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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 in 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 (888) 256-2436. Representatives are available every business day from
6:30 a.m. to 5 p.m., Pacific time.
Best regards,
James E. Crabbe
<PAGE>
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
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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 6558, Portland, OR
97228-6559, in connection with the proposed tax-free combinations
("Reorganizations") 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 "Reorganizations." 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
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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 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
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------------------------
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 CARD AND SUBSEQUENTLY ATTENDS THE MEETING MAY
ELECT TO VOTE IN PERSON, SINCE A PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
VOTED.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Introduction................................................................. 7
The Acquisition.............................................................. 8
Background................................................................. 8
Summary of the Purchase Agreement.......................................... 8
Compliance with Section 15(f) of the
Investment Company Act of 1940........................................... 9
The Reorganization........................................................... 10
Procedure for Reorganization............................................... 10
Reasons for Reorganization................................................. 12
Investment Management and Other Agreements................................. 13
Comparative Fee Table...................................................... 15
12b-1 Plans................................................................ 16
Comparison of Crabbe Huson Funds and Colonial Funds........................ 16
Change in Fundamental Investment Policies.................................. 18
Federal Tax Consequences................................................... 19
Waiver of Investment Restrictions.......................................... 20
Dissenter's Rights......................................................... 20
Board of Trustees.......................................................... 20
The Trust's Independent Accountants........................................ 20
Other Matters................................................................ 21
Shareholder Proposals........................................................ 21
Annual Reports............................................................... 21
Voting and Solicitation...................................................... 21
Voting, Quorum............................................................. 21
Solicitation of Proxies.................................................... 23
Principal Shareholders....................................................... 23
Exhibit A.................................................................... 25
Exhibit B.................................................................... 44
Exhibit C.................................................................... 63
Exhibit D.................................................................... 65
</TABLE>
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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 11, 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 card 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 or our investor service center at (888)
256-2436.
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------------------------
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 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.
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------------------------
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.
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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 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.
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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.
------------------------
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
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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).
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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
the date of the Reorganization and remain Class A shareholders of the Colonial
Funds, to purchase additional Class A shares of the Colonial Funds and certain
other funds managed by Acquisition Corp. 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 Colonial Funds.
If the Plans are approved by shareholders, it is expected that the
Reorganization will be made effective at 9:00 a.m., Boston time, on or about
October 19, 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 35 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.
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- Colonial's sales 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
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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.
15
<PAGE>
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>
PRO FORMA
COLONIAL COMBINED COLONIAL
CRABBE HUSON GOVERNMENT FUND GOVERNMENT FUND
GOVERNMENT FUND (CLASS A SHARES) (CLASS A SHARES)
------------------- ------------------- ---------------------
<S> <C> <C> <C>
Management and Administration
Fees 0.55% 0.55% 0.55%
12b-1 Fees 0.25% 0.20% 0.20%
Transfer Agent Fees 0.51% 0.17% 0.17%
Other Expenses 0.74% 1.04% 0.78%
Total Expenses (based on
4/30/98 asset levels) 2.05% 1.96% 1.70%
Total Fund Operating Expenses
(after reimbursement or
waiver) 0.75% 0.80% 0.80%
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
COLONIAL COLONIAL MONEY MARKET
CRABBE HUSON MONEY MARKET FUND FUND
MONEY MARKET FUND (CLASS A SHARES) (CLASS A SHARES)
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Management and
Administration Fees 0.55% 0.49% 0.49%
12b-1 Fees 0.25% 0.00% 0.00%
Transfer Agent Fees 0.17% 0.20% 0.20%
Other Expenses 0.25% 0.19% 0.19%
Other Expenses of Hub N/A 0.03% 0.01%
Other Expenses (based on
4/30/98 asset levels) 1.22% 0.91% 0.89%
Total Fund Operating
Expenses (after
reimbursement or
waiver) 0.70% 0.72% 0.70%
</TABLE>
16
<PAGE>
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.
17
<PAGE>
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
18
<PAGE>
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
19
<PAGE>
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 Portfolio does not invest
primarily in U.S. government securities. Investments held by the Portfolio 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
20
<PAGE>
exchanged therefor, provided that he or she held such Crabbe Huson Fund shares
as capital assets.
Capital loss carryforwards of the Crabbe Huson Funds will inure to the
benefit of the Colonial Funds following the Reorganization.
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.
21
<PAGE>
------------------------
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.
------------------------
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.
22
<PAGE>
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.
23
<PAGE>
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 358,966.035
Crabbe Huson U.S. Government Money Market Fund 29,942,825.144
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
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OWNED PERCENTAGE OF FUND
- -------------------------------------- -------------- -------------------
<S> <C> <C>
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
</TABLE>
CRABBE HUSON U. S. GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
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>
25
<PAGE>
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
26
<PAGE>
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").
