May 31, 1995
COLONIAL CALIFORNIA TAX-EXEMPT FUND
COLONIAL CONNECTICUT TAX-EXEMPT FUND
COLONIAL FLORIDA TAX-EXEMPT FUND
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
COLONIAL MICHIGAN TAX-EXEMPT FUND
COLONIAL MINNESOTA TAX-EXEMPT FUND
COLONIAL NEW YORK TAX-EXEMPT FUND
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
COLONIAL OHIO TAX-EXEMPT FUND
PROSPECTUS
BEFORE YOU INVEST
Colonial Management Associates, Inc. (Adviser) and your full-service
financial adviser want you to understand both the risks and benefits
of mutual fund investing.
While mutual funds offer significant opportunities and are
professionally managed, they also carry risks including possible loss
of principal. Unlike savings accounts and certificates of deposit,
mutual funds are not insured or guaranteed by any financial
institution or government agency.
Please consult your full-service financial adviser to determine how
investing in one of these mutual funds may suit your unique needs,
time horizon and risk tolerance.
Each of Colonial California, Connecticut, Florida, Massachusetts,
Michigan, Minnesota, New York, North Carolina and Ohio Tax-Exempt
Funds is a portfolio of Colonial Trust V (Trust), an open-end
management investment company. Each Fund seeks as high a level of
after-tax total return, as is consistent with prudent risk, by
pursuing current income exempt from federal and its state personal
income tax (if any) and opportunities for long-term appreciation
from a portfolio primarily invested in investment grade municipal
bonds. The Florida, Michigan and North Carolina Funds' shares are
intended to be exempt from the respective state's intangibles
tax. Each Fund (except the California Fund) is non-diversified.
The Funds are managed by the Adviser, an investment adviser since 1931.
SP-01/907A-0595
This Prospectus explains concisely what you should know before
investing in the Funds. Read it carefully and retain it for future
reference. More detailed information about each Fund is in the May
31, 1995 Statement of Additional Information which has been filed with
the Securities and Exchange Commission and is obtainable free of
charge by calling the Adviser at 1-800-248-2828. The Statement of
Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.
Each Fund offers two classes of shares. Class A shares are offered at
net asset value plus a sales charge imposed at the time of purchase;
Class B shares are offered at net asset value plus an annual
distribution fee and a declining contingent deferred sales charge on
redemptions made within six years after purchase. Class B shares
automatically convert to Class A shares after approximately eight
years. See "How to buy shares."
Contents Page
Summary of expenses. 2
The Funds' financial history 4
The Funds' investment objective 14
How the Funds pursue their
objective 14
How the Funds measure their
performance 18
How the Funds are managed 18
How the Funds value their shares 18
Distributions and taxes 19
How to buy shares 19
How to sell shares 20
How to exchange shares 20
Telephone transactions 21
12b-1 plans 21
Organization and history 21
Appendix 22
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in a
Fund. The following tables summarize your maximum transaction costs
and annual expenses for an investment in each Class of each Fund's
shares.
Shareholder Transaction Expenses(1)(2)
Class A Class B
Maximum Initial Sales Charge
Imposed on a Purchase (as a % of
offering price)(3) 4.75% 0.00%(5)
Maximum Contingent Deferred Sales
Charge (as a % of offering
price)(3) 1.00%(4) 5.00%
(1) For accounts less than $1,000 an annual fee of
$10 may be deducted. See "How to sell shares."
(2) Redemption proceeds exceeding $5,000 sent via
federal funds wire will be subject to a $7.50
charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Only with respect to any portion of purchases of
$1 million to $5 million redeemed within
approximately 18 months after purchase. See "How
to buy shares."
(5) Because of the 0.75% distribution fee applicable
to Class B shares, long-term Class B
shareholders may pay more in aggregate sales
charges than the maximum initial sales charge
permitted by the National Association of
Securities Dealers, Inc. However, because the
Funds' Class B shares automatically convert to
Class A shares after approximately 8 years, this
is less likely to be true for Class B shares
than for a class without a conversion feature.
Annual Operating Expenses (as a % of net assets)
California Connecticut Florida
Class A Class B Class A Class B Class A Class B
Management fee
(after
waiver)(6) 0.54% 0.54% 0.02% 0.02% 0.00% 0.00%
12b-1 fee
(6)(7) 0.12 0.87 0.12 0.87 0.12 0.87
Other expenses
(after waiver) 0.18 0.18 0.28 0.28 0.20 0.20
---- ---- ---- ---- ---- ----
Net expenses 0.84% 1.59% 0.42% 1.17% 0.32% 1.07%
==== ==== ==== ==== ==== ====
Massachusetts Michigan Minnesota
Class A Class B Class A Class B Class A Class B
Management fee
(after
waiver)(6) 0.45% 0.45% 0.25% 0.25% 0.30% 0.30%
12b-1
fee(6)(7) 0.12 0.87 0.12 0.87 0.12 0.87
Other expenses
(after waiver) 0.25 0.25 0.35 0.35 0.40 0.40
---- ---- ---- ---- ---- ----
Net expenses 0.82% 1.57% 0.72% 1.47% 0.82% 1.57%
==== ==== ==== ==== ==== ====
New York North Carolina Ohio
Class A Class B Class A Class B Class A Class B
Management fee
(after
waiver)(6) 0.10% 0.10% 0.00% 0.00% 0.41% 0.41%
12b-1
fees(6)(7) 0.12 0.87 0.12 0.87 0.12 0.87
Other expenses
(after waiver) 0.30 0.30 0.10 0.10 0.29 0.29
---- ---- ---- ---- ---- ----
Net expenses 0.52% 1.27% 0.22% 0.97% 0.82% 1.57%
==== ==== ==== ==== ==== ====
Without voluntary expense limits that the Adviser may discontinue at anytime,
the amounts in Annual Operating Expenses would be:
California Connecticut Florida
Class A Class B Class A Class B Class A Class B
Management fee (6) 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%
12b-1 fees (6) (7) 0.12 0.87 0.12 0.87 0.12 0.87
Other expenses 0.18 0.18 0.28 0.28 0.37 0.37
---- ---- ---- ---- ---- ----
Total expenses 0.84% 1.59% 0.94% 1.69% 1.03% 1.78%
==== ==== ==== ==== ==== ====
Massachusetts Michigan Minnesota
Class A Class B Class A Class B Class A Class B
Management fee (6) 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%
12b-1 fees(6)(7) 0.12 0.87 0.12 0.87 0.12 0.87
Other expenses 0.25 0.25 0.35 0.35 0.40 0.40
---- ---- ---- ---- ---- ----
Total expenses 0.91% 1.66% 1.01% 1.76% 1.06% 1.81%
==== ==== ==== ==== ==== ====
New York North Carolina Ohio
Class A Class B Class A Class B Class A Class B
Management fee (6) 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%
12b-1 fees(6)(7) 0.12 0.87 0.12 0.87 0.12 0.87
Other expenses 0.30 0.30 0.46 0.46 0.29 0.29
---- ---- ---- ---- ---- ----
Total expenses 0.96% 1.71% 1.12% 1.87% 0.95% 1.70%
==== ==== ==== ==== ==== ====
Example
The following Example shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each Class of shares of each Fund
for the periods specified, assuming a 5% annual return, and, unless
otherwise noted, redemption at period end. The 5% return and expenses
used in the Example should not be considered indicative of actual or
expected Fund performance or expenses, both of which will vary.
California Connecticut Florida
Class A Class B Class A Class B Class A Class B
Period: (8) (8) (8)
1 year $ 56 $ 66 $ 16 $52 $ 62 $ 12 $51 $ 61 $ 11
3 years 73 81 51 60 67 37 57 64 34
5 years 92 107 87 70 85 65 65 79 59
10 years 147 170(9) 170(9) 98 122(9) 122(9) 86 110(9) 110(9)
Massachusetts Michigan Minnesota
Class A Class B Class A Class B Class A Class B
Period: (8) (8) (8)
1 year $ 55 $ 66 $ 16 $ 55 $ 65 $ 15 $ 55 $ 66 $ 16
3 years 72 80 50 69 77 47 72 80 50
5 years 91 106 86 86 101 81 91 106 86
10 years 144 168(9) 168(9) 133 156(9) 156(9) 144 168(9) 168(9)
New York North Carolina Ohio
Class A Class B Class A Class B Class A Class B
Period: (8) (8) (8)
1 year $ 53 $ 63 $ 13 $50 $60 $10 $ 55 $ 66 $ 16
3 years 63 71 41 54 61 31 72 80 50
5 years 75 90 70 59 74 54 91 106 86
10 years 110 133(9) 133(9) 74 98(9) 98(9) 144 168(9) 168(9)
Without voluntary expense limits that the Adviser may discontinue at
any time, the amounts in the Example would be:
California Connecticut Florida
Class A Class B Class A Class B Class A Class B
Period: (8) (8) (8)
1 year $ 56 $ 66 $ 16 $ 57 $ 67 $ 17 $ 58 $ 68 $ 18
3 years 73 81 51 76 84 54 79 87 57
5 years 92 107 87 97 113 93 102 117 97
10 years 147 170(9) 170(9) 158 181(9) 181(9) 168 191(9) 191(9)
Massachusetts Michigan Minnesota
Class A Class B Class A Class B Class A Class B
Period: (8) (8) (8)
1 year $ 56 $ 67 $ 17 $ 57 $ 68 $ 18 $ 58 $ 69 $ 19
3 years 75 83 53 78 86 56 80 87 57
5 years 96 111 91 101 116 96 103 119 99
10 years 154 178(9) 178(9) 166 189(9) 189(9) 170 194(9) 194(9)
New York North Carolina Ohio
Class A Class B Class A Class B Class A Class B
Period: (8) (8) (8)
1 year $ 57 $ 68 $ 18 $ 58 $ 69 $ 19 $ 57 $ 67 $ 17
3 years 77 84 54 81 89 59 76 84 54
5 years 98 113 93 106 122 102 98 113 93
10 years 160 183(9) 183(9) 177 201(9) 201(9) 159 182(9) 182(9)
(6) The nominal Management and Rule 12b-1 fees were
changed during the fiscal year ended January
1995. The percentages shown are estimates based
on the new fees.
(7) Includes an annualized service fee of 0.12%.
The service fee rate will fluctuate but will not
exceed 0.25%.
(8) Assumes no redemption.
(9) Class B shares convert to Class A shares after
approximately 8 years; therefore years 9 and 10
reflect Class A shares expenses.
THE FUNDS' FINANCIAL HISTORY
The following schedules of financial highlights for a share
outstanding throughout each period have been audited by Price
Waterhouse LLP, independent accountants. Their unqualified reports
are included in the Funds' 1995 Annual Reports, and are incorporated
by reference into the Statement of Additional Information.
<TABLE>
<CAPTION>
CALIFORNIA
Two months ended Year ended
Year ended January 31 January 31 November 30
1995 1994 1993(b) 1992
Class A Class B Class A Class B Class A Class B Class A Class B (c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $7.660 $7.660 $7.350 $7.350 $7.270 $7.270 $7.150 $7.410
------ ------ ------ ------ ------- ------- ------ -------
Income from investment
operations:
Net investment income(a) 0.413 0.360 0.434 0.378 0.076 0.067 0.467 0.143
Net realized and
unrealized gain (loss)
on investments (0.791) (0.791) 0.315 0.315 0.081 0.081 0.109 (0.151)
------- ------- ----- ----- ----- ----- ----- -------
Total from investment
operations (0.378) (0.431) 0.749 0.693 0.157 0.148 0.576 (0.008)
------- ------- ------- ------- ------- ------- ------- -------
Less distributions
declared to shareholders:
From net investment income (0.412) (0.359) (0.439) (0.383) (0.077) (0.068) (0.456) (0.132)
Total distributions
declared shareholders: (0.412) (0.359) (0.439) (0.383) (0.077) (0.068) (0.456) (0.132)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value -
End of period $6.870 $6.870 $7.660 $7.660 $7.350 $7.350 $7.270 $7.270 (g)
------- ------ ------- ------- ------- ------- ------- -------
------- ------ ------- ------- ------- ------- ------- -------
Total return(d)(e) (4.83)% (5.55)% 10.44% 9.63% 8.70%(f 1.01%(f) 8.27% 1.94% (g)
------- ------ ------- ------- ------- ------- ------- -------
------- ------ ------- ------- ------- ------- ------- -------
Ratios to average net assets:
Expenses 0.77%(h) 1.52%(h) 0.75% 1.50% 0.65%(g) 1.40%(g) 0.71% 1.46%
Net investment income 5.91% 5.16% 5.73% 4.98% 6.29%(g) 5.54%(g) 6.44% 5.69%
Fees and expenses waived
or borne by Adviser 0.06% 0.06% 0.08% 0.08% 0.21%(g) 0.21%(g) 0.13% 0.13%
Portfolio turnover 47% 47% 17% 17% 19%(g) 19%(g) 12% 12%
Net assets at
end of period (000) $301,912 $98,975 $379,987 $104,578 $337,409 $33,819 $324,012 $22,797
- ----------------------------
(a) Net of fees and
expenses waived or
borne by the Adviser
which amounted to...... $0.004 $0.004 $0.006 $0.006 $0.002 $0.002 $0.010 $0.010
(b) The Fund changed its fiscal year end from November 30 to January
31 in 1992.
(c) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect
activity from that date.
(d) Total return at net asset value assuming all distributions
reinvested and no initial
sales charge or contingent deferred sales charge.
(e) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(f) Not annualized.
(g) Annualized.
(h) Includes service fee since inception on December 1, 1994, of
0.02% (not annualized).
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA (CONTINUED)
Period ended
Year ended November 30 November 30
1991 1990 1989 1988 1987 1986(b)
<S> Class A Class A Class A Class A Class A Class A
Net asset value - <C> <C> <C> <C> <C> <C>
Beginning of period $6.940 $7.010 $6.850 $6.530 $7.490 $7.140
------ ------ ------ ------- ------- -------
Income from investment operations:
Net investment income(a) 0.473 0.490 0.480 0.497 0.515 0.237
Net realized and unrealized
gain (loss) on investments 0.211 (0.065) 0.160 0.316 (0.950) 0.351
----- ------ ------ ------ ------- ------
Total from investment operations: 0.684 0.425 0.640 0.813 (0.435) 0.588
------ ------ ------ ------ ------- ------
Less distributions declared
to shareholders
From net investment income (0.473) (0.492) (0.480) (0.493) (0.514) (0.238)
From net realized gains --- -- ---- -- (0.002) ---
From capital paid in (c) (0.001) (0.003) --- --- (0.009) ---
------ ------ ------ ------- ------- -------
Total distributions declared
to shareholders (0.474) (0.495) (0.480) (0.493) (0.525) (0.238)
------- ------- ------- ------- ------- -------
Net asset value - End of period $7.150 $6.940 $7.010 $6.850 $6.530 $7.490
------ ------ ------- ------- ------- -------
------ ------ ------- ------- ------- -------
Total return (d) (e) 10.18% 6.30% 9.61% 12.74% (6.02)% 8.35% (f)
------ ------ ------- ------- ------- -------
------ ------ ------- ------- ------- -------
Ratios to average net assets:
Expenses 0.80% 0.70% 0.95% 0.66% 0.52% --- (g)
Net investment income 6.69% 7.02% 6.87% 7.28% 7.33% 6.99% (g)
Fees and expenses waived
or borne by Adviser 0.05% 0.15% 0.15% 0.49% 0.63% 1.08% (g)
Portfolio turnover 11% 22% 40% 106% 94% 31% (g)
Net assets at end of period (000) $295,459 $221,519 $155,514 $133,317 $113,774 $57,777
(a) Net of fees and
expenses waived or borne
by the Adviser which
amounted to............... $0.003 $0.010 $0.011 $0.033 $0.044 $0.014
(b) The Fund commenced investment operations on June 16, 1986.
(c) Because of differences between book and tax basis accounting
there was no return of capital for federal income tax purposes.
(d) Total return at net asset value assuming all distributions
reinvested and no initial
sales charge or contingent deferred sales charge.
(e) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(f) Not annualized.
(g) Annualized.
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT
Year ended January 31
1995 1994
---- ----
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning
of period $7.890 $7.890 $7.420 $7.420
------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income(a) 0.418 0.363 0.429 0.372
Net realized and unrealized
gain (loss) on investments (0.809) (0.809) 0.465 0.465
------- ------- ----- -----
Total from investment
operations (0.391) (0.446) 0.894 0.837
------- ------- ----- -----
Less distributions declared
to shareholders:
From net investment income (0.418) (0.363) (0.424) (0.367)
In excess of net investment income --- --- --- ---
From net realized gains (0.001) (0.001) --- ---
In excess of net realized gains --- --- --- ---
------- ------- ------- -------
Total from distributions declared
to shareholders (0.419) (0.364) (0.424) (0.367)
------- ------- ------- -------
Net asset value - End of period $7.080 $7.080 $7.890 $7.890
===== ===== ===== =====
Total return(d)(e) (4.85)% (5.57)% 12.30% 11.49%
==== ==== ===== =====
Ratios to average net assets:
Expenses 0.32%(f) 1.07%(f) 0.22% 0.97%
Net investment income 5.81% 5.06% 5.48% 4.73%
Fees and expense waived
or borne by the Adviser 0.55% 0.55% 0.65% 0.65%
Portfolio turnover 22% 22% 5% 5%
Net assets at end of period (000) $74,616 $73,580 $91,436 $71,791
- -------------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted
to......................... $0.039 $0.039 $0.051 $0.051
(b) Class B shares were initially offered on June 8, 1992.
Per share amounts reflect activity from that date.
(c) The Fund commenced investment operations on November 1, 1991.
(d) Total return at net asset value assuming all
distributions reinvested and no initial sales charge
or contingent deferred sales charge.
(e) Had the Adviser not waved or reimbursed a portion of
expenses total return would have been reduced.
(f) Includes service fee since its inception in December
1, 1994, of 0.02% (not annualized).
(g) Not annualized.
(h) Annualized.
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT
Period ended
Year ended January 31 January 31
1993 1992
---- ----
Class A Class B(b) Class A (c)
------- ---------- -----------
<S> <C> <C> <C>
Net asset value - Beginning
of period $7.190 $7.200 $7.140
------ ------ ------
Income (loss) from investment
operations:
Net investment income(a) 0.449 0.256 0.118
Net realized and unrealized
gain (loss) on investments 0.270 0.257 0.046
----- ----- -----
Total from investment
operations 0.719 0.513 0.164
----- ----- -----
Less distributions declared
to shareholders:
From net investment income (0.452) (0.256) (0.114)
In excess of net investment income (0.002) (0.002) ---
From net realized gains (0.021) (0.021) ---
In excess of net realized gains (0.014) (0.014) ---
------- ------- -------
Total from distributions declared
to shareholders (0.489) (0.293) (0.114)
------- ------- -------
Net asset value - End of period $7.420 $7.420 $7.190
===== ===== =====
Total return(d)(e) 10.34% 7.23%(g) 2.31%(g)
===== ==== ====
Ratios to average net assets:
Expenses --- 0.75%(h) ---
Net investment income 6.00% 5.25%(h) 4.68%(h)
Fees and expense waived
or borne by the Adviser 0.90% 0.90% 1.32%(h)
Portfolio turnover 4% 4% 53%(h)
Net assets at end of period (000) $63,126 $27,839 $12,349
- -------------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted
to........................... $0.067 $0.042 $0.033
(b) Class B shares were initially offered on June 8, 1992.
Per share amounts reflect activity from that date.
(c) The Fund commenced investment operations on November 1, 1991.
(d) Total return at net asset value assuming all
distributions reinvested and no initial sales charge
or contingent deferred sales charge.
(e) Had the Adviser not waved or reimbursed a portion of
expenses total return would have been reduced.
(f) Includes service fee since its inception in December
1, 1994, of 0.02% (not annualized).
(g) Not annualized.
(h) Annualized.
</TABLE>
<TABLE>
<CAPTION>
FLORIDA
Year ended January 31
1995 1994(b)
---- -------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $7.930 $7.930 $7.500 $7.500
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income(a) 0.423 0.369 0.434 0.378
Net realized and unrealized gain (loss) on investments (0.839) (0.839) 0.420 0.420
------- ------- ----- -----
Total from investment operations (0.416) (0.470) 0.854 0.798
------- ------- ----- -----
Less distributions declared to shareholders:
From net investment income (0.414) (0.360) (0.424) (0.368)
Net asset value - End of period $7.100 $7.100 $7.930 $7.930
===== ===== ===== =====
Total return(c)(d) (5.11)% (5.83)% 11.66% 10.85%
==== ==== ===== =====
Ratios to average net assets:
Expenses 0.22%(e) 0.97%(e) 0.05% 0.80%
Net investment income 5.92% 5.17% 5.40% 4.65%
Fees and expenses waived or borne by the Adviser 0.73% 0.73% 0.88% 0.88%
Portfolio turnover 45% 45% 19% 19%
Net assets at end of period (000) $27,498 $31,116 $23,802 $31,513
- -------------------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to................ $0.052 $0.052 $0.071 $0.071
(b) The Fund commenced investment operations on February 1, 1993.
(c) Total return at net asset value assuming all
distributions reinvested and no initial sales charge
or contingent deferred sales charge.
(d) Had the Adviser not waved or reimbursed a portion of
expenses total return would have been reduced.
(e) Includes service fee since its inception in December
1, 1994, of 0.02% (not annualized).
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS
Year ended January 31
1995 1994 1993
Class A Class B Class A Class B Class A Class B (b)
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $8.130 $8.130 $7.700 $7.700 $7.420 $7.450
------ ------ ------ ------ ------- ------
Income from investment operations:
Net investment income(a) 0.444 0.388 0.453 0.395 0.481 0.272
Net realized and unrealized
gain (loss) on investments (0.738) (0.738) 0.439 0.439 0.301 0.275
------ ------ ------ ------ ------- ------
Total from investment
operations (0.294) (0.350) 0.892 0.834 0.782 0.547
------ ------ ------ ------ ------- ------
Less distributions declared
to shareholders:
From net investment income (0.446) (0.390) (0.462) (0.404) (0.479) (0.274)
From net realized gains --- --- --- --- (0.002) (0.002)
In excess of net realized gains --- --- --- --- (0.021) (0.021)
------ ------ ------ ------ ------- ------
Total distributions declared
to shareholders (0.446) (0.390) (0.462) (0.404) (0.502) (0.297)
------ ------ ------ ------ ------- ------
Net asset value - End of period $7.390 $7.390 $8.130 $8.130 $7.700 $7.700
------ ------ ------ ------ ------- ------
------ ------ ------ ------ ------- ------
Total return(c)(d) (3.49)% (4.21)% 11.86% 11.05% 10.87% 1.11%(f)
------ ------ ------ ------ ------- ------
------ ------ ------ ------ ------- ------
Ratios to average net assets:
Expenses 0.72%(e) 1.47%(e) 0.64% 1.39% 0.54% 1.29%(g)
Net investment income 5.93% 5.18% 5.68% 4.93% 6.38% 5.63%(g)
Fees and expense waived
or borne by the Adviser 0.12% 0.12% 0.21% 0.21% 0.33% 0.33%
Portfolio turnover 58% 58% 7% 7% 7% 7%
Net assets at end of period (000) $193,303 $53,973 $225,636 $51,819 $186,526 $17,282
_____________________________
(a) Net of fees and
expenses waived or
borne by the Adviser
which amounted to
amounted to.................. $0.009 $0.009 $0.016 $0.016 $0.025 $0.016
(b) Class B shares were initially offered on June 8, 1992. Per share amounts reflect
activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of total
expenses total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on April 10, 1987.
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS
Period ended
Year ended January 31 January 31
1992 1991 1990 1989 1988(h)
Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.120 $7.080 $7.190 $7.060 $7.140
------ ------ ------- ------ -------
Income from investment operations:
Net investment income(a) 0.505 0.523 0.515 0.517 0.407
Net realized and unrealized
gain (loss) on investments 0.295 0.041 (0.107) 0.129 (0.085)
------ ------ ------- ------ -------
Total from investment
operations 0.800 0.564 0.408 0.646 0.322
------ ------ ------- ------ -------
Less distributions declared
to shareholders:
From net investment income (0.500) (0.524) (0.518) (0.516) (0.402)
From net realized gains --- --- --- --- ---
In excess of net realized gain --- --- --- --- ---
------ ------ ------- ------ -------
Total distributions declared
to shareholders (0.500) (0.524) (0.518) (0.516) (0.402)
------- ------- ------- ------- -------
Net asset value - End of period $7.420 $7.120 $7.080 $7.190 $7.060
------ ------ ------- ------ -------
------ ------ ------- ------ -------
Total return(c)(d) 11.61% 8.31% 5.86% 9.55% 4.80%(f)
------ ------ ------- ------ -------
------ ------ ------- ------ -------
Ratios to average net assets:
Expenses 0.46% 0.30% 0.45% 0.22% ---(g)
Net investment income 6.89% 7.34% 7.17% 7.30% 7.47%(g)
Fees and expense waived
or borne by the Adviser 0.43% 0.65% 0.89% 1.94% 2.90%(g)
Portfolio turnover 14% 30% 25% 44% 104%(g)
Net assets at end of period (000) $145,957 $85,301 $42,167 $21,987 $7,563
_____________________________
(a) Net of fees and
expenses waived or
borne by the Adviser
which amounted to
amounted to.................. $0.032 $0.046 $0.064 $0.137 $0.157
(b) Class B shares were initially offered on June 8, 1992. Per share amounts reflect
activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of total
expenses total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on April 10, 1987.
