3 years 23 84 54 36(8) 36
5 years 40 113 93 62(8) 62
10 years 89 176(7) 176(7) 136(8) 136
17
<PAGE>
(5) Assumes redemption at period end.
(6) Assumes no redemption.
(7) Class B shares convert to Class A shares after approximately 8 years;
therefore, years 9 and 10 reflect Class A expenses.
(8) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
E. Certain Information About the Master Fund/Feeder Fund Structure The
Portfolio is expected to have one other feeder fund, the SRF Feeder, and
may sell interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on substantially the same terms and
conditions as the Fund and will bear a proportionate share of the Portfolio's
expenses. However, other funds or entities investing in the Portfolio may offer
and sell their own shares or interests using different pricing structures than
the Fund. Such different pricing structures may result in differences in returns
experienced by investors in other funds that invest in the Portfolio. Such
differences in returns are not uncommon and are present in other mutual fund
structures, including the multi-class structure currently utilized by the Fund.
You may obtain information about other investors in the Portfolio by calling
Colonial at 1-800-426-3750.
After the Conversion, the Fund may withdraw its investment from the
Portfolio at any time if the Fund's Trustees determine that it is in the best
interest of the Fund to do so. Upon any such withdrawal, the Trustees would
consider what action to take, including the investment of all the assets of the
Fund in another pooled investment entity having substantially the same
investment objective and policies as the Fund or the retention of an investment
adviser to manage the Fund's assets.
Certain changes in the Portfolio's investment policies or restrictions, or
a failure by the Fund's shareholders to approve a future change in the
Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution to
the Fund of portfolio securities (as opposed to a cash distribution) which may
or may not be readily marketable. The distribution could result in the Fund
having a less diversified portfolio of investments or could adversely affect the
Fund's liquidity, and the Fund could incur brokerage, tax or other charges in
converting the securities to cash.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining fund(s) may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become less
diversified, resulting in potentially increased portfolio risk (however, these
possibilities also exist for traditionally structured funds which have
institutional or other large investors who may withdraw from a fund). Also,
funds with a greater pro rata ownership in the Portfolio could have effective
voting control of the operations of the Portfolio. Based on the
18
<PAGE>
current size of its anticipated investment in the Portfolio, the SRF Feeder will
have effective voting control over any matter submitted to the Portfolio's
investors. Whenever the Fund is requested to vote on matters pertaining to the
Portfolio (other than a vote by the Fund to continue the operation of the
Portfolio upon the withdrawal of other investors in the Portfolio), the Fund
will hold a meeting of shareholders of the Fund and will cast all of the Fund's
votes proportionately as instructed by the Fund's shareholders. The Fund will
vote the shares held by the Fund's shareholders who do not give voting
instructions in the same proportion as the shares of the Fund's shareholders who
do give voting instructions. Shareholders of the Fund who do not vote will have
no effect on the outcome of such matters.
F. Tax Consequences of the Conversion; Other Tax Matters
Because of the short-term nature of the Fund's investments, no material
taxable gain or loss is expected to be realized by the Fund or its shareholders
as a result of the Conversion. After the Conversion, the Fund intends to
continue to qualify as a regulated investment company and to distribute to its
shareholders virtually all net income and any net realized gains at least
annually. The Portfolio intends to qualify as a partnership for federal income
tax purposes. As such, the Portfolio should not be subject to tax.
G. Determination and Recommendation of the Trustees; Required Vote
The Trust's Board of Trustees have unanimously determined that the
Conversion and adoption by the Fund of the Portfolio's fundamental and
non-fundamental investment policies are in the best interest of the Fund and its
shareholders and recommend that the Conversion and adoption by the Fund of the
Portfolio's fundamental and non-fundamental investment policies be approved. The
Trustees' decision was based on the following: (i) Colonial has indicated to the
Board of Trustees that, given the Fund's small size, it has become increasingly
difficult to manage the Fund efficiently and cost effectively; (ii) Colonial
must continue to offer a taxable money market alternative as part of its product
line; and (iii) Colonial's resources can be used more effectively elsewhere.
There can be no assurance that a constant net asset value will be maintained, or
that improved investment performance or a lower aggregate expense ratio will be
achieved.
II. Other Matters and Discretion of Persons Named in the Proxy
As of the date of this Proxy Statement, only the business mentioned in
Proposal I of the Notice of the Meeting is contemplated to be presented. If any
procedural or other matters properly come before the Meeting, the enclosed proxy
shall be voted in accordance with the best judgment of the proxy holder(s).
If a quorum of shareholders (thirty percent of the shares entitled to vote
at the Meeting) is not represented at the Meeting or at any adjournment thereof,
or, even though a quorum is so represented, if sufficient votes in favor of
Proposal I set forth in the Notice of the Meeting are not received by February
26, 1998, the persons named as proxies may propose one or
19
<PAGE>
more adjournments of the Meeting for a period or periods of not more than ninety
days in the aggregate and further solicitation of proxies may be made. Any such
adjournment may be effected by a majority of the votes properly cast in person
or by proxy on the question at the session of the Meeting to be adjourned. The
persons named as proxies will vote in favor of such adjournment those proxies
which they are entitled to vote in favor of Proposal I set forth in the Notice
of the Meeting. They will vote against any such adjournment those proxies
required to be voted against Proposal I. Should the Conversion and adoption of
the Portfolio's fundamental and non-fundamental investment policies be rejected
by shareholders, the proposed Conversion will not occur and the Trustees will
consider such other action as may be appropriate.