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.
27
<PAGE>
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 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
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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 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.
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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;
(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
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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 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,
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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:
(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
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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;
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(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
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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 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.
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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 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
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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 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
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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
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
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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 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
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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 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
40
<PAGE>
(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.
41
<PAGE>
9.2 CHT, on behalf of Crabbe Huson Fund, and Colonial Trust, 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
42
<PAGE>
damages resulting therefrom, including without limitation consequential damages,
except as specifically set forth in paragraph 11.2.
12. AMENDMENTS. 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.
43
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as a sealed instrument by its President or Vice President and its
corporate seal to be affixed thereto and attested by its Secretary or Assistant
Secretary.
COLONIAL TRUST II, on behalf of [Colonial Fund]
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:
------------------------------
44
<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
45
<PAGE>
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>
PERIOD ENDED YEAR ENDED
-----------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94
------------ -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.81 $ 10.66 $10.66 $10.27 $11.04
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 0.27 0.53 0.47 0.51 0.46
Net Realized & Unrealized Gain (Loss) on Investments........ 0.01 0.16 0.00 0.40 (0.65)
------ -------- -------- -------- --------
Total from Investment Operations........................ 0.28 0.69 0.47 0.91 (0.19)
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................... 0.32 0.54 0.47 0.51 0.47
Distributions in excess of Net Investment Income............ 0.00 0.00 0.00 0.01 0.00
Distributions from Capital Gains............................ 0.00 0.00 0.00 0.00 0.11
------ -------- -------- -------- --------
Total Distributions..................................... 0.32 0.54 0.47 0.52 0.58
------ -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.77 $ 10.81 $10.66 $10.66 $10.27
------ -------- -------- -------- --------
------ -------- -------- -------- --------
TOTAL RETURN................................................ 2.65% 6.65% 4.55% 9.12% (1.78)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $ 4,030 $ 4,494 $8,517 $8,426 $9,249
Ratio of Expenses to Average Net Assets..................... 0.75%(b)(c) 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to Average Net Assets........ 5.03%(c) 4.82% 4.44% 4.85% 4.39%
Portfolio Turnover Rate..................................... 59.15% 45.42% 226.37% 230.43% 76.09%
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% 1.47%
Ratio of Net Investment Income to Average Net Assets........ 3.73%(c) 3.79% 3.56% 4.14% 3.66%
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>
- ------------------------------
(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.
46
<PAGE>
THE FUND'S FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
10/31/93 10/31/92 10/31/91 10/31/90 10/31/89(A)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.91 $10.69 $10.24 $10.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 0.47 0.58 0.67 0.68 0.56
Net Realized & Unrealized Gain (Loss) on Investments........ 0.22 0.29 0.45 (0.04) 0.29
-------- -------- -------- -------- -----------
Total from Investment Operations........................ 0.69 0.87 1.12 0.64 0.85
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................... 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
Distributions from Capital Gains............................ 0.08 0.07 0.00 0.01 0.00
-------- -------- -------- -------- -----------
Total Distributions..................................... 0.56 0.65 0.67 0.68 0.57
-------- -------- -------- -------- -----------
NET ASSET VALUE, END OF PERIOD.............................. $ 11.04 $10.91 $10.69 $10.24 $10.28
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
TOTAL RETURN................................................ 6.71% 8.70% 11.17% 6.40% 11.15%(c)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $11,218 $8,959 $3,748 $2,069 $1,717
Ratio of Expenses to Average Net Assets..................... 0.75% 0.80% 0.96% 1.42% 1.14%(c)
Ratio of Net Investment Income to Average Net Assets........ 4.33% 5.35% 6.44% 6.72% 7.35%(c)
Portfolio Turnover Rate..................................... 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..................... 1.26% 1.52% 2.15% 2.84% 3.40%(c)
Ratio of Net Investment Income to Average Net Assets........ 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>
See footnotes on page 44.
47
<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
48
<PAGE>
securities normally involves a greater degree 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
49
<PAGE>
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 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
50
<PAGE>
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.
51
<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>
PERIOD ENDED YEAR ENDED
---------------------------------------------
4/30/98 10/31/97 10/31/96 10/31/95 10/31/94
------------ -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 0.02 0.05 0.05 0.05 0.03
Net Realized & Unrealized Gain (Loss) on Investments........ 0.00 0.00 0.00 0.00 0.00
------------ -------- -------- -------- --------
Total from Investment Operations........................ 0.02 0.05 0.05 0.05 0.03
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................... 0.02 0.05 0.05 0.05 0.03
Distributions in excess of Net Investment Income............ 0.00 0.00 0.00 0.00 0.00
------------ -------- -------- -------- --------
Total Distributions..................................... 0.02 0.05 0.05 0.05 0.03
------------ -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ -------- -------- -------- --------
------------ -------- -------- -------- --------
TOTAL RETURN................................................ 2.41% 4.83% 4.81% 5.30% 3.28%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $27,607 $28,538 $42,171 $54,714 $32,383
Ratio of Expenses to Average Net Assets..................... 0.70%(b) 0.70%(c) 0.70%(c) 0.70% 0.70%
Ratio of Net Investment Income to Average Net Assets........ 4.81%(b) 4.73% 4.74% 5.21% 3.39%
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% 1.29%
Ratio of Net Investment Income to Average Net Assets........ 4.29%(b) 4.29% 4.38% 4.75% 2.81%
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>
- ------------------------------
(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.