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN
Year ended January 31
1995 1994 1993
---- ---- ----
Class A Class B Class A Class B Class A Class B(b)
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.340 $7.340 $6.970 $6.970 $6.730 $6.950
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (a) 0.410 0.359 0.404 0.351 0.405 0.167
Net realized and unrealized
gain (loss) on investments (0.689) (0.689) 0.356 0.356 0.250 0.029
------- ------- ----- ----- ----- -----
Total from investment
operations (0.279) (0.330) 0.760 0.707 0.655 0.196
------- ------- ----- ----- ----- -----
Less distributions declared
to shareholders:
From net investment income (0.401) (0.350) (0.390) (0.337) (0.407) (0.168)
In excess of net investment income --- --- --- --- (0.008) (0.008)
----- ----- ----- ----- ------- -------
Total distributions declared
to shareholders (0.401) (0.350) (0.390) (0.337) (0.415) (0.176)
------- ------- ------- ------- ------- -------
Net asset value - End of period $6.660 $6.660 $7.340 $7.340 $6.970 $6.970
====== ====== ====== ====== ====== ======
Total return (c)(d) (3.66)% (4.39)% 11.16% 10.36% 10.04% 0.98%(f)
====== ====== ===== ===== ===== ====
Ratios to average net assets:
Expenses 0.62%(e) 1.37%(e) 0.66% 1.41% 0.88% 1.63%(g)
Net investment income 6.08% 5.33% 5.61% 4.86% 5.86% 5.11%(g)
Fees and expense waived
or borne by the Adviser 0.32% 0.32% 0.33% 0.33% 0.32% 0.32%
Portfolio turnover 40% 40% 7% 7% 14% 14%
Net assets at end of period (000) $41,844 $14,144 $45,570 $15,030 $36,024 $6,670
_____________________________
(a) Net of fees
and expenss waived
or borne by the
Adviser which
amounted to.................... $0.022 $0.022 $0.024 $0.024 $0.022 $0.009
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial
sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on September 26, 1986.
(i) Because of differences between book and tax basis accounting, there was no
return of capital for federal income tax purposes.
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN
Period ended
Year ended January 31 January 31
1992 1991 1990 1989 1988 1987(h)
---- ---- ---- ---- ---- ----
Class A Class A Class A Class A Class A Class A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.520 $6.520 $6.690 $6.550 $7.260 $7.140
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (a) 0.432 0.441 0.422 0.438 0.495 0.170
Net realized and unrealized
gain (loss) on investments 0.208 (0.001) (0.168) 0.133 (0.709) 0.125
----- ------- ------- ----- ------- -----
Total from investment
operations 0.640 0.440 0.254 0.571 (0.214) 0.295
----- ----- ----- ----- ------- -----
Less distributions declared
to shareholders:
From net investment income (0.430) (0.440) (0.424) (0.431) (0.496)(i) (0.175)(i)
In excess of net investment income --- --- --- --- --- ---
----- ----- ----- ----- ----- -----
Total distributions declared
to shareholders (0.430) (0.440) (0.424) (0.431) (0.496) (0.175)
------- ------- ------- ------- ------- -------
Net asset value - End of period $6.730 $6.520 $6.520 $6.690 $6.550 $7.260
====== ====== ====== ====== ====== ======
Total return (c)(d) 10.12% 7.01% 3.90% 9.08% (2.68)% 4.18% (f)
===== ==== ==== ==== ====== ====
Ratios to average net assets:
Expenses 0.95% 1.00% 1.42% 1.29% 0.38% --- (g)
Net investment income 6.50% 6.79% 6.37% 6.73% 7.38% 6.19% (g)
Fees and expense waived
or borne by the Adviser 0.35% 0.40% 0.30% 0.51% 1.36% 1.93% (g)
Portfolio turnover 5% 18% 16% 57% 58% 31% (g)
Net assets at end of period (000) $28,608 $24,273 $18,870 $20,112 $21,426 $9,679
_____________________________
(a) Net of fees
and expenss waived
or borne by the
Adviser which
amounted to..................... $0.023 $0.026 $0.020 $0.033 $0.089 $0.052
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial
sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on September 26, 1986.
(i) Because of differences between book and tax basis accounting, there was no
return of capital for federal income tax purposes.
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA
Year ended January 31
1995 1994 1993
Class A Class B Class A Class B Class A Class B (b)
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.480 $7.480 $7.160 $7.160 $7.030 $7.210
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) 0.415 0.363 0.419 0.364 0.449 0.191
Net realized and unrealized
gain (loss) on investments (0.642) (0.642) 0.323 0.323 0.125 (0.049)
------- ------- ------ ------ ------ -------
Total from investment
operations (0.227) (0.279) 0.742 0.687 0.574 0.142
-------- ------- ----- ----- ----- -----
Less distributions declared
to shareholders:
From net investment income (0.413) (0.361) (0.422) (0.367) (0.444) (0.192)
From net realized gains --- --- --- --- --- ---
From capital paid in (c) --- --- --- --- --- ---
------- ------- ------- ------- ------- -------
Total distributions declared
to shareholders (0.413) (0.361) (0.422) (0.367) (0.444) (0.192)
------- ------- ------- ------- ------- -------
Net asset value - End of period $6.840 $6.840 $7.480 $7.480 $7.160 $7.160
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total return (d)(e) (2.92)% (3.65)% 10.62% 9.81% 8.41% 2.01%(g)
------- ------- ------- ------ ------ -------
------- ------- ------- ------ ------ -------
Ratios to average net assets:
Expenses 0.72%(f) 1.47%(f) 0.82% 1.57% 0.85% 1.60%(h)
Net investment income 5.98% 5.23% 5.69% 4.94% 6.33% 5.58%(h)
Fees and expense waived
or borne by the Adviser 0.26% 0.26% 0.20% 0.20% 0.35% 0.35%
Portfolio turnover 26% 26% 9% 9% 5% 5%
Net assets at end of period (000) $35,846 $14,731 $41,326 $10,317 $35,017 $2,173
_____________________________
(a) Net of fees
and waived or borne
by the Adviser
which amounted to............ $0.018 $0.018 $0.015 $0.015 $0.025 $0.009
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Because of differences between book and tax basis accounting,
there was no return of capital for federal income tax purposes.
(d) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(e) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(f) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(g) Not annualized.
(h) Annualized.
(i) The Fund commenced investment operations on September 26, 1986.
</TABLE>
<TABLE>
<CAPTION>
Period ended
Year ended January 31 January 31
1992 1991 1990 1989 1988 1987(i)
Class A Class A Class A Class A Class A Class A
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.930 $6.820 $6.850 $6.820 $7.310 $7.140
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) 0.461 0.467 0.440 0.434 0.499 0.170
Net realized and unrealized
gain (loss) on investments 0.098 0.108 (0.032) 0.034 (0.490) 0.175
------ ------ ------ ------ ------ ------
Total from investment
operations 0.559 0.575 0.408 0.468 0.009 0.345
------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders:
From net investment income (0.458) (0.465) (0.438) (0.438) (0.497) (0.175)
From net realized gains --- --- --- --- (0.002) ---
From capital paid in (c) (0.001) --- --- --- --- ---
------- ------- ------- ------- ------- -------
Total distributions declared
to shareholders (0.459) (0.465) (0.438) (0.438) (0.499) (0.175)
------- ------- ------- ------- ------- -------
Net asset value - End of period $7.030 $6.930 $6.820 $6.850 $6.820 $7.310
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return (d)(e) 8.33% 8.70% 6.11% 7.15% 0.47% 4.87% (g)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Ratios to average net assets:
Expenses 0.88% 1.00% 1.41% 1.47% 0.55% ---- (h)
Net investment income 6.58% 6.77% 6.40% 6.41% 7.22% 6.16% (h)
Fees and expense waived
or borne by the Adviser 0.42% 0.37% 0.28% 0.39% 1.36% 4.83% (h)
Portfolio turnover 1% 7% 13% 20% 43% 43% (h)
Net assets at end of period (000) $30,676 $24,188 $19,100 $19,721 $17,533 $5,765
_____________________________
(a) Net of fees
and waived or borne
by the Adviser
which amounted to............ $0.029 $0.026 $0.019 $0.027 $0.094 $0.131
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Because of differences between book and tax basis accounting,
there was no return of capital for federal income tax purposes.
(d) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(e) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(f) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(g) Not annualized.
(h) Annualized.
(i) The Fund commenced investment operations on September 26, 1986.
</TABLE>
<TABLE>
<CAPTION>
NEW YORK
Year ended January 31
1995 1994 1993
---- ---- ----
Class A Class B Class A Class B Class A Class B(b)
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.500 $7.500 $7.090 $7.090 $6.840 $7.130
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) 0.427 0.376 0.421 0.368 0.438 0.182
Net realized and unrealized
gain (loss) on investments (0.834) (0.834) 0.407 0.407 0.260 (0.029)
------- ------- ----- ----- ----- -------
Total from investment operations (0.407) (0.458) 0.828 0.775 0.698 0.153
------- ------- ----- ----- ----- -----
Less distributions declared
to shareholders:
From net investment income (0.413) (0.362) (0.418) (0.365) (0.445) (0.190)
In excess of net investment income --- --- --- --- (0.003) (0.003)
----- ----- ----- ----- ------- -------
Total distributions declared
to shareholders (0.413) (0.362) (0.418) (0.365) (0.448) (0.193)
------- ------- ------- ------- ------- -------
Net asset value - End of period $6.680 $6.680 $7.500 $7.500 $7.090 $7.090
====== ====== ====== ====== ====== ======
Total return (c)(d) (5.32)% (6.04)% 11.95% 11.14% 10.50% 1.16%(f)
====== ====== ===== ===== ===== ====
Ratios to average net assets:
Expenses 0.42%(e) 1.17%(e) 0.62% 1.37% 0.96% 1.71%(g)
Net investment income 6.25% 5.50% 5.68% 4.93% 6.25% 5.50%(g)
Fees and expense waived
or borne by the Adviser 0.46% 0.46% 0.29% 0.29% 0.06% 0.06%
Portfolio turnover 65% 65% 25% 25% 7% 7%
Net assets at end of period (000) $53,322 $43,166 $63,527 $45,061 $53,779 $14,473
_____________________________
(a) Net of fees
and expenses
waived or borne by
the Adviser which
amounted to.................... $0.032 $0.032 $0.021 $0.021 $0.004 $0.001
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on September 26, 1986.
</TABLE>
<TABLE>
<CAPTION>
NEW YORK
Period ended
Year ended January 31 January 31
1992 1991 1990 1989 1988 1987(h)
---- ---- ---- ---- ---- ----
Class A Class A Class A Class A Class A Class A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.600 $6.590 $6.690 $6.620 $7.310 $7.140
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) 0.453 0.459 0.441 0.427 0.488 0.175
Net realized and unrealized
gain (loss) on investments 0.242 0.013 (0.116) 0.073 (0.687) 0.168
----- ----- ------- ----- ------- -----
Total from investment operations 0.695 0.472 0.325 0.500 (0.199) 0.343
----- ----- ----- ----- ------- -----
Less distributions declared
to shareholders:
From net investment income (0.455) (0.462) (0.425) (0.430) (0.491) (0.173)
In excess of net investment income --- --- --- --- --- ---
----- ----- ----- ----- ----- -----
Total distributions declared
to shareholders (0.455) (0.462) (0.425) (0.430) (0.491) (0.173)
------- ------- ------- ------- ------- -------
Net asset value - End of period $6.840 $6.600 $6.590 $6.690 $6.620 $7.310
====== ====== ====== ====== ====== ======
Total return (c)(d) 10.86% 7.42% 4.98% 7.89% (2.44)% 4.83% (f)
===== ==== ==== ==== ====== ====
Ratios to average net assets:
Expenses 1.00% 1.04% 1.46% 1.46% 0.49% --- (g)
Net investment income 6.71% 6.99% 6.62% 6.52% 7.35% 6.27% (g)
Fees and expense waived
or borne by the Adviser 0.14% 0.24% 0.05% 0.10% 1.04% 1.70% (g)
Portfolio turnover 17% 6% 41% 53% 112% 30% (g)
Net assets at end of period (000) $40,233 $31,691 $23,124 $25,360 $26,588 $15,738
_____________________________
(a) Net of fees
and expenses
waived or borne by
the Adviser which
amounted to................... $0.009 $0.016 $0.003 $0.007 $0.070 $0.047
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on September 26, 1986.
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA
Year ended January 31
1995 1994(b)
---- -------
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $7.500 $7.500 $7.500 $7.500
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income(a) 0.396 0.345 0.164 0.141
Net realized and unrealized loss on investments (0.822) (0.822) --- ---
------- ------- ----- -----
Total from investment operations (0.426) (0.477) 0.164 0.141
------- ------- ----- -----
Less distributions declared to shareholders:
From net investment income (0.394) (0.343) (0.164) (0.141)
------- ------- ------- -------
Net asset value - End of period $6.680 $6.680 $7.500 $7.500
===== ===== ===== =====
Total return(c)(d) (5.55)% (6.27)% 2.22%(f) 1.90%(f)
==== ==== ==== ====
Ratios to average net assets:
Expenses 0.12%(e) 0.87%(e) 0.10%(g) 0.85%(g)
Net investment income 5.83% 5.08% 4.91%(g) 4.16%(g)
Fees and expenses waived or borne by the Adviser 0.93% 0.93% 1.20%(g) 1.20%(g)
Portfolio turnover 37% 37% 1%(g) 1%(g)
Net assets at end of period (000) $14,189 $17,169 $13,710 $9,934
- ----------------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to................... $0.063 $0.063 $0.040 $0.040
(b) The Fund commenced investment operations on February 1, 1993.
(c) Total return at net asset value assuming all
distributions reinvested and no initial sales charge
or contingent deferred sales charge.
(d) Had the Adviser not waved or reimbursed a portion of
expenses total return would have been reduced.
(e) Includes service fee since its inception in December
1, 1994, of 0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
</TABLE>
<TABLE>
<CAPTION>
OHIO
Year ended January 31
1995 1994 1993
---- ---- ----
Class A Class B Class A Class B Class A Class B(b)
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.670 $7.670 $7.290 $7.290 $7.090 $7.330
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) 0.401 0.348 0.406 0.351 0.444 0.185
Net realized and unrealized
gain (loss) on investments (0.745) (0.745) 0.389 0.389 0.204 (0.033)
------- ------- ----- ----- ----- -------
Total from investment
operations (0.344) (0.397) 0.795 0.740 0.648 0.152
------- ------- ----- ----- ----- -----
Less distributions declared
to shareholders:
From net investment income (0.396) (0.343) (0.411) (0.356) (0.448) (0.192)
In excess of net investment income --- --- (0.004) (0.004) --- ---
From net realized gains --- --- --- --- --- ---
----- ----- ----- ----- ----- -----
Total distributions declared
to shareholders (0.396) (0.343) (0.415) (0.360) (0.448) (0.192)
------- ------- ------- ------- ------- -------
Net asset value - End of period $6.930 $6.930 $7.670 $7.670 $7.290 $7.290
====== ====== ====== ====== ====== ======
Total return (c)(d) (4.38)% (5.10)% 11.17% 10.36% 9.41% 0.85%(f)
====== ====== ===== ===== ==== ====
Ratios to average net assets:
Expenses 0.72%(e) 1.47%(e) 0.82% 1.57% 1.00% 1.75%(g)
Net investment income 5.71% 4.96% 5.34% 4.59% 6.18% 5.43%(g)
Fees and expense waived
or borne by the Adviser 0.16% 0.16% 0.09% 0.09% 0.03% 0.03%
Portfolio turnover 33% 33% 3% 3% 13% 13%
Net assets at end of period
(000) $72,123 $53,547 $79,394 $51,212 $62,439 $7,293
_____________________________
(a) Net of fees
and expenses
waived or borne by
the Adviser which
amounted to........................ $0.011 $0.011 $0.007 $0.007 $0.002 ---
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on September 26, 1986.
(i) Approximately $0.004 per share represents a return of capital for book purposes only.
</TABLE>
<TABLE>
<CAPTION>
OHIO
Period ended
Year ended January 31 January 31
1992 1991 1990 1989 1988 1987(h)
---- ---- ---- ---- ---- -------
Class A Class A Class A Class A Class A Class A
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.880 $6.750 $6.850 $6.640 $7.260 $7.140
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) 0.457 0.462 0.463 0.448 0.499 0.175
Net realized and unrealized
gain (loss) on investments 0.208 0.138 (0.114) 0.204 (0.615) 0.120
----- ----- ------- ----- ------- -----
Total from investment
operations 0.665 0.600 0.349 0.652 (0.116) 0.295
----- ----- ----- ----- ------- -----
Less distributions declared
to shareholders:
From net investment income (0.455) (0.470) (0.449) (0.442) (0.503)(i) (0.175)
In excess of net investment income --- --- --- --- --- ---
From net realized gains --- --- --- --- (0.001) ---
----- ----- ----- ----- ------- -----
Total distributions declared
to shareholders (0.455) (0.470) (0.449) (0.442) (0.504) (0.175)
------- ------- ------- ------- ------- -------
Net asset value - End of period $7.090 $6.880 $6.750 $6.850 $6.640 $7.260
====== ====== ====== ====== ====== ======
Total return (c)(d) 10.00% 9.21% 5.21% 10.22% (1.25)% 4.18%(f)
===== ==== ==== ===== ====== ====
Ratios to average net assets:
Expenses 1.00% 1.00% 1.27% 1.28% 0.41% --- (g)
Net investment income 6.57% 6.83% 6.77% 6.74% 7.49% 6.59%(g)
Fees and expense waived
or borne by the Adviser 0.09% 0.15% 0.06% 0.34% 1.12% 1.72%(g)
Portfolio turnover 13% 11% 45% 89% 69% 158%(g)
Net assets at end of period
(000) $50,281 $41,158 $27,433 $27,676 $27,320 $13,041
_____________________________
(a) Net of fees
and expenses
waived or borne by
the Adviser which
amounted to....................... $0.006 $0.010 $0.004 $0.022 $0.074 $0.045
(b) Class B shares were initially offered on August 4, 1992. Per
share amounts reflect activity from that date.
(c) Total return at net asset value assuming all distributions
reinvested and no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses
total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of
0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
(h) The Fund commenced investment operations on September 26, 1986.
(i) Approximately $0.004 per share represents a return of capital for book purposes only.
</TABLE>
Further performance information is contained in each Fund's Annual
Report to shareholders, which is obtainable free of charge by calling
1-800-248-2828.
THE FUNDS' INVESTMENT OBJECTIVES
Each Fund seeks as high a level of after-tax total return, as is
consistent with prudent risk, by pursuing current income exempt from
federal and its state personal income tax (if any)
and opportunities for long-term appreciation from a portfolio
primarily invested in investment grade municipal bonds. The Florida,
Michigan and North Carolina Funds' shares are intended to be exempt
from the respective state's intangibles tax.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
Each Fund normally invests substantially all of its assets in
investment grade debt securities of any maturity, the interest on
which is exempt from federal income tax and that state's personal
income tax (if any), other than any alternative minimum tax (State
Bonds); in the case of the Florida, Michigan and North Carolina Funds,
the State Bonds are exempt from the state intangibles tax. The value
of debt securities (and thus of Fund shares) usually fluctuates
inversely to changes in interest rates. Mutual funds investing in
taxable securities may have higher yields than the Funds. Each Fund
under normal circumstances will invest at least 80% of its assets in
its State's Bonds. The Minnesota Fund intends to invest its assets so
that at least 95% of its exempt-interest dividends each year are
derived from certain Minnesota sources, as specified by Minnesota law.
In periods of unusual market conditions, when the Adviser considers it
appropriate, each Fund may temporarily invest up to 50% of its total
assets in assets that are not State Bonds, subject to applicable state
requirements. The Adviser relies on the opinion of bond counsel to
each issuer as to the tax-exempt status of the issue. Each Fund
normally limits investments in State Bonds subject to individual
alternative minimum tax and securities that are not State Bonds to a
maximum of 20% of the Fund's total assets, subject to applicable state
requirements. Investment grade securities are those rated at least
Baa by Moody's, BBB by S&P, comparably rated by another national
rating service or unrated but considered similar in quality by the
Adviser. Bonds rated BBB or Baa are considered to have some
speculative characteristics and could be more adversely affected by
unfavorable economic developments than higher rated bonds. Each Fund
may invest up to 25% of its net assets in securities below investment
grade (or comparable unrated securities), but not below the equivalent
of CCC by S&P. Each Fund may invest up to 25% of its assets in
unrated State Bonds and other unrated securities, subject to
applicable state requirements. Certain bonds do not pay interest in
cash on a current basis. However, the Funds will accrue and
distribute this interest on a current basis, and may have to sell
securities to generate cash for distributions. Certain variable rate
debt securities (known as "inverse floaters") pay interest rates that
move inversely to changes in short-term market interest rates, but
have values that move inversely to changes in long-term rates. The
values of certain inverse floaters will change substantially more,
given a change in long-term rates, than would a traditional debt
security of similar maturity. There may not always be a sufficient
supply of State Bonds to enable the Funds to achieve their objectives.
Many bonds have call features and if called the Funds may only be able
to invest the proceeds at lower yields.
Each Fund may invest, under normal conditions, up to 20% of its total
assets in high quality, short-term obligations of banks or
corporations (rated at least Prime-2 by Moody's, A-2 by S&P,
comparably rated by another national rating service or unrated but
considered comparable by the Adviser), the U.S. government, and
repurchase agreements. These investments are subject to federal
and/or state income tax. In addition, gains realized upon the sale of
portfolio securities may be taxable when distributed by the Fund.
Under a repurchase agreement, a Fund buys a security from a bank or
dealer, which is obligated to buy it back at a fixed price and time.
The security is held in a separate account at the Fund's custodian and
constitutes that the Fund's collateral for the bank's repurchase
obligation. However, if the bank or dealer defaults or enters
bankruptcy, the Fund may experience costs and delays in liquidating
the collateral and may experience a loss if it is unable to
demonstrate its right to the collateral in a bankruptcy hearing. Not
more than 15% of each Fund's net assets will be invested in repurchase
agreements maturing in more than 7 days and other illiquid assets.
To participate in the new issues market, each Fund may without limit
acquire securities on a "when-issued" basis by contracting to purchase
securities for a fixed price on a date beyond the customary settlement
time with no interest accruing until settlement. High quality
securities in an amount equal to the when-issued securities are
maintained in a segregated account at the custodian. If made through
a dealer the contract is dependent on the dealer's consummation of the
sale. The dealer's failure could deprive a Fund of an advantageous
yield or price. These contracts may be considered securities and
involve risk to the extent that the value of the underlying security
changes prior to settlement. A Fund may realize short-term profits or
losses if the contracts are sold.
Lower Rated Bonds (commonly referred to as junk bonds). The Funds may
purchase lower rated bonds. Lower rated bonds are those rated lower
than Baa by Moody's or BBB by S&P, or comparable unrated securities.
(The Funds will not purchase securities rated below CCC by S&P or
equivalent.) Relative to comparable securities of high quality:
1. The market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a
more significant effect on the yield, price and potential for
default;
b. the secondary market may at times become less liquid or respond
to adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;
c. existing or future legislation limits and may further limit (i)
investment by certain institutions or (ii) tax deductibility of
the interest by the issuer, which may adversely affect value;
and
d. certain lower rated bonds do not pay interest in cash on a
current basis. However, the Funds will accrue and distribute
this interest on a current basis, and may have to sell
securities to generate cash for distributions.
2. The Funds' achievement of their investment objective is more
dependent on the Adviser's credit analysis.
3. Lower rated bonds are less sensitive to interest rate changes,
but are more sensitive to adverse economic developments.
Options And Futures. Each Fund may write covered call and put options
and purchase call and put options on debt securities. A call option
gives the purchaser the right to buy a security from, and a put option
the right to sell a security to, the option writer at a specified
price, on or before a specified date. Each Fund will pay a premium
when purchasing an option, which reduces the Fund's return on the
underlying security if the option is exercised and results in a loss
if the option expires unexercised. Each Fund will receive a premium
from writing an option, which may increase its return if the option
expires or is closed out at a profit. If the Fund is unable to close
out an unexpired option, the Fund must continue to hold the underlying
security until the option expires. Trading hours for options may
differ from the trading hours for the underlying securities. Thus
significant price movements may occur in the securities markets that
are not reflected in the options market. This may limit the
effectiveness of options as hedging devices.
Each Fund may buy or write options that are not traded on national
securities exchanges and not protected by the Options Clearing
Corporation. These transactions are effected directly with a broker-
dealer, and each Fund bears the risk that the broker-dealer will fail
to meet its obligations. The market value of such options and other
illiquid assets will not exceed 15% of each Fund's total assets.