The Colonial Trust II Agreement and Declaration of Trust does not provide
for an annual meeting of shareholders. Shareholder proposals for inclusion in
the proxy statement for any subsequent meeting must be received by the Fund
within a reasonable period of time prior to any such meeting.
Reports, proxy statements and other information have been filed with the
Securities and Exchange Commission (SEC) and may be inspected and copied at the
SEC's public reference room, 450 Fifth St., N.W., Washington, D.C. 20549. Copies
of such material can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
SHAREHOLDERS ARE URGED TO VOTE, SIGN AND MAIL THEIR PROXIES IMMEDIATELY.
20
<PAGE>
EXHIBIT A
CURRENT FUNDAMENTAL INVESTMENT POLICIES OF
COLONIAL GOVERNMENT MONEY MARKET FUND (FUND)
Under its current fundamental investment policies, the Fund may:
1. Issue senior securities only through borrowing money from banks for
temporary or emergency purposes up to 10% of its net assets; however, the
Fund will not purchase additional portfolio securities while borrowings
exceed 5% of net assets;
2. Not invest in real estate;
3. Invest up to 10% of its net assets in illiquid assets;
4. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on the contracts do not exceed 5% of its
total assets;
5. Underwrite securities issued by others only when disposing of portfolio
securities;
6. Make loans (i) through lending of securities not exceeding 30% of total
assets, (ii) through the purchase of debt instruments or similar evidences
of indebtedness typically sold privately to financial institutions and
(iii) through repurchase agreements; and
7. Not concentrate more than 25% of its total assets in any one industry
(provided, however, that there is no limitation in respect to investments
in certificates of deposit and banker's acceptances; finance companies as
a group and utility companies as a group are not considered a single
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 purchase, the Fund would
own more than 10% of the outstanding voting shares of such issuer.
FUNDAMENTAL INVESTMENT POLICIES OF
SR&F CASH RESERVES PORTFOLIO (PORTFOLIO)
In connection with the Conversion, the Board of Trustees are proposing the
adoption by the Fund of the Portfolio's fundamental investment policies.
As fundamental policies, the Fund and the Portfolio 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 such investment) would be invested in the securities of any
one issuer, except that this restriction does not
21
<PAGE>
apply to U.S. government securities or repurchase agreements for such
securities and except that all or substantially all of the assets of the
Fund may be invested in another registered investment company having the
same investment objective and substantially similar investment policies as
the Fund;*
3. Invest in a security if, as a result of such investment, it would hold
more than 10% (taken at the time of such investment) of the outstanding
voting securities of any one issuer, except that all or substantially all
of the assets of the Fund may be invested in another registered investment
company having the same investment objective and substantially similar
investment policies as the Fund;
4. Purchase or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein);
5. Purchase or sell commodities or commodities contracts or oil, gas or
mineral programs;
6. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities;
7. Make loans, although it may (a) participate in an interfund lending
program with other Stein Roe Funds and Portfolios provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of its total assets (taken at market value at the
time of such loans); (b) purchase money market instruments and enter into
repurchase agreements; and (c) acquire publicly distributed or privately
placed debt securities;
8. Borrow except that it may (a) borrow for non-leveraging, temporary or
emergency purposes, (b) engage in reverse repurchase agreements and make
other borrowings, provided that the combination of (a) and (b) shall not
exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law;
9. Act as an underwriter of securities, except insofar as it may be deemed to
be an "underwriter" for purposes of the Securities Act of 1933 on
disposition of securities acquired subject to legal or contractual
restrictions on resale, except that all or substantially all of the assets
of the Fund may be invested in another registered investment company
having the same investment objective and substantially similar investment
policies as the Fund; or
10. Issue any senior securities except to the extent permitted under the
Investment Company Act of 1940.
- ----------
* Notwithstanding the foregoing, and in accordance with Rule 2a-7 of the
Investment Company Act of 1940 (the "Rule"), the Portfolio will not, immediately
after the acquisition of any security (other than a Government Security or
certain other securities as permitted under the Rule), invest more than 5% of
its total assets in the securities of any one issuer; provided, however, that it
may invest up to 25% of its total assets in First Tier Securities (as that term
is defined in the Rule) of a single issuer for a period of up to three business
days after the purchase thereof.
22
<PAGE>
EXHIBIT B
CERTAIN INVESTMENT TECHNIQUES OF THE SR&F PORTFOLIO
The types of securities in which the Portfolio may invest include the
following:*
(1) Securities issued or guaranteed by the U.S. Government or by its agencies
or instrumentalities ("U.S. Government Securities");
(2) Securities issued or guaranteed by the government of any foreign country
that are rated at time of purchase A or better (or equivalent rating) by
at least one NRSRO;
(3) Certificates of deposit, bankers' acceptances and time deposits of any
bank (U.S. or foreign) having total assets in excess of $1 billion, or the
equivalent in other currencies (as of the date of the most recent
available financial statements) or of any branches, agencies or
subsidiaries (U.S. or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or better (or
equivalent rating) by at least one NRSRO;
(6) Repurchase agreements involving securities listed in (1) above. A
repurchase agreement involves a sale of securities to the Portfolio in
which the seller (a bank or securities dealer that the Adviser believes to
be financially sound) agrees to repurchase the securities at a higher
price, which includes an amount representing interest on the purchase
price, within a specified time; and
(7) Other high-quality short-term obligations.
- ----------
* All of the securities must be rated in the highest rating category by at least
two NRSROs (or, if unrated, of comparable quality).
23