52
<PAGE>
THE FUND'S FINANCIAL HISTORY (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
10/31/93 10/31/92 10/31/91 10/31/90 10/31/89(A)
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................................... 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
-------- -------- -------- -------- -----------
Total from Investment Operations........................ 0.03 0.03 0.06 0.07 0.06
LESS DISTRIBUTIONS
Distributions from Net Investment Income.................... 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
-------- -------- -------- -------- -----------
Total Distributions..................................... 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
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
TOTAL RETURN................................................ 2.53% 3.36% 13.76% 7.62% 10.05%(c)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........................... $14,784 $12,395 $14,907 $21,406 $10,735
Ratio of Expenses to Average Net Assets..................... 0.70% 0.75% 0.81% 0.80% 0.60%(c)
Ratio of Net Investment Income to Average Net Assets........ 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..................... 1.32% 1.09% 1.18% 1.33% 1.34%(c)
Ratio of Net Investment Income to Average Net Assets........ 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>
See footnotes on page 50.
53
<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
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<PAGE>
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 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
55
<PAGE>
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 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.
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<PAGE>
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.
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.
57
<PAGE>
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.
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
58
<PAGE>
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."
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
59
<PAGE>
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 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
60
<PAGE>
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:
"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
61
<PAGE>
industry, and except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the same investment
objective and substantially similar investment policies as the Fund;
2. Invest in a security if, with respect to 75% of its assets, as a result
of such investment, more than 5% of its total assets (taken at market value at
the time of such investment) would be invested in the securities of any one
issuer, except that this restriction does not apply to U.S. Government
securities or repurchase agreements for such securities and except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund;**
3. Invest in a security if, as a result of such investment, it would hold
more than 10% (taken at the time of such investment) of the outstanding voting
securities of any one issuer, except that all or substantially all of the assets
of the Fund may be invested in another registered investment company having the
same investment objective and substantially similar investment policies as the
Fund;
4. Purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein);
5. Purchase or sell commodities or commodities contracts or oil, gas or
mineral programs;
6. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities;
7. Make loans, although it may (a) participate in an interfund lending
program with other 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;
- ------------------------
** 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.
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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
Act.
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<PAGE>
EXHIBIT C
COLONIAL BOARD OF TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS DURING PAST FIVE YEARS
- -------------------------------------- --------------------------------------------
<S> <C>
Robert J. Birnbaum Consultant (formerly Special Counsel,
313 Bedford Road Dechert Price & Rhoads from September, 1988
Ridgewood, NJ 07450 to December, 1993, President, New York Stock
Age: 70 Exchange from May, 1985 to June, 1988,
President, American Stock Exchange, Inc.
from 1977 to May, 1985).
Tom Bleasdale Retired (formerly Chairman of the Board and
11 Carriage Way Chief Executive Officer, Shore Bank & Trust
Danvers, MA 01923 Company from 1992-1993), is a Director of
Age: 68 The Empire Company since June, 1995.
Lora S. Collins Attorney (formerly Attorney, Kramer, Levin,
1175 Hill Road Naftalis & Frankel from September, 1986 to
Southold, NY 11971 November, 1996).
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: 62
William E. Mayer Partner, Development Capital, LLC (formerly
500 Park Avenue, 5th Floor Dean, College of Business and Management,
New York, NY 10022 University of Maryland from October, 1992 to
Age: 57 November, 1996, Dean, Simon Graduate School
of Business, University of Rochester from
October, 1991 to July, 1992).
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS DURING PAST FIVE YEARS
- -------------------------------------- --------------------------------------------
<S> <C>
James L. Moody, Jr. Retired (formerly Chairman of the Board,
16 Running Tide Road Hannaford Bros. Co. from May, 1984 to May,
Cape Elizabeth, ME 04107 1997, and Chief Executive Officer, Hannaford
Age: 66 Bros. Co. from May, 1973 to May, 1992).
John J. Neuhauser Dean, Boston College School of Management
140 Commonwealth Avenue since September, 1977.
Chestnut Hill, MA 02167
Age: 55
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.