For hedging purposes each Fund may purchase or sell (1) interest rate
and tax-exempt bond index futures contracts and (2) put and call
options on such contracts and on such indices. A futures contract
creates an obligation by the seller to deliver and the buyer to take
delivery of the type of instrument at the time and in the amount
specified in the contract. Although a futures contract calls for
delivery (or acceptance) of the specified instrument, a futures
contract is usually closed out before the settlement date through the
purchase (sale) of a comparable contract. If the initial sale price
of the future exceeds (or is less than) the price of the offsetting
purchase, the Fund realizes a gain (or loss). Options on futures
contracts operate in a similar manner to options on securities, except
that the position assumed is in the futures contracts rather than in
the security. A Fund may not purchase or sell futures contracts or
purchase related options if immediately thereafter the sum of the
amount of deposits for initial margin or premiums on the existing
futures and related options positions would exceed 5% of the market
value of the Fund's total assets. Transactions in futures and related
options involve the risk of (1) imperfect correlation between the
price movement of the contracts and the underlying securities, (2)
significant price movement in one but not the other market because of
different trading hours, (3) the possible absence of a liquid
secondary market at any point in time, and (4) if the Adviser's
prediction on interest rates is inaccurate, the Fund may be worse off
than if it had not hedged.
Special Considerations. State Bonds include general obligation bonds
(GOs), revenue bonds (RBs) and industrial revenue bonds (IRBs). GOs
are payable from the issuer's unrestricted revenues and may depend on
appropriation by the applicable legislative body. RBs are payable
only from a specified revenue source, not the unrestricted revenues of
the issuer. An IRB generally is payable only from the revenues of the
corporate user of a facility and consequently its credit rating
relates to that of the corporate user. Each Fund may invest more than
25% of its total assets in IRBs, but intends to limit investments in
IRBs which are based on the credit of private entities in any one
industry to 25% or less.
State Fiscal Conditions. The value of each Fund's shares may be
affected by factors pertaining to its state's economy (which may
affect issuer tax revenues) and the ability of issuers of State Bonds
to meet their obligations and may fluctuate more widely than the value
of shares of a portfolio investing in a number of different states.
The availability of federal, state and local aid to issuers of State
Bonds may also affect their ability to meet their obligations.
Payments of principal and interest on RBs and IRBs will depend on the
economic condition of the specific revenue source, which could be
affected by economic, political and demographic conditions in the
relevant state. There is no assurance that any issuer of a State Bond
will make full and timely payments of principal and interest or remain
solvent. For example, in December 1994, Orange County, California
filed for protection under the federal bankruptcy laws. A reduction
in the actual or perceived ability of an issuer of State Bonds to meet
its obligations (including a reduction in the rating of its
outstanding securities) could also affect adversely the value and
marketability of State Bonds.
California. From mid-1990 to late 1993, the State of California
suffered a recession with the worst economic, fiscal and budget
conditions since the 1930's. Construction, manufacturing (especially
aerospace), and financial services, among others, were severely
affected. Job losses were the worst of any post-war recession, and
although employment levels stabilized by late 1993 and grew during
1994, pre-recession employment levels are not expected to be reached
until late 1996. Economic indicators show a steady recovery underway
in the State since the start of 1994. The recession seriously
affected State tax revenues and caused an increase in expenditures for
health and welfare programs. Consequently, the State has experienced
recurring budget deficits, and the ratings of the State's general
obligation bonds have been lowered, most recently in July 1994. It is
impossible to predict the time, location or magnitude of a major
earthquake or its effect on the California economy. In January 1994,
a major earthquake struck Los Angeles, causing significant property
damage in a four-county area. The possibility exists that another
earthquake could create a major dislocation of the California economy.
Certain California State Bonds rely on real property taxes as a source
of revenue. In 1978, California voters approved Proposition 13, which
limits ad valorem taxes on real property and restricts the ability of
taxing entities to increase property taxes. California voters
subsequently approved measures that limit spending by the State and
local governments. Decreased State revenues may result in reductions
of funds provided to local governments. The effect of these changes
on the ability of issuers of California State Bonds to pay interest
and principal on their obligations remains unclear, and may depend
upon whether a particular bond is a general obligation or limited
obligation bond.
Connecticut. The State of Connecticut has a mature economy with
primary dependence on durable goods manufacturing, particularly in
defense-related industries. Significant job losses in this sector
coupled with restructurings in the insurance and other service
industries have resulted in the State losing 9% of its job base
between 1988 and 1993. Partially offsetting these factors is the
State's exceptional personal wealth level which, despite the poverty
of certain of its largest cities, continues to rank among the first in
the nation in terms of per capita income. While no signs of a strong
economic recovery are present, personal income growth has increased
and unemployment levels have stabilized. Strong tax revenue
collections through the first half of fiscal year 1994 reinforce the
positive actions taken by the State's government in 1992 to implement
a personal income tax while cutting certain business and consumption
based taxes with the intent of reducing economic vulnerability and
diversifying the revenue base. These actions have been coupled with a
constitutional cap on the rate of spending growth and have served to
stabilize the State's finances and restore budgetary balance. The
outlook for future economic growth is modest and a return to the
growth rates of the 1980s is unlikely.
Florida. The State of Florida continues to experience strong
population growth and good economic performance. The State's economy
is becoming more diversified with foreign trade surpassing tourism as
the State's leading industry. Export industries have benefited from
the State's strategic geographic location for international trade,
particularly with Latin America. Creation of additional long-term
opportunities is expected from the passage of NAFTA. While the
State's growth has been impressive, continuing strong fiscal and
economic performance will be based on the State's ability to maintain
a balance that adequately funds the additional service and
infrastructure needs driven by rapid population growth while
continuing to promote further economic development. Without a
personal income tax, the State's operations are largely dependent on
consumption based taxes which are more vulnerable to general economic
conditions.
Massachusetts. The Commonwealth of Massachusetts has a highly
developed economy with a large service sector, particularly in health
care and education. Strong economic growth in the 1980s was halted
late in the decade by weakening in the high technology, real estate
and finance sectors, resulting in steady job losses. At this time,
unemployment in the Commonwealth appears to have peaked and, along
with other indicators, including construction and retail sales
activity, points toward a leveling off of recovery of the local
economy. It is believed, however, that the turnaround in the
Commonwealth's economy will not match the growth rates of the early
1980s as continued restructuring in the defense and computer
manufacturing industries will hold back anticipated strength in the
construction, biotech and computer software industries. The
Commonwealth's economy is also dependent on the healthcare sector
which could be hurt by cuts in medicare and other reforms in
Washington. Of equal importance to the observed economic improvement
is the Commonwealth's progress in stabilizing its fiscal position
since 1990. More realistic revenue expectations and increased efforts
to impose spending discipline have resulted in the elimination of
deficit financing, reduced reliance on short-term financing and three
consecutive years of positive fund balances.
Michigan. The State of Michigan is highly industrialized with a
strong economic concentration in motor vehicle production and other
durable goods manufacturing. A significant degree of industrial
restructuring took place in the early 1980s thus mitigating the
economic impact of the recent recession. A broad-based recovery for
the State rests on national economic development and continuing
improvement in international competitiveness that will in turn boost
demand for the State's primary products. To date, positive economic
indicators for the State include a stabilizing market share and
improving profitability for the domestic auto manufacturers, increased
manufacturing productivity and a minimal exposure to the downsizing
defense industry. In addition, the State has demonstrated its
commitment to addressing budget imbalances and promoting public
service efficiencies, resulting in balanced general fund operations
throughout a difficult economic period and enabling the State to
transfer approximately $464 million to the State's budget
stabilization fund as of September 30, 1994, the end of the State's
1993-94 fiscal year, bringing the balance in that fund to over $779
million.
Minnesota. The State of Minnesota's overall economic structure
closely parallels that of the nation as a whole, although
manufacturing is modestly more significant than construction, finance
and real estate. The State's strong natural resource base is
evidenced in its strong positions in food and forestry products, and
the State serves as a major regional commercial center. While the
recession has been less severe in the State than in the nation
overall, the State has not been immune to its impact as evidenced by
slowdowns in income and sales tax revenue growth. Because the State
relies on a progressive personal income tax and retail sales tax for
general fund revenue, the State's fiscal system is particularly
sensitive to economic conditions. As a result, the less than expected
revenue growth, combined with increased spending pressure, led to
budget deficits in fiscal years 1991 and 1992. The State demonstrated
its financial discipline by curing the deficits through a variety of
measures, including a sales tax rate increase and spending cuts. An
improved economy in 1993 and 1994 has led to stronger revenues and a
more favorable expectation for balanced budget operations. On May 22,
1995, the Minnesota legislature approved legislation which in effect
provides that if a court determines that it is unconstitutional for
Minnesota to tax, among other things, interest on the obligations of
other states, while exempting income from obligations of Minnesota
governmental units and Indian tribes, then the intended remedy will
be to tax income on existing and newly issued obligations of Minnesota
governmental units and Indian tribes. The tax would be effective for
each taxpayer's then current fiscal year. As of May 22, 1995, the
Governor had not signed the legislation into effect.
New York. The State of New York enjoys a generally diverse and
substantial economic base and a strong socioeconomic profile with
personal income levels among the highest in the nation. The
employment levels in the State have been adversely affected by the
most recent recession as a result of an overweighting in the service
sector, especially in finance, real estate and insurance. While
unemployment appears to have peaked, the State's level continues to be
in excess of the national average. Significant improvement in the
labor market is not expected due to current weakness in the
manufacturing, defense sectors and healthcare. Income levels have
suffered as well, despite the State's strong position relative to the
rest of the nation, as growth rates have been stagnant and have lagged
the nation as a whole. Improvement in this indicator of economic
health will be tied to improvement in the employment level. New
York's financial operations have been historically weak, with chronic
budget deficits, untimely budget passage and overly optimistic revenue
assumptions in the face of a protracted economic recession. The
Governor recently proposed a series of tax cuts designed to stimulate
business activity. Both the State and New York City must overcome
substantial budget gaps in fiscal year 1996 which will be difficult
given the local politics and economic health of the State and New York
City. A concurrent focus on structural debt reform may also improve
the State's financial management and fiscal position.
North Carolina. Although the State of North Carolina is the tenth
largest state in population, it is primarily a rural state, having
only five municipalities with populations in excess of 100,000. The
labor force has undergone significant change during recent years. The
State has moved from an agricultural to a service and goods producing
economy. Those persons displaced by farm mechanization and farm
consolidations have, in large measure, sought and found employment in
other pursuits. During the period 1980 to 1994, the State labor force
grew about 25%. Per capita income during the period 1980 to 1993
increased by 133.8%. The current economic profile of the State
consists of a combination of industry, agriculture and tourism. As of
June 1994, the State was reported to rank tenth among the states in
non-agricultural employment and eigth in manufacturing employment.
Employment indicators have varied somewhat in the annual periods since
June of 1989, but have demonstrated an upward trend since 1991. As of
the date of this Prospectus, Moody's rated the State's general
obligation bonds as Aaa and Standard & Poor's rated such bonds as AAA.
Standard & Poor's also reaffirmed its stable outlook for the State in
January 1994. Standard & Poor's reports that the State's rating
reflects the State's strong economic characteristics, sound financial
performance, and low debt levels.
Ohio. While diversifying more into the service and other non-
manufacturing areas, the State of Ohio's economy continues to rely in
part on durable goods manufacturing largely concentrated in motor
vehicles and equipment, steel, rubber products and household
appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture is an
important segment of the economy. In prior years, the State's overall
unemployment rate was commonly somewhat higher than the national
figure. However, for the last four years the State rates were below
the national rates. The unemployment rate and its effects vary among
geographic areas of the State.
Non-Diversification. Because of the relatively small number of
issuers of investment grade State Bonds, each Fund (except the
California Fund) may concentrate in the securities of a few issuers
which the Adviser considers to be attractive. This may increase the
risk of loss to those Funds. It is also possible that there will not
be a sufficient supply of State Bonds available to enable each Fund to
achieve its objective.
Other. The Funds may not always achieve their investment objective.
The Funds' investment objective and non-fundamental policies may be
changed without shareholder approval. Each Fund will notify investors
at least 30 days prior to any material change in its investment
objective. If there is a change in a Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate
investment in light of their current financial position and needs.
Shareholders may incur a contingent deferred sales charge if shares
are redeemed in response to a change in objective. Each Fund's
fundamental policies listed in the Statement of Additional Information
cannot be changed without the approval of a majority of that Fund's
outstanding voting securities. Additional information concerning
certain of the securities and investment techniques described above is
contained in the Statement of Additional Information.
HOW THE FUNDS MEASURE THEIR PERFORMANCE
Performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance
with the Securities and Exchange Commission's formula and assume the
reinvestment of all distributions, the maximum initial sales charge of
4.75% on Class A shares and the contingent deferred sales charge
applicable to the time period quoted on Class B shares. Other total
returns differ from the average annual total return only in that they
may relate to different time periods, may represent aggregate as
opposed to average annual total returns, and may not reflect the
initial or contingent deferred sales charges.
Each Class's yield and tax-equivalent yield, which differ from total
return because they do not consider the change in net asset value, are
calculated in accordance with the Securities and Exchange Commission's
formula. Each Class's distribution rate is calculated by dividing
the most recent month's distribution, annualized, by the maximum
offering price of that Class at the end of the month. Each Class's
performance may be compared to various indices. Quotations from
various publications may be included in sales literature and
advertisements. See "Performance Measures" in the Statement of
Additional Information for more information.
All performance information is historical and does not predict future
results.
HOW THE FUNDS ARE MANAGED
The Trustees formulate the Funds' general policies and oversee the
Funds' affairs as conducted by the Adviser.
The Adviser is a subsidiary of The Colonial Group, Inc. Colonial
Investment Services, Inc. (Distributor ) is a subsidiary of the
Adviser and serves as the distributor for the Funds' shares . The
Colonial Group, Inc. is the parent of Colonial Investors Service
Center, Inc. (Transfer Agent), which serves as the shareholder
services and transfer agent for the Funds. The Colonial Group, Inc.
is a direct subsidiary of Liberty Financial Companies, Inc. which in
turn is an indirect subsidiary of Liberty Mutual Insurance Company
(Liberty Mutual). Liberty Mutual is considered to be the controlling
entity of The Colonial Group, Inc. Liberty Mutual is an underwriter
of worker's compensation insurance and a property and casualty insurer
in the U.S.
The Adviser furnishes each Fund with investment management, accounting
and administrative personnel and services, office space and other
equipment and services at the Adviser's expense. For these services,
each Fund paid the Adviser the following percentage of the Fund's net
assets for the year ended 1995: the California Fund paid 0.51%; the
Connecticut Fund paid 0.02%; the Massachusetts Fund paid 0.45%; the
Michigan Fund paid 0.25%; the Minnesota Fund paid 0.30%; the New York
Fund paid 0.10%; and the Ohio Fund paid 0.41%; the Florida Fund and
the North Carolina Fund did not pay any fee.
Jeffrey B. Augustine, Vice President of the Adviser, has managed the
Connecticut Fund since its inception, the Florida Fund since 1993, the
Massachusetts Fund since 1988, the New York Fund since 1987 and the
North Carolina Fund since its inception. Mr. Augustine has managed
various other Colonial tax-exempt funds since 1987.
Brian Hartford, Vice President of the Adviser, has managed the
Michigan Fund, the Minnesota Fund and the Ohio Fund since 1993. Mr.
Hartford was a Senior Municipal Trader of the Adviser from 1991 until
1993, and Manager of the Analyst Department at Harvard Management
Company until 1991.
William C. Loring, Vice President of the Adviser, has managed the
California Fund since its inception and has managed various other
Colonial tax-exempt funds since 1986.
The Adviser also provides pricing and bookkeeping services to each
Fund for a monthly fee of $2,250 per Fund plus a percentage of each
Fund's average net assets over $50 million. The Transfer Agent
provides transfer agency and shareholder services to each Fund for a
fee of 0.14% annually of average net assets plus out-of-pocket
expenses.
Each of the foregoing fees is subject to any reimbursement or fee
waiver to which the Adviser may agree.
The Adviser places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to it and its affiliates.
Subject to seeking best execution, the Adviser may consider sales of
shares of the Funds (and of certain other Colonial funds) in selecting
broker-dealers for portfolio security transactions.
HOW THE FUNDS VALUE THEIR SHARES
Per share net asset value is calculated by dividing the total value of
each Class's net assets by its number of outstanding shares. Shares
are valued as of the close of the New York Stock Exchange (Exchange)
each day the Exchange is open. Portfolio securities for which market
quotations are readily available are valued at market. Short-term
investments maturing in 60 days or less are valued at amortized cost,
when it is determined,, pursuant to procedures adopted by the
Trustees, that such cost approximates market value. All other
securities and assets are valued at fair value following procedures
adopted by the Trustees.
DISTRIBUTIONS AND TAXES
Each Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code and to distribute to shareholders virtually
all net income and any net realized gain at least annually.
The Funds generally declare distributions daily and pay them monthly.
Distributions are invested in additional shares of the same Class of
the Fund at net asset value unless the shareholder elects to receive
cash. Regardless of the shareholder's election, distributions of $10
or less will not be paid in cash but will be invested in additional
shares of the same class of the Fund at net asset value. To change
your election, call the Transfer Agent for information. The Funds'
distributions of net income generally will be exempt from Federal and
the relevant State's income taxes. However, as described above under
"How the Funds pursue their objective," certain investments may
produce taxable income, and portfolio transactions may produce gains a
portion of which may be taxable at ordinary Federal income tax rates.
If the Funds make taxable distributions, those distributions will
generally be taxable whether you receive them in cash or in additional
Fund shares, unless you are a tax-exempt institution. Each January,
information on the amount and nature of distributions for the prior
year, including the alternative minimum tax portion, is sent to
shareholders.
While each Fund's distributions from income on its State's Bonds are
generally not taxable at the federal level or subject to that Fund's
state's personal income tax, if any, a portion may be included in
computing a shareholder's alternative minimum tax liability. Social
security benefits may be taxed as a result of receiving tax-exempt
income.
HOW TO BUY SHARES
Shares are offered continuously. Orders received in good form prior
to 4:00 p.m. Eastern time (or placed with a financial service firm
before such time and transmitted by the financial service firm before
a Fund processes that day's share transactions) will be processed
based on that day's closing net asset value, plus any applicable
initial sales charge. The minimum initial investment is $1,000;
subsequent investments may be as small as $50. The minimum initial
investment for the Colonial Fundamatic program is $50. Certificates
will not be issued for Class B shares and there are some limitations
on the issuance of Class A certificates. The Funds may refuse any
purchase order for their shares. See the Statement of Additional
Information for more information.
Class A Shares. Class A shares are offered at net asset value plus an
initial or a contingent deferred sales charge as follows:
______Initial Sales Charge_____
Retained
by
Financial
Service
Firm as
as % of %
Amount Offering Offering
Amount Purchased Invested Price Price
Less than $50,000 4.99% 4.75% 4.25%
$50,000 to less than $100,000 4.71% 4.50% 4.00%
$100,000 to less than
$250,000 3.63% 3.50% 3.00%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
On purchases of $1 million or more, the Distributor pays the financial
service firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000...........1.00%
Next $2,000,000............0.50%
Over $5,000,000............0.25% (1)
(1) Paid over 12 months but only to the
extent the shares remain outstanding.
Purchases of $1 million to $5 million are subject to a 1.00%
contingent deferred sales charge payable to the Distributor on
redemptions within 18 months from the first day of the month following
the purchase. The contingent deferred sales charge does not apply to
the excess of any purchase over $5 million.
Class A shares bear an annual service fee calculated at the rates of
0.10% of average net assets attributed to shares outstanding on
November 30, 1994, and 0.25% of average net assets attributed to
shares issued thereafter.
Class B Shares. Class B shares are offered at net asset value,
without an initial sales charge, subject to a 0.75% annual
distribution fee for approximately 8 years (at which time they convert
to Class A shares not bearing a distribution fee), an annual service
fee calculated at the rates of 0.10% of average net assets attributed
to shares outstanding on November 30, 1994, and 0.25% of average net
assets attributed to shares issued thereafter and a contingent
deferred sales charge if redeemed within 6 years after purchase. As
shown below, the amount of the contingent deferred sales charge
depends on the number of years after purchase that the redemption
occurs:
Contingent
Years Deferred
After Purchase Sales Charge
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
Year one ends one year after the end of the month in which the
purchase was accepted and so on. The Distributor pays financial
service firms a commission of 4.00% on Class B share purchases.
General. All contingent deferred sales charges are deducted from the
redemption, not the amount remaining in the account, and are paid to
the Distributor. Shares issued upon distribution reinvestment and
amounts representing appreciation are not subject to a contingent
deferred sales charge. The contingent deferred sales charge is
imposed on redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments in the
account reduced by prior redemptions on which a contingent deferred
sales charge was paid and any exempt redemptions). See the Statement
of Additional Information for more information.
Which Class is more beneficial to an investor depends on the amount
and intended length of the investment. Large investments, qualifying
for a reduced Class A sales charge, avoid the distribution fee.
Investments in Class B shares have 100% of the purchase invested
immediately. Purchases of $250,000 or more must be for Class A
shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for
selling different classes of shares. The Distributor may pay
additional compensation to financial service firms which have made or
may make significant sales. Initial or contingent deferred sales
charges may be reduced or eliminated for certain groups or
organizations purchasing Fund shares alone or in combination with
certain other Colonial funds. See the Statement of Additional
Information for more information.
Shareholder Services. A variety of shareholder services are
available. For more information about these services or your account,
call 1-800-345-6611. Some services are described in the attached
account application. A shareholder's manual explaining all available
services will be provided upon request.
HOW TO SELL SHARES
Shares may be sold on any day the New York Stock Exchange is open,
either directly to a Fund or through your financial service firm.
Sale proceeds generally are sent within seven days (usually on the
next business day after your request is received in good form).
However, for shares recently purchased by check, the Fund will send
proceeds after 15 days from the date of the purchase.
Selling Shares Directly To A Fund. Send a signed letter of
instruction or stock power form to the Transfer Agent, along with any
certificates for shares to be sold. The sale price is the net asset
value (less any applicable contingent deferred sales charge) next
calculated after the particular Fund receives the request in proper
form. Signatures must be guaranteed by a bank, a member firm of a
national stock exchange or another eligible guarantor institution.
Stock power forms are available from financial service firms, the
Transfer Agent and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account holders. For details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Selling Shares Through Financial Service Firms. Financial service
firms must receive requests before 4:00 p.m. Eastern time to receive
that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for federal and
state tax purposes and may be subject to a contingent deferred sales
charge. The deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information for more
information. Under unusual circumstances, a Fund may suspend
repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. In June of any year, a Fund may
deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped below $1,000
solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account before the fee
is deducted.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made among shares of the same
class of most Colonial funds. Shares will continue to age without
regard to the exchange for purposes of conversion and determining the
contingent deferred sales charge, if any, upon redemption. Carefully
read the prospectus of the fund into which the exchange will go before
submitting the request. Call 1-800-248-2828 to receive a prospectus
and an exchange authorization form. Call 1-800 422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction.
The exchange service may be changed, suspended or eliminated on 60
days' written notice.
Class A Shares. An exchange from a money market fund into a non-money
market fund will be at the applicable offering price next determined
(including sales charge), except for amounts on which an initial sales
charge was paid. Non-money market fund shares must be held for five
months before qualifying for exchange to a fund with a higher sales
charge, after which exchanges are made at the net asset value next
determined.
Class B Shares. Exchanges of Class B shares are not subject to the
contingent deferred sales charge. However, if shares are redeemed
within six years after the original purchase, a contingent deferred
sales charge will be assessed using the schedule of the fund into
which the original investment was made.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers may redeem up to
$50,000 of Fund shares by telephone, and may elect telephone
redemption privileges for larger amounts on the account application.
All exchanges may be accomplished by telephone. See the Statement of
Additional Information for more information. The Adviser, the
Transfer Agent and the Fund will not be liable when following
telephone instructions reasonably believed to be genuine and a
shareholder may suffer a loss from unauthorized transactions. The
Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Shareholders
and/or their financial advisers will be required to provide their
name, address and account number. Financial advisers will also be
required to provide their broker number. Proceeds and confirmations
of telephone transactions will be mailed or sent to the address of
record. Telephone redemptions are not available on accounts with an
address change in the preceding 60 days. All telephone transactions
are recorded. Shareholders are not obligated to transact by
telephone.
12B-1 PLANS
Under 12b-1 Plans, each Fund pays the Distributor an annual service
fee calculated at the rates of 0.10% of average net assets attributed
to shares outstanding on November 30, 1994, and 0.25% of average net
assets attributed to shares issued thereafter. Each Fund also pays
the Distributor an annual distribution fee of 0.75% of the average net
assets attributed to its Class B shares. Because the Class B shares
bear the additional fee, their dividends will be lower than the
dividends of Class A shares. Class B shares automatically convert to
Class A shares, approximately eight years after the Class B shares
were purchased. The multiple class structure could be terminated
should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The
Distributor uses the fees to defray the cost of commissions and
service fees paid to financial service firms which have sold Fund
shares and to defray other expenses such as sales literature,
prospectus printing and distribution, shareholder servicing costs, and
compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The
Plans also authorize other payments to the Distributor and its
affiliates (including the Adviser) which may be construed to be
indirect financing of sales of Fund shares.
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1987. Each
Fund represents the entire interest in a separate portfolio of the
Trust.
The Trust is not required to hold annual shareholder meetings, but
special meetings may be called for certain purposes. You receive one
vote for each of your Fund shares. Shares of the Trust vote together
except when required by law to vote separately by fund or by class.
Shareholders owning in the aggregate ten percent of Trust shares may
call meetings to consider removal of Trustees. Under certain
circumstances, the Trust will provide information to assist
shareholders in calling such a meeting. See the Statement of
Additional Information for more information.
APPENDIX
DESCRIPTION OF BOND RATINGS
S&P
AAA The highest rating assigned by S&P indicates an extremely strong
capacity to repay principal and interest.
AA bonds also qualify as high quality. Capacity to repay principal
and pay interest is very strong, and in the majority of instances,
they differ from AAA only in a small degree.
A bonds have a strong capacity to repay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB bonds are regarded as having an adequate capacity to repay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to repay principal and
interest than for bonds in the A category.
BB, B, CCC and CC bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and principal in
accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree. While likely to have
some quality and protection characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C ratings are reserved for income bonds on which no interest is being
paid.
D bonds are in default, and payment of interest and/or principal is in
arrears.
Plus(+) or minus (-) are modifiers relative to the standing within the
major rating categories.
MOODY'S
Aaa bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa bonds are judged to be of high quality by all standards. Together
with Aaa bonds they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger
than in Aaa securities.
Those bonds in the Aa through B groups which Moody's believes possess
the strongest investment attributes are designated by the symbol Aa1,
A1 and Baa1.
A bonds possess many of the favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa bonds are considered as medium grade, neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length
of time. Such bonds lack outstanding investment characteristics and,
in fact, have speculative characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot
be considered as well secured. Often, the protection of interest and
principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes these bonds.
B bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa bonds are of poor standing. They may be in default or there may
be present elements of danger with respect to principal or interest.
Ca bonds are speculative in a high degree, often in default or having
other marked shortcomings.
C bonds are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Colonial Investment Services, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
United Missouri Bank, n.a.
928 Grand Avenue
Kansas City, MO 64106
Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110-2624
Legal Counsel
Ropes & Gray
One International Place
Boston, MA 02110-2624
Your financial service firm is:
Printed in U.S.A.
May 31,1995
COLONIAL CALIFORNIA
TAX-EXEMPT FUND
COLONIAL CONNECTICUT
TAX-EXEMPT FUND
COLONIAL FLORIDA
TAX-EXEMPT FUND
COLONIAL MASSACHUSETTS
TAX-EXEMPT FUND
COLONIAL MICHIGAN
TAX-EXEMPT FUND
COLONIAL MINNESOTA
TAX-EXEMPT FUND
COLONIAL NEW YORK
TAX-EXEMPT FUND
COLONIAL NORTH CAROLINA
TAX-EXEMPT FUND
COLONIAL OHIO
TAX-EXEMPT FUND
PROSPECTUS
Each of Colonial California Tax-Exempt Fund, Colonial Connecticut Tax-
Exempt Fund, Colonial Florida Tax-Exempt Fund, Colonial Massachusetts
Tax-Exempt Fund, Colonial Michigan Tax-Exempt Fund, Colonial Minnesota
Tax-Exempt Fund, Colonial New York Tax-Exempt Fund, Colonial North
Carolina Tax-Exempt Fund and Colonial Ohio Tax-Exempt Fund seeks as
high a level of after-tax total return, as is consistent with prudent
risk, by pursuing current income exempt from federal and its state
personal income tax (if any) and opportunities for long-term
appreciation from a portfolio primarily invested in investment
grade municipal bonds.
For more detailed information about the Funds, call the Adviser at
1-800-248-2828 for the May 31, 1995 Statement of Additional Information.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED,
ENDORSED OR INSURED BY, ANY BANK OR GOVERNMENT AGENCY.
Colonial Mutual Funds
_________________________________________________________________
Please send your completed application to:
Colonial Mutual Funds
P.O. Box 1722
Boston, Massachusetts 02105-1722
New Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 8.
To apply for special services for a new or existing account,
complete sections 4, 5, 6, 7, or 9 as appropriate.
___ Please check here if this is a revision.
1-----------Account Ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S.
citizen status.
__Joint Tenant: Print all names, the Social Security # for
the first person, and his/her U.S. citizen status.
__Uniform Gift to Minors: Name of custodian and minor,
minor's Social Security #, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name,
Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's
Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? Yes___ No___
______________________________________
If no, country of permanent residence
______________________________________
Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Colonial Fund(s) You Are Purchasing--------
Your investment will be made in Class A shares if no class
is indicated. Certificates are not available for Class B shares.
If no distribution option is selected,
distributions will be reinvested in additional Fund shares.
Please consult your financial adviser to determine which
class of shares best suits your needs.
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
Fund Choice(s)
Fund
___ A Shares ___ B Shares (less than $250,000)
$______________________________________________
Amount
Method of Payment
Choose one for each fund
___Check payable to the Fund, enclosed
___Bank wired on (Date) ____/____/____
Wire confirmation #
___Dealer purchased on (Date) ____/____/____
Trade confirmation #
Ways to Receive Your Distributions
Choose one for each fund
___Reinvest dividends and capital gains
___Dividends in cash; reinvest capital gains
___Dividends and capital gains in cash
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Colonial Cash Connection See section
4B, inside
3---Your Signature & Taxpayer I.D. Number Certification----
Each person signing on behalf of an entity represents that
his/her actions are authorized.
I have received and read each appropriate Fund prospectus
and understand that its terms are incorporated by reference
into this application. I understand that this application
is subject to acceptance. I understand that certain
redemptions may be subject to a contingent deferred sales
charge. I certify, under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is
correct.
Cross out 2(a) or 2(b) if either is not true in your case.
2. I am not subject to 31% backup withholding because (a) I
have not been notified that I am subject to backup
withholding or (b) the Internal Revenue Service has notified
me that I am no longer subject to backup withholding.
It is agreed that the Fund, all Colonial companies and their
officers, directors, agents, and employees will not be
liable for any loss, liability, damage, or expense for
relying upon this application or any instruction believed
genuine.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to Withdraw from Your Fund-------
It may take up to 30 days to activate the following
features. Complete only the section(s) that apply to the
features you would like.
A. Systematic Withdrawal Plan (SWP)
You can receive monthly, quarterly, or semiannual checks
from your account in any amount you select, with certain
limitations. Your redemption checks can be sent to you at
the address of record for your account, to your bank
account, or to another person you choose. The value of the
shares in your account must be at least $5,000 and you must
reinvest all of your distributions. Checks will be processed
on the 10th calendar day of the month or the following
business day. Withdrawals in excess of 12% annually of your
current account value will not be accepted. Redemptions made
in addition to Plan payments may be subject to a contingent
deferred sales charge for Class B shares. Please
consult your financial or tax adviser before electing this
option.
Funds for Withdrawal:
______________________________________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _________________ (month).
______________________________________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _________________ (month).
______________________________________________
Name of fund
Withdrawal Amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _________________ (month).
Payment Instructions
Send the payment to (choose one):
__My address of record.
__My bank account via Colonial Cash Connection. Please
complete Section 4B and the Bank Information section below.
__The payee listed at right.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
X_____________________________________________
Signature of account owner(s)
X_____________________________________________
Signature of account owner(s)
Signatures of all owners must be guaranteed. Provide the
name, address, payment amount, and frequency for other
payees (maximum of 5) on a separate sheet.
B. Direct Deposit via Colonial Cash Connection
You can arrange to have distributions from your Colonial
fund account(s) or Systematic Withdrawal Plan checks
automatically deposited directly into your bank checking
account. Distribution deposits will be made 2 days after the
Fund's payable date. Please complete Bank Information below
and attach a blank check marked "VOID."
Please deposit my:
__Dividend distributions only
__Dividend and capital gain distributions
__Systematic Withdrawal Plan payments
I understand that my bank must be a member of the Automated
Clearing House system.
C. Telephone Withdrawal Options
All telephone transaction calls are recorded. These options
are not available for retirement accounts.
1. Fast Cash
You are automatically eligible for this service. You or
your financial adviser can withdraw up to $50,000 from your
account and have it sent to your address on our records. For
your protection, this service is only available on accounts
that have not had an address change within
60 days of the redemption request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege.
You may withdraw shares from your fund account by telephone
and send your money to your bank account. If you are adding
this service to an existing account, complete the Bank
Information section below and have all shareholder
signatures guaranteed.
Colonial's and the Fund's liability is limited when
following telephone instructions; a shareholder may suffer a
loss from an unauthorized transaction reasonably believed by
Colonial to have been authorized. Telephone redemptions
exceeding $5,000 will be sent via Federal Fund Wire, usually
on the next business day ($7.50 will be deducted).
Redemptions of $5,000 or less will be sent by check to your
designated bank.
Bank Information (For A, B, or C Above)
I authorize deposits to the following bank account:
____________________________________________________________
____
Bank name City Bank account number
____________________________________________________________
____
Bank street address State Zip Bank routing # (your bank
can provide this)
5-----Ways to Make Additional Investments--------
These services involve continuous investments regardless of
varying share prices. Please consider your ability to
continue purchases through periods of price fluctuations.
Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing fund
distributions in another Colonial fund. These investments
will be made in the same share class and without sales
charges. I have carefully read the prospectus for the
fund(s) listed below.
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any
Colonial fund in which you have a balance of at least
$5,000 transferred into the same share class of up to four
other Colonial funds, on a monthly basis. The minimum amount
for each transfer is $100. Please complete the section
below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
____________________________________
Fund name
$_________________________
Amount to invest monthly
C. Fundamatic
Fundamatic automatically transfers the specified amount from
your bank checking account to your Colonial fund account.
Your bank needs to be a member of the Automated Clearing
House system. Please attach a blank check marked "VOID."
Also, complete the section below and Fundamatic
Authorization (Section 6).
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
____________________________________
Fund name
$_____________________ _________________
Amount to transfer Month to start
Frequency
__Monthly or __Quarterly
Date
__5th or __20th of the month
6 -------------Fundamatic Authorization--------------------
Authorization to honor checks drawn by Colonial Investors
Service Center. Do Not Detach. Make sure all depositors on
the bank account sign to the far right. Please attach a
blank check marked "VOID" here. See reverse for bank
instructions.
I authorize Colonial to draw on my bank account, by check or
electronic funds transfer, for an investment in a Colonial
fund. Colonial and my bank are not liable for any loss
arising from delays or dishonored draws. If a draw is not
honored, I understand that notice may not be given and
Colonial may reverse the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
7--Ways to Reduce Your Sales Charges for Class A Shares--
These services can help you reduce your sales charge while
increasing your share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own Class A, B or D
shares in other Colonial funds, you may be eligible for a
reduced sales charge. The combined value of your accounts
must be $50,000 or more. Class A shares of money market
funds are not eligible unless purchased by exchange from
another Colonial fund.
The sales charge for your purchase will be based on the sum
of the purchase added to the value of all shares in other
Colonial funds at the previous day's public offering price.
__Please link the accounts listed below for Right of
Accumulation privileges, so that this and future purchases
will receive any discount for which they are eligible.
_____________________________________
Name on account
_____________________________________
Account number
_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13
months, you'll pay a lower sales charge on every dollar you
invest. If you sign a Statement of Intent within 90 days
after you establish your account, you can receive a
retroactive discount on prior investments. The amount
required to receive a discount varies by fund; see the sales
charge table in the "How to Buy Shares" section of your fund
prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________
over a 13-month period starting ______/______/ 19______ (not
more than 90 days prior to this application). I understand
an additional sales charge must be paid if I do not complete
this Statement of Intent.
8-------------Financial Service Firm---------------------
To be completed by a Representative of your financial
service firm.
This application is submitted in accordance with our selling
agreement with Colonial Investment Services (CIS), the
Fund's prospectus, and this application. We will notify CIS
of any purchase made under a Statement of Intent, Right of
Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the
signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
9--Request for a Combined Quarterly Statement Mailing--
Colonial can mail all of your quarterly statements in one
envelope. This option simplifies your record keeping and
helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my
accounts.
Fundamatic (See Reverse Side)
Applications must be received before the start date for
processing.
This program's deposit privilege can be revoked by Colonial
without prior notice if any check is not paid upon
presentation. Colonial has no obligation to notify the
shareholder of non-payment of any draw. This program may be
discontinued by Colonial by written notice at least 30
business days prior to the due date of any draw or by the
shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service
Center to collect amounts due under an investment program
from his/her personal checking account. When you pay and
charge the draws to the account of your depositor executing
the authorization payable to the order of Colonial Investors
Service Center, Colonial Management Associates, Inc., hereby
indemnifies and holds you harmless from any loss (including
reasonable expenses) you may suffer from honoring such draw,
except any losses due to your payment of any draw against
insufficient funds.
D-461L-594
Checkwriting Signature Card
(Class A Shares Only)
Colonial Mutual Funds
Signature Card for the Bank of Boston ("Bank").
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Name of Fund
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Fund account number
To request additional signature cards, please call Colonial at 1-800-248-2828.
Account Name:
You must sign below exactly as your account is registered.
X
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Signature
X
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Signature
By signing this card, you are subject to the conditions printed on the reverse
side. If adding this privilege to an existing account, your signatures must be
guaranteed.
Checkwriting Privilege
By electing the checkwriting privilege and signing the signature card, I
acknowledge that I am subject to the rules and regulations of the Bank of
Boston ("Bank") as currently existing and as they may be amended from time
to time. I designate the Bank as my representative to present checks drawn
on my Fund account to the Fund or its Agent and deposit the proceeds in this
checking account. I understand that the shares for which share certificates
have been issued or requested cannot be redeemed in this manner.
I understand that if my Fund account is registered in joint tenancy, that all
checks must include all signatures of all persons named on the account.
If the account is registered in joint tenancy, each person guarantees the
genuineness of all other parties' signatures.
Minimum and Maximum
I understand that checks may not be in amounts less than $500 nor more than
$100,000, and that the Fund reserves the right to change these limits in its
sole discretion. I agree that neither the Fund nor its Agent is responsible
for any loss, expense, or cost arising from these redemptions. Also, if I have
recently made additional investments, I understand that redemption proceeds
will not be available until the check used to purchase the investment
(including a certified or cashier's check) has been cleared by the bank on
which it is drawn, which could take up to 15 days or more.
D-256A-1094
COLONIAL CALIFORNIA TAX-EXEMPT FUND
COLONIAL CONNECTICUT TAX-EXEMPT FUND
COLONIAL FLORIDA TAX-EXEMPT FUND
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
COLONIAL MICHIGAN TAX-EXEMPT FUND
COLONIAL MINNESOTA TAX-EXEMPT FUND
COLONIAL NEW YORK TAX-EXEMPT FUND
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
COLONIAL OHIO TAX-EXEMPT FUND
Statement of Additional Information
May 31, 1995
This Statement of Additional Information (SAI) contains
information which may be useful to investors but which is not
included in the Prospectus of Colonial California Tax-Exempt
Fund, Colonial Connecticut Tax-Exempt Fund, Colonial Florida Tax-
Exempt Fund, Colonial Massachusetts Tax-Exempt Fund, Colonial
Michigan Tax-Exempt Fund, Colonial Minnesota Tax-Exempt Fund,
Colonial New York Tax-Exempt Fund, Colonial North Carolina Tax-
Exempt Fund and Colonial Ohio Tax-Exempt Fund (Funds). This SAI
is not a prospectus and is authorized for distribution only when
accompanied or preceded by the Prospectus of the Funds dated May
31, 1995. This SAI should be read together with the Prospectus.
Investors may obtain a free copy of the Prospectus from Colonial
Investment Services, Inc. One Financial Center, Boston, MA 02111-
2621.
Part 1 of this SAI contains specific information about the Funds.
Part 2 includes information about the Colonial funds generally
and additional information about certain securities and
investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions b
Investment Objectives and Policies of the Funds b
Fundamental Investment Policies of the Funds b
Other Investment Policies of the Funds c
California Tax Considerations c
Connecticut Tax Considerations d
Florida Tax Considerations d
Massachusetts Tax Considerations e
Michigan Tax Considerations e
Minnesota Tax Considerations e
New York Tax Considerations f
North Carolina Tax Considerations f
Ohio Tax Considerations f
Portfolio Turnover g
Fund Charges and Expenses g
Investment Performance s
Custodian u
Independent Accountants u
Part 2
Miscellaneous Investment Practices 1
Taxes 10
Management of the Funds 11
Determination of Net Asset Value 15
How to Buy Shares 15
Investor Services 19
Suspension of Redemptions 21
Shareholder Liability 22
Performance Measures 22
Appendix I 24
Appendix II 25
SP-16/910A-0595
Part 1
COLONIAL CALIFORNIA TAX-EXEMPT FUND
COLONIAL CONNECTICUT TAX-EXEMPT FUND
COLONIAL FLORIDA TAX-EXEMPT FUND
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
COLONIAL MICHIGAN TAX-EXEMPT FUND
COLONIAL MINNESOTA TAX-EXEMPT FUND
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
COLONIAL NEW YORK TAX-EXEMPT FUND
COLONIAL OHIO TAX-EXEMPT FUND
Statement of Additional Information
May 31, 1995
DEFINITIONS
"California Fund" or Colonial California Tax-Exempt Fund
"Fund"
"Connecticut Fund" or Colonial Connecticut Tax-Exempt Fund
"Fund"
"Florida Fund" or "Fund" Colonial Florida Tax-Exempt Fund
"Massachusetts Fund" or Colonial Massachusetts Tax-Exempt Fund
"Fund"
"Michigan Fund" or "Fund" Colonial Michigan Tax-Exempt Fund
"Minnesota Fund" or Colonial Minnesota Tax-Exempt Fund
"Fund"
"New York Fund" or "Fund" Colonial New York Tax-Exempt Fund
"North Carolina" or Colonial North Carolina Tax-Exempt
"Fund" Fund
"Ohio Fund" or "Fund" Colonial Ohio Tax-Exempt Fund
"Trust" Colonial Trust V
"Colonial" Colonial Management Associates, Inc.,
the Funds' investment manager
"CISI" Colonial Investment Services, Inc.,
the Funds' distributor
"CISC" Colonial Investors Service Center,
Inc., the Funds' shareholder services
and transfer agent
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Prospectus describes each Fund's investment objectives and
policies. Part 1 includes additional information concerning,
among other things, the investment policies of the Funds. Part 2
of this SAI contains additional information about the following
securities and investment techniques :
Short-Term Trading
Lower Rated Bonds
Inverse Floaters
Short Sales
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options (Limited to interest
rate futures, tax-exempt bond index futures, options on
such futures and options on such indices)
Options on Securities-purchasing put options
Participation Interests
Stand-by Commitments
Zero Coupon Securities (Zeros)
Except as described below under "Fundamental Investment
Policies," the Funds' investment policies are not fundamental and
the Trustees may change the policies without shareholder
approval.
FUNDAMENTAL INVESTMENT POLICIES OF THE FUNDS
The Investment Company Act of 1940 (Act) provides that a "vote of
a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy. The
following fundamental investment policies can not be changed
without such a vote.
Each Fund may:
1. Issue senior securities only through borrowing money from
banks for temporary or emergency purposes up to 10% of its
net assets (entering into repurchase agreements and other
similar instruments is not considered the issuance of a
senior security); however, the Fund will not purchase
additional portfolio securities while borrowings exceed 5%
of net assets;
2. Only own real estate acquired as a result of owning
securities and not more than 5% of total assets;
3. Purchase and sell futures contracts and related options so
long as the total initial margin and premiums on the
contracts do not exceed 5% of its total assets;
4. Underwrite securities issued by others only when disposing
of portfolio securities;
5. Make loans through lending of securities not exceeding 30%
of total assets, through the purchase of debt instruments
or similar evidences of indebtedness typically sold
privately to financial institutions and through repurchase
agreements;
6. Not concentrate more than 25% of its total assets in any
one industry or, [California Fund only] 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;
7. And will, under normal circumstances, invest at least 80%
of its total assets in State Bonds subject to applicable
State requirements.
OTHER INVESTMENT POLICIES OF THE FUNDS
As non-fundamental investment policies which may be changed
without a shareholder vote, each Fund may not:
1. Purchase securities on margin, but the Fund may receive
short-term credit to clear securities transactions and may
make initial or maintenance margin deposits in connection
with futures transactions;
2. Have a short securities position, unless the Fund owns, or
owns rights (exercisable without payment) to acquire, an
equal amount of such securities;
3. Own securities of any company if the Fund knows that
officers and Trustees of the Trust or officers and
directors of Colonial who individually own more than 0.5%
of such securities together own more than 5% of such
securities;
4. Invest in interests in oil, gas or other mineral
exploration or development programs, including leases;
5. Purchase any security resulting in the Fund having more
than 5% of its total assets invested in securities of
companies (including predecessors) less than three years
old, or in industrial development revenue bonds (IRBs)
where the private entity on whose credit the security is
based, directly or indirectly, has a record of less than
three years continuous business operations or relevant
business experience (including predecessors, controlling
persons, general partners and guarantors), unless the
security purchased by the Fund is rated by a nationally
recognized rating service;
6. Pledge more than 33% of its total assets;
7. Purchase any security if, as a result of such purchase,
more than 10% of its total assets would be invested in
securities which are restricted as to disposition;
8. Invest more than 15% of its net assets in illiquid assets;
and
9. Invest in warrants if, immediately after giving effect to
any such investment, the Fund's aggregate investment in
warrants, valued at the lower of cost or market, would
exceed 5% of the value of the Fund's net assets. Included
within that amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants which are not listed
on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Fund in units or
attached to securities will be deemed to be without value.
Total assets and net assets are determined at current value for
purposes of compliance with investment restrictions and policies.
All percentage limitations will apply at the time of investment
and are not violated unless an excess or deficiency occurs as a
result of such investment. For the purpose of the Act
diversification requirement, the issuer is the entity whose
revenues support the security.
CALIFORNIA TAX CONSIDERATIONS
It is the policy of the Fund to meet all applicable requirements
of the Internal Revenue Code (Code) and the California Revenue
and Taxation Code for shareholders to be relieved of the
obligation to pay regular federal income taxes and California
personal income tax on amounts distributed to them which are
derived from tax-exempt interest income. That is, the Fund will
have at least 50% of its total assets invested in tax-exempt
bonds (and at least 50% of its total assets invested in
California Bonds and U. S. Government obligations whose interest
is excluded from income for California personal income tax
purposes) at the end of each quarter.
California law provides that, to the extent distributions by the
Fund are derived from interest on California Bonds (as defined in
the Prospectus) and notes (or on obligations of the United States
which pay interest excludable from income under the Constitution
or laws of the United States) and are designated as such, such
distributions shall be exempt from California personal income
taxes. For California personal income tax purposes,
distributions derived from other investments and distributions
from any net realized capital gains will be taxable, whether paid
in cash or reinvested in additional shares.
Interest derived from California Bonds is not subject to the
California alternative minimum tax and California personal income
tax does not apply to any portion of Social Security or railroad
retirement benefits. Under the Code, a portion of interest on
any indebtedness (including insurance policy loans) incurred or
continued to purchase or carry shares of the Fund which is deemed
to relate to tax-exempt dividends will not be deductible. For
California personal income tax purposes none of such interest
will be deductible. Depending on the circumstances, the Internal
Revenue Service or California Franchise Tax Board may consider
shares to have been purchased or carried with borrowed funds even
though the shares are not directly traceable to the borrowed
funds. Shareholders who are, within the meaning of Section 147
of the Code, "substantial users" (or "related persons" of
substantial users) of facilities financed by industrial
development bonds should consult their tax advisers as to whether
the Fund is a desirable investment.
Distributions from investment income and capital gains, including
dividends derived from interest paid on California Bonds, will be
subject to California franchise tax and California corporate
income tax.
Special Factors Affecting California Bonds
Certain California State Bonds rely on real property taxes as a
source of revenue. In 1978, an amendment to the California
Constitution, Article XIII A, limited taxes on real property and
restricted the ability to increase property taxes. In 1979,
Article XIII B was added to the California Constitution,
significantly limiting spending by state and local government.
In June 1982, voters approved initiative measures which would
result in substantial annual reductions in state revenues.
California also revised its system of taxing corporations which
could also result in decreased state revenues. Decreased state
revenues may result in reductions to local governments. The
State's ability to raise revenues and to reduce expenditures to
the extent necessary to balance the budget for any year depends
upon, among other things, the State's economic health and the
accuracy of the State's revenue predictions, as well as the
impact of budgetary restrictions.
It is not presently possible to determine the impact of Articles
XIII A or XIII B or any implementing or related legislation on
the securities in the Fund's portfolio or the ability of State or
local governments to pay the interest or principal on the
securities.
CONNECTICUT TAX CONSIDERATIONS
Distributions received by shareholders from the Fund that are
treated as exempt-interest dividends for federal income tax
purposes are exempt from the Connecticut personal income tax to
the extent that they are derived from interest on Connecticut
Bonds or on the obligations of certain other governmental
entities the interest on which the states are prohibited from
taxing by federal law (including obligations of Guam, the United
States Virgin Islands and the Commonwealth of Puerto Rico), and
are designated as such. Other distributions are subject to the
Connecticut personal income tax, except that those treated as
capital gain dividends for federal income tax purposes are not
subject to the tax to the extent derived from the sale or
exchange of Connecticut Bonds. Distributions that are subject to
the federal alternative minimum tax are subject to the net
Connecticut minimum tax, with the exception of those derived from
interest on Connecticut Bonds.