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<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>
Annualized Total Return
1 Year: 6.65%
5 Year: 4.98%
Life of Fund: 6.78%
Fund Inception: 1/31/89
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
</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
- ------------------------
(1) An investment in the fund is neither insured nor guaranteed by the U.S.
Government.
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<PAGE>
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.
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>
67
<PAGE>
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
EXCERPT FROM AUGUST 31, 1997 ANNUAL REPORT
PRESIDENT'S MESSAGE
Dear shareholders
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 manager actively managed the Fund's sensitivity to
interest rate fluctuations. Your manager 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:
- 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,
[Signature]
Harold W. Cogger, President
October 13, 1997
Because market conditions change frequently, there can be no assurance that
the trends described above will continue.
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<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 V. 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.
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[BARCHART]
Source: Bloomberg -- all rights reserved.
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 FUND 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
70
<PAGE>
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>
RANK OUT OF
TOTAL NUMBER OF FUNDS
<S> <C> <C> <C>
1 year 16th 3 years 10th
out of 65 out of 52
</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.
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.
- ------------------------
(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.
71
<PAGE>
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN RISK
<S> <C> <C>
100% large-cap stocks 13.87% 14.38%
75% large-cap stocks, 25%
bonds 13.15% 11.60%
</TABLE>
YOUR MANAGER
Ann T. Peterson is a vice president of Colonial Management Associates, Inc.
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.
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.
72
<PAGE>
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.
[Signature]
Ann T. Peterson
COLONIAL'S GOVERNMENT BOND FUNDS
Over time, you can expect a longer duration fund to deliver more return, but
it also carries more risk.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL RETURN
POTENTIAL
<S> <C> <C> <C>
2.5 - 5.5 4.5 - 7.5
Duration Range Less than 3 years years years
Colonial Short Duration
U.S. Government Fund 6.79%
Colonial Intermediate
U.S. Government Fund 8.64%
Colonial Federal
Securities Fund 10.25%
</TABLE>
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.
73
<PAGE>
Fund Facts: 8/31/97
DURATION
1.37 years
<TABLE>
<CAPTION>
LAST 12 MONTHS' DISTRIBUTIONS SEC YIELD(1)
<S> <C> <C>
Class A $ 0.551 5.57%
- ---------------------------------------------------
Class B $ 0.487 5.09%
- ---------------------------------------------------
Class C $ 0.532 5.61%
- ---------------------------------------------------
</TABLE>
- ------------------------
(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.
<TABLE>
<CAPTION>
AVERAGE LIFE BREAKDOWN
(AS A PERCENTAGE OF NET ASSETS)
<S> <C>
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%
- ----------------------------------
</TABLE>
SECTOR BREAKDOWN
(AS A PERCENTAGE OF NET ASSETS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
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%
</TABLE>
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.
74
<PAGE>
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
<TABLE>
<CAPTION>
SHARE CLASS A B C
INCEPTION 10/1/92 2/1/93 1/4/95
NAV MOP NAV W/CDSC NAV W/CDSC
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------
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%
- ------------------------------------------------------------------
</TABLE>
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
75
<PAGE>
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.
76
<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 reorganization 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
reorganization 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 information
referenced above which is incorporated by reference herein. The financial
statement information which follows for the Crabbe Huson Funds and for Colonial
Short Duration U.S. Government Fund has been derived from the Funds' annual and
semi-annual reports. Those reports may contain financial statement information
for funds other than those referenced herein.
Page
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. (SEC Accession Number 0000883163-97-000028)
The unaudited financial statements of Colonial Money Market Fund included
in the Fund's Semi-Annual Report to Shareholders for the period ended
February 28, 1998. (SEC Accession Number 0000315665-98-000006)
The financial statements and Independent Auditor's Report of CHGMMF and
CHUSGIF included in the Funds' Annual Report to Shareholders for the
fiscal year ended October 31, 1997.(SEC Accession Number
0001047469-98-001184)
The unaudited financial statements of CHGMMF and CHUSGIF included in the
Funds' Semi Annual Report to Shareholders for the period ended April
30, 1998. (SEC Accession Number 0001047469-98-025156)
Pro Forma Combined Financial Statements for CMMF and CHGMMF prepared for
the year ended April 30, 1998.
The financial statements and Report of Independent Accountants of CSDUSGF
included in the Fund's Annual Report to Shareholders for the fiscal
year ended August 31, 1997. (SEC Accession Number 0000883163-97-000033)
The unaudited financial statements of CSDUSGF included in the Fund's
Semi-Annual Report to Shareholders for the period ended February 28,
1998. (SEC Accession Number 0000315665-98-000009)
Pro Forma Combined Financial Statements for CSDUSGF and CHUSGIF prepared
for the year ended April 30, 1998.
SH-XX871F-0998
<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.