Distributions from investment income and capital gains, including
dividends derived from interest paid on Connecticut Bonds, are
included in gross income for purposes of the Connecticut
corporation business tax. However, seventy percent of such
distributions, provided that they are treated as dividends for
federal income tax purposes, but not as exempt-interest dividends
or capital gain dividends, are deductible for purposes of this
tax, but no deduction is allowed for expenses related thereto.
FLORIDA TAX CONSIDERATIONS
Florida currently has no income tax on individuals. Thus
individual shareholders of the Fund will not be subject to any
Florida state income tax on distributions received from the Fund.
However, certain distributions will be taxable to corporate
shareholders which are subject to Florida corporate income tax.
Florida currently imposes an "intangibles tax" at the annual rate
of 0.20% on certain securities and other intangible assets owned
by Florida residents. Certain types of tax exempt securities of
Florida issuers, U.S. Government Securities and tax exempt
securities issued by certain U.S. territories and possessions are
exempt from this intangibles tax. The Fund has received a ruling
from Florida authorities that, if on December 31 of any year the
Fund's portfolio consists solely of such exempt assets, the
Fund's shares will be exempt from the Florida intangibles tax for
that year. To take advantage of this exemption in any year, the
Fund must sell any non-exempt assets held in its portfolio prior
to December 31. Such sales could result in capital losses or in
the realization of taxable capital gains, as well as transaction
costs that may reduce the Fund's return.
You should consult your tax adviser to determine the precise
application of Florida or other state law to your particular
situation.
MASSACHUSETTS TAX CONSIDERATIONS
Distributions received by shareholders from the Fund are exempt
from Massachusetts personal income tax to the extent that they
are derived from interest on Massachusetts Bonds and are
designated as such. The Fund believes that gains it realizes on
the sale of certain Massachusetts Bonds are exempt from
Massachusetts personal income taxation and will designate them as
such when those gains are distributed to shareholders.
Distributions from investment income and capital gains, including
dividends derived from interest paid on Massachusetts Bonds, may
be subject to Massachusetts corporate excise tax.
MICHIGAN TAX CONSIDERATIONS
To the extent that dividends from the Fund are derived from
interest on debt obligations issued by the State of Michigan or
its political subdivisions, the interest on which is excludable
from gross income for purposes of both federal income taxation
and Michigan personal income tax ("Michigan Bonds"), such dividends
will be exempt from Michigan personal income tax and intangibles
tax. For Michigan personal income and intangibles tax purposes,
exempt-interest dividends attributable to any investment in other
than Michigan Bonds or certain obligations of the U.S. will be
fully taxable. Distributions representing capital gains, if any,
will be fully taxable for both Michigan personal income and
intangible tax purposes (except that distributions reinvested in
shares of the Fund are excluded from the taxable income base of
the Michigan intangibles tax).
Certain Michigan cities have adopted Michigan's Uniform City
Income Tax Ordinance, which under the Michigan City Income Tax
Act is the only income tax ordinance that may be adopted by
cities in Michigan. To the extent that distributions from the
Fund are not subject to Michigan income tax, they are not subject
to any Michigan city's income tax.
You should consult your tax adviser if you are subject to the
Michigan Single Business Tax.
MINNESOTA TAX CONSIDERATIONS
On May 22, 1995, the Minnesota House of Representatives and the
Minnesota Senate approved legislation which provides that if an
addition to federal taxable income under Minnesota statutes of
certain types of income (such as, for example, interest on
obligations of other states) is judicially determined to
discriminate against interstate commerce, the legislature intends
that the discrimination be remedied by adding interest on
obligations of Minnesota governmental units and Indian tribes to
federal taxable income. Since federal taxable income is
generally the starting point for the computation of Minnesota
taxable income, the remedy intended by the legislature would, in
the event a court found a constitutional violation as described
above, subject interest on obligations of Minnesota governmental
units and Indian tribes (and exempt-interest dividends that are
derived from any of such interest) to Minnesota taxation, in the
case of individuals, estates, and trusts. The legislation, which
applies to interest on existing obligations as well as to
interest on newly issued obligations, further provides that this
provision applies beginning with the taxable years that begin
during the calendar year in which the court's decision is final,
and that other remedies apply to previous taxable years.
Generally, in order for legislation to become law, it must be
adopted by both the Minnesota House of Representatives and the
Minnesota Senate and be signed by the Governor. As of May 22,
1995, the Governor had not signed this legislation.
The discussion in the paragraphs below is based on existing
Minnesota law. Provided that the Fund qualifies as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), shareholders of the Fund who are
individuals, estates or trusts and who are subject to the regular
Minnesota personal income tax, will not be subject to such tax on
Fund dividends under existing law to the extent that such
distributions qualify as exempt-interest dividends under section
852(b)(5) of the Code which are derived from interest on tax-
exempt obligations of the State of Minnesota or its political or
governmental subdivisions, municipalities, governmental agencies
or instrumentalities (Minnesota Sources). The foregoing will
apply, however, only if the portion of the exempt-interest
dividends from Minnesota Sources that is paid to all shareholders
represents 95% or more of the exempt-interest dividends that are
paid by the Fund. If the 95% test is not met, all exempt-
interest dividends that are paid by the Fund will be subject to
the regular Minnesota personal income tax. Even if the 95% test
is met, to the extent that exempt-interest dividends that are
paid by the Fund are not derived from Minnesota Sources, such
dividends will be subject to the regular Minnesota personal
income tax. Other distributions of the Fund, including
distributions from net short-term and long-term capital gains,
are generally not exempt from the regular Minnesota personal
income tax.
Shareholders of the Fund who are individuals, estates or trusts
may be subject to the Minnesota alternative minimum tax as a
result of the receipt of exempt-interest dividends that are
attributable to certain private activity bond interest even
though derived from Minnesota Sources. In addition, the entire
portion of exempt-interest dividends that is received by such
shareholders and that is derived from sources other than
Minnesota sources is subject to the Minnesota alternative minimum
tax. Further, should the 95% test fail to be met, all of the
exempt-interest dividends that are paid by the Fund, including
those derived from Minnesota Sources, will be subject to the
Minnesota alternative minimum tax in the case of shareholders of
the Fund who are individuals, estates or trusts.
Subject to certain limitations that are set forth in the
Minnesota rules, Fund dividends, if any, that are derived from
interest on certain United States obligations are not subject to
the regular Minnesota personal income tax or the Minnesota
alternative minimum tax in the case of shareholders of the Fund
who are individuals, estates, or trusts.
Fund distributions, including exempt-interest dividends, are not
excluded in determining the Minnesota franchise tax on
corporations, which is measured by taxable income and alternative
minimum taxable income. Fund distributions may also be taken
into account in certain cases in determining the minimum fee that
is imposed on corporations, S corporations and partnerships.
NEW YORK TAX CONSIDERATIONS
New York law provides that, to the extent distributions by a
regulated investment company are derived from interest on debt
obligations issued by the State of New York or its political
subdivisions or certain other governmental entities (for example,
U.S. territories), the interest on which was at the time of
issuance, excludable from gross income for purposes of both
federal income taxation and New York State or City personal
income taxation (New York Bonds) and designated as such, such
distributions shall be exempt from New York State and City
personal income taxes. For New York State and City personal
income tax purposes, distributions derived from investments other
than New York Bonds and distributions from any net short-term
capital gains will be taxable as ordinary income, whether paid in
cash or reinvested in additional shares. Distributions of net
long-term capital gains will in general be taxable to
shareholders as long-term capital gains for federal and for New
York State and City personal income tax purposes, whether
received in cash or shares and regardless of the length of time
shares of the Fund are held.
Distributions by the Fund from investment income and capital
gains, including exempt-interest dividends, may be subject to New
York State franchise taxes and to the New York City General
Corporation Tax if received by a corporation subject to those
taxes, to state taxes in states other than New York and to local
taxes in cities other than New York City.
NORTH CAROLINA TAX CONSIDERATIONS
Under existing North Carolina law, as long as the Fund qualifies
as a separate "regulated investment company" under the Internal
Revenue Code of 1986, as amended, and 50% or more of the value of
the total assets of the Fund at the close of each quarter of its
taxable year consists of obligations whose interest is exempt
from federal income tax, dividends received from the Fund that
represent either (i) interest exempt from federal income tax and
received by the Fund on obligations of North Carolina or its
political subdivisions; nonprofit educational institutions
organized or chartered under the laws of North Carolina; or Guam,
Puerto Rico, or the U.S. Virgin Islands, including the
governments thereof and their agencies, instrumentalities and
authorities, or (ii) interest received by the Fund on direct
obligations of the United States will be exempt from North
Carolina individual, trust and estate income taxation.
Any capital gains distributed by the Fund (except for capital
gains attributable to the sale by the Fund of an obligation, the
profit from which is exempt by a North Carolina statute) or gains
realized by the shareholder from a redemption or sale of shares
of the Fund will be subject to North Carolina individual, trust
or estate income taxation.
Under existing North Carolina law, shares of the Fund will be
exempt from the North Carolina intangible personal property tax
as long as (i) the assets of the Fund on December 31 of each year
consist entirely of obligations of the United States and its
possessions and North Carolina and its political subdivisions,
and (ii) on December 31 of each year, at least 80% of the fair
market value of those obligations represents obligations issued
by North Carolina and its political subdivisions. The Fund
intends to satisfy these requirements.
Section 23-48 of the North Carolina General Statutes appears to
permit any city, town, school district, county or other taxing
district to avail itself of the provisions of Chapter 9 of the
United States Bankruptcy Code, but only with the consent of the
Local Government Commission of the State and of the holders of
such percentage or percentages of the indebtedness of the issuer
as may be required by the Bankruptcy Code (if any such consent is
required). Thus, although limitations apply, in certain
circumstances political subdivisions might be able to seek the
protection of the Bankruptcy Code.
Fund shareholders that are corporations are advised to consult
their own tax advisors regarding the North Carolina tax
consequences to them of investing in the Fund.
OHIO TAX CONSIDERATIONS
Provided that the Fund continues to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as
amended (Code), and that at all times at least 50% of the value
of the total assets of the Fund consists of obligations issued by
or on behalf of Ohio, political subdivisions thereof or agencies
or instrumentalities of Ohio or its political subdivisions (Ohio
Obligations), or similar obligations of other states or their
subdivisions, (i) distributions with respect to shares of the
Fund ("Distributions") will be exempt from Ohio personal income
tax and municipal and school district income taxes in Ohio, and
will be excluded from the net income base of the Ohio corporation
franchise tax to the extent such Distributions are properly
attributable to interest payments on Ohio Obligations or on
obligations issued by the Governments of Puerto Rico, The Virgin
Islands or Guam (Territorial Obligations), and (ii) Distributions
of profit made on the sale, exchange, or other disposition of
Ohio Obligations, including Distributions of "capital gain
dividends." as defined in the Code, properly attributable to the
sale, exchange, or other disposition of Ohio Obligations, will be
exempt from Ohio personal income tax, and municipal and school
district income taxes in Ohio, and will be excluded from the net
income base of the Ohio corporation franchise tax.
Distributions that are properly attributable to interest on
obligations of the United States or its territories or
possessions or of any authority, commission, or instrumentality
of the United States that is exempt from state income taxes under
the laws of the United States (including Territorial Obligations)
will be exempt from Ohio personal income tax and municipal and
school district income taxes in Ohio, and will be excluded from
the net income base of the Ohio corporation franchise tax.
However, other Distributions will generally not be exempt from
Ohio personal income tax and municipal and school district income
taxes in Ohio, and shares of the Fund will not be excluded from
the net worth base of the Ohio corporation franchise tax.
PORTFOLIO TURNOVER
Years ended January 31
1995 1994
California Fund 47% 17%
Connecticut Fund 22% 5%
Florida Fund 45% 19%
Massachusetts Fund 58% 7%
Michigan Fund 40% 7%
Minnesota Fund 26% 9%
New York Fund 65% 25%
Ohio Fund 33% 3%
North Carolina Fund
Period September 1, 1993
Year ended (commencement of operations)
January 31, 1995 through January 31, 1994
37% 1% (annualized)
FUND CHARGES AND EXPENSES
Under the Funds' management agreement, the Funds pay Colonial a
monthly fee based on the aggregate average daily net assets of
the Funds, determined at the close of each business day during
the month, at the annual rate of 0.55% of the first $1 billion,
0.50% in excess of $1 billion and 0.45% in excess of $2 billion
(subject to such reductions that Colonial may agree to
periodically). The fee is allocated among the Funds based on
each Fund's net assets.
Recent Fees paid to Colonial, CISI and CISC (dollars in
thousands)
California Fund
Two
months
Years ended ended Year ended
January 31 January 31 November 30
1995 1994 1993 1992
Management fee (before $2,457 $2,622 $358 $1,886
reduction)
Bookkeeping fee 161 162 22 119
Shareholder service and 671 679 83 412
transfer agent fee
12b-1 fees:
Service fee (a) 71 --- --- ---
Distribution fee (Class B) 762 552 36 25
Fees waived or borne by
Colonial (241) (347) (122) (413)
Connecticut Fund
Years ended January 31
1995 1994 1993
Management fee (before $870 $808 $298
reduction)
Bookkeeping fee 63 56 28
Shareholder service and 240 210 16
transfer agent fee
12b-1 fees:
Service fee (a) 27 --- ---
Distribution fee (Class B) 540 393 64
Fees waived or borne by
Colonial (841) (877) (445)
Florida Fund
Years ended January 31
1995 1994
Management fee (before $316 $233
reduction)
Bookkeeping fee 29 27
Shareholder service and
transfer agent fee 89 61
12b-1 fees:
Service fee (a) 9 ---
Distribution fee (Class B) 236 166
Fees waived or borne by
Colonial (411) (345)
Massachusetts Fund
Years ended January 31
1995 1994 1993
Management fee (before $1,446 $1,474 $1,034
reduction)
Bookkeeping fee 99 95 70
Shareholder service and
transfer agent fee 400 384 240
12b-1 fees:
Service fee (a) 45 --- ---
Distribution fee (Class B) 396 265 39
Fees waived or borne by
Colonial (298) (507) (573)
Michigan Fund
Years ended January 31
1995 1994 1993
Management fee (before $326 $314 $198
reduction)
Bookkeeping fee 30 28 27
Shareholder service and 96 82 67
transfer agent fee
12b-1 fees:
Service fee (a) 10 --- ---
Distribution fee (Class B) 112 84 11
Fees waived or borne by
Colonial (185) (174) (106)
Minnesota Fund
Years ended January 31
1995 1994 1993
Management fee (before $295 $274 $197
reduction)
Bookkeeping fee 28 27 27
Shareholder service and 88 76 68
transfer agent fee
12b-1 fees:
Service fee (a) 9 --- ---
Distribution fee (Class B) 99 50 3
Fees waived or borne by
Colonial (137) (93) (114)
New York Fund
Years ended January 31
1995 1994 1993
Management fee (before $574 $556 $290
reduction)
Bookkeeping fee 45 42 28
Shareholder service and 159 146 75
transfer agent fee
12b-1 fee:
Service fee (a) 17 --- ---
Distribution fee (Class B) 330 241 25
Fees waived or borne by
Colonial (471) (268) (31)
North Carolina Fund
Period September 1, 1993
Year ended (commencement of operations)
January 31, 1995 through January 31, 1994
Management fee (before $165 $32
reduction)
Bookkeeping fee 27 11
Shareholder service and 49 8
transfer agent fee
12b-1 fees:
Service fee (a) 5 ---
Distribution fee (Class B) 105 20
Fees waived or borne by
Colonial (271) (65)
Ohio Fund
Years ended January 31
1995 1994 1993
Management fee (before $720 $630 $338
reduction)
Bookkeeping fee 54 46 29
Shareholder service and 213 170 107
transfer agent fee
12b-1 fees:
Service fee (a) 23 --- ---
Distribution fee (Class B) 399 241 10
Fees waived or borne by
Colonial (202) (94) (19)
(a) Effective December 31, 1994, each Fund pays CISI
monthly a service fee at the rate of 0.10% of
average net assets attributed to shares outstanding
on November 30, 1994 and 0.25% of average net assets
attributed to shares issued thereafter.
Brokerage Commissions (dollars in thousands)
California Fund
Two months
Years ended ended Year ended
January 31 January 31 November 30
1995 1994 1993 1992
Total commissions $10 $0 $0 $0
Directed 0 0 0 0
transactions(b)
Commissions on
directed
transactions 0 0 0 0
Connecticut Fund
1995 1994 1993
Total commissions 2 $11 $9
Directed 0 0 0
transactions(b)
Commissions on directed
transactions 0 0 0
Florida Fund
Years ended January 31
1995 1994
Total commissions $4 $3
Directed transactions(b) 0 0
Commissions on directed 0 0
transactions
Massachusetts Fund
Years ended January 31
1995 1994 1993
Total commissions $5 $3 $10
Directed transactions(b) 0 0 0
Commissions on directed 0 0 0
transactions
Michigan Fund
Years ended January 31
1995 1994 1993
Total commissions $2 $1 $3
Directed transactions(b) 0 0 0
Commissions on directed 0 0 0
transactions
Minnesota Fund
Years ended January 31
1995 1994 1993
Total commissions $0 $0 $0
Directed transactions(b) 0 0 0
Commissions on directed 0 0 0
transactions
New York Fund
Years ended January 31
1995 1994 1993
Total commissions $3 $1 $0
Directed transactions(b) 0 0 0
Commissions on directed 0 0 0
transactions
North Carolina Fund
Period September 1,
1993
Year ended (commencement of operations)
January 31, through
1995 January 31, 1994
Total commissions $2 $1
Directed transactions(b) 0 0
Commissions on directed 0 0
transactions
Ohio Fund
Years ended January 31
1995 1994 1993
Total commissions $4 $0 $1
Directed transactions(b) 0 0 0
Commissions on directed 0 0 0
transactions
(b) See "Management of the Funds - Portfolio Transactions -
Brokerage and research services" in Part 2 of this SAI.
Trustees Fees
For the fiscal ended January 31, 1995 and the calendar year ended
December 31, 1994, the Trustees received the following
compensation for serving as Trustees:
California Fund
Aggregate Total
Compensation Pension or Compensation
From Fund Retirement From Fund and
for Benefits Estimated Fund Complex
the fiscal Accrued As Annual for the
year Part of Benefits calendar
ended Fund Upon year ended
Trustee 1/31/95 Expense Retirement 12/31/94 (d)
Tom Bleasdale $3,061(c) $0 $0 $101,000(e)
Lora S. Collins 3,477 0 0 95,000
William D. Ireland, Jr. 3,338 0 0 110,000
William E. Mayer 2,760 0 0 89,752
John A. McNeice, Jr. 0 0 0 0
James L. Moody, Jr. 3,317(f) 0 0 109,000
John J. Neuhauser 2,884 0 0 95,000
George L. Shinn 3,393 0 0 112,000
Robert L. Sullivan 3,221 0 0 104,561
Sinclair Weeks, Jr. 3,518 0 0 116,000
(c) Includes $1,476 payable as deferred compensation.
(d) At 12/31/94 the Colonial Funds Complex consisted of 31 open-
end and 5 closed-end management investment company
portfolios.
(e) Includes $49,000 payable as deferred compensation.
(f) Includes $391 payable as deferred compensation.
Connecticut Fund
Aggregate Pension or
Compensation Retirement
From Fund Benefits Estimated
for Accrued As Annual
the fiscal Part of Benefits
year ended Fund Upon
Trustee 1/31/9 5 Expense Retirement
Tom Bleasdale $1,571(g) $0 $0
Lora S. Collins 1,772 0 0
William D. Ireland, Jr. 1,708 0 0
William E. Mayer 1,414 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 1,696(h) 0 0
John J. Neuhauser 1,472 0 0
George L. Shinn 1,737 0 0
Robert L. Sullivan 1,650 0 0
Sinclair Weeks, Jr. 1,800 0 0
(g) Includes $825 payable as deferred compensation.
(h) Includes $221 payable as deferred compensation.
Florida Fund
Aggregate Pension or
Compensation Retirement Estimated
From Fund for Benefits Annual
the fiscal Accrued As Benefits
year Part of Fund Upon
Trustee ended 1/31/95 Expense Retirement
Tom Bleasdale $1,085(c) $0 $0
Lora S. Collins 1,229 0 0
William D. Ireland, 1,185 0 0
Jr.
William E. Mayer 978 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 1,183(f) 0 0
John J. Neuhauser 1,022 0 0
George L. Shinn 1,206 0 0
Robert L. Sullivan 1,147 0 0
Sinclair Weeks, Jr. 1,245 0 0
(i) Includes $598 payable as deferred compensation.
(j) Includes $160 payable as deferred compensation.
Massachusetts Fund
Aggregate Pension or
Compensation Retirement Estimated
From Fund for Benefits Annual
the fiscal Accrued As Benefits
year Part of Fund Upon
Trustee ended 1/31/95 Expense Retirement
Tom Bleasdale $1,256(k) $0 $0
Lora S. Collins 1,403 0 0
William D. Ireland, Jr. 1,371 0 0
William E. Mayer 1,135 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 1,367(l) 0 0
John J. Neuhauser 1,185 0 0
George L. Shinn 1,400 0 0
Robert L. Sullivan 1,330 0 0
Sinclair Weeks, Jr. 1,441 0 0
(k) Includes $1,059 payable as deferred compensation.
(l) Includes $282 payable as deferred compensation.
Michigan Fund
Aggregate Pension or
Compensation Retirement Estimated
From Fund for Benefits Annual
the fiscal Accrued As Benefits
year Part of Fund Upon
Trustee ended 1/31/95 Expense Retirement
Tom Bleasdale $2,074(m) $0 $0
Lora S. Collins 2,378 0 0
William D. Ireland, Jr. 2,260 0 0
William E. Mayer 1,863 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 2,250(n) 0 0
John J. Neuhauser 1,954 0 0
George L. Shinn 2,298 0 0
Robert L. Sullivan 2,183 0 0
Sinclair Weeks, Jr. 2,392 0 0
(m) Includes $602 payable as deferred compensation.
(n) Includes $161 payable as deferred compensation.
Minnesota Fund
Aggregate Pension or
Compensation Retirement Estimated
From Fund for Benefits Annual
the fiscal Accrued As Benefits
year Part of Fund Upon
Trustee ended 1/31/95 Expense Retirement
Tom Bleasdale $1,249(o) $0 $0
Lora S. Collins 1,414 0 0
William D. Ireland, Jr. 1,359 0 0
William E. Mayer 1,121 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 1,353(p) 0 0
John J. Neuhauser 1,172 0 0
George L. Shinn 1,385 0 0
Robert L. Sullivan 1,312 0 0
Sinclair Weeks, Jr. 1,430 0 0
(o) Includes $590 payable as deferred compensation.
(p) Includes $158 payable as deferred compensation.
New York Fund
Aggregate Pension or
Compensation Retirement Estimated
From Fund for Benefits Annual
the fiscal Accrued As Benefits
year Part of Fund Upon
Trustee ended 1/31/95 Expense Retirement
Tom Bleasdale $1,455(q) $0 $0
Lora S. Collins 1,655 0 0
William D. Ireland, 1,587 0 0
Jr.
William E. Mayer 1,310 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 1,582(r) 0 0
John J. Neuhauser 1,372 0 0
George L. Shinn 1,612 0 0
Robert L. Sullivan 1,538 0 0
Sinclair Weeks, Jr. 1,671 0 0
(q) Includes $703 payable as deferred compensation.
(r) Includes $188 payable as deferred compensation.
North Carolina Fund
Aggregate
Compensation Pension or
From Fund Retirement Estimated
for Benefits Annual Benefits
year ended Part of Fund Upon
Trustee 1/31/95 Expense Retirement
Tom Bleasdale $1,108(s) $0 $0
Lora S. Collins 1,265 0 0
William D. Ireland, 1,207 0 0
Jr.
William E. Mayer 1,001 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 1,206(t) 0 0
John J. Neuhauser 1,044 0 0
George L. Shinn 1,230 0 0
Robert L. Sullivan 1,174 0 0
Sinclair Weeks, Jr. 1,275 0 0
(s) Includes $431 payable as deferred compensation.
(t) Includes $144 payable as deferred compensation.
Ohio Fund
Aggregate
Compensation
From Fund Pension or Estimated
for Retirement Annual
the fiscal Benefits Accrued Benefits
year ended As Part of Fund Upon
Trustee 1/31/95 Expense Retirement
Tom Bleasdale $1,890(u) $0 $0
Lora S. Collins 2,148 0 0
William D. Ireland, 2,053 0 0
Jr.
William E. Mayer 1,700 0 0
John A. McNeice, Jr. 0 0 0
James L. Moody, Jr. 2,045(v) 0 0
John J. Neuhauser 1,772 0 0
George L. Shinn 2,089 0 0
Robert L. Sullivan 1,980 0 0
Sinclair Weeks, Jr. 2,170 0 0
(u) Includes $764 payable as deferred compensation.
(v) Includes $206 payable as deferred compensation.
The following table sets forth the amount of compensation paid to
Messrs. Birnbaum, Grinnell and Lowry in their capacities as
Trustees of the Liberty All-Star Equity Fund, The Charles Allmon
Trust, Inc., Liberty Financial Trust and LFC Utilities Trust
(together, Liberty Funds) for service during the year ended
December 31, 1994:
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Accrued As Benefits From Liberty
Part of Upon Funds for the
Trustee Fund Retirement calendar year ended 12/31/94(w)
Robert J. Birnbaum(x) $0 $0 $ 0
James E. Grinnell(x) 0 0 31,032
Richard W. Lowry(x) 0 0 31,282
(w) At 12/31/94 the Liberty Funds consisted of 5 open-end and 2
closed-end management investment company portfolios, each of
which were advised by Stein Roe & Farnham Incorporated, an
indirect wholly-owned subsidiary of Liberty Financial
Companies, Inc., and intermediate parent of Colonial. On
March 27, 1995, four of the portfolio series in the Liberty
Financial Trust (now known as Colonial Trust VII) were
merged into existing Colonial funds and a fifth was merged
into a new portfolio series of Colonial Trust III.
(x) Elected to the Colonial Funds Complex on April 21, 1995.
None of Messrs. Birnbaum, Grinnell or Lowry received any
compensation from any of the Funds for the fiscal year ended
January 31, 1995.
Ownership of the Funds
At April 30, 1995, the officers and Trustees of the Trust as a
group owned less than 1% of the outstanding shares of each of the
California, Connecticut, Florida, Massachusetts, Michigan,
Minnesota, New York, North Carolina and Ohio Funds.
At April 30, 1995, the following shareholders owned 5% or more of
the following Funds' outstanding Class A and Class B shares:
California Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Attn. Book Entry, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32216 (Class A: 12.02%) (Class B: 7.06%)
Connecticut Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Attn. Book Entry, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32216 (Class A: 16.27%) (Class B: 22.01%)
Florida Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Attn.
Book Entry, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL,
32216 (Class A: 10.27%) (Class B: 13.10%)
Massachusetts Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Attn. Book Entry, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32216 (Class A: 5.56%)
Michigan Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Attn: Book Entry, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32216-0561 (Class A: 10.65%) (Class B: 23.66%)
Minnesota Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Attn: Book Entry, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32216 (Class B: 8.39%)
New York Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Attn. Book Entry, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32216 (Class A: 15.73%) (Class B: 17.77%)
North Carolina Fund: Frank M. Drendel, 330 17th Avenue NW,
Hickory, NC 28601-1817 (Class A: 6.42); Merrill Lynch, Pierce,
Fenner & Smith, Inc., Attn. Book Entry, 4800 Deer Lake Drive E,
3rd Floor, Jacksonville, FL 32216 (Class B: 5.41%)
Ohio Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Attn.
Book Entry, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL
32216 (Class A: 7.29%)
At April 30, 1995, there were the following number of
shareholders of each Fund:
Class A Class B
California Fund 5,584 2,422
Connecticut Fund 1,842 1,800
Florida Fund 648 733
Massachusetts Fund 4,622 1,789
Michigan Fund 1,410 434
Minnesota Fund 1,464 600
New York Fund 1,418 1,108
North Carolina Fund 601 553
Ohio Fund 2,760 2,126
Sales Charges (dollars in thousands)
Class A Shares
California Fund
Years ended Two months Year ended
January ended January 31, November 30,
1995 1994 1993 1992
Aggregate initial
sales charges on Fund
share sales $483 $1,527 $237 $1,507
Initial sales
charges retained by CISI 47 201 29 182
Connecticut Fund
Years ended January 31
1995 1994 1993
Aggregate initial sales
charges on Fund share
sales $370 $1,057 $1,713
Initial sales charges
retained by CISI 34 117 203
Florida Fund
Year ended January 31
1995 1994
Aggregate charges retained on
Fund share sales $153 $716
Initial sales charges
retained by CISI 12 33
Massachusetts Fund
Years ended January 31
1995 1994 1993
Aggregate initial sales
charges on Fund share sales $634 $1,463 $1,644
Initial sales charges
retained by CISI 55 167 191
Michigan Fund
Years ended January 31
1995 1994 1993
Aggregate initial sales
charges on Fund share sales $143 $315 $306
Initial sales charges
retained by CISI 12 34 35
Minnesota Fund
Years ended January 31
1995 1994 1993
Aggregate initial sales
charges on Fund share sales $143 $308 $229
Initial sales charges
retained by CISI 12 31 26
New York Fund
Years ended January 31
1995 1994 1993
Aggregate initial sales
charges on Fund share sales $218 $488 $467
Initial sales charges
retained by CISI 19 52 52
North Carolina Fund
Period September 1, 1993
(commencement of operations)
Year ended through
January 31,1995 January 31, 1994
Aggregate initial sales
charges on Fund share
sales $235 $309
Initial sales charges
retained by CISI 18 4
Ohio Fund
Years ended January 31
1995 1994 1993
Aggregate initial sales
charges on Fund share
sales $247 $696 $638
Initial sales charges
retained by CISI 21 73 65
Class B Shares
California Fund
Period August 4,
1992 (commencement
Years ended Two months of operations)
January 31 ended through
1995 1994 January 31, 1993 November 30, 1992
Aggregate contingent
deferred sales charges
(CDSC) on Fund
redemptions retained by
CISI $489 $173 $8 $11
Connecticut Fund
Period June 8, 1992
(commencement of
Years ended operations)
1995 1994 through January 31, 1993
Aggregate CDSC on
Fund redemptions
retained by CISI $198 $51 $6
Florida Fund
Year ended
1995 January 31, 1994
Aggregate CDSC on Fund
redemptions retained by $139 $11
CISI
Massachusetts Fund
Period June 8, 1992
(commencement of
operations)
Years ended January 31 through
1995 1994 January 31, 1993
Aggregate CDSC on
Fund redemptions
retained by CISI $169 $61 $4
Michigan Fund
Period August 4, 1992
(commencement of
operations)
Years ended January 31 through
1995 1994 January 31, 1993
Aggregate CDSC on Fund
redemptions retained by
CISI $68 $5 $0
Minnesota Fund
Period August 4,
1992
Years ended (commencement of
January 31 operations)
1995 1994 through January 31, 1993
Aggregate CDSC on
Fund redemptions
retained by CISI $31 $3 $0
New York Fund
Period August 4, 1992
(commencement of
Years ended operations)
January 31 through
1995 1994 January 31, 1993
Aggregate CDSC on Fund
redemptions retained by
CISI $155 $34 $28
North Carolina Fund
Period September 1,
1993 (commencement
Year ended of
January 31, operations)through
1995 January 31, 1994
Aggregate CDSC on Fund
redemptions retained by
CISI $35 $0
Ohio Fund
Period August 4, 1992
Years ended (commencement of
January 31 operations)
1995 1994 January 31, 1993
Aggregate CDSC on
Fund redemptions $181 $29 $41
retained by CISI
Distribution Plan, CDSCs and Conversion of Shares
The Funds each offer two classes of shares - Class A and Class B.
Each Fund may in the future offer other classes of shares. The
Trustees have approved 12b-1 plans (Plans) for each Fund pursuant
to Rule 12b-1 under the Act. Under the Plans, each Fund pays CISI
monthly a service fee at the rate of 0.10% of average net assets
attributed to shares outstanding on November 30, 1994, and 0.25%
of average net assets attributed to shares issued thereafter.
The Funds also pay CISI a distribution fee not to exceed 0.75% of
average net assets attributed to each Fund's Class B shares.
CISI may use the entire amount of such fees to defray the costs
of commissions and service fees paid to financial service firms
(FSFs) and for certain other purposes. Since the distribution
and service fees are payable regardless of the amount of CISI's
expenses, CISI may realize a profit from the fees.
The Plans authorize any other payments by the Funds to CISI (and
its affiliates including Colonial) to the extent that such
payments might be construed to be indirectly financing the
distribution of each Fund's shares.
The Trustees believe the Plans could be a significant factor in
the growth and retention of each Fund's assets resulting in a
more advantageous expense ratio and increased investment
flexibility which could benefit each Fund's shareholders. The
Plans will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote
of the Trustees, including the Trustees who are not interested
persons of the Trust and have no direct or indirect financial
interest in the operation of the Plans or in any agreements
related to the Plans (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plans. The Plans
may not be amended to increase the fee materially without
approval by vote of a majority of the outstanding voting
securities of the relevant class of shares and all material
amendments of the Plans must be approved by the Trustees in the
manner provided in the foregoing sentence. The Plans may be
terminated at any time by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding voting
securities of the relevant class of shares. The continuance of
the Plans will only be effective if the selection and nomination
of the Trustees who are non-interested Trustees is effected by
such non-interested Trustees.
Class A shares are offered at net asset value plus varying sales
charges which may include a CDSC. Class B shares are offered at
net asset value subject to a CDSC if redeemed within six years
after the purchase. The CDSCs are described in the Prospectus.
No CDSC will be imposed on distributions or on amounts which
represent an increase in the value of the shareholders account
resulting from capital appreciation. In determining the
applicability and rate of any CDSC, it will be assumed that a
redemption is made first of shares representing capital
appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder
for the longest period of time.
Eight years after the end of the month in which a Class B share
is purchased, such share and a pro rata portion of any shares
issued on the reinvestment of distributions will be automatically
converted into Class A shares having an equal value, which are
not subject to the distribution fee.
Sales-related expenses (dollars in thousands) of CISI relating to
the Funds for the fiscal year ended January 31, 1995 were:
California Fund Connecticut Fund
Class A Class B Class A Class B
Fees to FSFs $99 $815 $32 $624
Cost of sales material 44 54 29 46
Allocated travel,
entertainment
and other promotional 92 110 61 89
Florida Fund Massachusetts Fund
Class A Class B Class A Class B
Fees to FSFs $49 $271 $89 $592
Cost of sales material 26 16 61 39
Allocated travel,
entertainment
and other promotional 40 32 126 83
Michigan Fund Minnesota Fund
Class A Class B Class A Class B
Fees to FSFs $13 $136 $17 $250
Cost of sales material 15 12 11 16
Allocated travel,
entertainment
and other promotional 19 17 24 36
New York Fund North Carolina Fund
Class A Class B Class A Class B
Fees to FSFs $17 $355 $15 $374
Cost of sales material 17 26 18 27
Allocated travel,
entertainment
and other promotional 32 47 35 53
Ohio Fund
Class A Class B
Fees to FSFs $23 $536
Cost of sales material 20 34
Allocated travel,
entertainment
and other promotional 38 68
INVESTMENT PERFORMANCE
The following Funds' Class A and Class B yields for the month
ended January 31, 1995, were:
Class A Shares
Tax-
Equivalent Adjusted
Yield Yield(p) Yield(q)
California Fund 5.48% 10.19% 5.45%
Connecticut Fund 5.72% 9.92% 5.47%
Florida Fund 5.78% 9.57% 5.11%
Massachusetts Fund 5.68% 10.69% 5.58%
Michigan Fund 5.69% 9.87% 5.52%
Minnesota Fund 5.45% 9.86% 5.22%
New York Fund 5.94% 11.18% 5.52%
North Carolina
Fund 5.82% 10.45% 4.87%
Ohio Fund 5.65% 10.11% 5.57%
Class B Shares
Tax-
Equivalent Adjusted
Yield Yield(p) Yield(q)
California Fund 5.00% 9.30% 4.97%
Connecticut Fund 5.29% 9.17% 4.72%
Florida Fund 5.31% 8.79% 4.61%
Massachusetts Fund 5.21% 9.80% 5.11%
Michigan Fund 5.22% 9.06% 5.04%
Minnesota Fund 4.97% 8.99% 4.73%
New York Fund 5.48% 10.32% 5.04%
North Carolina
Fund 5.36% 9.62% 4.36%
Ohio Fund 5.19% 9.29% 5.10%
(p) Calculated using the effective maximum combined federal
and state tax rates.
(q) Without voluntary expense limit.
The following Funds' average annual total returns at January 31,
1995, were:
Class A Shares
California Fund
Since
inception
6/16/86 to
1 year 5 years 1/31/95
With sales charge of 4.75% (9.35)% 5.30% 5.83%
Without sales charge (4.83)% 6.33% 6.43%
Connecticut Fund
Since inception
1 year 11/1/91 to 1/31/95
With sales charge of 4.75% (9.37)% 4.36%
Without sales charge (4.85)% 5.93%
Florida Fund
Since inception
1 year 2/1/93 to 1/31/95
With sales charge of 4.75% (9.62)% 0.46%
Without sales charge (5.11)% 2.93%
Massachusetts Fund
Years ended January 31
Since
inception
4/10/87 to
1 year 5 years 1/31/95
With sales charge of 4.75% (8.07)% 6.62% 6.82%
Without sales charge (3.49)% 7.67% 7.48%
Michigan Fund
Years ended January 31
Since
inception
9/26/86 to
1 year 5 years 1/31/95
With sales charge of 4.75% (8.24)% 5.75% 5.14%
Without sales charge (3.66)% 6.79% 5.75%
Minnesota Fund
Years ended January 31
Since
inception
9/26/86 to
1 year 5 years 1/31/95
With sales charge of 4.75% (7.53)% 5.48% 5.50%
Without sales charge (2.92)% 6.51% 6.12%
New York Fund
Years ended January 31
Since
inception
9/26/86 to
1 year 5 years 1/31/95
With sales charge of 4.75% (9.82)% 5.85% 5.30%
Without sales charge (5.32)% 6.88% 5.91%
North Carolina Fund
Since inception
1 year 9/1/93 to 1/31/95
With sales charge of 4.75% (10.04)% -5.74%
Without sales charge (5.55)% -2.45%
Ohio Fund
Years ended January 31
Since
inception
9/26/86 to
1 year 5 years 1/31/95
With sales charge of 4.75% (8.92)% 5.88% 5.69%
Without sales charge (4.38)% 6.92% 6.30%
Class B Shares
California Fund
Since inception
1 year 8/4/92 to 1/31/95
With CDSC of 5% (10.04)% 1.10%
Without CDSC (5.55)% 2.19%
Connecticut Fund
Since inception
1 year 6/8/92 to 1/31/95
With CDSC of 5% (10.06)% 3.64%
Without CDSC (5.57)% 4.68%
Florida Fund
Since inception
1 year 2/1/93 to 1/31/95
With CDSC of 5% (10.31)% 0.30%
Without CDSC (5.83)% 2.17%
Massachusetts Fund
Since inception
1 year 6/8/92 to 1/31/95
With CDSC of 5% (8.76)% 4.12%
Without CDSC (4.21)% 5.16%
Michigan Fund
Since inception
1 year 8/4/92 to 1/31/95
With CDSC of 5% (8.92)% 2.24%
Without CDSC (4.39)% 3.34%
Minnesota Fund
Since inception
1 year 8/4/92 to 1/31/95
With CDSC of 5% (8.22)% 2.01%
Without CDSC (3.65)% 3.11%
New York Fund
Since inception
1 year 8/4/92 to 1/31/95
With CDSC of 5% (10.49)% 1.55%
Without CDSC (6.04)% 2.64%
North Carolina Fund
Since inception
1 year 9/1/93 to 1/31/95
With CDSC of 5% (10.72)% -5.74%
Without CDSC (6.27)% -3.18%
Ohio Fund
Since inception
1 year 8/4/92 to 1/31/95
With CDSC of 5% (9.61)% 1.63%
Without CDSC (5.10)% 2.74%
The following Funds' Class A and Class B share distribution rates
at January 31, 1995, based on the most recent month's
distribution, annualized, and the maximum offering price (net
asset value for Class B) at the end of the month, were:
Fund Class A Class B
California Fund 5.61% 5.17%
Connecticut Fund 5.65% 5.20%
Florida Fund 5.80% 5.37%
Massachusetts Fund 5.72% 5.28%
Michigan Fund 5.58% 5.14%
Minnesota Fund 5.55% 5.09%
New York Fund 5.99% 5.59%
North Carolina 5.65% 5.21%
Fund
Ohio Fund 5.48% 4.85%
See Part 2 of this SAI, "Performance Measures," for how
calculations are made.
CUSTODIAN
United Missouri Bank, n.a. is the Funds' custodian. The Funds'
custodian is responsible for safeguarding each Fund's cash and
securities, receiving and delivering securities and collecting
the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP are the Funds' independent accountants
providing audit and tax return preparation services and
assistance and consultation in connection with the review of
various SEC filings. The financial statements incorporated by
reference in this SAI have been so incorporated, and the
schedules of financial highlights in the Prospectus have been so
included, in reliance upon the report of Price Waterhouse LLP
given on the authority of said firm as experts in accounting and
auditing.
The following Funds' financial statements and Reports of
Independent Accountants appearing on the referenced pages in each
of the Fund's January 31, 1995 Annual Reports are incorporated in
this SAI by reference:
Fund Pages
California Fund 3-16
Connecticut Fund 3-13
Florida Fund 3-12
Massachusetts Fund 3-15
Michigan Fund 3-12
Minnesota Fund 3-13
New York Fund 3-12
North Carolina Fund 3-11
Ohio Fund 3-14
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to your Fund and to the
other Colonial funds. In certain cases the discussion applies to
some but not all of the funds, and you should refer to your Fund's
Prospectus and to Part 1 of this SAI to determine whether the matter
is applicable to your Fund. You will also be referred to Part 1 for
certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following
investment practices are available to your Fund.
Short-Term Trading
In seeking the Fund's objective, Colonial will buy or sell portfolio
securities whenever Colonial believes it appropriate. Colonial's
decision will not generally be influenced by how long the Fund may
have owned the security. From time to time the Fund will buy
securities intending to seek short-term trading profits. A change in
the securities held by the Fund is known as "portfolio turnover" and
generally involves some expense to the Fund. These expenses may
include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment
of the proceeds in other securities. If sales of portfolio
securities cause the Fund to realize net short-term capital gains,
such gains will be taxable as ordinary income. As a result of the
Fund's investment policies, under certain market conditions the
Fund's portfolio turnover rate may be higher than that of other
mutual funds. Portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the
monthly average of the value of portfolio securities, excluding
securities whose maturities at acquisition were one year or less.
The Fund's portfolio turnover rate is not a limiting factor when
Colonial considers a change in the Fund's portfolio.
Lower Rated Bonds
Lower rated bonds are those rated lower than Baa by Moody's, BBB by
S&P, or comparable unrated securities. Relative to comparable
securities of higher quality:
1. the market price is likely to be more volatile because:
a. an economic downturn or increased interest rates may have a
more significant effect on the yield, price and potential for
default;
b. the secondary market may at times become less liquid or
respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the
bonds;
c. existing or future legislation limits and may further limit
(i) investment by certain institutions or (ii) tax
deductibility of the interest by the issuer, which may
adversely affect value; and
d. certain lower rated bonds do not pay interest in cash on a
current basis. However, the Fund will accrue and distribute
this interest on a current basis, and may have to sell
securities to generate cash for distributions.
2. the Fund's achievement of its investment objective is more
dependent on Colonial's credit analysis.
3. lower rated bonds are less sensitive to interest rate changes,
but are more sensitive to adverse economic developments.
Small Companies
Smaller, less well established companies may offer greater
opportunities for capital appreciation than larger, better
established companies, but may also involve certain special risks
related to limited product lines, markets, or financial resources and
dependence on a small management group. Their securities may trade
less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The Fund may invest in securities traded in markets outside the
United States. Foreign investments can be affected favorably or
unfavorably by changes in currency rates and in exchange control
regulations. There may be less publicly available information about
a foreign company than about a U.S. company, and foreign companies
may not be subject to accounting, auditing and financial reporting
standards comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile
than securities of U.S. companies, and foreign brokerage commissions
and custodian fees may be higher than in the United States.
Investments in foreign securities can involve other risks different
from those affecting U.S. investments, including local political or
economic developments, expropriation or nationalization of assets and
imposition of withholding taxes on dividend or interest payments.
Foreign securities, like other assets of the Fund, will be held by
the Fund's custodian or by a subcustodian or depository. See also
"Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies
(PFICs) which may be subject to U.S. federal income tax on a portion
of any "excess distribution" or gain (PFIC tax) related to the
investment. The PFIC tax is the highest ordinary income rate and it
could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata
share of the ordinary earnings and net capital gain of PFICs. This
election requires certain annual information from the PFICs which in
many cases may be difficult to obtain. An alternative election would
permit the Fund to recognize as income any appreciation (but not
depreciation) on its holdings of PFICs as of the end of its fiscal
year.
Zero Coupon Securities (Zeros)
The Fund may invest in debt securities which do not pay interest, but
instead are issued at a deep discount from par. The value of the
security increases over time to reflect the interest accreted. The
value of these securities may fluctuate more than similar securities
which are issued at par and pay interest periodically. Although
these securities pay no interest to holders prior to maturity,
interest on these securities is reported as income to the Fund and
distributed to its shareholders. These distributions must be made
from the Fund's cash assets or, if necessary, from the proceeds of
sales of portfolio securities. The Fund will not be able to purchase
additional income producing securities with cash used to make such
distributions and its current income ultimately may be reduced as a
result.
Step Coupon Bonds (Steps)
The Fund may invest in debt securities which do not pay interest for
a stated period of time and then pay interest at a series of
different rates for a series of periods. In addition to the risks
associated with the credit rating of the issuers, these securities
are subject to the volatility risk of zero coupon bonds for the
period when no interest is paid.
Pay-In-Kind (PIK) Securities
The Fund may invest in securities which pay interest either in cash
or additional securities at the issuer's option. These securities are
generally high yield securities and in addition to the other risks
associated with investing in high yield securities are subject to the
risks that the interest payments that are securities are also subject
to the risks of high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign government,
its subdivisions, agencies and instrumentalities. Supranational
obligations are issued by supranational entities and are generally
designed to promote economic improvements. Certificates of deposits
are issued against funds deposited in a commercial bank with a
defined return and maturity. Banker's acceptances are used to
finance the import, export or storage of goods and are "accepted"
when guaranteed at maturity by a bank. Commercial paper are
promissory notes issued by businesses to finance short-term needs
(including those with floating or variable interest rates, or
including a frequent interval put feature). Short-term corporate
obligations are bonds and notes (with one year or less to maturity at
the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and
any related guaranty, letter of credit, or collateralization
arrangement which the Fund would be allowed to invest in directly.
Securities Loans
The Fund may make secured loans of its portfolio securities amounting
to not more than the percentage of its total assets specified in Part
1 of this SAI, thereby realizing additional income. The risks in
lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible
loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to
banks and broker-dealers pursuant to agreements requiring that loans
be continuously secured by collateral in cash or short-term debt
obligations at least equal at all times to the value of the
securities on loan. The borrower pays to the Fund an amount equal to
any dividends or interest received on securities lent. The Fund
retains all or a portion of the interest received on investment of
the cash collateral or receives a fee from the borrower. Although
voting rights, or rights to consent, with respect to the loaned
securities pass to the borrower, the Fund retains the right to call
the loans at any time on reasonable notice, and it will do so in
order that the securities may be voted by the Fund if the holders of
such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such
loans in order to sell the securities involved.
Forward Commitments
The Fund may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward
commitments" and "when issued securities") if the Fund holds until
the settlement date, in a segregated account, cash or high-grade debt
obligations in an amount sufficient to meet the purchase price, or if
the Fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date.
Where such purchases are made through dealers, the Fund relies on the
dealer to consummate the sale. The dealer's failure to do so may
result in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments with
the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the Fund
may dispose of a commitment prior to settlement if Colonial deems it
appropriate to do so. The Fund may realize short-term profits or
losses upon the sale of forward commitments.
Repurchase Agreements
The Fund may enter into repurchase agreements. A repurchase
agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than one week) subject to
the obligation of the seller to repurchase and the Fund to resell
such security at a fixed time and price (representing the Fund's cost
plus interest). It is the Fund's present intention to enter into
repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase
agreements may also be viewed as loans made by the Fund which are
collateralized by the securities subject to repurchase. Colonial
will monitor such transactions to determine that the value of the
underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor.
If the seller defaults, the Fund could realize a loss on the sale of
the underlying security to the extent that the proceeds of sale
including accrued interest are less than the resale price provided in
the agreement including interest. In addition, if the seller should
be involved in bankruptcy or insolvency proceedings, the Fund may
incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Fund is treated as an
unsecured creditor and required to return the underlying collateral
to the seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, a Fund sells a security and agrees
to repurchase the same security at a mutually agreed upon date and
price. A reverse repurchase agreement may also be viewed as the
borrowing of money by the Fund and, therefore, as a form of leverage.
The Fund will invest the proceeds of borrowings under reverse
repurchase agreements. In addition, a Fund will enter into a reverse
repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the
interest expense of the transaction. A Fund will not invest the
proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. A Fund may not
enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of its total assets, less liabilities
other than the obligations created by reverse repurchase agreements.
Each Fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at
least equal to its purchase obligations under its reverse repurchase
agreements. If interest rates rise during the term of a reverse
repurchase agreement, entering into the reverse repurchase agreement
may have a negative impact on a money market fund's ability to
maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The Fund may write covered call options and
covered put options on securities held in its portfolio when, in the
opinion of Colonial, such transactions are consistent with the Fund's
investment objectives and policies. Call options written by the Fund
give the purchaser the right to buy the underlying securities from
the Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a stated
price.
The Fund may write only covered options, which means that, so long as
the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges). In the
case of put options, the Fund will hold cash and/or high-grade short-
term debt obligations equal to the price to be paid if the option is
exercised. In addition, the Fund will be considered to have covered
a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written.
The Fund may write combinations of covered puts and calls on the same
underlying security.
The Fund will receive a premium from writing a put or call option,
which increases the Fund's return on the underlying security if the
option expires unexercised or is closed out at a profit. The amount
of the premium reflects, among other things, the relationship between
the exercise price and the current market value of the underlying
security, the volatility of the underlying security, the amount of
time remaining until expiration, current interest rates, and the
effect of supply and demand in the options market and in the market
for the underlying security. By writing a call option, the Fund
limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the
option but continues to bear the risk of a decline in the value of
the underlying security. By writing a put option, the Fund assumes
the risk that it may be required to purchase the underlying security
for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security
subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which
it purchases an offsetting option. The Fund realizes a profit or
loss from a closing transaction if the cost of the transaction
(option premium plus transaction costs) is less or more than the
premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the
market price of the security underlying the option, any loss
resulting from a closing purchase transaction may be offset in whole
or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying
security, and when it writes a put option, the Fund may be required
to deposit cash or securities with its broker as "margin" or
collateral for its obligation to buy or sell the underlying security.
As the value of the underlying security varies, the Fund may have to
deposit additional margin with the broker. Margin requirements are
complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by
stock exchanges and other self-regulatory organizations.
Purchasing put options. The Fund may purchase put options to protect
its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of
the put option since the Fund, as holder of the put option, is able
to sell the underlying security at the put exercise price regardless
of any decline in the underlying security's market price. For a put
option to be profitable, the market price of the underlying security
must decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this manner,
the Fund will reduce any profit it might otherwise have realized from
appreciation of the underlying security by the premium paid for the
put option and by transaction costs.
Purchasing call options. The Fund may purchase call options to hedge
against an increase in the price of securities that the Fund wants
ultimately to buy. Such hedge protection is provided during the life
of the call option since the Fund, as holder of the call option, is
able to buy the underlying security at the exercise price regardless
of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price
to cover the premium and transaction costs. These costs will reduce
any profit the Fund might have realized had it bought the underlying
security at the time it purchased the call option.
Over-the-Counter (OTC) options. The Staff of the Division of
Investment Management of the Securities and Exchange Commission has
taken the position that OTC options purchased by the Fund and assets
held to cover OTC options written by the Fund are illiquid
securities. Although the Staff has indicated that it is continuing
to evaluate this issue, pending further developments, the Fund
intends to enter into OTC options transactions only with primary
dealers in U.S. Government Securities and, in the case of OTC options
written by the Fund, only pursuant to agreements that will assure
that the Fund will at all times have the right to repurchase the
option written by it from the dealer at a specified formula price.
The Fund will treat the amount by which such formula price exceeds
the amount, if any, by which the option may be "in-the-money" as an
illiquid investment. It is the present policy of the Fund not to
enter into any OTC option transaction if, as a result, more than 15%
(10% in some cases, refer to your Fund's Prospectus) of the Fund's
net assets would be invested in (i) illiquid investments (determined
under the foregoing formula) relating to OTC options written by the
Fund, (ii) OTC options purchased by the Fund, (iii) securities which
are not readily marketable, and (iv) repurchase agreements maturing
in more than seven days.
Risk factors in options transactions. The successful use of the
Fund's options strategies depends on the ability of Colonial to
forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of
time, unless the Fund exercises the option or enters into a closing
sale transaction with respect to the option during the life of the
option. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying
securities, since the Fund may continue to hold its investment in
those securities notwithstanding the lack of a change in price of
those securities.
The effective use of options also depends on the Fund's ability to
terminate option positions at times when Colonial deems it desirable
to do so. Although the Fund will take an option position only if
Colonial believes there is a liquid secondary market for the option,
there is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable,
the Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the market
for particular options or series of options. A marketplace may
discontinue trading of a particular option or options generally. In
addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability
- -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions
on particular types of options transactions, which may limit the
Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options
purchased or sold by the Fund could result in losses on the options.
If trading is interrupted in an underlying security, the trading of
options on that security is normally halted as well. As a result,
the Fund as purchaser or writer of an option will be unable to close
out its positions until options trading resumes, and it may be faced
with losses if trading in the security reopens at a substantially
different price. In addition, the Options Clearing Corporation (OCC)
or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the
option has also been halted, the Fund as purchaser or writer of an
option will be locked into its position until one of the two
restrictions has been lifted. If a prohibition on exercise remains
in effect until an option owned by the Fund has expired, the Fund
could lose the entire value of its option.
Special risks are presented by internationally-traded options.
Because of time differences between the United States and the various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for trading
during hours or on days when U.S. markets are closed. As a result,
option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
The Fund will enter into futures contracts only when, in compliance
with the SEC's requirements, cash or cash equivalents, (or, in the
case of a fund investing primarily in foreign equity securities, such
equity securities), equal in value to the commodity value (less any
applicable margin deposits) have been deposited in a segregated
account of the Fund's custodian.
A futures contract sale creates an obligation by the seller to
deliver the type of instrument called for in the contract in a
specified delivery month for a stated price. A futures contract
purchase creates an obligation by the purchaser to take delivery of
the type of instrument called for in the contract in a specified
delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that
date. The determination is made in accordance with the rules of the
exchanges on which the futures contract was made. Futures contracts
are traded in the United States only on commodity exchange or boards
of trade -- known as "contract markets" -- approved for such trading
by the Commodity Futures Trading Commission (CFTC), and must be
executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of commodities or securities, the contracts usually are
closed out before the settlement date without the making or taking of
delivery. Closing out a futures contract sale is effected by
purchasing a futures contract for the same aggregate amount of the
specific type of financial instrument or commodity with the same
delivery date. If the price of the initial sale of the futures
contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the
seller realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the purchaser's entering into a
futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase
price exceeds the offsetting sale price, the purchaser realizes a
loss.
Unlike when the Fund purchases or sells a security, no price is paid
or received by the Fund upon the purchase or sale of a futures
contract, although the Fund is required to deposit with its custodian
in a segregated account in the name of the futures broker an amount
of cash and/or U.S. Government Securities. This amount is known as
"initial margin". The nature of initial margin in futures
transactions is different from that of margin in security
transactions in that futures contract margin does not involve the
borrowing of funds by the Fund to finance the transactions. Rather,
initial margin is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin", to and from the
broker (or the custodian) are made on a daily basis as the price of
the underlying security or commodity fluctuates, making the long and
short positions in the futures contract more or less valuable, a
process known as "marking to market."
The Fund may elect to close some or all of its futures positions at
any time prior to their expiration. The purpose of making such a
move would be to reduce or eliminate the hedge position then
currently held by the Fund. The Fund may close its positions by
taking opposite positions which will operate to terminate the Fund's
position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be
paid by or released to the Fund, and the Fund realizes a loss or a
gain. Such closing transactions involve additional commission costs.
Options on futures contracts. The Fund will enter into written
options on futures contracts only when, in compliance with the SEC's
requirements, cash or equivalents equal in value to the commodity
value (less any applicable margin deposits) have been deposited in a
segregated account of the Fund's custodian. The Fund may purchase
and write call and put options on futures contracts it may buy or
sell and enter into closing transactions with respect to such options
to terminate existing positions. The Fund may use such options on
futures contracts in lieu of writing options directly on the
underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same
manner as options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option.
There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those
described above.
Risks of transactions in futures contracts and related options.
Successful use of futures contracts by the Fund is subject to
Colonial's ability to predict correctly movements in the direction of
interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase
of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures
contract would result in a loss to the Fund when the purchase or sale
of a futures contract would not, such as when there is no movement in
the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to
the sale of futures contracts.
There is no assurance that higher than anticipated trading activity
or other unforeseen events might not, at times, render certain market
clearing facilities inadequate, and thereby result in the
institution, by exchanges, of special procedures which may interfere
with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund
may seek to close out a position. The ability to establish and close
out positions will be subject to the development and maintenance of a
liquid secondary market. It is not certain that this market will
develop or continue to exist for a particular futures contract.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations
on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to
discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of
contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a
clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of U.S. Treasury security futures contracts
and options. A Fund investing in tax-exempt securities issued by a
governmental entity may purchase and sell futures contracts and
related options on U.S. Treasury securities when, in the opinion of
Colonial, price movements in Treasury security futures and related
options will correlate closely with price movements in the tax-exempt
securities which are the subject of the hedge. U.S. Treasury
securities futures contracts require the seller to deliver, or the
purchaser to take delivery of, the type of U.S. Treasury security
called for in the contract at a specified date and price. Options on
U.S. Treasury security futures contracts give the purchaser the right
in return for the premium paid to assume a position in a U.S.
Treasury futures contract at the specified option exercise price at
any time during the period of the option.
In addition to the risks generally involved in using futures
contracts, there is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt securities.
Index futures contracts. An index futures contract is a contract to
buy or sell units of an index at a specified future date at a price
agreed upon when the contract is made. Entering into a contract to
buy units of an index is commonly referred to as buying or purchasing
a contract or holding a long position in the index. Entering into a
contract to sell units of an index is commonly referred to as selling
a contract or holding a short position. A unit is the current value
of the index. The Fund may enter into stock index futures contracts,
debt index futures contracts, or other index futures contracts
appropriate to its objective(s). The Fund may also purchase and sell
options on index futures contracts.
There are several risks in connection with the use by the Fund of
index futures as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the index
futures and movements in the prices of securities which are the
subject of the hedge. Colonial will attempt to reduce this risk by
selling, to the extent possible, futures on indices the movements of
which will, in its judgment, have a significant correlation with
movements in the prices of the Fund's portfolio securities sought to
be hedged.
Successful use of the index futures by the Fund for hedging purposes
is also subject to Colonial's ability to predict correctly movements
in the direction of the market. It is possible that, where the Fund
has sold futures to hedge its portfolio against a decline in the
market, the index on which the futures are written may advance and
the value of securities held in the Fund's portfolio may decline. If
this occurs, the Fund would lose money on the futures and also
experience a decline in the value in its portfolio securities.
However, while this could occur to a certain degree, Colonial
believes that over time the value of the Fund's portfolio will tend
to move in the same direction as the market indices which are
intended to correlate to the price movements of the portfolio
securities sought to be hedged. It is also possible that, if the
Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities
prices increase instead, the Fund will lose part or all of the
benefit of the increased valued of those securities that it has
hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index
futures and the securities of the portfolio being hedged, the prices
of index futures may not correlate perfectly with movements in the
underlying index due to certain market distortions. First, all
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship
between the index and futures markets. Second, margin requirements
in the futures market are less onerous than margin requirements in
the securities market, and as a result the futures market may attract
more speculators than the securities market. Increased participation
by speculators in the futures market may also cause temporary price
distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between
movements in the index and movements in the prices of index futures,
even a correct forecast of general market trends by Colonial may
still not result in a successful hedging transaction.
Options on index futures. Options on index futures are similar to
options on securities except that options on index futures give the
purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option
is a call and a short position if the option is a put), at a
specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's
futures margin account which represents the amount by which the
market price of the index futures contract, at exercise, exceeds (in
the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is
exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing
level of the index on which the future is based on the expiration
date. Purchasers of options who fail to exercise their options prior
to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put
options on index futures, the Fund may purchase call and put options
on the underlying indices themselves. Such options could be used in
a manner identical to the use of options on index futures.
Foreign Currency Transactions
The Fund may engage in currency exchange transactions to protect
against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position
hedging". When it engages in transaction hedging, the Fund enters
into foreign currency transactions with respect to specific
receivables or payables of the Fund generally arising in connection
with the purchase or sale of its portfolio securities. The Fund will
engage in transaction hedging when it desires to "lock in" the U.S.
dollar price of a security it has agreed to purchase or sell, or the
U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Fund attempts to protect itself
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign
currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement
of transactions in portfolio securities denominated in that foreign
currency. The Fund may also enter into contracts to purchase or sell
foreign currencies at a future date ("forward contracts") and
purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-
listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. Over-the-counter
options are considered to be illiquid by the SEC staff. A put option
on a futures contract gives the Fund the right to assume a short
position in the futures contract until expiration of the option. A
put option on currency gives the Fund the right to sell a currency at
an exercise price until the expiration of the option. A call option
on a futures contract gives the Fund the right to assume a long
position in the futures contract until the expiration of the option.
A call option on currency gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in the
values of the foreign currencies in which its portfolio securities
are denominated (or an increase in the value of currency for
securities which the Fund expects to purchase, when the Fund holds
cash or short-term investments). In connection with position
hedging, the Fund may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell
forward contracts and foreign currency futures contracts. The Fund
may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will
not generally be possible since the future value of such securities
in foreign currencies will change as a consequence of market
movements in the value of those securities between the dates the
currency exchange transactions are entered into and the dates they
mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the Fund to
purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency
the Fund is obligated to deliver and if a decision is made to sell
the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security
or securities if the market value of such security or securities
exceeds the amount of foreign currency the Fund is obligated to
deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Fund owns or intends to
purchase or sell. They simply establish a rate of exchange which one
can achieve at some future point in time. Additionally, although
these techniques tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they tend to limit any potential
gain which might result from the increase in value of such currency.
Currency forward and futures contracts. The Fund will enter into
such contracts only when, in compliance with the SEC's requirements,
cash or equivalents equal in value to the commodity value (less any
applicable margin deposits) have been deposited in a segregated
account of the Fund's custodian. A forward currency contract
involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of
the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has
the unilateral right to cancel the contract at maturity by paying a
specified fee. The contracts are traded in the interbank market
conducted directly between currency traders (usually large
commercial banks) and their customers. A contract generally has no
deposit requirement, and no commissions are changed at any stage for
trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a
future date at a price set at the time of the contract. Currency
futures contracts traded in the United States are designed and traded
on exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward currency contracts differ from currency futures contracts in
certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date
in a given month. Forward contracts may be in any amounts agreed
upon by the parties rather than predetermined amounts. Also, forward
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no
margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or
at or prior to maturity enter into a closing transaction involving
the purchase or sale of an offsetting contract. Closing transactions
with respect to forward contracts are usually effected with the
currency trader who is a party to the original forward contract.
Closing transactions with respect to futures contracts are effected
on a commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such
contracts. Although the Fund intends to purchase or sell currency
futures contracts only on exchanges or boards of trade where there
appears to be an active secondary market, there is no assurance that
a secondary market on an exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it
may not be possible to close a futures position and, in the event of
adverse price movements, the Fund would continue to be required to
make daily cash payments of variation margin.
Currency options. In general, options on currencies operate
similarly to options on securities and are subject to many similar
risks. Currency options are traded primarily in the over-the-counter
market, although options on currencies have recently been listed on
several exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit ("ECU").
The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's
European Monetary System.
The Fund will only purchase or write currency options when Colonial
believes that a liquid secondary market exists for such options.
There can be no assurance that a liquid secondary market will exist
for a particular option at any specified time. Currency options are
affected by all of those factors which influence exchange rates and
investments generally. To the extent that these options are traded
over the counter, they are considered to be illiquid by the SEC
staff.
The value of any currency, including the U.S. dollars, may be
affected by complex political and economic factors applicable to the
issuing country. In addition, the exchange rates of currencies (and
therefore the values of currency options) may be significantly
affected, fixed, or supported directly or indirectly by government
actions. Government intervention may increase risks involved in
purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange
rate, which in turn reflects relative values of two currencies, the
U.S. dollar and the foreign currency in question. Because currency
transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the exercise of
currency options, investors may be disadvantaged by having to deal in
an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots.
Foreign governmental restrictions or taxes could result in adverse
changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for
currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised
on a timely basis. Available quotation information is generally
representative of very large round-lot transactions in the interbank
market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less
favorable. The interbank market in currencies is a global, around-
the-clock market. To the extent that options markets are closed
while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the Fund's
investments in foreign securities and to the Fund's foreign currency
exchange transactions may be more complex than settlements with
respect to investments in debt or equity securities of U.S. issuers,
and may involve certain risks not present in the Fund's domestic
investments, including foreign currency risks and local custom and
usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do
not charge a fee for currency conversion, they do realize a profit
based on the difference (spread) between prices at which they are
buying and selling various currencies. Thus, a dealer may offer to
sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Foreign currency transactions may also
involve the risk that an entity involved in the settlement may not
meet its obligation.
Participation Interests
The Fund may invest in municipal obligations either by purchasing
them directly or by purchasing certificates of accrual or similar
instruments evidencing direct ownership of interest payments or
principal payments, or both, on municipal obligations, provided that,
in the opinion of counsel to the initial seller of each such
certificate or instrument, any discount accruing on such certificate
or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be
exempt from federal income tax to the same extent as interest on such
municipal obligations. The Fund may also invest in tax-exempt
obligations by purchasing from banks participation interests in all
or part of specific holdings of municipal obligations. Such
participations may be backed in whole or part by an irrevocable
letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the Fund in connection with the arrangement.
The Fund will not purchase such participation interests unless it
receives an opinion of counsel or a ruling of the Internal Revenue
Service that interest earned by it on municipal obligations in which
it holds such participation interests is exempt from federal income
tax.
Stand-by Commitments
When the Fund purchases municipal obligations it may also acquire
stand-by commitments from banks and broker-dealers with respect to
such municipal obligations. A stand-by commitment is the equivalent
of a put option acquired by the Fund with respect to a particular
municipal obligation held in its portfolio. A stand-by commitment is
a security independent of the municipal obligation to which it
relates. The amount payable by a bank or dealer during the time a
stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same
as the value of the underlying municipal obligation. A stand-by
commitment might not be transferable by the Fund, although it could
sell the underlying municipal obligation to a third party at any
time.
The Fund expects that stand-by commitments generally will be
available without the payment of direct or indirect consideration.
However, if necessary and advisable, the Fund may pay for stand-by
commitments either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to such a commitment
(thus reducing the yield to maturity otherwise available for the same
securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the Fund portfolio will not exceed 10%
of the value of the Fund's total assets calculated immediately after
each stand-by commitment is acquired. The Fund will enter into stand-
by commitments only with banks and broker-dealers that, in the
judgment of the Board of Trustees, present minimal credit risks.
Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary
inversely to changes in short-term interest rates and whose values
fluctuate inversely to changes in long-term interest rates. The
value of certain inverse floaters will fluctuate substantially more
in response to a given change in long-term rates than would a
traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes
have a magnified effect on the value of inverse floaters.
TAXES
All discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax adviser for state and local tax
considerations and for information about special tax considerations
that may apply to shareholders that are not natural persons.
Dividends Received Deductions. Distributions will qualify for the
corporate dividends received deduction only to the extent that
dividends earned by the Fund qualify. Any such dividends are,
however, includable in adjusted current earnings for purposes of
computing corporate AMT.
Return of Capital Distributions. To the extent that a distribution
is a return of capital for federal tax purposes, it reduces the cost
basis of the shares on the record date and is similar to a partial
return of the original investment (on which a sales charge may have
been paid). There is no recognition of a gain or loss, however,
unless the return of capital reduces the cost basis in the shares to
below zero.
Funds that invest in U.S. Government Securities. Many states grant
tax-free status to dividends paid to shareholders of mutual funds
from interest income earned by the Fund from direct obligations of
the U.S. government. Investments in mortgage-backed securities
(including GNMA, FNMA and FHLMC Securities) and repurchase agreements
collateralized by U.S. government securities do not qualify as direct
federal obligations in most states. Shareholders should consult with
their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their Fund shares and
distributions and redemption proceeds received from the Fund.
Distributions from Tax-Exempt Funds. Each tax-exempt Fund will have
at least 50% of its total assets invested in tax-exempt bonds at the
end of each quarter so that dividends from net interest income on tax-
exempt bonds will be exempt from Federal income tax when received by
a shareholder. The tax-exempt portion of dividends paid will be
designated within 60 days after year end based upon the ratio of net
tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different than the ratio of
net tax-exempt income to total net investment income earned during
any particular portion of the year. Thus, a shareholder who holds
shares for only a part of the year may be allocated more or less tax-
exempt dividends than would be the case if the allocation were based
on the ratio of net tax-exempt income to total net investment income
actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private
activity bonds" issued after August 7, 1986, a tax preference item
for the alternative minimum tax (AMT) at the maximum rate of 28% for
individuals and 20% for corporations. If the Fund invests in private
activity bonds, shareholders may be subject to the AMT on that part
of the distributions derived from interest income on such bonds.
Other provisions of the Tax Reform Act affect the tax treatment of
distributions for corporations, casualty insurance companies and
financial institutions; interest on all tax-exempt bonds is included
in corporate adjusted current earnings when computing the AMT
applicable to corporations. Seventy-five percent of the excess of
adjusted current earnings over the amount of income otherwise subject
to the AMT is included in the corporation's alternative minimum
taxable income.
Dividends derived from net income on any investments other than tax-
exempt bonds and any distributions of short-term capital gains are
taxable to shareholders as ordinary income. Any distributions of net
long-term gains will in general be taxable to shareholders as long-
term capital gains regardless of the length of time Fund shares are
held.
Shareholders receiving social security and certain retirement
benefits may be taxed on a portion of those benefits as a result of
receiving tax-exempt income, including tax-exempt dividends from the
Fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income
distributions to shareholders who are substantial users or related
persons of substantial users of facilities financed by industrial
revenue bonds may not be excludable from their gross income if such
income is derived from such bonds. Income derived from Fund
investments other than tax-exempt instruments may give rise to
taxable income. Fund shares must be held for more than six months in
order to avoid the disallowance of a capital loss on the sale of Fund
shares to the extent of tax-exempt dividends paid during that period.
A shareholder that borrows money to purchase Fund shares will not be
able to deduct the interest paid with respect to such borrowed money.
Sales of Shares. In general, any gain or loss realized upon a
taxable disposition of shares by a shareholder will be treated as
long-term capital gain or loss if the shares have been held for more
than twelve months, and otherwise as short-term capital gain or loss
assuming such shares are held as a capital asset. However, any loss
realized upon a taxable disposition of shares held for six months or
less will be treated as long-term, rather than short-term, capital
loss to the extent of any long-term capital gain distributions
received by the shareholder with respect to those shares. All or a
portion of any loss realized upon a taxable disposition of shares
will be disallowed if other shares are purchased within 30 days
before or after the disposition. In such a case, the basis of the
newly purchased shares will be adjusted to reflect the disallowed
loss.
Backup Withholding. Certain distributions and redemptions may be
subject to a 31% backup withholding unless a taxpayer identification
number and certification that the shareholder is not subject to the
withholding is provided to the Fund. This number and form may be
provided by either a Form W-9 or the accompanying application. In
certain instances CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to
an excise tax. Colonial intends to avoid this tax except when the
cost of processing the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment
company," the Fund must (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of securities or foreign
currencies or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its
business of investing in such securities or currencies; (b) derive
less than 30% of its gross income from the sale or other disposition
of certain assets held less than three months; (c) diversify its
holdings so that, at the close of each quarter of its taxable year,
(i) at least 50% of the value of its total assets consists of cash,
cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the
total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any issuer
(other than U.S. Government securities).
Futures Contracts. Accounting for futures contracts will be in
accordance with generally accepted accounting principles. The amount
of any realized gain or loss on the closing out of a futures contract
will result in a capital gain or loss for tax purposes. In addition,
certain futures contracts held by the Fund (so-called "Section 1256
contracts") will be required to be "marked-to-market" (deemed sold)
for federal income tax purposes at the end of each fiscal year.
Sixty percent of any net gain or loss recognized on such deemed sales
or on actual sales will be treated as long-term capital gain or loss,
and the remainder will be treated as short-term capital gain or loss.
However, if a futures contract is part of a "mixed straddle" (i.e., a
straddle comprised in part of Section 1256 contracts), a Fund may be
able to make an election which will affect the character arising from
such contracts as long-term or short-term and the timing of the
recognition of such gains or losses. In any event, the straddle
provisions described below will be applicable to such mixed
straddles.
Special Tax Rules Applicable to "Straddles". The straddle provisions
of the Code may affect the taxation of the Fund's options and futures
transactions and transactions in securities to which they relate. A
"straddle" is made up of two or more offsetting positions in
"personal property," including debt securities, related options and
futures, equity securities, related index futures and, in certain
circumstances, options relating to equity securities, and foreign
currencies and related options and futures.
The straddle rules may operate to defer losses realized or deemed
realized on the disposition of a position in a straddle, may suspend
or terminate the Fund's holding period in such positions, and may
convert short-term losses to long-term losses in certain
circumstances.
Foreign Currency-Denominated Securities and Related Hedging
Transactions. The Fund's transactions in foreign currency-
denominated debt securities, certain foreign currency options,
futures contracts and forward contracts may give rise to ordinary
income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of a Fund's total assets at the end of its fiscal
year are invested in securities of foreign corporate issuers, the
Fund may make an election permitting its shareholders to take a
deduction or credit for federal tax purposes for their portion of
certain foreign taxes paid by the Fund. Colonial will consider the
value of the benefit to a typical shareholder, the cost to the Fund
of compliance with the election, and incidental costs to the
shareholder in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit will be
subject to certain limitations imposed by the Code, as a result of
which a shareholder may not get a full credit for the amount of
foreign taxes so paid by the Fund. Shareholders who do not itemize
on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Certain Securities are considered to be Passive Foreign Investment
Companies (PFICS) under the Code, and the Fund is liable for any PFIC-
related taxes.
MANAGEMENT OF THE FUNDS
Colonial is a subsidiary of The Colonial Group, Inc. (TCG), One
Financial Center, Boston, MA 02111. TCG is a subsidiary of Liberty
Financial Companies, Inc. (Liberty Financial), which in turn is an
indirect subsidiary of Liberty Mutual Insurance Company (Liberty
Mutual). Liberty Mutual is an underwriter of worker's compensation
insurance and a property and casualty insurer in the U.S. Liberty
Financial's address is 600 Atlantic Avenue, Boston, MA 02210.
Liberty Mutual's address is 175 Berkeley Street, Boston, MA 02117.
Trustees and Officers
Robert J. Birnbaum(1)(Age 67), Trustee, is a Trustee (formerly
Special Counsel, Dechert Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.), 313 Bedford Road,
Ridgewood, NJ 07450
Tom Bleasdale (Age 64), Trustee, is a Trustee (formerly Chairman of
the Board and Chief Executive Officer, Shore Bank & Trust Company),
1508 Ferncroft Tower, Danvers, MA 01923
Lora S. Collins (Age 59), Trustee, is an Attorney with Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New York, NY
10022
James E. Grinnell(1)(Age 65), Trustee, is a Private Investor, 22
Harbor Avenue, Marblehead, MA 01945
William D. Ireland, Jr. (Age 71), Trustee, is a Trustee, 103
Springline Drive, Vero Beach, FL 32963
Richard W. Lowry(1)(Age 58), Trustee, is a Private Investor, 10701
Charleston Drive, Vero Beach, FL 32963
William E. Mayer (Age 54), Trustee, is Dean, College of Business and
Management, University of Maryland (formerly Dean, Simon Graduate
School of Business, University of Rochester; Chairman and Chief
Executive Officer, C.S. First Boston Merchant Bank; and President and
Chief Executive Officer, The First Boston Corporation), College Park,
MD 20742
John A. McNeice, Jr.(2)(Age 62), Trustee and President, is Chairman
of the Board and Director, TCG and Colonial, Director, Liberty
Financial (formerly Chief Executive Officer, Colonial and TCG)
James L. Moody, Jr. (Age 63), Trustee, is Chairman of the Board,
Hannaford Bros., Co. (formerly Chief Executive Officer, Hannaford
Bros. Co.), P.O. Box 1000, Portland, ME 04104
John J. Neuhauser (Age 51), Trustee, is Dean, Boston College School
of Management, 140 Commonwealth Avenue, Chestnut Hill, MA 02167
George L. Shinn (Age 72), Trustee, is a Financial Consultant
(formerly Chairman, Chief Executive Officer and Consultant, The First
Boston Corporation), The First Boston Corporation, Tower Forty Nine,
12 East 49th Street, New York, NY 10017
Robert L. Sullivan (Age 67), Trustee, is a Management Consultant,
7121 Natelli Woods Lane, Bethesda, MD 20817
Sinclair Weeks, Jr. (Age 71), Trustee, is Chairman of the Board, Reed
& Barton Corporation, Bay Colony Corporate Center, Suite 4550, 1000
Winter Street, Waltham, MA 02154
Harold W. Cogger (Age 59), Vice President, is President, Chief
Executive Officer and Director, Colonial (formerly Executive Vice
President; Colonial); President, Chief Executive Officer and
Director, TCG; Executive Vice President and Director, Liberty
Financial
Peter L. Lydecker (Age 41), Controller (formerly Assistant
Controller), is Vice President, Colonial (formerly Assistant Vice
President, Colonial)
Davey S. Scoon (Age 48), Vice President, is Executive Vice President
and Director, Colonial (formerly Senior Vice President and Treasurer,
Colonial); Executive Vice President and Chief Operating Officer, TCG,
(formerly Vice President - Finance and Administration, TCG)
Richard A. Silver (Age 48), Treasurer and Chief Financial Officer
(formerly Controller), is Senior Vice President, Director, Treasurer
and Chief Financial Officer, Colonial; Treasurer and Chief Financial
Officer, TCG (formerly Assistant Treasurer, TCG)
Arthur O. Stern (Age 56),Secretary, is Director, Executive Vice
President, General Cousel, Clerk and Secretary, Colonial; Executive
Vice President, Legal and Compliance and Clerk, TCG (formerlyVice
President - Legal, TCG)
(1) Elected to the Colonial Funds Complex on April 21, 1995.
(2) Trustees who are "interested persons" (as defined in the
1940 Act) of the Fund or Colonial.
The Trustees serve as trustees of all Colonial funds for which each
Trustee (except Mr. McNeice) will receive an annual retainer of
$45,000 and attendance fees of $7,500 for each regular joint meeting
and $1,000 for each special joint meeting. Committee chairs receive
an annual retainer of $5,000. Committee members receive an annual
retainer of $1,000 and $1,000 for each special meeting attended. Two-
thirds of the Trustee fees are allocated among the Colonial funds
based on the Funds' relative net assets and one-third of the fees are
divided equally among the Colonial funds.
The Agreement and Declaration of Trust (Declaration) of the Trust
provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices
with the Trust but that such indemnification will not relieve any
officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties. The Trust, at its expense,
provides liability insurance for the benefit of its Trustees and
officers.
Colonial or its affiliate, Colonial Advisory Services, Inc. (CASI),
has rendered investment advisory services to investment company,
institutional and other clients since 1931. Colonial currently
serves as investment adviser for 33 open-end and 5 closed-end
management investment company portfolios (collectively, Colonial
funds). Trustees and officers of the Trust who are also officers of
Colonial or its affiliates will benefit from the advisory fees, sales
commissions and agency fees paid or allowed by the Trust. More than
30,000 financial advisers have recommended Colonial funds to over
800,000 clients worldwide, representing more than $15.5 billion in
assets.
The Management Agreement
Under a Management Agreement (Agreement), Colonial has contracted to
furnish the Fund with investment research and recommendations or fund
management, respectively, and accounting, and administrative
personnel and services, and with office space, equipment and other
facilities, at Colonial's expense. For these services and
facilities, the Fund pays a monthly fee based on the average of the
daily closing value of the total net assets of the Fund for such
month.
Colonial's compensation under the Agreement is subject to reduction
in any fiscal year to the extent that the total expenses of the Fund
for such year (subject to applicable exclusions) exceed the most
restrictive applicable expense limitation prescribed by any state
statute or regulatory authority in which the Trust's shares are
qualified for sale. The most restrictive expense limitation
applicable to the Fund is 2.5% of the first $30 million of the
Trust's average net assets for such year, 2% of the next $70 million
and 1.5% of any excess over $100 million.
Under the Agreement, any liability of Colonial to the Fund and its
shareholders is limited to situations involving Colonial's own
willful misfeasance, bad faith, gross negligence or reckless
disregard of duties.
The Agreement may be terminated with respect to the Fund at any time
on 60 days' written notice by Colonial or by the Trustees of the
Trust or by a vote of a majority of the outstanding voting securities
of the Fund. The Agreement will automatically terminate upon any
assignment thereof and shall continue in effect from year to year
only so long as such continuance is approved at least annually (i) by
the Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of the Fund and (ii) by vote of a
majority of the Trustees who are not interested persons (as such term
is defined in the 1940 Act) of Colonial or the Trust, cast in person
at a meeting called for the purpose of voting on such approval.
Colonial pays all salaries of officers of the Trust. The Trust pays
all expenses not assumed by Colonial including, but not limited to,
auditing, legal, custodial, investor servicing and shareholder
reporting expenses. The Trust pays the cost of typesetting for its
Prospectuses and the cost of printing and mailing any Prospectuses
sent to shareholders. CISI pays the cost of printing and
distributing all other Prospectuses.
The Agreement provides that Colonial shall not be subject to any
liability to the Trust or to any shareholder of the Trust for any act
or omission in the course of or connected with rendering services to
the Trust in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties on the part of
Colonial.
The Pricing and Bookkeeping Agreement
Colonial provides pricing and bookkeeping services to the Fund
pursuant to a Pricing and Bookkeeping Agreement. The Pricing and
Bookkeeping Agreement has a one-year term. Colonial is paid monthly
a fee of $2,250 by each Fund, plus a monthly percentage fee based on
net assets of the Fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion
Portfolio Transactions
Investment decisions. Colonial also acts as investment adviser to
the other Colonial funds (as defined under Management of the Fund
herein) and its affiliate, CASI, advises other institutional,
corporate, fiduciary and individual clients for which CASI performs
various services. Various officers and Trustees of the Trust also
serve as officers or Trustees of other Colonial funds and the other
corporate or fiduciary clients of Colonial. The other Funds and
clients advised by Colonial sometimes invest in securities in which
the Fund also invests and sometimes engage in covered option writing
programs and enter into transactions utilizing stock index options
and stock index and financial futures and related options ("other
instruments"). If the Fund, such other Funds and such other clients
desire to buy or sell the same portfolio securities, options or other
instruments at about the same time, the purchases and sales are
normally made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each.
Although in some cases these practices could have a detrimental
effect on the price or volume of the securities, options or other
instruments as far as the Fund is concerned, in most cases it is
believed that these practices should produce better executions. It
is the opinion of the Trustees that the desirability of retaining
Colonial as investment adviser to the Fund outweighs the
disadvantages, if any, which might result from these practices.
Brokerage and research services. Consistent with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and
subject to seeking "best execution" (as defined below) and such other
policies as the Trustees may determine, Colonial may consider sales
of shares of the Fund and of the other Colonial funds as a factor in
the selection of broker-dealers to execute securities transactions
for the Fund.
Colonial places the transactions of the Fund with broker-dealers
selected by Colonial and, if applicable, negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio
transactions, including the purchase and writing of options, the
effecting of closing purchase and sale transactions, and the purchase
and sale of underlying securities upon the exercise of options and
the purchase or sale of other instruments. The Fund from time to
time also executes portfolio transactions with such broker-dealers
acting as principals. The Fund does not intend to deal exclusively
with any particular broker-dealer or group of broker-dealers.
Except as described below in connection with commissions paid to a
clearing agent on sales of securities, it is the Fund's and
Colonial's policy always to seek best execution, which is to place
the Fund's transactions where the Fund can obtain the most favorable
combination of price and execution services in particular
transactions or provided on a continuing basis by a broker-dealer,
and to deal directly with a principal market maker in connection with
over-the-counter transactions, except when it is believed that best
execution is obtainable elsewhere. In evaluating the execution
services of, including the overall reasonableness of brokerage
commissions paid to, a broker-dealer, consideration is given to,
among other things, the firm's general execution and operational
capabilities, and to its reliability, integrity and financial
condition.
Subject to such practice of always seeking best execution, securities
transactions of the Fund may be executed by broker-dealers who also
provide research services (as defined below) to Colonial, the Fund
and the other Colonial funds. Colonial may use all, some or none of
such research services in providing investment advisory services to
each of its investment company and other clients, including the Fund.
To the extent that such services are used by Colonial, they tend to
reduce Colonial's expenses. In Colonial's opinion, it is impossible
to assign an exact dollar value for such services.
Subject to such policies as the Trustees may determine, Colonial may
cause the Fund to pay a broker-dealer which provides brokerage and
research services to Colonial an amount of commission for effecting a
securities transaction, including the sale of an option or a closing
purchase transaction, for the Fund in excess of the amount of
commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the
Securities Exchange Act of 1934, "brokerage and research services"
include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities and the availability
of securities or purchasers or sellers of securities; furnishing
analyses and reports concerning issues, industries, securities,
economic factors and trends and portfolio strategy and performance of
accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement).
Colonial must determine in good faith that such greater commission is
reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of
that particular transaction or Colonial's overall responsibilities to
the Fund and all its other clients.
The Trustees have authorized Colonial to utilize the services of a
clearing agent with respect to all call options written by Funds that
write options and to pay such clearing agent commissions of a fixed
amount per share (currently 1.25 cents) on the sale of the underlying
security upon the exercise of an option written by a Fund. The
Trustees may further authorize Colonial to depart from the present
policy of always seeking best execution and to pay higher brokerage
commissions from time to time for other brokerage and research
services as described above in the future if developments in the
securities markets indicate that such would be in the interests of
the shareholders of the Fund.
Principal Underwriter
CISI is the principal underwriter of the Trust's shares. CISI has no
obligation to buy the Fund's shares, and purchases the Fund's
shares, only upon receipt of orders from authorized FSFs or
investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and
dividend disbursing agent), for which it receives fees which are paid
monthly by the Trust. The fee paid to CISC is based on the average
daily net assets of each Colonial fund. See "Fund Charges and
Expenses" in Part 1 of this SAI for information on fees received by
CISC. The agreement continues indefinitely but may be terminated by
90 days' notice by the Fund to CISC or generally by 6 months' notice
by CISC to the Fund. The agreement limits the liability of CISC to
the Fund for loss or damage incurred by the Fund to situations
involving a failure of CISC to use reasonable care or to act in good
faith in performing its duties under the agreement. It also provides
that the Fund will indemnify CISC against, among other things, loss
or damage incurred by CISC on account of any claim, demand, action or
suit made on or against CISC not resulting from CISC's bad faith or
negligence and arising out of, or in connection with, its duties
under the agreement.
DETERMINATION OF NET ASSET VALUE
The Fund determines net asset value (NAV) per share for each Class as
of the close of the New York Stock Exchange each day the Exchange is
open. Currently, the Exchange is closed Saturdays, Sundays and the
following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, the Fourth of July, Labor Day, Thanksgiving and
Christmas. Debt securities generally are valued by a pricing service
which determines valuations based upon market transactions for
normal, institutional-size trading units of similar securities.
However, in circumstances where such prices are not available or
where Colonial deems it appropriate to do so, an over-the-counter or
exchange bid quotation is used. Securities listed on an exchange or
on NASDAQ are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are
valued at the last quoted bid price. Options are valued at the last
sale price or in the absence of a sale, the mean between the last
quoted bid and offering prices. Short-term obligations with a
maturity of 60 days or less are valued at amortized cost pursuant to
procedures adopted by the Trustees. The values of foreign securities
quoted in foreign currencies are translated into U.S. dollars at the
exchange rate for that day. Portfolio positions for which there are
no such valuations and other assets are valued at fair value as
determined in good faith under the direction of the Trustees.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the
close of the Exchange. The values of these securities used in
determining the NAV are computed as of such times. Also, because of
the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of
certain securities (such as convertible bonds, U.S. government
securities, and tax-exempt securities) are determined based on market
quotations collected earlier in the day at the latest practicable
time prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between such times
and the close of the Exchange which will not be reflected in the
computation of the Fund's NAV. If events materially affecting the
value of such securities occur during such period, then these
securities will be valued at their fair value following procedures
approved by the Trustees.
Amortized Cost for Money Market Funds
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method,
whereby the instrument is recorded at cost and thereafter amortized
to maturity. This method assures a constant NAV but may result in a
yield different than that of the same portfolio under the market
value method. The Trustees have adopted procedures intended to
stabilize the Fund's NAV per share at $1.00. When the Fund's market
value deviates from the amortized cost of $1.00, and results in a
material dilution to existing shareholders, the Trustees will take
corrective action to: realize gains or losses; shorten the
portfolio's maturity; withhold distributions; redeem shares in kind;
or convert to the market value method (in which case the NAV per
share may differ from $1.00). All investments will be determined
pursuant to procedures approved by the Trustees to present minimal
credit risk.
See the Statement of Assets and Liabilities of the Fund for a
specimen price sheet showing the computation of maximum offering
price per share of Class A shares .
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may
buy shares of the Fund and tables of charges. This SAI contains
additional information which may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed
at the public offering price based on the NAV per share next
determined after the order is placed in good order. The public
offering price is the NAV plus the applicable sales charge, if any.
In the case of orders for purchase of shares placed through FSFs, the
public offering price will be determined on the day the order is
placed in good order, but only if the FSF receives the order before
4:00 p.m. Eastern time and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit
before the Fund processes that day's transactions, the customer's
entitlement to that day's closing price must be settled between the
customer and the FSF. If the FSF receives the order after 4:00 p.m.
Eastern time, the price will be based on the NAV determined as of the
close of the Exchange on the next day it is open. If funds for the
purchase of shares are sent directly to CISC they will be invested at
the public offering price next determined after receipt in good
order. Payment for shares of the Fund must be in U.S. dollars; if
made by check, the check must be drawn on a U.S. bank.
As a convenience to investors, shares of most Colonial funds may be
purchased through the Colonial Fundamatic Check Program.
Preauthorized monthly bank drafts or electronic funds transfer for a
fixed amount (at least $50) are used to purchase Fund shares at the
public offering price next determined after CISI receives the
proceeds from the draft (normally the 5th or the 20th of each month,
or the next business day thereafter). Further information and
application forms are available from FSFs or from CISI.
Class A Shares
Most Funds continuously offer Class A shares. The Fund receives the
entire NAV of shares sold. CISI's commission is the sales charge
shown in the Prospectus less any applicable FSF discount. The FSF
discount is the same for all FSFs, except that CISI retains the
entire sales charge on any sales made to a shareholder who does not
specify an FSF on the investment account application and retains the
entire contingent deferred sales charge (CDSC).
CISI offers several plans by which an investor may obtain reduced
sales charges on purchases of a Fund's Class A shares. These plans
may be altered or discontinued at any time.
Right of Accumulation and Statement of Intent (Class A Shares only)
Reduced sales charges on Class A shares can be effected by combining
a current purchase with prior purchases of Class A, B or D shares of
the Colonial funds. The applicable sales charge is based on the
combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of
business on the previous day of all Colonial fund Class A
shares held by the shareholder (except shares of any Colonial
money market fund, unless such shares were acquired by
exchange from Class A shares of another Colonial fund other
than a money market fund and any Class C shares) and Class B
and D shares.
CISI must be promptly notified of each purchase which entitles a
shareholder to a reduced sales charge. Such reduced sales charge
will be applied upon confirmation of the shareholder's holdings by
CISC. The Fund may terminate or amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of
Class A shares (exclusive of reinvested distributions of all Colonial
funds) made within a thirteen-month period pursuant to a Statement of
Intent ("Statement"). A shareholder may include, as an accumulation
credit towards the completion of such Statement, the value of all
Class A, B and D shares held by the shareholder in Colonial funds
(except money market fund, unless acquired by exchange from another
non-money market Colonial fund). The value is determined at the
public offering price on the date of the Statement.
During the term of a Statement, CISC will hold shares in escrow to
secure payment of the higher sales charge applicable to Class A
shares actually purchased. Dividends and capital gains will be paid
on all escrowed shares and these shares will be released when the
amount indicated has been purchased. A Statement does not obligate
the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an
amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made at the time of expiration
of the Statement. The resulting difference in offering price will
purchase additional shares for the shareholder's account at the
applicable offering price. As a part of this adjustment, the FSF
shall return to CISI the excess commission previously paid during the
thirteen-month period.
If the amount of the Statement is not purchased, the shareholder
shall remit to CISI an amount equal to the difference between the
sales charge paid and the sales charge that should have been paid.
If the shareholder fails within twenty days after a written request
to pay such difference in sales charge, CISC will redeem that number
of escrowed Class A shares to equal such difference. The additional
amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent
are available from your FSF, or from CISC at 1-800- 345-6611.
Class B Shares
For those Funds offering Class B shares, the Prospectus contains a
general description of how investors may buy Class B shares of the
Fund and a description of the CDSC. This SAI contains additional
information which may be of interest to investors.
Most Funds continuously offer Class B shares. The Fund receives the
entire NAV of shares sold. The FSF commission is the same for all
FSFs; CISI retains the entire CDSC.
Colonial money market fund Class B shares are subject to higher
charges than those normally associated with money market funds, and
checkwriting privileges are not offered.
Class C Shares
For those Funds offering Class C shares, the Prospectus contains a
general description of how investors may buy Class C shares of the
Fund. This SAI contains additional information which may be of
interest to investors.
Class C shares are offered continuously. The Fund receives the
entire NAV of shares sold.
Class D Shares
For those Funds offering Class D Shares, the Prospectus contains a
general description of how investors may buy Class D shares of the
Fund and a description of the CDSC. This SAI contains additional
information which may be of interest to investors.
The Fund receives the entire NAV of shares sold. The FSF commission
is the same for all FSFs; CISI retains the entire CDSC.
Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes A, B and
D)
CDSCs may be waived on redemptions in the following situations with
the proper documentation.
1. Death. CDSCs may be waived on redemptions within one year
following the death of (i) the sole shareholder on an
individual account, (ii) a joint tenant where the surviving
joint tenant is the deceased's spouse, or (iii) the
beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform
Transfers to Minors Act (UTMA) or other custodial account.
If, upon the occurrence of one of the foregoing, the account
is transferred to an account registered in the name of the
deceased's estate, the CDSC will be waived on any redemption
from the estate account occurring within one year after the
death. If the Class B shares are not redeemed within one year
of the death, they will remain subject to the applicable CDSC,
when redeemed from the transferee's account.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly, quarterly or semi-
annual SWP established with Colonial, to the extent the
redemptions do not exceed, on an annual basis, 12% of the
account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a
period at least equal to the period of the SWP (e.g., if it is
a quarterly SWP, distributions must have been reinvested at
least for the three month period prior to the first SWP
redemption; otherwise CDSCs will be charged on SWP redemptions
until this requirement is met; this requirement does not apply
if the SWP is set-up at the time the account is established,
and distributions are being reinvested).
3. Disability. CDSCs may be waived on redemptions occurring
within one year after the sole shareholder on an individual
account or a joint tenant on a spousal joint tenant account
becomes disabled (as defined in Section 72(m)(7) of the
Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and
(ii) the disabled shareholder must have been under age 65 at
the time of the initial determination of disability. If the
account is transferred to a new registration and then a
redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions
occurring upon dissolution of a revocable living or grantor
trust following the death of the sole trustee where (i) the
grantor of the trust is the sole trustee and the current
beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the trust
upon the trustee's death. If the account is transferred to a
new registration (including that of a successor trustee), the
applicable CDSC will be charged upon any subsequent
redemption.
5. Returns of excess contributions. CDSCs may be waived on
redemptions required to return excess contributions made to
retirement plans or individual retirement accounts, so long as
the FSF agrees to return the applicable portion of any
commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on
redemptions required to make distributions from qualified
retirement plans following (i) normal retirement (as stated in
the Plan document) or (ii) separation from service. CDSCs
also will be waived on SWP redemptions made to make required
minimum distributions from qualified retirement plans that
have invested in Colonial funds for at least two years.
Fundamatic Check Program
As a convenience to investors, shares of most Colonial funds may be
purchased through the Colonial Fundamatic Check Program.
Preauthorized monthly bank drafts or electronic funds transfer for a
fixed amount of at least $50 are used to purchase Fund shares at the
public offering price next determined after CISI receives the
proceeds from the draft (normally the 5th or the 20th of each month,
or the next business day thereafter). Further information and
application forms are available from FSFs or from CISI.
Automated Dollar Cost Averaging (Classes A, B and D)
Colonial's Automated Dollar Cost Averaging Program allows you to
exchange on a monthly basis from any Colonial fund in which you have
a current balance of at least $5,000 into the same class of shares of
up to four other Colonial funds. Complete the Automated Dollar
Cost Averaging section of the application agreeing to a monthly
exchange of $100 or more to the same class of shares of the Colonial
fund you designate on your written application. The designated
amount will be exchanged on the third Tuesday of each month. There
is no charge for the exchanges made pursuant to the Automated Dollar
Cost Averaging program. Exchanges will continue so long as your
Colonial fund balance is sufficient to complete the transfers. Your
normal rights and privileges as a shareholder remain in full force
and effect. Thus you can: buy any Funds, exchange between the same
Class of shares of Funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any Fund,
subject to the imposition of any applicable CDSC.
Any additional payments or exchanges into your Fund will extend the
time of the Automated Dollar Cost Averaging program.
An exchange is a taxable capital transaction for federal tax
purposes.
You may terminate your program, change the amount of the exchange
(subject to the $100 minimum), or change your selection of funds, by
telephone or in writing; if in writing by mailing it to Colonial
Investors Service Center, P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine
whether or not the Automated Dollar Cost Averaging program is
appropriate for you.
Colonial Asset Builder Investment Program (Class A only)
A reduced sales charge applies to a purchase of certain Colonial
fund's Class A shares under a statement of intent for the Colonial
Asset Builder Investment Program. The Program offer may be withdrawn
at any time without notice. A completed Program may serve as the
initial investment for a new Program, subject to the maximum of
$4,000 in initial investments per investor. CISC will escrow shares
to secure payment of the additional sales charge on amounts invested
if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Prior
to completion of the Program, only scheduled Program investments may
be made in a Colonial fund in which an investor has a Program
account. The following services are not available to Program
accounts until a Program has ended:
