Registration Nos: 33-12109
811-5030
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 23 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 24 [ X ]
COLONIAL TRUST V
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
(617) 426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address of Agent for Service: Copy to:
Nancy L. Conlin, Esquire John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ X ] immediately upon filing pursuant to paragraph (b).
[ ] on (date) pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485.
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
COLONIAL TRUST V
Cross Reference Sheet
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
Item Number of Form N1A Location or Caption in Prospectus
Part A
1. Cover Page
2. Summary of Expenses
3. The Funds' Financial History
4. The Funds' Investment Objective; Organization and
History; How the Funds Pursue Their Objective and
Certain Risk Factors
5. Cover Page; How the Funds are Managed; Organization
and History; The Funds' Investment Objective;
Back Cover
6. Organization and History; Distributions and Taxes;
How to Buy Shares
7. Summary of Expenses; How to Buy Shares; How the Funds
Value Their Shares; 12b-1 Plan; Cover Page; Back Cover
8. Summary of Expenses; How to Sell Shares; How
to Exchange Shares; Telephone Transactions
9. Not applicable
May 29, 1998
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 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 (each a Fund and collectively, the 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's personal
income tax (if any) and opportunities for long-term appreciation from a
portfolio primarily invested in investment grade municipal bonds. Each Fund
(except the California Fund) is non-diversified. The Funds are managed by the
Adviser, an investment adviser since 1931.
SP-01/328F-0598
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 29, 1998, 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 1-800-426-3750. 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 three classes of shares. Class A shares are offered at net
asset value plus a sales charge imposed at the time of purchase; Class B shares
are offered at net asset value and are subject to an annual distribution fee and
a declining contingent deferred sales charge on redemptions made within six
years after purchase; and Class C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year after purchase. Class B shares automatically
convert to Class A shares after approximately eight years. See "How to Buy
Shares."
Contents Page
Summary of Expenses 2
The Funds' Financial History 5
The Funds' Investment Objective 22
How the Funds Pursue Their Objective
and Certain Risk Factors 22
How the Funds Measure Their Performance 27
How the Funds are Managed 27
How the Funds Value Their Shares 28
Distributions and Taxes 28
How to Buy Shares 28
How to Sell Shares 30
How to Exchange Shares 30
Telephone Transactions 31
12b-1 Plan 31
Organization and History 31
Appendix 32
"This Prospectus is also available on-line at our Web site
(http:\\www.libertyfunds.com)."
- ----------------------------- ------------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- ------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF EXPENSES
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize your maximum transaction costs and your annual
operating expenses, adjusted to reflect current fees where applicable, for an
investment in each Class of each Fund's shares. See "How the Funds are Managed"
and "12b-1 Plan" for more complete descriptions of the Funds' various costs and
expenses.
Shareholder Transaction Expenses(1)(2)
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering 4.75% 0.00%(4) 0.00%(4)
price)(3)
Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(5) 5.00% 1.00%
</TABLE>
(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See "How
to Buy Shares."
(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.
(3) Does not apply to reinvested distributions.
(4) Because of the distribution fee applicable to Class B and Class C shares,
long-term Class B and Class C shareholders may pay more in aggregate sales
charges than the maximum initial sales charge permitted by the National
Association of Securities Dealers, Inc. However, because Class B shares
automatically convert to Class A shares after approximately 8 years, this is
less likely for Class B shares than for a class without a conversion
feature.
(5) 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."
Annual Operating Expenses (as a % of average net assets)
<TABLE>
<CAPTION>
California Connecticut Florida
Class A Class B Class C Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fee
(after waiver) 0.50% 0.50% 0.50% 0.35% 0.35% 0.35% 0.26% 0.26% 0.26%
12b-1 fees(7)(8) 0.14 0.89 0.59 0.16 0.91 0.61 0.17 0.92 0.62
Other expenses
(after waiver) 0.23 0.23 0.23(6) 0.25 0.25 0.25(6) 0.34 0.34 0.34(6)
---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses (after
waiver)(9) 0.87% 1.62% 1.32% 0.76% 1.51% 1.21% 0.77% 1.52% 1.22%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Michigan Minnesota
Class A Class B Class C Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fee
(after waiver) 0.50% 0.50% 0.50% 0.37% 0.37% 0.37% 0.39% 0.39% 0.39%
12b-1 fees(7)(8) 0.15 0.90 0.60 0.15 0.90 0.60 0.16 0.91 0.61
Other expenses
(after waiver) 0.25 0.25 0.25(6) 0.38 0.38 0.38(6) 0.36 0.36 0.36(6)
---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses (after
waiver)(9) 0.90% 1.65% 1.35% 0.90% 1.65% 1.35% 0.91% 1.66% 1.36%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
New York North Carolina Ohio
Class A Class B Class C Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fee
(after waiver) 0.31% 0.31% 0.31% 0.12% 0.12% 0.12% 0.45% 0.45% 0.45%
12b-1 fees(7)(8) 0.16 0.91 0.61 0.16 0.91 0.61 0.14 0.89 0.59
Other expenses
(after waiver) 0.29 0.29 0.29(6) 0.48 0.48 0.48(6) 0.30 0.30 0.30(6)
---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating
expenses (after
waiver)(9) 0.76% 1.51% 1.21% 0.76% 1.51% 1.21% 0.89% 1.64% 1.34%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
3
<PAGE>
Without voluntary fee waivers/expense limits that the Adviser/Distributor may
discontinue at anytime, Annual Operating Expenses would be:
<TABLE>
<CAPTION>
California* Connecticut Florida Massachusetts*
Class C Class A Class B Class C Class A Class B Class C Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
12b-1 fees(7) 0.89 0.16 0.91 0.91 0.17 0.92 0.92 0.90
Other expenses 0.23 0.25 0.25 0.25 0.34 0.34 0.34 0.25
---- ---- ---- ---- ---- ---- ---- ----
Total operating expenses 1.62% 0.91% 1.66% 1.66% 1.01% 1.76% 1.76% 1.65%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Michigan Minnesota New York
Class A Class B Class C Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
12b-1 fees(7) 0.15 0.90 0.90 0.16 0.91 0.91 0.16 0.91 0.91
Other expenses 0.38 0.38 0.38 0.36 0.36 0.36 0.29 0.29 0.29
---- ---- ---- ---- ---- ---- ---- ---- ----
Total operating expenses 1.03% 1.78% 1.78% 1.02% 1.77% 1.77% 0.95% 1.70% 1.70%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
North Carolina Ohio
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Management fee 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
12b-1 fees(7) 0.16 0.91 0.91 0.14 0.89 0.89
Other expenses 0.48 0.48 0.48 0.30 0.30 0.30
---- ---- ---- ---- ---- ----
Total operating expenses 1.14% 1.89% 1.89% 0.94% 1.69% 1.69%
==== ==== ==== ==== ==== ====
</TABLE>
* Total expenses for each of the Fund's Class A and Class B shares did not
exceed each Fund's expense limit as discussed in footnote (9) below.
Examples
The following Examples show the cumulative transaction and operating 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. These Examples use the fees and
expenses in the tables above and give effect to the respective fee waivers and
expense reimbursements described above. 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.
<TABLE>
<CAPTION>
California Connecticut
Class A Class B Class C Class A Class B Class C
Period: (10) (11) (10) (11) (10) (11) (10) (11)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 56 $ 66 $ 16 $ 23 $ 13 $ 55 $ 65 $ 15 $ 22 $ 12
3 years 74 81 51 42(12) 42 71 78 48 38(12) 38
5 years 93 108 88 72 72 88 102 82 66 66
10 years 150 172(13) 172(13) 159 159 137 160(13) 160(13) 147 147
</TABLE>
<TABLE>
<CAPTION>
Florida Massachusetts
Class A Class B Class C Class A Class B Class C
Period: (10) (11) (10) (11) (10) (11) (10) (11)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 55 $ 65 $ 15 $ 22 $ 12 $ 56 $ 67 $ 17 $ 24 $ 14
3 years 71 78 48 39(12) 39 75 82 52 43(12) 43
5 years 88 103 83 67 67 95 110 90 74 74
10 years 138 161(13) 161(13) 148 148 153 175(13) 175(13) 162 162
</TABLE>
<TABLE>
<CAPTION>
Michigan Minnesota
Class A Class B Class C Class A Class B Class C
Period: (10) (11) (10) (11) (10) (11) (10) (11)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 56 $ 67 $ 17 $ 24 $ 14 $ 56 $ 67 $ 17 $ 24 $ 14
3 years 75 82 52 43(12) 43 75 82 52 43(12) 43
5 years 95 110 90 74 74 95 110 90 74 74
10 years 153 175(13) 175(13) 162 162 154 177(13) 177(13) 164 164
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
New York North Carolina
Class A Class B Class C Class A Class B Class C
Period: (10) (11) (10) (11) (10) (11) (10) (11)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 55 $ 65 $ 15 $ 22 $ 12 $ 55 $ 65 $ 15 $ 22 $ 12
3 years 71 78 48 38(12) 38 71 78 48 38(12) 38
5 years 88 102 82 66 66 88 102 82 66 66
10 years 137 160(13) 160(13) 147 147 137 160(13) 160(13) 147 147
</TABLE>
<TABLE>
<CAPTION>
Ohio
Class A Class B Class C
Period: (10) (11) (10) (11)
<S> <C> <C> <C> <C> <C>
1 year $ 56 $ 67 $ 17 $ 24 $ 14
3 years 75 82 52 42(12) 42
5 years 94 109 89 73 73
10 years 152 174(13) 174(13) 161 161
</TABLE>
5
<PAGE>
(6) "Other expenses" for Class C shares are estimated based on annual operating
expenses of the Class A and Class B shares.
(7) The 12b-1 service fee rate will fluctuate but will not exceed 0.25%.
(8) The Distributor has voluntarily agreed to waive a portion of the Class C
share Rule 12b-1 distribution fee so that it will not exceed 0.45% annually.
The Distributor may terminate the fee waiver at any time without shareholder
approval. See "12b-1 Plan."
(9) The Adviser agreed to waive its fees and bear expenses (exclusive of 12b-1
fees, brokerage commissions, interest, taxes and extraordinary expenses, if
any) to the extent such expenses would otherwise exceed the following annual
percentages of average net assets. The Adviser may terminate the fee waivers
at any time without shareholder approval:
Connecticut Massachusetts
Florida Michigan
New York Minnesota
California North Carolina Ohio
0.80% 0.60% 0.75%
(10) Assumes redemption at period end.
(11) Assumes no redemption.
(12) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.
(13) Class B shares automatically convert to Class A shares after approximately
8 years; therefore years 9 and 10 reflect Class A share expenses
6
<PAGE>
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' 1998 Annual
Reports and are incorporated by reference into the Statement of Additional
Information.
<TABLE>
<CAPTION>
CALIFORNIA
----------------------------------------------------------------------------------------
Class A
Two months ended
Year ended January 31 January 31
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993(b)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.370 $7.540 $6.870 $7.660 $7.350 $7.270
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.366 0.386 0.388 0.413 0.434 0.076
Net realized and unrealized gain (loss) 0.426 (0.173) 0.671 (0.791) 0.315 0.081
------ ------ ------ ------ ------ ------
Total from Investment Operations 0.792 0.213 1.059 (0.378) 0.749 0.157
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.369) (0.383) (0.389) (0.412) (0.439) (0.077)
------ ------ ------ ------ ------ ------
In excess of net investment income (0.004) --- --- --- --- ---
From net realized gains (0.068) --- --- --- --- ---
------
In excess of net realized gains (0.001) --- --- --- --- ---
------
From capital paid in --- --- --- --- --- ---
------ ------ ------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.442) (0.383) (0.389) (0.412) (0.439) (0.077)
------ ------ ------ ------ ------ ------
Net asset value - End of period $7.720 $7.370 $7.540 $6.870 $7.660 $7.350
====== ====== ====== ====== ====== ======
Total return(d) 11.05% 2.98% 15.78%(e) (4.83)%(e) 10.44%(e) 8.70%(e)(f)
====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.87%(g) 0.88%(g) 0.89%(g) 0.77% 0.75% 0.65%(h)
Net investment income 4.92%(g) 5.23%(g) 5.33%(g) 5.91% 5.73% 6.29%(h)
Fees and expenses waived or borne
by the Adviser --- --- (g) 0.01%(g) 0.06% 0.08% 0.21%(h)
Portfolio turnover 31% 25% 47% 47% 17% 19%(h)
Net assets at end of period (000) $255,838 $264,053 $304,581 $301,912 $379,987 $337,409
(a) Net of fees and
expenses waived or
borne by the
Adviser which
amounted to $--- $--- $0.001 $0.004 $0.006 $0.002
<CAPTION>
CALIFORNIA
---------------------------------------------------------------------
CLASS A
Year ended November 30
---------------------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.150 $6.940 $7.010 $6.850 $6.530
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.467 0.473 0.490 0.480 0.497
Net realized and unrealized gain (loss) 0.109 0.211 (0.065) 0.160 0.316
------ ------ ------ ------ ------
Total from Investment Operations 0.576 0.684 0.425 0.640 0.813
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.456) (0.473) (0.492) (0.480) (0.493)
------ ------ ------ ------ ------
In excess of net investment income --- --- --- --- ---
From net realized gains --- --- --- --- ---
In excess of net realized gains --- --- --- --- ---
From capital paid in --- (0.001)(c) (0.003) --- ---
------ ------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.456) (0.474) (0.495) (0.480) (0.493)
------ ------ ------ ------ ------
Net asset value - End of period $7.270 $7.150 $6.940 $7.010 $6.850
====== ====== ====== ====== ======
Total return(d) 8.27%(e) 10.18%(e) 6.30%(e) 9.61%(e) 12.74%(e)
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.71% 0.80% 0.70% 0.95% 0.66%
Net investment income 6.44% 6.69% 7.02% 6.87% 7.28%
Fees and expenses waived or borne
by the Adviser 0.13% 0.05% 0.15% 0.15% 0.49%
Portfolio turnover 12% 11% 22% 40% 106%
Net assets at end of period (000) $324,012 $295,459 $221,519 $155,514 $133,317
(a) Net of fees and
expenses waived or
borne by the
Adviser which
amounted to $0.010 $0.003 $0.010 $0.011 $0.033
</TABLE>
(b) The Fund changed its fiscal year end from November 30 to January 31 in
1992, effective for fiscal year 1993.
(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) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(h) Annualized.
7
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA (CONTINUED)
------------------------------------------------------------------------------
Class B
Year ended January 31
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.370 $7.540 $6.870 $7.660 $7.350
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.310 0.331 0.334 0.360 0.378
Net realized and unrealized gain (loss) 0.426 (0.173) 0.671 (0.791) 0.315
------ ------ ------ ------ ------
Total from Investment Operations 0.736 0.158 1.005 (0.431) 0.693
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.313) (0.328) (0.335) (0.359) (0.383)
------ ------ ------ ------ ------
In excess of net investment income (0.004) --- --- --- ---
From net realized gains (0.068) --- --- --- ---
In excess of net realized gains (0.001) --- --- --- ---
------
Total Distributions Declared to Shareholders (0.386) (0.328) (0.335) (0.359) (0.383)
------ ------ ------ ------ ------
Net asset value - End of period $7.720 $7.370 $7.540 $6.870 $7.660
====== ====== ====== ====== ======
Total return (f) 10.23% 2.21% 14.94%(g) (5.55)%(g) 9.63%(g)
====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.62%(j) 1.63%(j) 1.64%(j) 1.52% 1.50%
Net investment income 4.17%(j) 4.48%(j) 4.58%(j) 5.16% 4.98%
Fees and expenses waived or borne
by the Adviser --- (j) ---(j) 0.01%(j) 0.06% 0.08%
Portfolio turnover 31% 25% 47% 47% 17%
Net assets at end of period (000) $101,657 $100,873 $106,925 $98,975 $104,578
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to $--- $--- $0.001 $0.004 $0.006
<CAPTION>
CALIFORNIA
---------------------------------------------------
Class B Class C
Two months ended Year ended Period ended
January 31 (b) November 30 January 31
------------------ --------------- ------------
1993 1992(c) 1998(d)
---- ------- -------
<S> <C> <C> <C>
Net asset value - Beginning of period $7.270 $7.410 $7.660
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.067 0.143 0.164(e)
Net realized and unrealized gain (loss) 0.081 (0.151) 0.132
------ ------ ------
Total from Investment Operations 0.148 (0.008) 0.296
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.068) (0.132) (0.167)
------ ------
In excess of net investment income --- --- ---
From net realized gains --- --- (0.069)
------
In excess of net realized gains --- --- ---
Total Distributions Declared to Shareholders (0.068) (0.132) (0.236)
------ ------ ------
Net asset value - End of period $7.350 $7.270 $7.720
====== ====== ======
Total return (f) 1.01%(g)(h) 1.94%(g)(h) 3.93%(i)
====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.40%(k) 1.46%(k) 1.32%(e)(j)(k)
Net investment income 5.54%(k) 5.69%(k) 4.32%(e)(j)(k)
Fees and expenses waived or borne
by the Adviser 0.21%(k) 0.13%(k) ---
Portfolio turnover 19%(k) 12% 31%
Net assets at end of period (000) $33,819 $22,797 $560
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to $0.002 $0.010 $---
</TABLE>
(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) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(e) Net of fees waived by the Distributor which amounted to $0.011 per share
and 0.30%.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(h) Not annualized.
(i) Not annualized. Had the Distributor not waived a portion of the
distribution fee, total return would have been reduced.
(j) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(k) Annualized.
8
<PAGE>
<TABLE>
<CAPTION>
CONNECTICUT
----------------------------------------------------------------------------
Class A
Period ended
Year ended January 31 January 31
----------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992(b)
---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.490 $7.630 $7.080 $7.890 $7.420 $7.190 $7.140
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.385 0.393 0.400 0.418 0.429 0.449 0.118
Net realized and unrealized gain (loss) 0.344 (0.141) 0.552 (0.809) 0.465 0.270 0.046
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.729 0.252 0.952 (0.391) 0.894 0.719 0.164
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.386) (0.392) (0.402) (0.418) (0.424) (0.452) (0.114)
In excess of net investment income (0.003) --- --- --- --- (0.002) ---
From net realized gains --- --- --- (0.001) --- (0.021) ---
In excess of net realized gains --- --- --- --- --- (0.014) ---
------ ------ ------ ------ ------ ------ ------
Total from Distributions Declared
to Shareholders (0.389) (0.392) (0.402) (0.419) (0.424) (0.489) (0.114)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $7.830 $7.490 $7.630 $7.080 $7.890 $7.420 $7.190
====== ====== ====== ====== ====== ====== ======
Total return(c)(d) 10.00% 3.48% 13.77% (4.85)% 12.30% 10.34% 2.31%(e)
====== ====== ====== ====== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.62%(f) 0.59%(f) 0.51%(f) 0.32% 0.22% --- ---
Net investment income 5.04%(f) 5.28%(f) 5.42%(f) 0.32% 5.48% 6.00% 4.68%(g)
Fees and expenses waived or borne by the Adviser 0.29%(f) 0.31%(f) 0.42%(f) 0.55% 0.65% 0.90% 1.32%(g)
Portfolio turnover 12% 21% 13% 22% 5% 4% 53%(g)
Net assets at end of period (000) $80,035 $74,059 $80,039 $74,616 $91,436 $63,126 $12,349
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which
amounted to $0.022 $0.023 $0.031 $0.039 $0.051 $0.067 $0.033
</TABLE>
(b) The Fund commenced investment operations on November 1, 1991.
(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) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized.
9
<PAGE>
<TABLE>
<CAPTION>
CONNECTICUT
----------------------------------------------------------------------------
Class B Class C
Period ended
Year ended January 31 January 31
--------------------------------------------------------- ----------------
1998 1997 1996 1995 1994 1993(b) 1992(c)
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.490 $7.630 $7.080 $7.890 $7.420 $7.200 $7.710
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.328 0.338 0.345 0.363 0.372 0.256 0.173(d)
Net realized and unrealized gain (loss) 0.344 (0.141) 0.552 (0.809) 0.465 0.257 0.124
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.627 0.197 0.897 (0.446) 0.837 0.513 0.297
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.330) (0.337) (0.347) (0.363) (0.367) (0.256) (0.177)
In excess of net investment income (0.002) --- --- --- --- (0.002) ---
From net realized gains --- --- --- (0.001) --- (0.021) ---
In excess of net realized gains --- --- --- --- --- (0.014) ---
------ ------ ------ ------ ------ ------ ------
Total from Distributions
Declared to Shareholders (0.332) (0.337) (0.347) (0.364) (0.367) (0.293) (0.177)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $7.830 $7.490 $7.630 $7.080 $7.890 $7.420 $7.830
------- ------- ------- ------- ------- ------- ------
Total return(e) 9.19%(f) 2.71%(f) 12.93%(f) (5.57%)(f) 11.49%(f) 7.23%(f)(h) 3.90%(g)(h)
------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.37%(i) 1.34%(i) 1.25%(i) 1.07%(i) 0.97% 0.75%(j) 1.09%(d)(i)(j)
Net investment income 4.29%(i) 4.53%(i) 4.68%(i) 5.06%(i) 4.73% 5.25%(j) 4.48%(d)(i)(j)
Fees and expenses waived or borne by the Adviser 0.29%(i) 0.31%(i) 0.42%(i) 0.55%(i) 0.65% 0.90%(j) 0.28%(i)(j)
Portfolio turnover 12% 21% 13% 22% 5% 4% 12%
Net assets at end of period (000) $84,370 $81,437 $82,785 $73,580 $71,791 $27,839 $480
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.022 $0.023 $0.031 $0.039 $0.051 $0.042 $0.021
</TABLE>
(b) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.012 per share
and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Had the Adviser and the Distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(j) Annualized.
10
<PAGE>
<TABLE>
<CAPTION>
FLORIDA
----------------------------------------------------------
Class A
Year ended January 31
----------------------------------------------------------
1998 1997 1996 1995 1994(b)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.430 $7.620 $7.100 $7.930 $7.500
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.388 0.395 0.404 0.423 0.434
Net realized and unrealized gain (loss) 0.361 (0.194) 0.535 (0.839) 0.420
Total from Investment Operations 0.749 0.201 0.939 (0.416) 0.854
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.389) (0.391) (0.419) (0.414) (0.424)
------ ------ ------ ------ ------
Net asset value - End of period $7.790 $7.430 $7.620 $7.100 $7.930
------ ------ ------ ------ ------
Total return(c) 10.37%(d) 2.80%(d) 13.55%(d) (5.11%)(d) 11.66%(d)
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.59%(e) 0.56%(f) 0.45%(f) 0.22% 0.05%
Interest expense --- (g) --- --- ---
Net investment income 5.08%(e) 5.31%(f) 5.45%(f) 5.92% 5.40%
Fees and expenses waived or borne by the Adviser 0.41%(e) 0.44%(f) 0.55%(f) 0.73% 0.88%
Portfolio turnover 32% 69% 83% 45% 19%
Net assets at end of period (000) $32,150 $31,275 $32,599 $27,498 $23,802
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.031 $0.032 $0.040 $0.052 $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 waived or reimbursed a portion of expenses, total return
would have been reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.001 per share.
(f) The benefits derived from custody credits and brokerage arrangements had no impact. Prior
years' ratios are net of benefits received, if any.
(g) Rounds to less than 0.01%.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FLORIDA
------------------------------------------------------------------
Class B Class C
Period ended
Year ended January 31 January 31
----------------------------------------------------- ----------
1998 1997 1996 1995 1994(b) 1998(c)
---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.430 $7.630 $7.100 $7.930 $7.500 $7.710
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.332 0.340 0.351 0.369 0.378 0.172(d)
Net realized and unrealized gain (loss) 0.361 (0.194) 0.533 (0.839) 0.420 0.082
------ ------ ------ ------ ------ ------
Total from Investment Operations 0.693 0.146 0.884 (0.470) 0.798 0.254
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.333) (0.336) (0.364) (0.360) (0.368) (0.174)
------ ------ ------ ------ ------ ------
Net asset value - End of period $7.790 $7.430 $7.620 $7.100 $7.930 $7.790
------ ------ ------ ------ ------ ------
Total return(e) 9.55%(f) 2.03%(f) 12.72%(f) (5.83%)(f) 10.85%(f) 3.35%(g)(h)
------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.34%(i) 1.31%(j) 1.18%(j) 0.97% 0.80% 1.04%(d)(i)(l)
Interest expense --- (k) --- --- --- ---
Net investment income 4.33%(i) 4.56%(j) 4.72%(j) 5.17% 4.65% 4.63%(d)(i)(l)
Fees and expenses waived or borne by the Adviser 0.41%(i) 0.44%(j) 0.55%(j) 0.73% 0.88% 0.40%(i)(l)
Portfolio turnover 32% 69% 83% 45% 19% 32%
Net assets at end of period (000) $33,665 $33,341 $35,741 $31,116 $31,513 $103
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.031 $0.032 $0.040 $0.052 $0.071 $0.031
(b) The Fund commenced investment operations on February 1, 1993.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.012 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Had the Adviser and Distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.001 per share.
(j) The benefits derived from custody credits and brokerage arrangements had no impact. Prior
years' ratios are net of benefits received, if any.
(k) Rounds to less than 0.01%.
(l) Annualized.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS
----------------------------------------------------------------------------------
Class A
Year ended January 31
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.810 $8.040 $7.390 $8.130 $7.700 $7.420
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.403 0.415 0.424 0.444 0.453 0.481
Net realized and unrealized gain (loss) 0.352 (0.234) 0.650 (0.738) 0.439 0.301
------ ------ ------ ------ ------ ------
Total from Investment Operations 0.755 0.181 1.074 (0.294) 0.892 0.782
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.406) (0.411) (0.424) (0.446) (0.462) (0.479)
In excess of net investment income (0.003) --- --- --- --- ---
From net realized gains (0.056) --- --- --- --- (0.002)
In excess of net realized gains --- --- --- --- --- (0.021)
------ ------ ------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.465) (0.411) (0.424) (0.446) (0.462) (0.502)
------ ------ ------ ------ ------ ------
Net asset value - End of period $8.100 $7.810 $8.040 $7.390 $8.130 $7.700
------ ------ ------ ------ ------ ------
Total return(b) 9.94% 2.43%(c) 14.90%(c) (3.49)%(c) 11.86%(c) 10.87%(c)
------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90%(d) 0.90%(d) 0.85%(d) 0.72% 0.64% 0.54%
Net investment income 5.05%(d) 5.32%(d) 5.49%(d) 5.93% 5.68% 6.38%
Fees and expenses waived
or borne by the Adviser --- 0.00%(d) 0.06%(d) 0.12% 0.21% 0.33%
Portfolio turnover 14% 29% 21% 58% 7% 7%
Net assets at end of period (000) $182,721 $184,221 $207,759 $193,303 $225,636 $186,526
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $--- $0.000 $0.005 $0.009 $0.016 $0.025
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS
--------------------------------------------------------
Class A
Year ended January 31
--------------------------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $7.120 $7.080 $7.190 $7.060
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.505 0.523 0.515 0.517
Net realized and unrealized gain (loss) 0.295 0.041 (0.107) 0.129
------ ------ ------ ------
Total from Investment Operations 0.800 0.564 0.408 0.646
------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.500) (0.524) (0.518) (0.516)
In excess of net investment income --- --- --- ---
From net realized gains --- --- --- ---
In excess of net realized gains --- --- --- ---
Total Distributions Declared
to Shareholders (0.500) (0.524) (0.518) (0.516)
------ ------ ------ ------
Net asset value - End of period $7.420 $7.120 $7.080 $7.190
------ ------ ------ ------
Total return(b) 11.61%(c) 8.31%(c) 5.86%(c) 9.55%(c)
------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.46% 0.30% 0.45% 0.22%
Net investment income 6.89% 7.34% 7.17% 7.30%
Fees and expenses waived
or borne by the Adviser 0.43% 0.65% 0.89% 1.94%
Portfolio turnover 14% 30% 25% 44%
Net assets at end of period (000) $145,957 $85,301 $42,167 $21,987
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.032 $0.046 $0.064 $0.137
(b) Total return at net asset value assuming all distributions reinvested and no initial
sales charge or contingent deferred sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact.
Prior years' ratios are net of benefits received, if any.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS
-----------------------------------------------------------------------------------------
Class B Class C
Period ended
Year ended January 31 January 31
-------------------------------------------------------------------- ----------------
1998 1997 1996 1995 1994 1993(b) 1998(c)
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.810 $8.040 $7.390 $8.130 $7.700 $7.450 $8.070
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.344 0.357 0.367 0.388 0.395 0.272 0.180(d)
Net realized and unrealized gain (loss) 0.352 (0.234) 0.650 (0.738) 0.439 0.275 0.090
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.696 0.123 1.017 (0.350) 0.834 0.547 0.270
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.347) (0.353) (0.367) (0.390) (0.404) (0.274) (0.180)
In excess of net investment income (0.003) --- --- --- --- --- (0.004)
From net realized gains (0.056) --- --- --- --- (0.002) (0.056)
------ ------ ------ ------ ------ ------ ------
In excess of net realized gains --- --- --- --- --- (0.021) ---
------ ------ ------ ------ ------ ------ ------
Total Distributions
Declared to Shareholders (0.406) (0.353) (0.367) (0.390) (0.404) (0.297) (0.240)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $8.100 $7.810 $8.040 $7.390 $8.130 $7.700 $8.100
------ ------ ------ ------ ------ ------ ------
Total return(e) 9.13% 1.66%(f) 14.05%(f) (4.21)%(f) 11.05%(f) 1.11%(f)(g) 3.40%(h)
------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(i) 1.65%(i) 1.60%(i) 1.47% 1.39% 1.29%(j) 1.37%(d)(i)(j)
Net investment income 4.30%(i) 4.57%(i) 4.74%(i) 5.18% 4.93% 5.63%(j) 4.47%(d)(i)(j)
Fees and expenses waived
or borne by the Adviser ---(i) 0.00%(i) 0.06%(i) 0.12% 0.21% 0.33%(j) ---
Portfolio turnover 14% 29% 21% 58% 7% 7% 14%
Net assets at end of period (000) $59,160 $59,143 $60,651 $53,973 $51,819 $17,282 $206
- -------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to $--- $0.000 $0.005 $0.009 $0.016 $0.016 $---
(b) Class B shares were initially offered on June 8, 1992. Per share amounts reflect activity from that date.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.012 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Not annualized. Had the Distributor not waived a portion of the distribution fee, total return would have been reduced.
(i) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years'
ratios are net benefits received, if any.
(j) Annualized.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN
----------------------------------------------------------------------------------
Class A
Year ended January 31
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.930 $7.130 $6.660 $7.340 $6.970 $6.730
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.352 0.354 0.368 0.410 0.404 0.405
Net realized and unrealized gain (loss) 0.386 (0.198) 0.484 (0.689) 0.356 0.250
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.738 0.156 0.852 (0.279) 0.760 0.655
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.348) (0.354) (0.382) (0.401) (0.390) (0.407)
From capital paid in --- --- --- --- --- (0.008)
In excess of net investment income --- (0.002) --- --- --- ---
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.348) (0.356) (0.382) (0.401) (0.390) (0.415)
------- ------- ------- ------- ------- -------
Net asset value - End of period $7.320 $6.930 $7.130 $6.660 $7.340 $6.970
------- ------- ------- ------- ------- -------
Total return (b)(c) 10.93% 2.35% 13.13% (3.66)% 11.16% 10.04%
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90%(d) 0.89%(d) 0.80%(d) 0.62% 0.66% 0.88%
Net investment income 4.95%(d) 5.12%(d) 5.34%(d) 6.08% 5.61% 5.86%
Fees and expenses waived
or borne by the Adviser 0.13%(d) 0.12%(d) 0.25%(d) 0.32% 0.33% 0.32%
Portfolio turnover 32% 25% 48% 40% 7% 14%
Net assets at end of period (000) $39,048 $39,606 $43,308 $41,844 $45,570 $36,024
- -------------------------------
(a) Net of fees and expenses waived or borne by
the Adviser which amounted to $0.009 $0.008 $0.017 $0.022 $0.024 $0.022
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred
sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are net
of benefits received, if any.
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN
-----------------------------------------------------
Class A
Year ended January 31
-----------------------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $6.520 $6.520 $6.690 $6.550
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.432 0.441 0.422 0.438
Net realized and unrealized gain (loss) 0.208 (0.001) (0.168) 0.133
------- ------- ------- -------
Total from Investment Operations 0.640 0.440 0.254 0.571
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.430) (0.440) (0.424) (0.431)
From capital paid in
In excess of net investment income --- --- --- ---
------- ------- ------- -------
Total Distributions Declared to Shareholders (0.430) (0.440) (0.424) (0.431)
------- ------- ------- -------
Net asset value - End of period $6.730 $6.520 $6.520 $6.690
------- ------- ------- -------
Total return (b)(c) 10.12% 7.01% 3.90% 9.08%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.95% 1.00% 1.42% 1.29%
Net investment income 6.50% 6.79% 6.37% 6.73%
Fees and expenses waived
or borne by the Adviser 0.35% 0.40% 0.30% 0.51%
Portfolio turnover 5% 18% 16% 57%
Net assets at end of period (000) $28,608 $24,273 $18,870 $20,112
- -------------------------------
(a) Net of fees and expenses waived or borne by
the Adviser which amounted to $0.023 $0.026 $0.020 $0.033
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred
sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are net
of benefits received, if any.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
MICHIGAN
-----------------------------------------------------------------------------------------
Class B Class C
Period ended
Year ended January 31 January 31
-------------------------------------------------------------------- ----------------
1998 1997 1996 1995 1994 1993(b) 1998(c)
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $6.930 $7.130 $6.660 $7.340 $6.970 $6.950 $7.200
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.299 0.302 0.317 0.359 0.351 0.167 0.156(d)
Net realized and unrealized gain (loss) 0.386 (0.198) 0.484 (0.689) 0.356 0.029 0.122
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.685 0.104 0.801 (0.330) 0.707 0.196
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.295) (0.303) (0.331) (0.350) (0.337) (0.168) (0.158)
From capital paid in --- --- --- --- --- (0.008) ---
In excess of net investment income --- (0.001) --- --- --- --- ---
------ ------ ------ ------ ------ ------ ------
Total Distributions
Declared to Shareholders (0.295) (0.304) (0.331) (0.350) (0.337) (0.176) (0.158)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $7.320 $6.930 $7.130 $6.660 $7.340 $6.970 $7.320
------ ------ ------ ------ ------ ------ ------
Total return (e) 10.11%(f) 1.58%(f) 12.30%(f) (4.39)%(f) 10.36%(f) 0.98%(f)(h) 3.92%(g)(h)
------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.65%(i) 1.64%(i) 1.55%(i) 1.37% 1.41% 1.63%(j) 1.35%(d)(i)(j)
Net investment income 4.20%i) 4.37%(i) 4.59%(i) 5.33% 4.86% 5.11%(j) 4.35%(d)(i)(j)
Fees and expenses waived
or borne by the Adviser 0.13%(i) 0.12%(i) 0.25%(i) 0.32% 0.33% 0.32%(j) 0.15%(i)(j)
Portfolio turnover 32% 25% 48% 40% 7% 14% 32%
Net assets at end of period (000) $12,762 $13,364 $15,236 $14,144 $15,030 $6,670 $103
- -------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to $0.009 $0.008 $0.017 $0.022 $0.024 $0.009 $0.010
(b) Class B shares were initially offered on August 4, 1992. Per share amounts reflect activity from that date.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Had the Adviser and Distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefit's derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are
net of benefits received, if any.
(j) Annualized.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA
-----------------------------------------------------------------------------
Class A
Year ended January 31
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.130 $7.350 $6.840 $7.480 $7.160 $7.030
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.362 0.369 0.384 0.415 0.419 0.449
Net realized and unrealized gain (loss) 0.405 (0.222) 0.516 (0.642) 0.323 0.125
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.767 0.147 0.900 (0.227) 0.742 0.574
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.362) (0.367) (0.390) (0.413) (0.422) (0.444)
From net realized gains (0.045) --- --- --- --- ---
From net capital paid in --- --- --- --- --- ---
------- ------- ------- ------- ------- -------
Total Distributions Declared
to Shareholders (0.407) (0.367) (0.390) (0.413) (0.422) (0.444)
------- ------- ------- ------- ------- -------
Net asset value - End of period $7.490 $7.130 $7.350 $6.840 $7.480 $7.160
------- ------- ------- ------- ------- -------
Total return (c)(d) 11.04% 2.16% 13.50% (2.92)% 10.62% 8.41%
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.91%(e) 0.90%(e) 0.85%(e) 0.72% 0.82% 0.85%
Net investment income 4.97%(e) 5.19%(e) 5.41%(e) 5.98% 5.69% 6.33%
Fees and expenses waived
or borne by the Adviser 0.11%(e) 0.13%(e) 0.24%(e) 0.26% 0.20% 0.35%
Portfolio turnover 19% 27% 42% 26% 9% 5%
Net assets at end of period (000) $32,824 $34,986 $36,586 $35,846 $41,326 $35,017
- -------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to: $0.008 $0.009 $0.016 $0.018 $0.015 $0.025
(b) Because of differences between book and tax basis accounting, there was no return of capital for federal income tax purposes.
(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) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are net
of benefits received, if any.
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA
-----------------------------------------------------
Class A
Year ended January 31
-----------------------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $6.930 $6.820 $6.850 $6.820
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.461 0.467 0.440 0.434
Net realized and unrealized gain (loss) 0.098 0.108 (0.032) 0.034
------ ------ ------ ------
Total from Investment Operations 0.559 0.575 0.408 0.468
------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.458) (0.465) (0.438) (0.438)
From net realized gains --- --- --- ---
From net capital paid in (0.001)(b) --- --- ---
------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.459) (0.465) (0.438) (0.438)
------ ------ ------ ------
Net asset value - End of period $7.030 $6.930 $6.820 $6.850
------ ------ ------ ------
Total return (c)(d) 8.33% 8.70% 6.11% 7.15%
------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.88% 1.00% 1.41% 1.47%
Net investment income 6.58% 6.77% 6.40% 6.41%
Fees and expenses waived
or borne by the Adviser 0.42% 0.37% 0.28% 0.39%
Portfolio turnover 1% 7% 13% 20%
Net assets at end of period (000) $30,676 $24,188 $19,100 $19,721
- -------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to: $0.029 $0.026 $0.019 $0.027
(b) Because of differences between book and tax basis accounting, there was no return of capital for federal income tax purposes.
(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) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are net
of benefits received, if any.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA
-----------------------------------------------------------------------------------------
Class B Class C
Period ended
Year ended January 31 January 31
-------------------------------------------------------------------- ----------------
1998 1997 1996 1995 1994 1993(b) 1998(c)
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.130 $7.350 $6.840 $7.480 $7.160 $7.210 $7.470
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.308 0.316 0.332 0.363 0.364 0.191 0.163(d)
Net realized and unrealized gain (loss) 0.405 (0.222) 0.516 (0.642) 0.323 (0.049) 0.066
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.713 0.094 0.848 (0.279) 0.687 0.142 0.229
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.308) (0.314) (0.338) (0.361) (0.367) (0.192) (0.164)
From net realized gains (0.045) --- --- --- --- --- (0.045)
From capital paid in --- --- --- --- --- --- ---
------ ------ ------ ------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.353) (0.314) (0.338) (0.361) (0.367) (0.192) (0.209)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $7.490 $7.130 $7.350 $6.840 $7.480 $7.160 $7.490
------ ------ ------ ------ ------ ------ ------
Total return (e) 10.22%(f) 1.40%(f) 12.66%(f) (3.65)%(f) 9.81%(f) 2.01%(f)(h) 3.13%(g)
------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.66%(i) 1.65%(i) 1.60%(i) 1.47% 1.57% 1.60%(j) 1.36%(d)(i)(j)
Net investment income 4.22%(i) 4.44%(i) 4.66%(i) 5.23% 4.94% 5.58%(j) 4.40%(d)(i)(j)
Fees and expenses waived
or borne by the Adviser 0.11%(i) 0.13%(i) 0.24%(i) 0.26% 0.20% 0.35%(j) 0.12%(i)(j)
Portfolio turnover 19% 27% 42% 26% 9% 5% 19%
Net assets at end of period (000) $20,278 $19,389 $19,083 $14,731 $10,317 $2,173 $136
- -------------------------------
(a) Net of fees and
expenses waived or borne by
the Adviser which amounted to $0.008 $0.009 $0.016 $0.018 $0.015 $0.009 $0.008
(b) Class B shares were initially offered on August 4, 1992. Per share amounts reflect activity from that date.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred
sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Had the Adviser and Distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are net
of benefits received, if any.
(j) Annualized.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NEW YORK
----------------------------------------------------------------------------------
Class A
Year ended January 31
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.040 $7.250 $6.680 $7.500 $7.090 $6.840
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.383 0.393 0.401 0.427 0.421 0.438
Net realized and unrealized gain (loss) 0.346 (0.207) 0.576 (0.834) 0.407 0.260
------ ------ ------ ------ ------ ------
Total from Investment Operations 0.729 0.186 0.977 (0.407) 0.828 0.698
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.384) (0.396) (0.407) (0.413) (0.418) (0.445)
In excess of net investment income (0.005) --- --- --- --- (0.003)
------ ------ ------ ------ ------ ------
Total Distributions Declared to Shareholders (0.389) (0.396) (0.407) (0.413) (0.418) (0.448)
------ ------ ------ ------ ------ ------
Net asset value - End of period $7.380 $7.040 $7.250 $6.680 $7.500 $7.090
------ ------ ------ ------ ------ ------
Total return (b)(c) 10.67% 2.76% 14.99% (5.32)% 11.95% 10.50%
------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.67%(d) 0.65%(d) 0.58%(d) 0.42% 0.62% 0.96%
Net investment income 5.31%(d) 5.56%(d) 5.72%(d) 6.25% 5.68% 6.25%
Fees and expenses waived
or borne by the Adviser 0.28%(d) 0.29%(d) 0.38%(d) 0.46% 0.29% 0.06%
Portfolio turnover 38% 78% 39% 65% 25% 7%
Net assets at end of period (000) $51,744 $50,648 $56,795 $53,322 $63,527 $53,779
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.020 $0.020 $0.026 $0.032 $0.021 $0.004
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred
sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are
net of benefits received, if any.
</TABLE>
<TABLE>
<CAPTION>
NEW YORK
-----------------------------------------------------
Class A
Year ended January 31
-----------------------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $6.600 $6.590 $6.690 $6.620
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.453 0.459 0.441 0.427
Net realized and unrealized gain (loss) 0.242 0.013 (0.116) 0.073
------ ------ ------ ------
Total from Investment Operations 0.695 0.472 0.325 0.500
------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.455) (0.462) (0.425) (0.430)
In excess of net investment income --- --- --- ---
------ ------ ------ ------
Total Distributions Declared to Shareholders (0.455) (0.462) (0.425) (0.430)
------ ------ ------ ------
Net asset value - End of period $6.840 $6.600 $6.590 $6.690
------ ------ ------ ------
Total return (b)(c) 10.86% 7.42% 4.98% 7.89%
------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.00% 1.04% 1.46% 1.46%
Net investment income 6.71% 6.99% 6.62% 6.52%
Fees and expenses waived
or borne by the Adviser 0.14% 0.24% 0.05% 0.10%
Portfolio turnover 17% 6% 41% 53%
Net assets at end of period (000) $40,233 $31,691 $23,124 $25,360
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.009 $0.016 $0.003 $0.007
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred
sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are
net of benefits received, if any.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NEW YORK
-----------------------------------------------------------------------------------------
Class B Class C
Period ended
Year ended January 31 January 31
-------------------------------------------------------------------- ----------------
1998 1997 1996 1995 1994 1993(b) 1998(c)
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.040 $7.250 $6.680 $7.500 $7.090 $7.130 $7.270
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.330 0.340 0.349 0.376 0.368 0.182 0.171(d)
Net realized and unrealized gain (loss) 0.346 (0.207) 0.576 (0.834) 0.407 (0.029) 0.118
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.676 0.133 0.925 (0.458) 0.775 0.153 0.289
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.331) (0.343) (0.355) (0.362) (0.365) (0.190) (0.179)
In excess of net investment income (0.005) --- --- --- --- (0.003) ---
------ ------ ------ ------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.336) (0.343) (0.355) (0.362) (0.365) (0.193) (0.179)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $7.380 $7.040 $7.250 $6.680 $7.500 $7.090 $7.380
------ ------ ------ ------ ------ ------ ------
Total return (e) 9.85%(f) 1.99%(f) 14.15%(f) (6.04)%(f) 11.14%(f) 1.16%(f)(i) 4.04%(g)(h)
------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.42%(i) 1.40%(i) 1.33%(i) 1.17% 1.37% 1.71%(j) 1.12%(d)(i)(j)
Net investment income 4.56%(i) 4.81%(i) 4.97%(i) 5.50% 4.93% 5.50%(j) 4.72%(d)(i)(j)
Fees and expenses waived
or borne by the Adviser 0.28%(i) 0.29%(i) 0.38%(i) 0.46% 0.29% 0.06%(j) 0.29%(i)(j)
Portfolio turnover 38% 78% 39% 65% 25% 7% 38%
Net assets at end of period (000) $52,313 $52,861 $53,505 $43,166 $45,061 $14,743 $104
- -------------------------------
(a) Net of fees and expenses
waived or borne by the
Adviser which amounted to $0.020 $0.020 $0.026 $0.032 $0.021 $0.001 $0.021
(b) Class B shares were initially offered on August 4, 1992. Per share amounts reflect activity from that date.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred
sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Had the Adviser and Distributor waived or reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are
net of benefits received, if any.
(j) Annualized.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NORTH CAROLINA
-----------------------------------------------------------------
Class A
Year ended January 31
-----------------------------------------------------------------
1998 1997 1996 1995 1994(b)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.120 $7.270 $6.680 $7.500 $7.500
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.373 0.376 0.386 0.396 0.164
Net realized and unrealized gain (loss) 0.327 (0.150) 0.588 (0.822) ---
------ ------ ------ ------ ------
Total from Investment Operations 0.700 0.226 0.974 (0.426) 0.164
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.370) (0.376) (0.384) (0.394) (0.164)
------ ------ ------ ------ ------
Net asset value - End of period $7.450 $7.120 $7.270 $6.680 $7.500
------ ------ ------ ------ ------
Total return(e) 10.10%(f) 3.29%(f) 14.91%(f) (5.55)%(f) 2.22%(f)(h)
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49%(i) 0.45%(j) 0.33%(j) 0.12% 0.10%(k)
Net investment income 5.11%(i) 5.29%(j) 5.47%(j) 5.83% 4.91%(k)
Fees and expenses waived or
borne by the Adviser 0.64%(i) 0.66%(j) 0.76%(j) 0.93% 1.20%(k)
Portfolio turnover 23% 38% 34% 37% 1%(k)
Net assets at end of period (000) $16,425 $16,522 $15,813 $14,189 $13,710
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.047 $0.047 $0.053 $0.063 $0.040
(b) The Fund commenced investment operations on September 1, 1993.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Had the Adviser and Distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage arrangements had an impact of 0.01% and $0.001 per share.
(j) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are
net of benefits received, if any.
(k) Annualized.
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA
-----------------------------------------------------------------------------------
Class B Class C
Period ended
Year ended January 31 January 31
-------------------------------------------------------------- ----------------
1998 1997 1996 1995 1994(b) 1998(c)
---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.120 $7.270 $6.680 $7.500 $7.500 $7.350
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.319 0.322 0.334 0.345 0.141 0.168(d)
Net realized and unrealized gain (loss) 0.327 (0.150) 0.588 (0.822) --- 0.100
------ ------ ------ ------ ------ ------
Total from Investment Operations 0.646 0.172 0.922 (0.477) 0.141 0.268
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.316) (0.322) (0.332) (0.343) (0.141) (0.168)
------ ------ ------ ------ ------ ------
Net asset value - End of period $7.450 $7.120 $7.270 $6.680 $7.500 $7.450
------ ------ ------ ------ ------ ------
Total return(e) 9.28%(f) 2.51%(f) 14.07%(f) (6.27)%(f) 1.90%(f)(h) 3.69%(g)(h)
------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.24%(i) 1.20%(j) 1.08%(j) 0.87% 0.85%(k) 0.96%(d)(i)(k)
Net investment income 4.36%(i) 4.54%(j) 4.72%(j) 5.08% 4.16%(k) 4.55%(d)(i)(k)
Fees and expenses waived or
borne by the Adviser 0.64%(i) 0.66%(j) 0.76%(j) 0.93% 1.20%(k) 0.63%(j)(k)
Portfolio turnover 23% 38% 34% 37% 1%(k) 23%
Net assets at end of period (000) $17,348 $17,427 $18,593 $17,169 $9,934 $174
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.047 $0.047 $0.053 $0.063 $0.040 $0.047
(b) The Fund commenced investment operations on September 1, 1993.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Had the Adviser and Distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage arrangements had an impact of 0.01% and $0.001 per share.
(j) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are
net of benefits received, if any.
(k) Annualized.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
OHIO
-------------------------------------------------------------------
Class A
Year ended January 31
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.340 $7.510 $6.930 $7.670 $7.290
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.362 0.372 0.375 0.401 0.406
Net realized and unrealized gain (loss) 0.394 (0.179) 0.585 (0.745) 0.389
------ ------ ------ ------ ------
Total from Investment Operations 0.756 0.193 0.960 (0.344) 0.795
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.365) (0.363) (0.380) (0.396) (0.411)
------ ------ ------ ------ ------
From capital paid in --- --- --- --- (0.004)
From net realized gains (0.011) --- --- --- ---
Total Distributions Declared to Shareholders (0.376) (0.363) (0.380) (0.396) (0.415)
------ ------ ------ ------ ------
Net asset value - End of period $7.720 $7.340 $7.510 $6.930 $7.670
------ ------ ------ ------ ------
Total return (b)(c) 10.58% 2.75% 14.18% (4.38)% 11.17%
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.89%(d) 0.88%(d) 0.85%(d) 0.72% 0.82%
Net investment income 4.85%(d) 5.09%(d) 5.19%(d) 5.71% 5.34%
Fees and expenses waived
or borne by the Adviser 0.05%(d) 0.04%(d) 0.11%(d) 0.16% 0.09%
Portfolio turnover 27% 31% 31% 33% 3%
Net assets at end of period (000) $62,884 $65,190 $74,383 $72,123 $79,394
- -------------------------------
(a) Net of fees and expenses waived or
borne by the Adviser which amounted to $0.004 $0.003 $0.008 $0.011 $0.007
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios
are net of benefits received, if any.
</TABLE>
<TABLE>
<CAPTION>
OHIO
-------------------------------------------------------------------
Class A
Year ended January 31
-------------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.090 $6.880 $6.750 $6.850 $6.640
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.444 0.457 0.462 0.463 0.448
Net realized and unrealized gain (loss) 0.204 0.208 0.138 (0.114) 0.204
------ ------ ------ ------ ------
Total from Investment Operations 0.648 0.665 0.600 0.349 0.652
------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.448) (0.455) (0.470) (0.449) (0.442)
------ ------ ------ ------ ------
From capital paid in --- --- --- --- ---
From net realized gains --- --- --- --- ---
------ ------ ------ ------ ------
Total Distributions Declared to Shareholders (0.448) (0.455) (0.470) (0.449) (0.442)
------ ------ ------ ------ ------
Net asset value - End of period $7.290 $7.090 $6.880 $6.750 $6.850
------ ------ ------ ------ ------
Total return (b)(c) 9.41% 10.00% 9.21% 5.21% 10.22%
------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00% 1.00% 1.00% 1.27% 1.28%
Net investment income 6.18% 6.57% 6.83% 6.77% 6.74%
Fees and expenses waived
or borne by the Adviser 0.03% 0.09% 0.15% 0.06% 0.34%
Portfolio turnover 13% 13% 11% 45% 89%
Net assets at end of period (000) $62,439 $50,281 $41,158 $27,433 $27,676
- -------------------------------
(a) Net of fees and expenses waived or borne by
the Adviser which amounted to $0.002 $0.006 $0.010 $0.004 $0.022
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios
are net of benefits received, if any.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
OHIO
-----------------------------------------------------------------------------------------
Class C
Class B Period ended
Year ended January 31 January 31
-------------------------------------------------------------------- ----------------
1998 1997 1996 1995 1994 1993(b) 1998(c)
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $7.340 $7.510 $6.930 $7.670 $7.290 $7.330 $7.610
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.306 0.318 0.321 0.348 0.351 0.185 0.162(d)
Net realized and unrealized gain (loss) 0.394 (0.179) 0.585 (0.745) 0.389 (0.033) 0.124
------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 0.700 0.139 0.906 (0.397) 0.740 0.152 0.286
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.309) (0.309) (0.326) (0.343) (0.356) (0.192) (0.165)
------ ------ ------ ------ ------ ------ ------
From capital paid in --- --- --- --- (0.004) --- ---
From net realized gains (0.011) --- --- --- --- (0.011)
------ ------ ------ ------ ------ ------ ------
Total Distributions Declared
to Shareholders (0.320) (0.309) (0.326) (0.343) (0.360) (0.192) (0.176)
------ ------ ------ ------ ------ ------ ------
Net asset value - End of period $7.720 $7.340 $7.510 $6.930 $7.670 $7.290 $7.720
------ ------ ------ ------ ------ ------ ------
Total return (e) 9.76%(f) 1.98%(f) 13.34%(f) (5.10)%(f) 10.36%(f) 0.85%(f)(h) 0.0381(g)(h)
------ ------ ------ ------ ------ ------ ------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.64%(i) 1.63%(i) 1.60%(i) 1.47% 1.57% 1.75%(j) 1.34%(d)(i)(j)
Net investment income 4.10%(i) 4.34%(i) 4.44%(i) 4.96% 4.59% 5.43%(j) 4.21%(d)(i)(j)
Fees and expenses waived
or borne by the Adviser 0.05%(i) 0.04%(i) 0.11%(i) 0.16% 0.09% 0.03%(j) 0.07%(i)(j)
Portfolio turnover 27% 31% 31% 33% 3% 13% 27%
Net assets at end of period (000) $46,330 $49,474 $56,160 $53,547 $51,212 $7,293 $133
- -------------------------------
(a) Net of fees and expenses waived
or borne by the Adviser
which amounted to $0.004 $0.003 $0.008 $0.011 $0.007 $--- $0.004
(b) Class B shares were initially offered on August 4, 1992. Per share amounts reflect activity from that date.
(c) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Had the Adviser and Distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage arrangements had no impact. Prior years' ratios are
net of benefits received, if any.
(j) Annualized.
</TABLE>
Further performance information is obtained in each Fund's Annual Report to
shareholders, which is obtainable free of charge by calling 1-800-426-3750.
23
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVE
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's
personal income tax (if any) and opportunities for long-term appreciation from a
portfolio primarily invested in investment grade municipal bonds.
HOW THE FUNDS PURSUE THEIR OBJECTIVE AND CERTAIN RISK FACTORS
Each Fund invests primarily 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 Fund, the State Bonds may consist of
tax-exempt securities not issued by the state of Florida that are exempt from
the Florida intangibles tax. Under normal conditions, the Florida Fund generally
will purchase securities that enable its shares to be exempt from the Florida
intangibles tax. This investment strategy could result in higher portfolio
turnover and related transaction costs and enhance total return.
Investment grade securities are those rated at least Baa by Moody's Investors
Service (Moody's), BBB by Standard & Poor's Corporation (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 rated below
investment grade (or comparable unrated securities), but not below CCC by S&P,
Caa by Moody's or a comparable rating by another national rating service. Each
Fund may invest up to 25% of its assets in unrated State Bonds and other unrated
securities, subject to applicable state requirements.
Each Fund under normal circumstances will invest at least 80% of its assets in
State Bonds and will limit investments in securities that are not State Bonds
to a maximum of 20% of the Fund's total assets, subject to applicable state
requirements. 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. There may not always be a
sufficient supply of State Bonds to enable the Funds to achieve their objective.
Therefore, 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 limits investments in State Bonds
subject to individual alternative minimum tax to a maximum of 20% of total
assets.
Many bonds have call features that permit the issuer to repay the bond before
maturity. If this occurs, a Fund may only be able to invest the proceeds at
lower yields. The value of tax-exempt bonds and other debt securities (and thus
of a Fund's shares) usually fluctuates inversely with changes in interest rates.
Asset-Backed Securities. Each Fund may acquire asset backed securities, which
are interests in pools of debt securities. Principal and interest payments on
the underlying debt are passed through to the holders of the asset-backed
securities. A pool may issue more than one class of asset-backed securities,
representing different rights to receive principal and/or interest. Principal on
the asset-backed securities may be prepaid if the underlying debt securities are
prepaid. As a result, these securities may not increase in value when interest
rates fall. A Fund may be able to invest prepaid principal only at lower yields.
The prepayment of such securities purchased at a premium may result in losses
equal to the premium.
Step Coupon Bonds (Steps). Each Fund may invest in debt securities which pay
interest at a series of different rates (including 0%) in accordance with a
stated schedule for a series of periods. In addition to the risks associated
with the credit rating of the issuers, these securities may be subject to
additional volatility risk than fixed rate debt securities.
Pay-In-Kind Securities. Each Fund may purchase debt securities that pay interest
in additional securities instead of cash.
Zero Coupon Securities. Each Fund may acquire debt securities which do not pay
interest in cash on a current basis, but instead are issued at a deep discount
from par. The value of the security increases over time to reflect the interest
accrued. The value of these securities may fluctuate more than similar
securities which are issued at par and pay interest periodically. Although these
securities pay no interest to holders
24
<PAGE>
prior to maturity, interest on these securities is reported as income to a Fund
and distributed to its shareholders. These distributions must be made from that
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. A 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.
Inverse Floating Obligations. Each Fund may acquire inverse floating
obligations, which represent interests in tax-exempt bonds. These securities
carry interest rates that vary inversely to changes in market interest 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. In that respect, such securities have investment characteristics
similar to investment leverage. Their market values are subject to greater risks
of fluctuation than securities bearing a fixed rate of interest, which may lead
to greater fluctuation in the value of a Fund's shares.
"When-Issued" and "Delayed Delivery" Securities. 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.
Stand-By Commitments. Each Fund may obtain stand-by commitments when it
purchases municipal bonds. A stand-by commitment gives the holder the right to
sell the underlying security to the seller at an agreed upon price on certain
dates within a specified period.
Participation Interests. Each Fund may purchase participation interests or
certificates of participation in all or part of specific holdings of municipal
bonds. Some participation interests, certificates of participation and municipal
lease obligations are illiquid and, as such, will be subject to each Fund's 15%
limit on investments in illiquid securities.
Municipal Lease Obligations. Municipal Lease Obligations are ordinarily backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the municipal lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis.
Lower Rated Debt Securities. Lower rated debt securities (commonly referred to
as junk bonds) are debt securities which are not considered to be investment
grade (that is, they are rated below BBB by S&P or below Baa by Moody's or
unrated but considered by the Adviser to be of comparable credit quality). For a
description of S&P's and Moody's rating systems, see the Appendix to this
Prospectus. Lower rated bonds are generally considered more speculative and
likely to default than higher quality bonds. Because of the increased risk of
default, lower rated debt securities generally have higher yields than higher
quality debt securities. Regarding lower rated debt securities: (i) an economic
downturn may more significantly impact their potential for default as compared
to debt securities of higher quality, and (ii) the secondary market for such
securities may at times be less liquid or respond more adversely to negative
publicity or investor perceptions, making it more difficult to value or dispose
of the securities. The likelihood that these securities will help the Funds
achieve their investment objective is more dependent on the Adviser's own credit
analysis.
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. A Fund will pay a premium when purchasing an option, which reduces a
Fund's return on the underlying security if the option is exercised and results
in a loss if the option expires unexercised. A 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. So long as a Fund is the writer of a call option it will
own the underlying security subject to the option (or comparable securities
satisfying the cover requirements of securities exchanges). So long as a Fund is
the writer of a put option it will hold cash or marketable securities with a
value equal to the price to be paid if the option is exercised. If a Fund is
unable to close out an unexpired option, a 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.
25
<PAGE>
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 securities will not exceed 15% of each Fund's
net assets.
Any income or gains realized by each Fund on options transactions and
distributed to Fund shareholders will be includable in shareholders' taxable
income, for federal and state income tax purposes.
Index and Interest Rate Futures. 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 or the index. 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. For example, 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 interest rate expectancies are inaccurate, the Fund may be
worse off than if it had not hedged.
Short-Term Investments. 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) or the U.S. government and in repurchase agreements. These investments
are subject to federal and/or state income tax and, as with all securities,
gains realized upon the sale of these securities may be taxable when distributed
by the Fund.
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, Treasury bills and repurchase
agreements. Some or all of each Fund's assets also may be invested in such
investments during periods of unusual market conditions. 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 Fund's collateral for the
bank's or dealer's repurchase obligation. Additional collateral will be added so
that the obligation will at all times be fully collateralized. However, if the
bank or dealer defaults or enters bankruptcy, the Fund may experience costs and
delays in liquidating the collateral, and may experience a loss if it is unable
to demonstrate its rights to the collateral in a bankruptcy proceeding. Not more
than 15% of each Fund's net assets will be invested in repurchase agreements
maturing in more than seven days and other illiquid assets.
Borrowing of Money. Each Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets; however, a Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.
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
26
<PAGE>
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. California's recovery from the early 1990s recession is now nearly
complete. The recovery, which began in 1994, is now well established with strong
broad-based employment growth in such sectors as high technology, electronics,
construction, and entertainment. Robust growth is now evident in all geographic
areas including Southern California where the real estate market is emerging
from its steep downturn. Consistent with its economic performance, the State's
finances have improved markedly, with balanced financial operations erasing
deficits that were amassed during the late 1980s and the early 1990s. In 1996,
Standard and Poor's and Fitch Investors Service upgraded the State's credit
rating, and in October 1997, Fitch Investors Service upgraded the State's credit
ratings. While the State's recovery should continue, future growth may be
limited by the anticipated adverse impact the current economic crisis in Asia
will have on California exports to the region.
At various times over the past twenty years, California voters have approved
constitutional amendments that seek to restrict State and or local taxing or
spending authority. The most notable of these amendments is Proposition 13,
which limits ad valorem taxes on real property and restricts the ability of
taxing entities to increase real property and other taxes. In 1996, California
voters passed Proposition 218, which requires local governments to seek voter
approval for many new and existing taxes and fees. These and other future
amendments may limit State and local governments' financial flexibility and
ultimately impair their ability to repay their debt obligations.
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 over a four
county area. The possibility exists that another earthquake could create a major
dislocation of the California economy.
Connecticut. Connecticut's economy has improved since its recession in the early
1990s. The improvements have been primarily in non-manufacturing industries, in
which employment has recovered most of the losses suffered during the recession.
Manufacturing employment, however, has continued its downward trend. Despite the
severity of the recession, the average per capita personal income of Connecticut
residents has remained the highest in the nation. The State's financial
performance has also improved. After having accumulated a substantial
unappropriated deficit as of June 30, 1991, the General Fund has run operating
surpluses, based on the State's budgetary method of accounting, for each of the
six fiscal years since. Economic Recovery Notes issued in 1991 to fund the
unappropriated deficit have been paid down and currently are scheduled to be
paid in full by June 30, 1999. The State's high level of tax-supported debt
remains a concern, however, as it poses a relatively significant burden on the
State's revenue base.
Florida. The State continues to experience steady job growth, although the pace
has slowed marginally from recent years. The bulk of the new jobs is in the
service sectors, with currently one in three jobs service-related. The State's
economy is transforming from its traditional narrow base of agriculture and
seasonal tourism into a service and trade related economy with substantial
insurance, banking and export participation, as well as year-round tourist
attractions. The rapid population and job growth bring pressure for more
transportation infrastructure, educational facilities and other needs that will
require substantial additional borrowing by State and local governments. Without
a personal income tax, Florida's financial operations remain largely dependent
on consumption-based taxes which are more vulnerable to general economic
conditions. Nevertheless, the strong economic expansion has yielded steadily
improving financial performance characterized by growing revenues and increasing
year-end surpluses.
Massachusetts. The Commonwealth of Massachusetts has a highly developed economy
with a large service sector, particularly in health care, financial services and
education. Strong economic growth in the 1980s was halted late in the decade by
weakening in the high technology, real estate and financial sectors, resulting
in steady job losses. The economy has since resumed growing at a healthy pace,
yielding job growth in excess of the national average in the past two years.
Although the Commonwealth's unemployment rate is now below the national average,
it is unlikely the employment gains of the 1980s will be matched.
The Commonwealth has made great strides in stabilizing its fiscal condition
since the early 1990s. More realistic revenue expectations and increased efforts
to impose spending discipline have resulted in the elimination of deficit
financing, less reliance on short term borrowings, and seven consecutive years
of positive fund balances. Tax collections have been strong and
27
<PAGE>
fund balances have grown to levels representing nearly 6% of revenues. Fiscal
flexibility is limited, however, by the Commonwealth's substantial debt load,
which ranks in the top five among all states. Significant State infrastructure
needs, including the Central Artery/Third Harbor Tunnel project, will increase
the debt burden in the future.
Michigan. The State of Michigan is highly industrialized with a strong economic
concentration in motor vehicle production and other durable goods manufacturing.
The industrial restructuring that took place in the early 1980s helped to reduce
the economic impact of the recession in the early 1990s. Additional
diversification since 1994 into services and finance may help to mitigate the
impact of future economic downturns on the State's economy, though the State
still ranks 34th in the nation in terms of industrial diversity. Cheaper imports
due to Asian currency devaluations pose a challenge to the Big Three U.S. auto
manufacturers in terms of profits and maintenance of market share.
The State has demonstrated a commitment to addressing budget imbalances, such as
those experienced in the early 1990s recession, through continued
cost-containment measures. Such measures, in conjunction with a strong State
economy, have enabled the State to balance the budget and build substantial
reserves. Increased reserve levels, including $1.15 billion in the budget
stabilization fund, are important in light of additional school aid funding
needs and decreased financial flexibility resulting from property tax reforms in
1993 and 1994.
Minnesota. The State of Minnesota's overall economic structure closely parallels
that of the nation as a whole. While some concentration exists in the
manufacturing base, the State's economic diversity has enabled it to perform
better than the U.S. during recent economic cycles. The financial, construction
and health care sectors are driving the State's economy. The majority of growth
remains in the Twin Cities of Minneapolis and St. Paul; however, labor shortages
may deter future growth both in the Twin Cities and other regional centers.
The State relies primarily on individual, sales and corporate income taxes for
revenues. As a result of strong economic activity since the early 1990s, the
State's general fund revenue growth has been solid. With this revenue growth,
the State is committed, by statute, to increase funding to build budget
reserves, reduce taxes and pay for capital improvements. As a result, not all of
the revenue growth will flow to increase the general fund balance.
Under legislation enacted in 1995, if a court determines that Minnesota's
taxation of interest on other state's obligations, while not taxing interest on
its own obligations, discriminates against interstate commerce, the interest on
Minnesota obligations may become taxable. Exempt-interest dividends that are
derived from Minnesota obligations may also become taxable. Should an adverse
decision be rendered, the value of securities purchased by the Minnesota Fund
might be adversely affected, and the value of the shares of the Minnesota Fund
might also be adversely affected. See "Minnesota Tax Considerations" in the
Statement of Additional Information for a further discussion of the 1995
Minnesota Legislation.
New York. The State of New York enjoys a generally diverse and substantial
economic base and a strong socio-economic profile. Although currently in
recovery following a severe downturn in the early 1990s, the State's economy is
expanding at a pace below that of the nation. Its manufacturing sector has
sharply contracted over time, and employment is now dominated by service
industries, which account for about one-third of employment. Offsetting these
trends is the robust performance of the securities industry which continues to
benefit from rising equity prices and low interest rates. Although job growth is
occurring, the State's unemployment rate remains high relative to the national
average.
Historically, New York State's financial operations have been weak,
characterized by chronic budget deficits, untimely budget passage, significant
use of non-recurring revenue measures and optimistic economic assumptions.
Fortuitous revenue and expenditure adjustments, which benefited financial
operations in recent years, cannot be relied on for future years. Furthermore,
structural imbalances caused by the use of one time revenue items and sizable
multi-year tax cuts create the potential for significant budget imbalances in
future years.
New York City is experiencing an economic resurgence resulting from a
flourishing securities industry and an expanding entertainment and tourism
sector. This economic activity has yielded improved financial performance and an
upgrade in the City's bond rating.
North Carolina. The North Carolina economy has historically been dependent on
textile, furniture and tobacco manufacturing. However, the State has diversified
significantly into financial services, research and high technology, industries
which led North Carolina out of the early 1990s recession. North Carolina's
banks continue on an aggressive acquisition path while technologically advanced
industries ranging from computer software to biotechnology are closely tied to
the major universities located in the Raleigh-Durham metropolitan area. Though
the presence of textiles, tobacco and furniture manufacturing has been reduced,
their influence on the State's economy remains substantial. Some characteristics
of these industries, such as high cyclicality and transportability to lower
production cost areas, along with continued turbulence in the tobacco and
textile industries, present risks to the State's economy.
Following a period of recession-induced strain in the early 1990s, financial
balance was restored through tax increases and expenditure reductions.
Conservative budget practices have
28
<PAGE>
resulted in six consecutive years of operating surpluses beginning in fiscal
1992. The budget category that has experienced the largest increases in spending
levels is education.
Ohio. On the strength of growth in the financial services, trade and
construction sectors, the State's economy has become more diversified since the
early 1980's. This diversity has brought greater economic stability; however,
relative to the entire U.S., the State's employment is still overweighted in
manufacturing. The Asian crisis may have an effect on the State's manufacturers
as weaker Asian demand will likely reduce the State's rate of growth. In 1996,
approximately 20% of the State's exports were to Japan.
Future growth prospects are further tempered by the tight labor market. The
State's unemployment rate has been below the national average in each of the
last seven years. There has also been an acceleration in net out-migration of
population, including a larger than national average decline in the 25-44 age
cohort.
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 investment policies may be changed
without shareholder approval. The Funds' fundamental investment policies listed
in the Statement of Additional Information cannot be changed without the
approval of a majority of each 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 and Class C shares. Other total returns differ from the average annual
total return only in that they may relate to different time periods, may
represent aggregate as opposed to average annual total returns, and may not
reflect the initial or contingent deferred sales charges.
Each Class's yield 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
distributions, 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.
Liberty Financial Investments, Inc. (Distributor), a subsidiary of the Adviser,
serves as the distributor for the Funds' shares. Colonial Investors Service
Center, Inc. (Transfer Agent), an affiliate of the Adviser, serves as the
shareholder services and transfer agent for the Funds. Each of the Adviser, the
Distributor and the Transfer Agent is an indirect subsidiary of Liberty
Financial Companies, Inc. which in turn is an indirect majority-owned subsidiary
of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual is
considered to be the controlling entity of the Adviser and its affiliates.
Liberty Mutual is an underwriter of workers' 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, the Funds pay the Adviser
the following annual percentages of the Funds' combined average
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daily net assets: on the first $2 billion of combined average daily net assets,
the annual rate shall be 0.5%; and on the combined average daily net assets in
excess of $2 billion, the annual rate shall be 0.45%.
Brian M. Hartford, Vice President of the Adviser, has managed the Minnesota Fund
and other Colonial tax-exempt funds since 1993 and the North Carolina Fund since
August 1997. Mr. Hartford was a senior municipal trader of the Adviser from 1991
until 1993.
William C. Loring, Vice President of the Adviser, has managed the Ohio Fund and
the Michigan Fund since October 1997. Mr. Loring has managed various other
Colonial tax-exempt funds since 1986.
Maureen G. Newman, Vice President of the Adviser, has managed the Massachusetts
Fund since May 1996 and the Florida Fund since August 1997. Prior to joining the
Adviser, Ms. Newman was a portfolio manager and bond analyst at Fidelity
Management and Research Company from May 1985 until May 1996.
Gary Swayze, Vice President of the Adviser, has managed the New York Fund since
September 1997, the California Fund since October 1997 and the Connecticut Fund
since November 1997. Prior to joining the Adviser in 1997, Mr. Swayze was a
portfolio manager and group leader at Fidelity Management and Research Company
and the writer and editor of a bond market newsletter.
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 0.13% annually of average net
assets plus certain out-of-pocket expenses.
Each of the foregoing fees is subject to any reimbursement or fee waiver or
expense reimbursement 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 by such broker-dealers to the Adviser and its affiliates. In
recognition of the research and brokerage services provided, the Adviser may
cause the Fund to pay the selected broker-dealer a higher commission than would
have been charged by another broker-dealer not providing such services. Subject
to seeking best execution, the Adviser may consider sales of shares of the Funds
(and of certain other mutual funds advised by the Adviser and its affiliates
Stein Roe & Farnham Incorporated and Newport Fund Management, Inc.) in selecting
broker-dealers for portfolio security transactions.
Year 2000. The Funds' Adviser, Distributor and Transfer Agent (Colonial
Companies) are actively coordinating, managing and monitoring Year 2000
readiness for the Funds. A central program office at the Colonial Companies is
working within the Colonial Companies and with vendors who provide services,
software and systems to the Funds to ensure that date-related information and
data can be properly processed and calculated on and after January 1, 2000. Many
Fund service providers and vendors, including the Colonial Companies, are in the
process of making Year 2000 modifications to their services, software and
systems and believe that such modifications will be completed on a timely basis
prior to January 1, 2000. The cost of these modifications will not affect the
Funds. However, no assurances can be given that all modifications required to
ensure proper data processing and calculation on and after January 1, 2000 will
be timely made or that services to the Funds will not be adversely affected.
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 of the Funds are
generally valued as of the close of regular trading (normally 4:00 p.m. Eastern
time) on the New York Stock Exchange (Exchange) each day the Exchange is open.
Portfolio securities for which market quotations are readily available are
valued at current market value. Short-term investments maturing in 60 days or
less are valued at amortized cost when the Adviser determines, pursuant to
procedures adopted by the Trustees, that such cost approximates current market
value. All other securities and assets are valued at their fair value following
procedures adopted by the Trustees.
DISTRIBUTIONS AND TAXES
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Each Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net income monthly and
any net realized gain at least annually.
The Funds generally declare distributions daily. Distributions are invested in
additional shares of the same Class of the Fund at net asset value unless the
shareholder elects to receive cash. Regardless of the shareholder's election,
distributions of $10 or less will not be paid in cash to shareholders but will
be invested in additional shares of the same Class of the Fund at net asset
value. If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service selected by the
Transfer Agent is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically be converted
to having all dividend and other distributions reinvested in additional shares.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks. To change your election, call the Transfer Agent for
information. The Funds' distributions of net income generally will be exempt
from Federal and the relevant State's personal income taxes. However, as
described above under "How the Funds Pursue Their Objective and Certain Risk
Factors," certain investments may produce taxable income (including capital
gains) for federal, state and local purposes, and portfolio transactions may
produce gains a portion of which may be taxable at ordinary Federal income tax
rates and may be subject to state and local taxes. If the Funds make
distributions attributable to taxable income, 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. A loss on shares held for six months or
less will be disallowed to the extent of any exempt-interest dividends received
thereon.
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. Each Fund may at times purchase tax-exempt
securities at a discount from the price at which they were originally issued,
especially during periods of rising interest rates. For federal income tax
purposes, some or all of the market discount may be included in the Fund's
ordinary income and will be taxable to shareholders as such when it is
distributed to them. Social security benefits may be taxed as a result of
receiving tax-exempt income. If you receive social security or railroad
retirement benefits, you should consult your tax adviser to determine what
effect, if any, an investment in the Funds may have on the taxation of your
benefits.
The foregoing is a summary of certain income tax consequences of investing in
the Funds. You should consult your tax adviser to determine the effect of an
investment in a Fund on your particular tax situation (including possible
liability for federal alternative minimum tax and for state and local taxes).
HOW TO BUY SHARES
Shares of the Funds are offered continuously. Orders received in good form prior
to the time at which the Funds value their shares (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 or Class C shares and there are
some limitations on the issuance of Class A share 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
sales charge as follows:
Initial Sales Charge
-------------------------------
Retained
by
Financial
Service
as % of Firm 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 of each Fund, the Distributor pays the
financial service firm a cumulative commission as follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25% (1)
(1) Paid over 12 months but only to the extent the shares remain
outstanding.
In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held by an investor. If a
purchase results in an account having a value from $1 million to $5 million,
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then the portion of the shares purchased that caused the account's value to
exceed $1 million will be subject to a 1.00% contingent deferred sales charge
payable to the Distributor, if redeemed within 18 months after the end of the
month in which the purchase was accepted. If the purchase results in an account
having a value in excess of $5 million, the contingent deferred sales charge
will not apply to the portion of the purchased shares comprising such excess
amount.
Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge and are subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee) and a declining contingent deferred sales
charge if redeemed within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the number of years after
purchase that the redemption occurs:
Years Contingent 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.
Class C Shares. Class C shares are offered at net asset value and are subject to
a 0.75% annual distribution fee and a 1.00% contingent deferred sales charge on
redemptions made within one year after the end of the month in which the
purchase was accepted. The Distributor has voluntarily agreed to waive a portion
of the distribution fee so that it will not exceed 0.45% annually. This waiver
may be terminated by the Distributor at any time without shareholder approval.
The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.35% annually commencing
after the shares purchased have been outstanding for one year. Payment of the
ongoing commission is conditioned on receipt by the Distributor of the 0.45%
annual distribution fee referred to above. The commission may be reduced or
eliminated by the Distributor at any time.
General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is made, generally,
older shares will be redeemed first. See the Statement of Additional Information
for more information.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class C shares. Purchases of $250,000 or
more must be for Class A or Class C shares. Purchases of $1,000,000 or more must
be for Class A shares. Consult your financial service firm.
Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales.
See the Statement of Additional Information for more information.
Special Purchase Programs. The Funds allow certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. The programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."
Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.
In June of any year, 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. The
Fund may also deduct annual maintenance and processing fees (payable to the
Transfer Agent) in connection with certain retirement plan accounts sponsored by
the Distributor. See "Special Purchase Programs/Investor Services" in the
Statement of Additional Information for more information.
HOW TO SELL SHARES
Shares of the Funds may be sold on any day the Exchange is open, either directly
to a Fund or through your financial service
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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, a Fund will delay sending proceeds for up to 15
days in order to protect a Fund against financial losses and dilution in net
asset value caused by dishonored purchase payment checks. To avoid delay in
payment, investors are advised to purchase shares unconditionally, such as by
certified check or other immediately available funds.
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 prior to the time at which the Funds value their shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent and may charge for this service.
General. The sale of shares is a taxable transaction for income tax purposes and
may be subject to a contingent deferred sales charge. The contingent deferred
sales charge may be waived under certain circumstances. See the Statement of
Additional Information for more information. Under unusual circumstances, a Fund
may suspend repurchases or postpone payment for up to seven days or longer, as
permitted by federal securities law. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
HOW TO EXCHANGE SHARES
Except as described below with respect to money market funds, a Fund's shares
may be exchanged at net asset value for shares of other mutual funds distributed
by the Distributor, including funds advised by the Adviser and its affiliates,
Stein Roe & Farnham Incorporated and Newport Fund Management, Inc. Generally,
such exchanges must be between the same classes of shares. Consult your
financial service firm or the Transfer Agent for information regarding what
funds are available. Shares will continue to age without regard to the exchange
for purposes of conversion and 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. The request to exchange from
one fund into another fund may be done in a written request. Call 1-800-426-3750
to receive a prospectus. 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. A Fund will terminate the
exchange privilege as to a particular shareholder if the Adviser determines, in
its sole and absolute discretion, that the shareholder's exchange activity is
likely to adversely impact the Adviser's ability to manage a Fund's investments
in accordance with its investment objective or otherwise harm a Fund or its
remaining shareholders.
Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which 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.
Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one "roundtrip" exchange of each Fund's Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund X to Fund Y and back to Fund X would be permitted only
once during each three-month period.
TELEPHONE TRANSACTIONS
All shareholders and/or their financial advisers are automatically eligible to
exchange Fund shares and redeem up to $50,000 of Fund shares by calling
1-800-422-3737 toll-free any business day between 9:00 a.m. and the time at
which the Fund values its shares. Telephone redemption privileges may be elected
on the account application. The Transfer Agent will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine and may be
liable for losses related to unauthorized or fraudulent transactions in the
event reasonable procedures are not employed. Such procedures include
restrictions on where proceeds of telephone redemptions may be sent, limitations
on the ability to redeem by telephone shortly after an address change, recording
of telephone lines and requirements that the redeeming
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<PAGE>
shareholder and/or his/her financial adviser provide certain identifying
information. Shareholders and/or their financial advisers wishing to redeem or
exchange shares by telephone may experience difficulty in reaching the Fund at
its toll-free telephone number during periods of drastic economic or market
changes. In that event, shareholders and/or their financial advisers should
follow the procedures for redemption or exchange by mail as described above
under "How to Sell Shares." The Adviser, the Transfer Agent and the Fund reserve
the right to change, modify or terminate the telephone redemption or exchange
services at any time upon prior written notice to shareholders. Shareholders
and/or their financial advisers are not obligated to transact by telephone.
12B-1 PLAN
Under its 12b-1 Plan, each Fund pays the Distributor monthly a service fee at an
annual rate of 0.10% of each Fund's net assets for shares outstanding on
November 30, 1994, and an annual rate of 0.25% of net assets for shares issued
thereafter. The 12b-1 Plan also requires each Fund to pay the Distributor
monthly a distribution fee at an annual rate of 0.75% of the average daily net
assets attributed to its Class B and Class C shares. The Distributor has
voluntarily agreed to waive a portion of the Class C share distribution fee so
that it does not exceed 0.45% annually. The Distributor may terminate this
waiver at any time without shareholder approval. Because the Class B and Class C
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. Class C
shares do not convert. The multiple class structure could be terminated should
certain Internal Revenue Service rulings be rescinded. See the Statement of
Additional Information for more information. The Distributor uses the fees to
defray the cost of commissions and service fees paid to financial service firms
which have sold Fund shares and to defray other expenses such as sales
literature, prospectus printing and distribution, shareholder servicing costs,
and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The Plan also
authorizes 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. Shareholders receive one vote for
each Fund share. Shares of a Fund and of any other series of the Trust that may
be in existence from time to time generally 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 bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in a small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and
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<PAGE>
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions,
the bonds are not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
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 protection may not be as large as
in Aaa securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1, Baa1, Ba1
and B1.
A bonds possess many favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e. they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements; their future cannot be
considered as well secured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
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<PAGE>
Investment Adviser
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621
Distributor
Liberty Financial Investments, Inc.
One Financial Center
Boston, MA 02111-2621
Custodian
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017-2070
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 29,1998
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's 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
1-800-426-3750 for the May 29, 1998 Statement of Additional Information.
- ----------------------------- ------------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- ----------------------------- ------------------------------
Liberty Financial Investments, Inc.
Please send your completed application to:
Colonial Investors Service Center, Inc. (CISC)
P.O. Box 1722
Boston, Massachusetts 02105-1722
New A, B & C Shares Account Application/Revision to Existing Account
To open a new account, complete sections 1, 2, 3, & 7.
To apply for special services for a new or existing account, complete sections
4, 5, 6, or 8 as appropriate.
___ Please check here if this is a revision.
1-----------Account ownership--------------
Please choose one of the following.
__Individual: Print your name, Social Security #, U.S. citizen status.
__Joint Tenant w/rights of survivorship: Print all names, the Social
Security # for the first person,
and his/her U.S. citizen status.
__Uniform Gift to Minors: Names of custodian and minor, minor's Social Security
#, minor's U.S. citizen status.
__Corporation, Association, Partnership: Include full name, Taxpayer I.D. #.
__Trust: Name of trustee, trust title & date, and trust's Taxpayer I.D. #.
______________________________________
Name of account owner
______________________________________
Name of joint account owner (JTWROS)
______________________________________
Street address
______________________________________
Street address
______________________________________
City, State, and Zip
______________________________________
Daytime phone number
______________________________________
Social Security # or Taxpayer I.D. #
Are you a U.S. citizen? ___Yes ___No
______________________________________
If no, country of permanent residence
______________________________________
Account Owner's date of birth
______________________________________
Account number (if existing account)
2 -----Fund(s) you are purchasing--------
Your investment will be made in Class A shares if no class is indicated.
Certificates are not available for Class B or C shares. If no distribution
option is selected, distributions will be reinvested in additional fund
shares. Please consult your financial adviser to determine which class of
shares best suits your needs.
Fund Fund Fund
________________ ___________________ _____________________
Name of Fund Name of Fund Name of Fund
$_______________ $__________________ $____________________
Amount Amount Amount
Class
___ A Shares ___ B Shares (less than $250,000) ___ C Shares (less than
$1,000,000)
Method of Payment Choose one
___Check payable to the Fund ___Bank wired on ____/____/____ (Date)
Wire/Trade confirmation #_____________
Ways to receive your distributions
Choose one (If none chosen, dividends and capital gains will be reinvested)
Distributions of $10.00 or less will automatically be reinvested in additional
fund shares.
___Reinvest dividends and capital gains
___Dividends and capital gains in cash
___Dividends in cash; reinvest capital gains
___Automatic Dividend Diversification See section 5A, inside
___Direct Deposit via Electronic Funds Transfer Complete Bank information
in section 4B. I understand that my bank must be a member of the
Automated Clearing House System.
3---Your signature & taxpayer I.D. number certification----
Each person signing on behalf of an entity represents that his/her actions are
authorized. I have received and read each appropriate fund prospectus and
understand that its terms are incorporated by reference into this application.
I understand that this application is subject to acceptance. I understand that
certain redemptions may be subject to a contingent deferred sales charge. It
is agreed that the fund, The Colonial Group, Inc. and its affiliates and their
officers, directors, agents, and employees will not be liable for any loss,
liability, damage, or expense for relying upon this application or any
instruction believed genuine.
I certify, under penalties of perjury, that:
1. The Social Security # or Taxpayer I.D. # provided is correct.
You must cross out Item 2a, b or c below only if you have been notified by the
Internal Revenue Service (IRS) that you are currently subject to back-up
withholding because of under-reporting interest or dividends on you tax return.
2. I am not subject to back-up withholding because: (a) I am exempt from back-
up withholding, or (b) I have not been notified by the IRS that I am
subject to back-up withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to back-up withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholdings.
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
X______________________________________________
Signature
_______________________________________________
Capacity, if applicable Date
4--------Ways to withdraw from your fund-------
It may take up to 30 days to activate the following features. Complete only
the sections that apply to the features you would like.
A. Systematic Withdrawal Plan (SWP)
Dividends and capital gains must be reinvested.
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
unless the 10th falls on a non-business day or the first day of the week. If
this occurs, the process date will be the previous business day. If you
receive your SWP payment via electronic funds transfer (EFT), you may request
it to be processed any day of the month. Withdrawals in excess of 12% annually
of your current account value will not be accepted. Redemptions made in
addition to SWP payments may be subject to a contingent deferred sales charge
for Class B or C shares. Please consult your financial or tax adviser before
electing this option.
Funds for withdrawal:
___________________
Name of fund
Withdrawal amount
Redeem shares from account as follows:
Dollar amount of payment $___________
or
Total annual %_________
Frequency (choose one)
__Monthly __Quarterly __Semiannually
I would like payments to begin _____/_____ (month, day, if indicating EFT).
___________________
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, day, if indicating EFT).
Payment instructions
Send the payment to (choose one):
__My address of record.
__My bank account via EFT. Please complete the Bank Information section below.
All EFT transactions will be made two business days after the processing date.
Your bank must be a member of the Automated Clearing House System.
__The payee listed at right. If more than one payee, provide the name,
address, payment amount, and frequency for other payees (maximum of 5) on
a separate sheet. If you are adding this service to an existing account,
please sign below and have your signature(s) guaranteed.
______________________________________________
Name of payee
______________________________________________
Address of payee
______________________________________________
City
______________________________________________
State Zip
______________________________________________
Payee's bank account number, if applicable
B. Telephone withdrawal options
All telephone transaction calls are recorded. These options are not available
for retirement accounts. Please sign below and have your signature(s)
guaranteed.
1. Fast Cash
You are automatically eligible for this service. You or your financial
adviser can withdraw up to $50,000 from your account and have it sent to your
address of record. For your protection, this service is only available on
accounts that have not had an address change within 30 days of the redemption
request.
2. Telephone Redemption
__I would like the Telephone Redemption privilege either by federal fund wire
or EFT. Telephone redemptions over $500 will be sent via federal fund wire,
usually on the next business day ($7.50 will be deducted). Redemptions of
$500 or less will be sent by check to your designated bank.
3. On-Demand EFT Redemption
__I would like the On-Demand EFT Redemption Privilege. Proceeds paid via EFT
will be credited to your bank account two business days after the process
date. You or your financial adviser may withdraw shares from your fund account
by telephone and send your money to your bank account. If you are adding this
service to an existing account, complete the Bank Information section below
and have all shareholder signatures guaranteed.
Colonial Investor Service Center, Inc. (CISC) and the fund's liability is
limited when following telephone instructions; a shareholder may suffer a loss
from an unauthorized transaction reasonably believed by CISC to have been
authorized.
Bank Information (For Sections A and B above)
I authorize deposits to the following bank account:
____________________________________________________________
Bank name City Bank account number
____________________________________________________________
Bank street address State Zip Bank routing # (your bank
can provide this)
X__________________________________
Signature of account owner(s)
X__________________________________
Signature of account owner(s) Place signature guarantee here.
5-----Ways to make additional investments--------
These services involve continuous investments regardless of varying share
prices. Please consider your ability to continue purchases through periods of
price fluctuations. Dollar cost averaging does not assure a profit or protect
against loss in declining markets.
A. Automatic Dividend Diversification
Please diversify my portfolio by investing distributions from one fund into
another Colonial, Newport or Stein Roe Advisor fund. These investments will
be made in the same share class and without sales charges. Accounts must be
identically registered. I have received and carefully read the prospectus for
the fund(s) listed below.
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
____________________________
From fund
____________________________
Account number (if existing)
____________________________
To fund
____________________________
Account number (if existing)
B. Automated Dollar Cost Averaging
This program allows you to automatically have money from any Colonial, Newport
or Stein Roe Advisor fund in which you have a balance of at least $5,000
exchanged into the same share class of up to four other identically registered
Colonial, Newport or Stein Roe Advisor accounts, on a monthly basis. The minimum
amount for each exchange is $100. Please complete the section below.
____________________________________
Fund from which shares will be sold
$_________________________
Amount to redeem monthly
____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
____________________________________
Fund to invest shares in
$_________________________
Amount to invest monthly
C. Fundamatic/On-Demand EFT Purchase
Fundamatic automatically transfers the specified amount from your bank
checking account to your Colonial, Newport or Stein Roe Advisor fund
account on a regular basis. The On-Demand EFT Purchase program moves money
from your bank checking account to your Colonial, Newport or Stein Roe
Advisor fund account by electronic funds transfer based on your
telephone request. You will receive the applicable price two
business days after the receipt of your request. Your bank needs to be a
member of the Automated Clearing House System. Please attach a blank check
marked "VOID." (Deposit slips are not a substitution). Also, complete the
section below. Please allow 3 weeks for CISC to establish these services
with your bank.
____________________________________
Fund name
_________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
___________________________________
Fund name
________________________________
Account number
$_____________________ _________________
Amount to transfer Month to start
__On-Demand Purchase (will be automatically established if you choose
Fundamatic)
__Fundamatic Frequency
__Monthly or __Quarterly
Check one:
__EFT- Choose any day of the month_____________________
__Paper Draft-Choose either the:
__5th day of the month
__20th day of the month
Authorization to honor checks drawn by Colonial Investors Service Center,
Inc. (CISC) Do Not Detach. Make sure all depositors on the bank account sign
to the far right. Please attach a blank check marked "VOID" here. (Deposit
slips are not a substitution). See reverse for bank instructions.
I authorize CISC to draw on my bank account, by check or electronic funds
transfer, for an investment in a Colonial, Newport or Stein Roe Advisor fund.
CISC and my bank are not liable for any loss arising from delays or dishonored
draws. If a draw is not honored, I understand that notice may not be given and
CISC may reverse the purchase and charge my account $15.
______________________________________
Bank name
______________________________________
Bank street address
______________________________________
Bank street address
______________________________________
City State Zip
______________________________________
Bank account number
______________________________________
Bank routing #
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
X_____________________________________
Depositor's Signature(s)
Exactly as appears on bank records
6------------Ways to reduce your sales charges------------
These services can help you reduce your sales charge while increasing your
share balance over the long term.
A. Right of Accumulation
If you, your spouse or your children own any other shares in other
Colonial, Newport or Stein Roe Advisor funds, you may be eligible for a reduced
sales charge. The combined value of your accounts must be $50,000 or more.
Class A shares of money market funds are not eligible unless purchased by
exchange from another Colonial, Newport or Stein Roe Advisor fund.
The sales charge for your purchase will be based on the sum of the purchase(s)
added to the value of all shares in other Colonial, Newport or Stein Roe
Advisor funds at the previous day's public offering price.
__Please link the accounts listed below for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
_____________________________________
Name on account
_____________________________________
Account number
_____________________________________
Name on account
_____________________________________
Account number
B. Statement of Intent
If you agree in advance to invest at least $50,000 within 13 months, you'll
pay a lower sales charge on every dollar you invest. If you sign a Statement
of Intent within 90 days after you establish your account, you can receive a
retroactive discount on prior investments. The amount required to receive a
discount varies by fund; see the sales charge table in the "How to Buy Shares"
section of your fund prospectus.
__I want to reduce my sales charge.
I agree to invest $ _______________ over a 13-month period starting
______/______/ 19______ (not more than 90 days prior to this application). I
understand an additional sales charge must be paid if I do not complete this
Statement of Intent.
7-------------Financial service firm---------------------
To be completed by a Representative of your financial service firm. If making
changes to the services on an account that has been in existence for more than
30 days, please have your clients signature guaranteed.
This application is submitted in accordance with our selling agreement with
Liberty Financial Investments, Inc. (LFII), the Fund's prospectus, and this
application. We will notify LFII of any purchase made under a Statement
of Intent, Right of Accumulation, or Sponsored Arrangement. We guarantee the
signatures on this application and the legal capacity of the signers.
_____________________________________
Representative's name
_____________________________________
Representative's number
_____________________________________
Representative's phone number
_____________________________________
Account # for client at financial
service firm
_____________________________________
Branch office address
_____________________________________
City
_____________________________________
State Zip
_____________________________________
Branch office number
_____________________________________
Name of financial service firm
_____________________________________
Main office address
_____________________________________
Main office address
_____________________________________
City
_____________________________________
State Zip
X____________________________________
Authorized signature
8----------Request for a combined quarterly statement mailing-----------
CISC can mail all of your quarterly statements in one envelope. This
option simplifies your record keeping and helps reduce fund expenses.
__I want to receive a combined quarterly mailing for all my accounts. Please
indicate account numbers or tax I.D. numbers of accounts to be linked.
________________________________________________________________________
Fundamatic (See reverse side)
Applications must be received before the start date for processing.
This program's deposit privilege can be revoked by CISC without prior
notice if any check is not paid upon presentation. CISC has no obligation
to notify the shareholder of non-payment of any draw. This program may be
discontinued by CISC by written notice at least 30 business days prior
to the due date of any draw or by the shareholder at any time.
To the Bank Named on the Reverse Side:
Your depositor has authorized Colonial Investors Service Center, Inc. (CISC) to
collect amounts due under an investment program from his/her personal checking
account. When you pay and charge the draws to the account of your depositor
executing the authorization payable to the order of CISC, LFII, hereby
indemnifies and holds you harmless from any loss (including reasonable
expenses) you may suffer from honoring such draw, except any losses due to your
payment of any draw against insufficient funds.
Liberty Financial Investments, Inc., Distributor SH-809E-0298
<PAGE>
COLONIAL TRUST V
Cross Reference Sheet
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
Location or Caption in
Item Number of Form N-1A Statement of Additional Information
Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies of the Funds;
Fundamental Investment Policies of the Funds;
Other Investment Policies of the Funds; Miscellaneous
Investment Practices
14. Management of the Colonial Funds; Fund Charges
and Expenses
15. Fund Charges and Expenses
16. Fund Charges and Expenses; Management of the
Colonial Funds
17. Fund Charges and Expenses; Management of the
Colonial Funds
18. Shareholder Meetings; Shareholder Liability
19. How to Buy Shares; Determination of Net Asset Value;
Suspension of Redemptions; Special Purchase
Programs/Investor Services; Programs for Reducing or
Eliminating Sales Charges; How to Sell Shares; How to
Exchange Shares
20. Taxes
21. Fund Charges and Expenses; Management of the
Colonial Funds
22. Fund Charges and Expenses; Investment Performance;
Performance Measures
23. Independent Accountants
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 29, 1998
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 (each a Fund and collectively, the 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 29, 1998. This SAI should be read
together with the Prospectus and each Fund's most recent Annual Report dated
January 31, 1998. Investors may obtain a free copy of the Prospectus and Annual
Reports from Liberty Financial Investments, 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
Funds' Prospectus.
TABLE OF CONTENTS
Part 1 Page
Definitions b
Investment Objective 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 d
Michigan Tax Considerations e
Minnesota Tax Considerations e
New York Tax Considerations f
North Carolina Tax Considerations f
Ohio Tax Considerations f
Fund Charges and Expenses g
Investment Performance r
Custodian v
Independent Accountants w
Part 2 Page
Miscellaneous Investment Practices 1
Taxes 11
Management of the Colonial Funds 13
Determination of Net Asset Value 18
How to Buy Shares 19
Special Purchase Programs/Investor Services 20
Programs for Reducing or Eliminating Sale Charges 21
How to Sell Shares 23
Distributions 25
How to Exchange Shares 25
Suspension of Redemptions 26
Shareholder Liability 26
Shareholder Meetings 26
Performance Measures
Appendix I
Appendix II
SP 16/329F-0598
a
<PAGE>
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 NEW YORK TAX-EXEMPT FUND
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
COLONIAL OHIO TAX-EXEMPT FUND
Statement of Additional Information
May 29, 1998
DEFINITIONS
"California Fund" or "Fund" Colonial California Tax-Exempt Fund
"Connecticut Fund" or "Fund" Colonial Connecticut Tax-Exempt Fund
"Florida Fund" or "Fund" Colonial Florida Tax-Exempt Fund
"Massachusetts Fund" or "Fund" Colonial Massachusetts Tax-Exempt Fund
"Michigan Fund" or "Fund" Colonial Michigan Tax-Exempt Fund
"Minnesota Fund" or "Fund" Colonial Minnesota Tax-Exempt Fund
"New York Fund" or "Fund" Colonial New York Tax-Exempt Fund
"North Carolina Fund" or Colonial North Carolina Tax-Exempt
Fund
"Fund"
"Ohio Fund" or "Fund" Colonial Ohio Tax-Exempt Fund
"Trust" Colonial Trust V
"Adviser Colonial Management Associates, Inc.,
the Funds' investment adviser
"LFII" Liberty Financial Investments, Inc.,
the Funds' distributor
"CISC" Colonial Investors Service Center,
Inc., the Funds' shareholder services
and transfer agent
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
The Prospectus describes each Fund's investment objectives and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the investment policies of the Funds. Part 2 contains additional
information about the following securities and investment techniques that are
described or referred to in the Prospectus:
Short-Term Trading
Lower Rated Debt Securities
Inverse Floaters
Short Sales
Forward Commitments ("When Issued" and "Delayed Delivery" Securities)
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
Participation Interests
Stand-by Commitments
Zero Coupon Securities (Zeros)
Step Coupon Bonds (Steps)
Pay-In-Kind (PIK) Securities
Except as indicated below under "Fundamental Investment Policies," the Funds'
investment policies are not fundamental and the Trustees may change the
investment 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.
b
<PAGE>
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.
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.
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; and
3. Invest more than 15% of its net assets in illiquid assets.
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 State 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 State 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 State 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 State Bonds, will be subject to
California franchise tax and California corporate income tax.
c
<PAGE>
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 State Bonds, 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
obligations issued by or on behalf of the State of Connecticut, any political
subdivision thereof, or public instrumentality, state or local authority,
district or similar public entity created under the laws of Connecticut.
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 State Bonds.
Distributions from investment income and capital gains, including dividends
derived from interest paid on Connecticut State 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 (including the Commonwealth of Puerto Rico, the United States Virgin
Islands and Guam) 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 payable for the following 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 would likely reduce the Fund's investment return and
might exceed any investment return the Fund achieved by investing in non-exempt
assets during the year.
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 State Bonds or certain U.S. territories and
possessions (including the Commonwealth of Puerto Rico, the United States Virgin
Islands or Guam) and are designated as such. The Fund believes that gains it
realizes on the sale of certain Massachusetts State 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 State Bonds, may be subject to
Massachusetts corporate excise tax.
In 1994, the Massachusetts personal income tax statute was modified to provide
for graduated rates of tax (with some exceptions) on gains from the sale or
exchange of capital assets held for more than one year based on the length of
time the asset has been held since January 1, 1995. The Massachusetts Department
of Revenue has released proposed regulations providing that the holding period
of the mutual fund (rather than that of its shareholders) will be determinative
for purposes of applying the revised statute to shareholders that receive
capital gain distributions, so long as the mutual fund separately designates the
amount of such distributions attributable to each of six classes of gains from
the sale or exchange of capital assets held for more than one year in a notice
provided to shareholders and the Commissioner of Revenue on or before March 1 of
the calendar year after the calendar year of such distributions. In the absence
of such notice, the holding period of the assets giving rise to such gain is
deemed to be more than one but not more than two years. Shareholders should
consult their tax advisers with respect to the Massachusetts tax treatment of
capital gain distributions from the Fund.
The foregoing is a general summary of the Massachusetts tax consequences of
investing in the Fund. You should consult your tax advisor regarding specific
questions as to federal, state or local taxes.
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 or
certain U.S. territories and possessions (including the Commonwealth of Puerto
Rico, United States
d
<PAGE>
Virgin Islands or Guam), 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 excluded from the taxable income base of the 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
Provided that the Fund qualifies as a separate "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), and subject to
the discussion in the paragraph below, 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
income 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.
Legislation enacted in 1995 provides that it is the intent of the Minnesota
legislature that interest income on obligations of Minnesota governmental units,
including obligations of the Minnesota Sources described above, and
exempt-interest dividends that are derived from interest income on such
obligations, be included in the net income of individuals, estates, and trusts
for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations of governmental issuers located in other states, or exempt-interest
dividends derived from such obligations, is so included. This provision applies
to taxable years that begin during or after the calendar year in which such
judicial decision becomes final, regardless of the date on which the obligations
were issued, and other remedies apply for previous taxable years. The United
States Supreme Court in 1995 denied certiorari in a case in which an Ohio state
court upheld an exemption for interest income on obligations of Ohio
governmental issuers, even though interest income on obligations of non-Ohio
governmental issuers was subject to tax. In 1997, the United State Supreme Court
denied certiorari in a subsequent case from Ohio, involving the same taxpayer
and the same issue, in which the Ohio Supreme Court refused to reconsider the
merits of the case on the ground that the prior final state court judgment
barred any claim arising out of the transaction that was the subject of the
previous action. It cannot be predicted whether a similar case will be brought
in Minnesota or elsewhere, or what the outcome of such case would be.
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.
e
<PAGE>
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, the Commonwealth of Puerto Rico, the United States Virgin
Islands or Guam), the interest on which was 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. For New York State and City personal income tax
purposes, distributions of net long-term capital gains will be taxable at the
same rate as ordinary income, whether received in cash or shares through the
reinvestment of distributions.
Distributions by the Fund from investment income and capital gains, including
exempt-interest dividends, are included in a corporation's net investment income
for purposes of calculating such corporation's New York State franchise taxes
and the New York City General Corporation Tax if received by a corporation
subject to those taxes, and will be subject to such taxes to the extent that a
corporation's net investment income is allocated to New York State and/or New
York City. Distributions by the Fund may be subject to state taxes in states
other than New York and to local taxes in cities other than New York City, both
for individual and corporate shareholders.
The foregoing is a summary of certain New York State and New York City income
tax consequences of investing in the Fund. Shareholders should consult their tax
adviser to determine the precise effect of an investment in the Fund on their
particular tax situation (including possible liability for federal alternative
minimum tax and state and local taxes).
NORTH CAROLINA TAX CONSIDERATIONS
The State of North Carolina has repealed its Intangible Personal Property tax
formerly applicable to shares of stock, including shares of certain mutual
funds. The repeal is effective for taxable years beginning after 1994.
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, Commonwealth of Puerto Rico, or the United States 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.
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 (50%
value test), (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, 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
f
<PAGE>
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.
Assuming, the 50% value test is satisfied, distributions that are properly
attributable to interest on obligations of the United States or its territories
or possessions (including obligations issued by the governments of the
Commonwealth of Puerto Rico, the United States Virgin Islands or Guam
("Territorial Obligations") 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 will be exempt from Ohio personal income tax and municipal and
school district income taxes in Ohio, and, provided in the case of Territorial
Obligations, such interest is excluded from gross income for federal income tax
purposes, 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.
FUND CHARGES AND EXPENSES
Under the Funds' Management Agreement, the Funds pay the Adviser a monthly fee
based on the Funds' combined average daily net assets, determined at the close
of each business day during the month at the following annual rates: 0.50% on
the first $1 billion, 0.50% on the next $1 billion and 0.45% of any excess over
$2 billion.
Recent Fees paid to the Adviser, LFII and CISC (dollars in thousands)
<TABLE>
<CAPTION>
California Fund
Years ended January 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $1,789 $1,939 $2,207
Bookkeeping fee 135 142 153
Shareholder service and transfer agent fee 538 591 650
12b-1 fees:
Service fee (Classes A, B and C)(a) 509 516 496
Distribution fee (Class B) 753 768 778
Distribution fee (Class C) 1 0 0
Fees waived or borne by the Adviser --- --- (51)
Fees waived by the Distributor (Class C) (b) --- ---
Connecticut Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Management fee (before reduction) $794 $799 $854
Bookkeeping fee 65 64 65
Shareholder service and transfer agent fee 243 245 256
12b-1 fees:
Service fee (Classes A, B and C)(a) 251 226 200
Distribution fee (Class B) 614 609 596
Distribution fee (Class C) 1 0 0
Fees waived or borne by the Adviser (461) (491) (672)
Fees waived by the Distributor (Class C) (b) --- ---
Florida Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Management fee (before reduction) $325 $335 $346
Bookkeeping fee 32 32 32
Shareholder service and transfer agent fee 98 104 103
12b-1 fees:
Service fee (Classes A, B and C)(a) 111 106 89
Distribution fee (Class B) 249 255 253
Distribution fee (Class C) (b) 0 0
Fees waived or borne by the Adviser (266) (284) (353)
Massachusetts Fund
Years ended January 31
g
<PAGE>
1998 1997 1996
---- ---- ----
Management fee (before reduction) $1,204 $1,285 $1,414
Bookkeeping fee 94 97 101
Shareholder service and transfer agent fee 370 396 419
12b-1 fees:
Service fee (Classes A, B and C)(a) 375 366 332
Distribution fee (Class B) 443 438 440
Distribution fee (Class C) (b) 0 0
Fees waived or borne by the Adviser --- (6) (153)
h
<PAGE>
Michigan Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Management fee (before reduction) $260 $280 $309
Bookkeeping fee 28 29 30
Shareholder service and transfer agent fee 82 90 96
12b-1 fees:
Service fee (Classes A, B and C)(a) 76 75 69
Distribution fee (Class B) 98 105 109
Distribution fee (Class C) (b) 0 0
Fees waived or borne by the Adviser (66) (63) (143)
Minnesota Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Management fee (before reduction) $265 $282 $288
Bookkeeping fee 28 29 14
Shareholder service and transfer agent fee 85 90 28
12b-1 fees:
Service fee (Classes A, B and C)(a) 84 85 68
Distribution fee (Class B) 147 145 126
Distribution fee (Class C) (b) 0 0
Fees waived or borne by the Adviser (58) (73) (125)
New York Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Management fee (before reduction) $512 $539 $566
Bookkeeping fee 46 46 46
Shareholder service and transfer agent fee 157 167 169
12b-1 fees:
Service fee (Classes A, B and C)(a) 163 161 136
Distribution fee (Class B) 393 400 370
Distribution fee (Class C) (b) 0 0
Fees waived or borne by the Adviser (289) (302) (395)
North Carolina Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Management fee (before reduction) $167 $171 $186
Bookkeeping fee 27 27 27
Shareholder service and transfer agent fee 53 54 59
12b-1 fees:
Service fee (Classes A, B and C)(a) 53 49 44
Distribution fee (Class B) 128 133 142
Distribution fee (Class C) (b) 0 0
Fees waived or borne by the Adviser (216) (219) (261)
i
<PAGE>
Ohio Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Management fee (before reduction) $553 $612 $696
Bookkeeping fee 48 52 55
Shareholder service and transfer agent fee 179 198 222
12b-1 fees:
Service fee (Classes A, B and C)(a) 158 162 156
Distribution fee (Class B) 354 388 418
Distribution fee (Class C) (b) 0 0
Fees waived or borne by the Adviser (216) (48) (145)
</TABLE>
(a) Class C shares were first offered on August 1, 1997.
(b) Rounds to less than one.
Brokerage Commissions (dollars in thousands)
<TABLE>
<CAPTION>
California Fund
Years ended January 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total commissions $13 $5 $12
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
Connecticut Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $2 $2 $5
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
Florida Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $2 $2 $4
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
Massachusetts Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $1 $2 $7
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
Michigan Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $3 $1 $3
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
j
<PAGE>
Minnesota Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $4 $1 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
New York Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $1 $3 $5
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
North Carolina Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $1 $2 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
Ohio Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Total commissions $5 $2 $6
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
Trustees and Trustees' Fees
For the fiscal year ended January 31, 1998 and the calendar year ended December
31, 1997, the Trustees received the following compensation for serving as
Trustees(c):
<TABLE>
<CAPTION>
Total Compensation From Trust And
Fund Complex Paid To The Trustees For
Trustee The Calendar Year Ended December 31, 1997(d)
- ------- --------------------------------------------
<S> <C>
Robert J. Birnbaum $ 93,949
Tom Bleasdale 106,432(e)
Lora S. Collins 93,949
James E. Grinnell 94,698(f)
William D. Ireland, Jr.(h) 101,445
Richard W. Lowry 94,698
William E. Mayer 89,949
James L. Moody, Jr. 98,447(g)
John J. Neuhauser 94,948
George L. Shinn(h) 103,443
Robert L. Sullivan 99,945
Sinclair Weeks, Jr.(h) 101,445
</TABLE>
(c) The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
(d) At December 31, 1997, the Colonial Funds complex consisted of 39 open-end
and 5 closed-end management investment company portfolios.
(e) Includes $57,454 payable in later years as deferred compensation.
(f) Includes $4,797 payable in later years as deferred compensation.
(g) Total compensation of $98,447 for the calendar year ended December 31, 1997
will be payable in later years as deferred compensation.
(h) Retired as Trustee of the Trust effective April 24,1998.
k
<PAGE>
<TABLE>
<CAPTION>
California Fund Connecticut Fund
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Trustee Fiscal Year Ended Fiscal Year Ended
- ------- January 31, 1998 January 31, 1998
---------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $2,350 $1,468
Tom Bleasdale 2,334(i) 1,496(j)
Lora S. Collins 2,351 1,469
James E. Grinnell 2,462(k) 1,599(l)
William D. Ireland, Jr.(o) 2,553 1,593
Richard W. Lowry 2,369 1,483
William E. Mayer 2,262 1,413
James L. Moody, Jr. 2,466(m) 1,538(n)
John J. Neuhauser 2,377 1,481
George L. Shinn(o) 2,613 1,630
Robert L. Sullivan 2,519 1,571
Sinclair Weeks, Jr.(o) 2,551 1,596
</TABLE>
(i) Includes $1,251payable in later years as deferred compensation.
(j) Includes $801 payable in later years as deferred compensation.
(k) Includes $192 payable in later years as deferred compensation.
(l) Includes $116 payable in later years as deferred compensation.
(m) Total compensation of $2,466 for the fiscal year ended January 31, 1998 will
be payable in later years as deferred compensation.
(n) Total compensation of $1,538 for the fiscal year ended January 31, 1998 will
be payable in later years as deferred compensation.
(o) Retired as Trustee of the Trust effective April 24, 1998.
<TABLE>
<CAPTION>
Florida Fund Massachusetts Fund
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Trustee Fiscal Year Ended Fiscal Year Ended
- ------- January 31, 1998 January 31, 1998
---------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $1,086 $2,187
Tom Bleasdale 1,107(p) 1,850(q)
Lora S. Collins 1,088 2,188
James E. Grinnell 1,181(r) 2,210(s)
William D. Ireland, Jr.(v) 1,179 2,385
Richard W. Lowry 1,096 2,211
William E. Mayer 1,047 2,116
James L. Moody, Jr. 1,140(t) 2,290(u)
John J. Neuhauser 1,098 2,215
George L. Shinn(v) 1,205 2,459
Robert L. Sullivan 1,159 2,362
Sinclair Weeks, Jr.(v) 1,180 2,389
</TABLE>
(p) Includes $592 payable in later years as deferred compensation.
(q) Includes $987 payable in later years as deferred compensation.
(r) Includes $86 payable in later years as deferred compensation.
(s) Includes $151 payable in later years as deferred compensation.
(t) Total compensation of $1,140 for the fiscal year ended January 31, 1998 will
be payable in later years as deferred compensation.
(u) Total compensation of $2,290 for the fiscal year ended January 31, 1998 will
be payable in later years as deferred compensation.
(v) Retired as Trustee of the Trust effective April 24, 1998.
l
<PAGE>
<TABLE>
<CAPTION>
Michigan Fund Minnesota Fund
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Trustee Fiscal Year Ended Fiscal Year Ended
- ------- January 31, 1998 January 31, 1998
---------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $ 1,731 $ 1,063
Tom Bleasdale 1,051(w) 1,058(x)
Lora S. Collins 1,731 1,061
James E. Grinnell 1,845(y) 1,156(z)
William D. Ireland, Jr.(cc) 1,905 1,152
Richard W. Lowry 1,755 1,070
William E. Mayer 1,690 1,019
James L. Moody, Jr. 1,808(aa) 1,111(bb)
John J. Neuhauser 1,759 1,075
George L. Shinn(cc) 1,983 1,180
Robert L. Sullivan 1,893 1,138
Sinclair Weeks, Jr.(cc) 1,909 1,154
</TABLE>
(w) Includes $560 payable in later years as deferred compensation.
(x) Includes $565 payable in later years as deferred compensation.
(y) Includes $89 payable in later years as deferred compensation.
(z) Includes $84 payable in later years as deferred compensation.
(aa) Total compensation of $1,808 for the fiscal year ended January 31, 1998
will be payable in later years as deferred compensation.
(bb) Total compensation of $1,111 for the fiscal year ended January 31, 1998
will be payable in later years as deferred compensation.
(cc) Retired as Trustee of the Trust effective April 24, 1998.
<TABLE>
<CAPTION>
New York Fund North Carolina Fund
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Trustee Fiscal Year Ended Fiscal Year Ended
- ------- January 31,1998 January 31, 1998
--------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $ 1,263 $992
Tom Bleasdale 1,264(dd) 1,077(ee)
Lora S. Collins 1,267 991
James E. Grinnell 1,379(ff) 1,077(gg)
William D. Ireland, Jr.(jj) 1,376 1,078
Richard W. Lowry 1,276 1,000
William E. Mayer 1,219 956
James L. Moody, Jr. 1,329(hh) 1,039(ii)
John J. Neuhauser 1,281 1,005
George L. Shinn(jj) 1,406 1,104
Robert L. Sullivan 1,356 1,061
Sinclair Weeks, Jr.(jj) 1,374 1,076
</TABLE>
(dd) Includes $675 payable in later years as deferred compensation.
(ee) Includes $521 payable in later years as deferred compensation.
(ff) Includes $102 payable in later years as deferred compensation.
(gg) Includes $76 payable in later years as deferred compensation.
(hh) Total compensation of $1,329 for the fiscal year ended January 31, 1998
will be payable in later years as deferred compensation.
(ii) Total compensation of $1,039 for the fiscal year ended January 31, 1998
will be payable in later years as deferred compensation.
(jj) Retired as Trustee of the Trust effective April 24,1998.
m
<PAGE>
<TABLE>
<CAPTION>
Ohio Fund
Aggregate Compensation
From Fund For The
Trustee Fiscal Year Ended
- ------- January 31, 1998
----------------
<S> <C>
James J. Birnbaum $1,350
Tom Bleasdale 1,304(kk)
Lora S. Collins 1,350
James E. Grinnell 1,467(ll)
William D. Ireland, Jr.(nn) 1,469
Richard D. Lowry 1,363
William E. Mayer 1,299
James L. Moody, Jr. 1,415(mm)
John J. Neuhauser 1,367
George L. Shinn(nn) 1,505
Robert L. Sullivan 1,449
Sinclair Weeks, Jr.(nn) 1,470
</TABLE>
(kk) Includes $694 payable in later years as deferred compensation.
(ll) Includes $103 payable in later years as deferred compensation.
(mm) Total compensation of $1,415 for the fiscal year ended January 31, 1998
will be payable in later years as deferred compensation.
(nn) Retired as Trustee of the Trust effective April 24,1998.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(together, Liberty Funds) for service during the calendar year ended December
31, 1997:
<TABLE>
<CAPTION>
Total Compensation From
Liberty Funds For The Calendar
Trustee Year Ended December 31, 1997(oo)
- ------- --------------------------------
<S> <C>
Robert J. Birnbaum $ 26,800
James E. Grinnell 26,800
Richard W. Lowry 26,800
</TABLE>
(oo) The Liberty Funds are advised by Liberty Asset Management Company (LAMCO).
LAMCO is an indirect wholly-owned subsidiary of Liberty Financial
Companies, Inc. (an intermediate parent of the Adviser).
Ownership of the Funds
At April 30, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Class of shares of the California,
Connecticut, Florida, Massachusetts, Michigan, Minnesota, New York, North
Carolina and Ohio Funds.
As of record on May 1, 1998, the following shareholders owned 5% or more of the
following Funds' outstanding Class A, Class B and Class C shares:
California Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
8.25%) (Class B: 7.20%) (Class C: 10.04%)
Connecticut Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
12.43%) (Class B: 18.54%) (Class C: 24.58%)
Florida Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL, 32216 (Class A:
17.40%) (Class B: 17.29%) (Class C: 6.74%)
Massachusetts Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
5.12%) (Class C: 30.34%)
Michigan Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216-0561
(Class A: 11.28%) (Class B: 24.64%)
n
<PAGE>
Minnesota Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class B:
9.20%) (Class C: 20.34%)
New York Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
14.82%) (Class B: 19.55%)
North Carolina Fund: Frank M. Drendel, 330 17th Avenue NW, Hickory, NC
28601-1817 (Class A: 7.94%); Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual
Fund Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216
(Class B: 6.34%)
Ohio Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund Operations,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A: 7.31%)
(Class B: 5.96%) (Class C: 12.61%)
At April 30, 1998 there were the following number of shareholders of each Fund:
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
California Fund 4,122 1,921 33
Connecticut Fund 1,554 1,660 10
Florida Fund 559 574 2
Massachusetts Fund 3,568 1,619 7
Michigan Fund 1,043 312 5
Minnesota Fund 1,087 584 3
New York Fund 1,099 1,012 3
North Carolina Fund 451 421 2
Ohio Fund 2,010 1,532 3
</TABLE>
Sales Charges (dollars in thousands)
<TABLE>
<CAPTION>
Class A Shares
=========================================================================================================
California Fund
Years ended January 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $178 $245 $270
Initial sales charges retained by LFII 24 32 34
Connecticut Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $220 $252 $279
Initial sales charges retained by LFII 28 31 30
Florida Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $93 $95 $264
Initial sales charges retained by LFII 11 11 35
Massachusetts Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $210 $273 $396
Initial sales charges retained by LFII 26 33 51
Michigan Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $31 $72 $88
Initial sales charges retained by LFII 4 9 10
Minnesota Fund
Years ended January 31
o
<PAGE>
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $42 $69 $75
Initial sales charges retained by LFII 5 9 9
New York Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $111 $152 $199
Initial sales charges retained by LFII 15 17 23
North Carolina Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $33 $63 $71
Initial sales charges retained by LFII 4 9 8
Ohio Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate initial sales charges on Fund share sales $39 $57 $126
Initial sales charges retained by LFII 4 7 15
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
=========================================================================================================
California Fund
Years ended January 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by LFII $223 $317 $362
Connecticut Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $203 $222 $171
Florida Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $102 $160 $121
Massachusetts Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $183 $221 $242
Michigan Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $29 $46 $44
Minnesota Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $63 $50 $30
p
<PAGE>
New York Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $142 $161 $156
North Carolina Fund
Year ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $50 $86 $78
Ohio Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $153 $202 $221
</TABLE>
<TABLE>
<CAPTION>
_____________________________________________Class C Shares_____________________________________________________
California Fund
Years ended January 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFII $1 --- ---
Connecticut Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
Florida Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
Massachusetts Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
Michigan Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
Minnesota Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
New York Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
q
<PAGE>
North Carolina Fund
Year ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
Ohio Fund
Years ended January 31
1998 1997 1996
---- ---- ----
Aggregate CDSC on Fund redemptions retained by LFII $0 --- ---
</TABLE>
12b-1 Plan, CDSCs and Conversion of Shares
The Funds each offer three classes of shares - Class A, Class B and Class C.
Each Fund may in the future offer other classes of shares. The Trustees have
approved a 12b-1 plan (Plan) for each Fund pursuant to Rule 12b-1 under the Act.
Under the Plan, each Fund pays LFII monthly a service fee at an annual rate of
0.10% of each Fund's net assets attributed to the outstanding shares of each
class on November 30, 1994, and a service fee of 0.25% of each Fund's net assets
attributed to each Class of shares issued and outstanding thereafter. The Funds
also pay LFII monthly a distribution fee at an annual rate of 0.75% of each
Fund's average daily net assets attributed to each Fund's Class B and Class C
shares. The Distributor has voluntarily agreed to waive a portion of the Class C
share distribution fee so that it does not exceed 0.45% annually. LFII 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
LFII's expenses, LFII may realize a profit from the fees.
The Plan authorizes any other payments by the Funds to LFII and its affiliates
(including the Adviser) to the extent that such payments might be construed to
be indirect financing of the distribution of each Fund's shares.
The Trustees believe the Plan 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 class of each
Fund's shareholders. The Plan will continue in effect from year to year so long
as continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are not interested persons of the Trust is effected by such
disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after the purchase. Class C
shares are offered at net asset value and are subject to a 1.00% CDSC on
redemptions within one year after purchase. The CDSCs are described in the
Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or
amounts representing capital appreciation. In determining the applicability and
rate of any CDSC, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder for the
longest period of time.
Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.
r
<PAGE>
Sales-related expenses (dollars in thousands) of LFII relating to the Funds for
the fiscal year ended January 31, 1997 were:
<TABLE>
<CAPTION>
California Fund Connecticut Fund
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Fees to FSFs $328 $316 $5 $117 $426 $4
Cost of sales material
(including printing and mailing expenses) 26 21 2 31 36 2
Allocated travel, entertainment and other
promotional expenses (including advertising) 20 20 2 27 35 2
Florida Fund Massachusetts Fund
Class A Class B Class C Class A Class B Class C
Fees to FSFs $49 $176 $0 $259 $287 $1
Cost of sales material
(including printing and mailing expenses) 13 16 0 45 25 6
Allocated travel, entertainment and other
promotional expenses (including advertising) 12 14 0 40 23 8
Michigan Fund Minnesota Fund
Class A Class B Class C Class A Class B Class C
Fees to FSFs $51 $42 $0 $46 $103 (pp)
Cost of sales material
(including printing and mailing expenses) 6 5 0 12 11 (pp)
Allocated travel, entertainment and other
promotional expenses (including advertising) 3 3 0 7 8 (pp)
New York Fund North Carolina Fund
Class A Class B Class C Class A Class B Class C
Fees to FSFs $79 $174 $0 $23 $65 $1
Cost of sales material
(including printing and mailing expenses) 18 14 0 6 7 (pp)
Allocated travel, entertainment and other
promotional expenses (including advertising) 16 12 0 3 4 (pp)
Ohio Fund
Class A Class B Class C
Fees to FSFs $82 $115 (pp)
Cost of sales material including (printing and mailing 5 8 (pp)
expenses)
Allocated travel, entertainment and other promotional
expenses (including advertising) 4 6 (pp)
</TABLE>
(pp) Rounds to less than one.
INVESTMENT PERFORMANCE
The following Funds' Class A, Class B and Class C share yields for the month
ended January 31, 1998 were:
<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------
Yield Tax-Equivalent Yield(qq) Adjusted Yield(rr)
<S> <C> <C> <C>
California Fund 3.89% 7.10% N/A
Connecticut Fund 3.89% 6.74% 3.71%
Florida Fund 3.92% 6.49% 3.76%
Massachusetts Fund 3.84% 7.22% N/A
Michigan Fund 3.96% 6.86% 3.74%
Minnesota Fund 4.17% 7.54% N/A
New York Fund 4.03% 7.48% 3.86%
North Carolina Fund 3.90% 7.00% 3.36%
Ohio Fund 3.90% 6.96% 3.70%
s
<PAGE>
Class B Shares
----------------------------------------------------------------
Yield Tax-Equivalent Yield(qq) Adjusted Yield(rr)
California Fund 3.32% 6.06% N/A
Connecticut Fund 3.32% 5.75% 3.14%
Florida Fund 3.35% 5.55% 3.19%
Massachusetts Fund 3.27% 6.15% N/A
Michigan Fund 3.39% 5.87% 3.17%
Minnesota Fund 3.62% 6.55% N/A
New York Fund 3.47% 6.44% 3.30%
North Carolina Fund 3.34% 6.00% 2.76%
Ohio Fund 3.33% 5.94% 3.12%
Class C Shares
----------------------------------------------------------------
Yield Tax-Equivalent Yield(qq) Adjusted Yield(rr)
California Fund 3.62% 6.61% 3.32%
Connecticut Fund 3.62% 6.27% 3.12%
Florida Fund 3.66% 6.06% 3.19%
Massachusetts Fund 3.57% 6.71% 3.27%
Michigan Fund 3.70% 6.41% 3.17%
Minnesota Fund 3.91% 7.07% 3.66%
New York Fund 3.78% 7.01% 3.30%
North Carolina Fund 3.62% 6.50% 2.72%
Ohio Fund 3.64% 6.49% 3.12%
</TABLE>
(qq) Calculated using the effective maximum combined federal and state tax
rates.
(rr) Without voluntary expense limit.
The following Funds' average annual total returns at January 31, 1998 were:
<TABLE>
<CAPTION>
Class A Shares
-------------------------------------------------------------
California Fund
10 years
1 year 5 years --------
------ -------
<S> <C> <C> <C>
With sales charge of 4.75% 5.78% 5.80% 7.11%
Without sales charge 11.05% 6.83% 7.63%
Connecticut Fund
Since inception
1 year 5 years 11/1/91 to 1/31/98
------ ------- ------------------
With sales charge of 4.75% 4.78% 5.68% 6.56%
Without sales charge 10.00% 6.71% 7.39%
Florida Fund
Since inception
1 year 5 years 2/1/93 to 1/31/98
------ ------- -----------------
With sales charge of 4.75% 5.12% 5.39% 5.39%
Without sales charge 10.37% 6.42% 6.42%
Massachusetts Fund
1 year 5 years 10 Years
------ ------- --------
With sales charge of 4.75% 4.72% 5.88% 7.53%
Without sales charge 9.94% 6.91% 8.06%
Michigan Fund
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 5.55% 6.77%
5.66%
Without sales charge 10.93% 6.59% 7.29%
Minnesota Fund
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 5.77% 5.66% 6.69%
Without sales charge 11.04% 6.70% 7.21%
New York Fund
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 5.41% 5.71% 7.00%
Without sales charge 10.67% 6.75% 7.53%
North Carolina Fund
Since inception
1 year 9/1/93 to 1/31/98
------ -----------------
With sales charge of 4.75% 4.87% 4.24%
Without sales charge 10.10% 5.39%
Ohio Fund
1 year 5 years 10 years
------ ------- --------
With sales charge of 4.75% 5.33% 5.60% 7.19%
Without sales charge 10.58% 6.64% 7.71%
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
-------------------------------------------------------------
California Fund
Since inception
1 year 5 years 8/4/92 to 1/31/98
------ ------- -----------------
<S> <C> <C> <C>
With applicable CDSC 5.72% (2.00% CDSC)
5.23%(5.00% CDSC) 5.71% (1.00% CDSC)
Without CDSC 10.23% 6.04% 5.85%
Connecticut Fund
Since inception
1 year 5 years 6/8/92 to 1/31/98
------ ------- -----------------
With applicable CDSC 5.60% (2.00% CDSC)
4.19% (5.00% CDSC) 6.39% (1.00% CDSC)
Without CDSC 9.19% 5.92% 6.53%
Florida Fund
Since inception
1 year 5 years 2/1/93 to 1/31/98
------ ------- -----------------
With applicable CDSC 5.31% (2.00% CDSC)
4.55% (5.00% CDSC) 5.31% (2.00% CDSC)
Without CDSC 9.55% 5.63% 5.63%
u
<PAGE>
Massachusetts Fund
Since inception
1 year 5 years 6/8/92 to 1/31/98
------ ------- -----------------
With applicable CDSC 5.80% (2.00% CDSC)
4.13% (5.00% CDSC) 6.61% (1.00% CDSC)
Without CDSC 9.13% 6.12% 6.74%
Michigan Fund
Since inception
1 year 5 years 8/4/92 to 1/31/98
------ ------- -----------------
With applicable CDSC 5.47% (2.00% CDSC)
5.11% (5.00% CDSC) 5.66% (1.00% CDSC)
Without CDSC 10.11% 5.79% 5.80%
Minnesota Fund
Since inception
1 year 5 years 8/4/92 to 1/31/98
------ ------- -----------------
With applicable CDSC 5.58% (2.00% CDSC)
5.22% (5.00% CDSC) 5.59% (1.00% CDSC)
Without CDSC 10.22% 5.90% 5.74%
New York Fund
Since inception
1 year 5 years 8/4/92 to 1/31/98
------ ------- -----------------
With applicable CDSC 5.64% (2.00% CDSC)
4.85% (5.00% CDSC) 5.68% (1.00% CDSC)
Without CDSC 9.85% 5.96% 5.82%
North Carolina Fund
Since inception
1 year 9/1/93 to 1/31/98
------ -----------------
With applicable CDSC
4.28% (5.00% CDSC) 4.22%(2.00% CDSC)
Without CDSC 9.28% 4.61%
Ohio Fund
Since inception
1 year 5 years 8/4/92 to 1/31/98
------ ------- -----------------
With applicable CDSC 5.53% (2.00% CDSC)
4.76% (5.00% CDSC) 5.57% (1.00% CDSC)
Without CDSC 9.76% 5.85% 5.71%
</TABLE>
<TABLE>
<CAPTION>
Class C Shares (ss)
California Fund
- ------------------------------------------
<S> <C>
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.93% (1.00% CDSC)
Without CDSC 3.93%
Connecticut Fund
- -------------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.90% (1.00% CDSC)
Without CDSC 3.90%
Florida Fund
- ---------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.35% (1.00% CDSC)
Without CDSC 3.35%
v
<PAGE>
Massachusetts Fund
- ---------------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.40% (1.00% CDSC)
Without CDSC 3.40%
Michigan Fund
- ----------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.92% (1.00% CDSC)
Without CDSC 3.92%
Minnesota Fund
- -----------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.13% (1.00% CDSC)
Without CDSC 3.13%
New York Fund
- ----------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 3.04% (1.00% CDSC)
Without CDSC 4.04%
North Carolina Fund
- ----------------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.69%(1.00% CDSC)
Without CDSC 3.69%
Ohio Fund
- ------------------------------------
Since inception
8/1/97 to 1/31/98
With applicable CDSC 2.81% (1.00% CDSC)
Without CDSC 3.81%
</TABLE>
(ss) Performance results reflect any voluntary waiver or reimbursement by the
Adviser or its affiliates of Class expenses. Absent this waiver or reimbursement
arrangement, performance results would have been lower. See Prospectus for
details.
The following Funds' Class A, Class B and Class C share distribution rates at
January 31, 1998, based on the most recent month's distribution, annualized, and
the maximum offering price at the end of the month were:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- ------- ------- -------
<S> <C> <C> <C>
California Fund 4.73% 3.98% 4.27%
Connecticut Fund 4.90% 4.15% 4.46%
Florida Fund 4.85% 4.11% 4.41%
Massachusetts Fund 4.66% 4.15% 4.44%
Michigan Fund 4.53% 4.00% 4.31%
Minnesota Fund 4.77% 4.02% 4.33%
New York Fund 5.20% 4.46% 4.75%
North Carolina Fund 4.67% 3.93% 4.22%
Ohio Fund 4.37% 3.84% 4.13%
</TABLE>
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
The Chase Manhattan Bank 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 Securities and Exchange Commission filings. The
financial statements incorporated by reference in this SAI have been so
incorporated, and the financial highlights in the Prospectus have
w
<PAGE>
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
in each of the Fund's January 31, 1998 Annual Report are incorporated in this
SAI by reference.
x
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the
Adviser. "fund" or "funds" include each series of Colonial Trust I, Colonial
Trust II, Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial
Trust VI and Colonial Trust VII. In certain cases, the discussion applies to
some but not all of the funds, and you should refer to your Fund's Prospectus
and to Part 1 of this SAI to determine whether the matter is applicable to your
Fund. You will also be referred to Part 1 for certain data applicable to your
Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Adviser will buy or sell
portfolio securities whenever it believes it is appropriate. The Adviser's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Adviser considers a change in the fund's
portfolio.
Lower Rated Debt Securities
Lower rated debt securities are those rated lower than Baa by Moody's, BBB by
S&P, or comparable unrated debt securities. Relative to debt securities of
higher quality,
1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for
lower rated debt securities;
2. the secondary market for lower rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
3. the Adviser's credit analysis of lower rated debt securities may have a
greater impact on the fund's achievement of its investment objective and
4. lower rated debt securities may be less sensitive to interest rate
changes, but are more sensitive to adverse economic developments.
In addition, certain lower rated debt securities may not pay interest in cash on
a current basis.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
1
<PAGE>
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxation" below.
Zero Coupon Securities (Zeros)
The fund may invest in zero coupon securities which are securities issued at a
significant discount from face value and pay interest only at maturity rather
than at intervals during the life of the security and in certificates
representing undivided interests in the interest or principal of mortgage-backed
securities (interest only/principal only), which tend to be more volatile than
other types of securities. The Fund will accrue and distribute income from
stripped securities and certificates on a current basis and may have to sell
securities to generate cash for distributions.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which pay interest at a series of
different rates (including 0%) in accordance with a stated schedule for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities may be subject to additional volatility risk than
fixed rate debt securities.
Tender Option Bonds
A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Adviser will consider on an ongoing basis the creditworthiness of the issuer of
the underlying municipal securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal securities and for other
reasons.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities. These securities are generally high yield securities and
in addition to the other risks associated with investing in high yield
securities, are subject to the risks that the interest payments which consist of
additional securities are also subject to the risks of high yield securities.
Money Market Instruments
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Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory note 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 ("When-Issued" and "Delayed Delivery" Securities)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where such purchases are made
through dealers, the fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the fund of an advantageous
yield or price. Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the Adviser deems it appropriate to do so. The
fund may realize short-term profits or losses upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such security at a fixed time and price
(representing the fund's cost plus interest). It is the fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the fund which are collateralized by the securities subject to
repurchase. The Adviser will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which
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exceeds the duration of the reverse repurchase agreement. The fund may not enter
into reverse repurchase agreements exceeding in the aggregate one-third of the
market value of its total assets, less liabilities other than the obligations
created by reverse repurchase agreements. Each fund will establish and maintain
with its custodian a separate account with a segregated portfolio of securities
in an amount at least equal to its purchase obligations under its reverse
repurchase agreements. If interest rates rise during the term of a reverse
repurchase agreement, entering into the reverse repurchase agreement may have a
negative impact on a money market fund's ability to maintain a net asset value
of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Adviser,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the fund and assets held to cover OTC options written
by the fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the fund
intends to
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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 the Adviser to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Adviser deems it desirable to do so. Although
the fund will take an option position only if the Adviser believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the Securities and
Exchange Commission's requirements, cash or liquid securities, equal in value to
the amount of the fund's obligation under the contract (less any applicable
margin deposits and any assets that constitute "cover" for such obligation),
will be segregated with the fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known
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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 Securities and Exchange
Commission's requirements, cash or liquid securities equal in value to the
commodity value (less any applicable margin deposits) have been deposited in a
segregated account of the fund's custodian. The fund may purchase and write call
and put options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. The
fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the Adviser`s ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop
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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 interest rate and U.S. Treasury security futures
contracts and options. The funds investing in tax-exempt securities issued by a
governmental entity may purchase and sell futures contracts and related options
on interest rate and U.S. Treasury securities when, in the opinion of the
Adviser, price movements in these security futures and related options will
correlate closely with price movements in the tax-exempt securities which are
the subject of the hedge. Interest rate and U.S. Treasury securities futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of security called for in the contract at a specified date and price.
Options on interest rate and U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
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 interest rate and U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Adviser will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of index futures by the fund for hedging purposes is also subject
to the Adviser's ability to predict correctly movements in the direction of the
market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Adviser believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
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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. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
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applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Adviser believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
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<PAGE>
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.
Municipal Lease Obligations
Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
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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.
Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined by the Adviser that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax adviser for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.
Alternative Minimum Tax. Distributions derived from interest which is exempt
from regular federal income tax may subject corporate shareholders to or
increase their liability under the corporate alternative minimum tax (AMT). A
portion of such distributions may constitute a tax preference item for
individual shareholders and may subject them to or increase their liability
under the AMT.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT. The dividends received
deduction for eligible dividends is subject to a holding period requirement
modified pursuant to the Taxpayer Relief Act of 1997 (the "1997 Act").
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisers about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Fund Distributions. Distributions from the fund (other than exempt-interest
dividends, as discussed below) will be taxable to shareholders as ordinary
income to the extent derived from the fund's investment income and net
short-term gains. Pursuant to the 1997 Act, two different tax rates apply to net
capital gains (that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year). One rate (generally 28%) generally applies to net gains on capital
assets held for more than one year but not more than 18 months (28% rate gains)
and a second, preferred rate (generally 20%) applies to the balance of such net
capital gains (adjusted net capital gains). Distributions of net capital gains
will be treated in the hands of shareholders as 28% rate gains to the extent
designated by the fund as deriving from net gains from assets held for more than
one year but not more than 18 months, and the balance will be designated as
adjusted net capital gains. Distributions of 28% rate gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held the shares in the fund. Distributions will be taxed as
described above whether received in cash or in fund shares.
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Distributions from Tax-Exempt Funds. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
Federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term capital gains will in
general be taxable to shareholders as long-term capital gains regardless of the
length of time fund shares are held. Pursuant to the Taxpayer Relief Act of
1997, long-term capital gains are subject to a maximum tax rate of either 28% or
20% depending on the fund's holding period in the portfolio assets generating
the gains.
A tax-exempt fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the fund's ordinary income which
will be taxable when distributed. Any market discount recognized on a tax-exempt
bond purchased after April 30, 1993 with a term at time of issue of one year or
more is taxable as ordinary income. A market discount bond is a bond acquired in
the secondary market at a price below its "stated redemption price" (in the case
of a bond with original issue discount, its"revised issue price").
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. The sale, exchange or redemption of fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares will be treated as 28% rate gain if the shares have been held for more
than 12 months but not more than 18 months, and as adjusted net capital gains if
the shares have been held for more than 18 months. Otherwise the gain on the
sale, exchange or redemption of fund shares will be treated as short-term
capital gain. In general, any loss realized upon a taxable disposition of shares
will be treated as long-term loss if the shares have been held more than 12
months, and otherwise as short-term loss.. 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.
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Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, CISC may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Adviser intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. Government securities).
Hedging Transactions. If the fund engages in hedging transactions, including
hedging transactions in options, futures contracts, and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's securities, or
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders. The fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best interests of the
fund.
Securities Issued at a Discount. The fund's investment in securities issued at a
discount and certain other obligations will (and investments in securities
purchased at a discount may) require the fund to accrue and distribute income
not yet received. In such cases, the fund may be required to sell assets
(including when it is not advantageous to do so) to generate the cash necessary
to distribute as dividends to its shareholders all of its income and gains and
therefore to eliminate any tax liability at the fund level.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the fund may make
an election permitting its shareholders to take a deduction or credit for
federal tax purposes for their portion of certain qualified foreign taxes paid
by the fund. The Adviser will consider the value of the benefit to a typical
shareholder, the cost to the fund of compliance with the election, and
incidental costs to shareholders in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit will be subject to
certain limitations imposed by the Code (including a holding period requirement
imposed pursuant to the 1997 Act), as a result of which a shareholder may not
get a full credit for the amount of foreign taxes so paid by the fund.
Shareholders who do not itemize on their federal income tax returns may claim a
credit (but no deduction) for such foreign taxes.
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Investment by the fund in certain "passive foreign investment companies" could
subject the fund to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to fund shareholders. However, the fund may be able to elect to
treat a passive foreign investment company as a "qualified electing fund," in
which case the fund will be required to include its share of the company's
income and net capital gain annually, regardless of whether it receives any
distribution from the company. Alternatively, the fund may make an election to
mark the gains (and to a limited extent losses) in such holdings "to the market"
as though it had sold and repurchased its holdings in those passive foreign
investment companies on the last day of the fund's taxable year. Such gains and
losses are treated as ordinary income and loss. The qualified electing fund and
mark-to-market elections may have the effect of accelerating the recognition of
income (without the receipt of cash) and increase the amount required to be
distributed for the fund to avoid taxation. Making either of these elections
therefore may require a fund to liquidate other investments (including when it
is not advantageous to do so) to meet its distribution requirement, which also
may accelerate the recognition of gain and affect a fund's total return.
MANAGEMENT OF THE FUNDS (in this section, and the following sections entitled
"Trustees and Officers," "The Management Agreement," "Administration Agreement,"
"The Pricing and Bookkeeping Agreement," "Portfolio Transactions," "Investment
decisions," and "Brokerage and research services," the "Adviser" refers to
Colonial Management Associates, Inc.) The Adviser is the investment adviser to
each of the funds (except for Colonial Money Market Fund, Colonial Municipal
Money Market Fund, Colonial Global Utilities Fund, Newport Tiger Fund, Colonial
Newport Tiger Cub Fund, Newport Japan Opportunities Fund and Newport Greater
China Fund - see Part I of each Fund's respective SAI for a description of the
investment adviser). The Adviser is a subsidiary of The Colonial Group, Inc.
(TCG), One Financial Center, Boston, MA 02111. TCG is a direct majority-owned
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial), which in
turn is a direct subsidiary of majority-owned LFC Holdings, Inc., which in turn
is a direct subsidiary of Liberty Mutual Equity Corporation, which in turn is a
wholly-owned subsidiary of Liberty Mutual Insurance Company (Liberty Mutual).
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S. Liberty Financial's address is 600
Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley
Street, Boston, MA 02117.
Trustees and Officers (this section applies to all of the funds)
<TABLE>
<CAPTION>
Name and Address Age Position with Fund Principal Occupation During Past Five Years
- ---------------- --- ------------------ --------------------------------------------
<S> <C> <C> <C>
Robert J. Birnbaum 70 Trustee Consultant(formerly Special Counsel, Dechert Price &
313 Bedford Road Rhoads from September, 1988 to December, 1993, President,
Ridgewood, NJ 07450 New York Stock Exchange from May, 1985 to June, 1988,
President, American Stock Exchange, Inc. from 1977 to
May, 1985).
Tom Bleasdale 67 Trustee Retired (formerly Chairman of the Board and Chief
11 Cariage Way Executive Officer, Shore Bank & Trust Company from
Danvers, MA 01923 1992-1993), is a Director of The Empire Company since
June, 1995.
Lora S. Collins 62 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road Frankel from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 68 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
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<PAGE>
Richard W. Lowry 61 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
William E. Mayer* 57 Trustee Partner, Development Capital, LLC (formerly Dean, College
500 Park Avenue, 5th Floor of Business and Management, University of Maryland from
New York, NY 10022 October, 1992 to November, 1996, Dean, Simon Graduate
School of Business, University of Rochester from October,
1991 to July, 1992).
James L. Moody, Jr. 66 Trustee Retired (formerly Chairman of the Board, Hannaford Bros.
16 Running Tide Road Co. from May, 1984 to May, 1997, and Chief Executive
Cape Elizabeth, ME 04107 Officer, Hannaford Bros. Co. from May, 1973 to May, 1992).
John J. Neuhauser 54 Trustee Dean, Boston College School of Management since
140 Commonwealth Avenue September, 1977.
Chestnut Hill, MA 02167
Robert L. Sullivan 70 Trustee Retired Partner, KPMG Peat Marwick LLP
7121 Natelli Woods Lane
Bethesda, MD 20817
Harold W. Cogger 62 President President of funds since March, 1996 (formerly Vice
President from July, 1993 to March, 1996); is Director,
since March, 1984 and Chairman of the Board since
March, 1996 of the Adviser (formerly President from
July, 1993 to December, 1996, Chief Executive Officer
from March, 1995 to December, 1996 and Executive Vice
President from October, 1989 to July, 1993); Director
since October, 1991 and Chairman of the Board since
March, 1996 of TCG (formerly President from October,
1994 to December, 1996 and Chief Executive Officer from
March, 1995 to December, 1996); Executive Vice
President and Director since March, 1995, Liberty
Financial; Director since November, 1996 of Stein Roe &
Farnham Incorporated.
J. Kevin Connaughton 33 Controller and Controller and Chief Accounting Officer of funds since
Chief Accounting February, 1998, is Vice President of the Adviser since
Officer February, 1998 (formerly Senior Tax Manager, Coopers &
Lybrand, LLP from April, 1996 to January, 1998; Vice
President, 440 Financial Group/First Data Investor Services
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Group from March ,1994 to April, 1996; Vice President, The Boston
Company (subsidiary of Mellon Bank) from December, 1993 to March,
1994; Assistant Vice President and Tax Manager, Mellon Bank from
March, 1992 to December, 1993).
Timothy J. Jacoby 45 Treasurer and Treasurer and Chief Financial Officer of funds since
Chief Financial October, 1996 (formerly Controller and Chief Accounting
Officer Officer from October, 1997 to February, 1998), is
Senior Vice President of the Adviser since September, 1996
(formerly Senior Vice President, Fidelity Accounting and Custody
Services from September, 1993 to September, 1996 and Assistant
Treasurer to the Fidelity Group of Funds from August, 1990 to
September, 1993).
Nancy L. Conlin 44 Secretary Secretary of the funds since April, 1998 (formerly
Assistant Secretary from July, 1994 to April, 1998), is
Director, Senior Vice President, General Counsel, Clerk
and Secretary of the Adviser since April, 1998
(formerly Vice President, Counsel, Assistant Secretary
and Assistant Clerk from July, 1994 to April, 1998),
Vice President - Legal, General Counsel and Clerk of
TCG since April, 1998 (formerly Assistant Clerk from
July, 1994 to April, 1998)
Davey S. Scoon 51 Vice President Vice President of the funds since June, 1993, is
Executive Vice President since July, 1993 and Director
since March, 1985 of the Adviser (formerly Senior Vice
President and Treasurer of the Adviser from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer, TCG since March, 1995 (formerly Vice
President - Finance and Administration of TCG from
November, 1985 to March, 1995).
</TABLE>
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* A Trustee who is an "interested person" (as defined in the Investment
Company Act of 1940) of the fund or the Adviser.
The business address of the officers of each Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all funds for which each Trustee will receive
an annual retainer of $45,000 and attendance fees of $8,000 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 funds based on each fund's relative net
assets and one-third of the fees are divided equally among the funds.
The Adviser and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Adviser currently serves as investment adviser and
administrator for 39 open-end and 5 closed-end management investment company
portfolios, and is the administrator for 5 open-end management investment
company portfolios. Trustees and officers of the Trust, who are also officers of
the Adviser or its affiliates, will benefit from the advisory fees, sales
commissions and agency fees paid or allowed by the Trust. More than 30,000
financial advisers have recommended the funds to over 800,000 clients worldwide,
representing more than $16.3 billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement (this section does not apply to Colonial Money Market
Fund, Colonial Municipal Money Market Fund, Colonial Global Utilities Fund,
Newport Tiger Fund, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub
Fund or Newport Greater China Fund)
Under a Management Agreement (Agreement), the Adviser has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each fund pays a monthly fee based on the average of the daily closing value of
the total net assets of each fund for such month. Under the Agreement, any
liability of the Adviser to the Trust, a fund and/or its shareholders is limited
to situations involving the Adviser's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
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The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Adviser or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Adviser pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Adviser including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders. LFII pays the cost of printing and distributing all other
Prospectuses.
Administration Agreement (this section applies only to Colonial Money Market
Fund, Colonial Municipal Money Market Fund, Colonial Global Utilities Fund,
Newport Tiger Fund, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub
Fund and Newport Greater China Fund and their respective Trusts).
Under an Administration Agreement with each Fund named above, the Adviser, in
its capacity as the Administrator to each Fund, has contracted to perform the
following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
Directors, officers and employees to serve as Trustees,
officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents
required for compliance by each Fund with applicable laws
and regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees
and shareholders;
(e) coordinating and overseeing the activities of each Fund's
other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Colonial Money Market Fund and Colonial Municipal Money Market
Fund, the Administration Agreement for these funds provides for the following
services in addition to the services referenced above:
(g) monitoring compliance by the Fund with Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act") and
reporting to the Trustees from time to time with respect
thereto; and
(h) monitoring the investments and operations of the following
Portfolios: SR&F Municipal Money Market Portfolio
(Municipal Money Market Portfolio) in which Colonial
Municipal Money Market Fund is invested; SR&F Cash
Reserves Portfolio in which Colonial Money Market Fund is
invested;
and the LFC Utilities Trust (LFC Portfolio) in which
Colonial Global Utilities Fund is invested and reporting
to the Trustees from time to time with respect thereto.
The Adviser is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this Statement of Additional Information.
The Pricing and Bookkeeping Agreement
The Adviser provides pricing and bookkeeping services to each fund pursuant to a
Pricing and Bookkeeping Agreement. The Adviser, in its capacity as the
Administrator to each of Colonial Money Market Fund, Colonial Municipal Money
Market Fund and Colonial Global Utilities Fund, is paid an annual fee of
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$18,000, plus 0.0233% of average daily net assets in excess of $50 million. For
each of the other funds (except for Newport Tiger Fund, Newport Japan
Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport Greater China
Fund), the Adviser is paid monthly a fee of $2,250 by each fund, plus a monthly
percentage fee based on net assets of the fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion; 1/12
of 0.015% of the next $1 billion; and 1/12
of 0.001% on the excess over $3 billion
The Adviser provides pricing and bookkeeping services to Newport Tiger Fund,
Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport
Greater China Fund for an annual fee of $27,000, plus 0.035% of each Fund's
average daily net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment adviser of each of the
Municipal Money Market Portfolio and LFC Portfolio, provides pricing and
bookkeeping services to each Portfolio for a fee of $25,000 plus 0.0025%
annually of average daily net assets of each Portfolio over $50 million.
Portfolio Transactions
The following sections entitled "Investment decisions" and "Brokerage and
research services" do not apply to Colonial Money Market Fund, Colonial
Municipal Money Market Fund, and Colonial Global Utilities Fund. For each of
these funds, see Part 1 of its respective SAI. The Adviser of Newport Tiger
Fund, Newport Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and
Newport Greater China Fund follows the same procedures as those set forth under
"Brokerage and research services."
Investment decisions. The Adviser acts as investment adviser to each of the
funds (except for the Colonial Money Market Fund, Colonial Municipal Money
Market Fund, Colonial Global Utilities Fund, Newport Tiger Fund, Newport Japan
Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport Greater China
Fund, each of which is administered by the Adviser. The Adviser's affiliate,
CASI, advises other institutional, corporate, fiduciary and individual clients
for which CASI performs various services. Various officers and Trustees of the
Trust also serve as officers or Trustees of other funds and the other corporate
or fiduciary clients of the Adviser. The funds and clients advised by the
Adviser or the funds administered by the Adviser sometimes invest in securities
in which the Fund also invests and sometimes engage in covered option writing
programs and enter into transactions utilizing stock index options and stock
index and financial futures and related options ("other instruments"). If the
Fund, such other funds and such other clients desire to buy or sell the same
portfolio securities, options or other instruments at about the same time, the
purchases and sales are normally made as nearly as practicable on a pro rata
basis in proportion to the amounts desired to be purchased or sold by each.
Although in some cases these practices could have a detrimental effect on the
price or volume of the securities, options or other instruments as far as the
Fund is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the Trustees that the
desirability of retaining the Adviser as investment adviser to the funds
outweighs the disadvantages, if any, which might result from these practices.
The portfolio managers of Colonial International Fund for Growth, a series of
Colonial Trust III, will use the trading facilities of Stein Roe & Farnham
Incorporated, an affiliate of the Adviser, to place all orders for the purchase
and sale of this fund's portfolio securities, futures contracts and foreign
currencies.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the funds as a factor in
the selection of broker-dealers to execute securities transactions for a fund.
The Adviser places the transactions of the funds with broker-dealers selected by
the Adviser and, if applicable, negotiates commissions. Broker-dealers may
receive brokerage commissions on portfolio transactions, including the purchase
and writing of options, the effecting of closing purchase and sale transactions,
and the purchase and sale of underlying securities upon the exercise of options
and the purchase or sale of other instruments. The funds from time to time also
execute portfolio transactions with such broker-dealers acting as principals.
The funds do not intend to deal exclusively with any particular broker-dealer or
group of broker-dealers.
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It is the Adviser's policy generally to seek best execution, which is to place
the funds' transactions where the funds can obtain the most favorable
combination of price and execution services in particular transactions or
provided on a continuing basis by a broker-dealer, and to deal directly with a
principal market maker in connection with over-the-counter transactions, except
when it is believed that best execution is obtainable elsewhere. In evaluating
the execution services of, including the overall reasonableness of brokerage
commissions paid to, a broker-dealer, consideration is given to, among other
things, the firm's general execution and operational capabilities, and to its
reliability, integrity and financial condition.
Securities transactions of the funds may be executed by broker-dealers who also
provide research services (as defined below) to the Adviser and the funds. The
Adviser may use all, some or none of such research services in providing
investment advisory services to each of its investment company and other
clients, including the fund. To the extent that such services are used by the
Adviser, they tend to reduce the Adviser's expenses. In the Adviser's opinion,
it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Adviser to cause the funds to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction, including the sale
of an option or a closing purchase transaction, for the funds in excess of the
amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends and portfolio strategy and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The Adviser must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Adviser's
overall responsibilities to the funds and all its other clients.
The Trustees have authorized the Adviser to utilize the services of a clearing
agent with respect to all call options written by funds that write options and
to pay such clearing agent commissions of a fixed amount per share (currently
1.25 cents) on the sale of the underlying security upon the exercise of an
option written by a fund.
The Adviser may use the services of AlphaTrade Inc. (ATI), its registered
broker-dealer subsidiary, when buying or selling equity securities for a Fund's
portfolio, pursuant to procedures adopted by the Trustees and Investment Company
Act Rule 17e-1. Under the Rule, the Adviser must ensure that commissions a Fund
pays ATI on portfolio transactions are reasonable and fair compared to
commissions received by other broker-dealers in connection with comparable
transactions involving similar securities being bought or sold at about the same
time. The Adviser will report quarterly to the Trustees on all securities
transactions placed through ATI so that the Trustees may consider whether such
trades complied with these procedures and the Rule. ATI employs electronic
trading methods by which it seeks to obtain best price and execution for the
Fund, and will use a clearing broker to settle trades.
Principal Underwriter
LFII is the principal underwriter of the Trust's shares. LFII has no obligation
to buy the funds' shares, and purchases the funds' shares only upon receipt of
orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
CISC is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to CISC is based on the average daily net assets of each
fund plus reimbursement for certain out-of-pocket expenses. See "Fund Charges
and Expenses" in Part 1 of this SAI for information on fees received by CISC.
The agreement continues indefinitely but may be terminated by 90 days' notice by
the Fund to CISC or generally by 6 months' notice by CISC to the Fund. The
agreement limits the liability of CISC to the Fund for loss or damage incurred
by the Fund to situations involving a failure of CISC to use reasonable care or
to act in good faith in performing its duties under the agreement. It also
provides that the Fund will indemnify CISC against, among other things, loss or
damage incurred by CISC on account of any claim, demand, action or suit made on
or against CISC not resulting from CISC's bad faith or negligence and arising
out of, or in connection with, its duties under the agreement.
DETERMINATION OF NET ASSET VALUE
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Each fund determines net asset value (NAV) per share for each Class as of the
close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern
time, 3:00 p.m. Central time) each day the Exchange is open. Currently, the
Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
the Fourth of July, Labor Day, Thanksgiving and Christmas. Funds with portfolio
securities which are primarily listed on foreign exchanges may experience
trading and changes in NAV on days on which such Fund does not determine NAV due
to differences in closing policies among exchanges. This may significantly
affect the NAV of the Fund's redeemable securities on days when an investor
cannot redeem such securities. The net asset value of the Municipal Money Market
Portfolio will not be determined on days when the Exchange is closed unless, in
the judgment of the Municipal Money Market Portfolio's Board of Trustees, the
net asset value of the Municipal Money Market Portfolio should be determined on
any such day, in which case the determination will be made at 3:00 p.m., Chicago
time. Debt securities generally are valued by a pricing service which determines
valuations based upon market transactions for normal, institutional-size trading
units of similar securities. However, in circumstances where such prices are not
available or where the Adviser deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on NASDAQ are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are valued at
the last quoted bid price. Options are valued at the last sale price or in the
absence of a sale, the mean between the last quoted bid and offering prices.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost pursuant to procedures adopted by the Trustees. The values of
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the exchange rate for that day. Portfolio positions for which there are no
such valuations and other assets are valued at fair value as determined by the
Adviser in good faith under the direction of the Trust's Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
(The following two paragraphs are applicable only to Newport Tiger Fund, Newport
Japan Opportunities Fund, Colonial Newport Tiger Cub Fund and Newport Greater
China Fund - "Adviser" in these two paragraphs refers to each fund's Adviser,
Newport Fund Management, Inc.)
Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the Fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the Fund's NAV is calculated) will not be reflected in the
Fund's calculation of NAV unless the Adviser, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the Fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
Fund's shares into U.S. dollars at prevailing market rates.
Amortized Cost for Money Market Funds (this section currently does not apply to
Colonial Money Market funds, - see "Amortized Cost for Money Market Funds" under
"Other Information Concerning the Portfolio" in Part 1 of the SAI of Colonial
Money Market Fund and Colonial Municipal Money Market Fund for information
relating to the Municipal Money Market Portfolio)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting to the market value method (in which
case the NAV per share
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may differ from $1.00). All investments will be determined pursuant to
procedures approved by the Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Money Market Fund for a specimen price sheet showing the computation of
maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to CISC,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFII's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFII retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFII generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFII for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
CISC acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to CISC, provided the new FSF has a sales agreement
with LFII.
Shares credited to an account are transferable upon written instructions in good
order to CISC and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, T or Z
shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
CISC for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most funds advised
by Colonial, Newport Fund Management, Inc. and Stein Roe & Farnham Incorporated
may be purchased through the Fundamatic Program. Preauthorized monthly bank
drafts or electronic funds transfer for a fixed amount of at least $50 are used
to purchase a fund's shares at the public offering price next determined after
LFII receives the proceeds from the draft (normally the 5th or the 20th of each
month, or the next business day thereafter). If your Fundamatic purchase is by
electronic funds transfer, you may request the Fundamatic purchase for any day.
Further information and application forms are available from FSFs or from LFII.
Automated Dollar Cost Averaging (Classes A, B and C). The Automated Dollar Cost
Averaging program allows you to exchange $100 or more on a monthly basis from
anymutual fund advised by Colonial, Newport Fund Management, Inc. and Stein Roe
& Farnham Incorporated in which you have a current balance of at least $5,000
into the same class of shares of up to four other funds. Complete the Automated
Dollar Cost Averaging section of the Application. The designated amount will be
exchanged on the third Tuesday of each month. There is no charge for exchanges
made pursuant to the Automated Dollar Cost Averaging program. Exchanges will
continue so long as your fund balance is sufficient to complete the transfers.
Your normal rights and privileges as a shareholder remain in full force and
effect. Thus you can buy any fund, exchange between the same Class of
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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 capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment adviser to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
LFII offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges . These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. LFII offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. BankBoston, N.A. is the
Trustee of LFII prototype plans and charges a $10 annual fee. Detailed
information concerning these Retirement Plans and copies of the Retirement Plans
are available from LFII.
Participants in non-LFII prototype Retirement Plans (other than IRAs) also are
charged a $10 annual fee unless the plan maintains an omnibus account with CISC.
Participants in LFII prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to CISC. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFII IRA Rollover account
in any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax adviser regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling CISC, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Cash Connection. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another fund. An ADD account must be in the same name as the shareholder's
existing open account with the particular fund. Call CISC for more information
at 1-800-422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Newport Tiger Fund
who already own Class T shares). Reduced sales charges on Class A and T shares
can be effected by combining a current purchase with prior purchases of Class A,
B, C, T and Z shares of the funds advised by Colonial Management Associates,
Inc., Newport Fund Management, Inc. and Stein Roe & Farnham Incorporated.
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 funds' Class A shares held by the
shareholder (except shares of any money market fund, unless such
shares were acquired by exchange from Class A shares of another fund
other than a money market fund and Class B, C, T and Z shares).
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LFII must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by CISC. A fund may terminate or
amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in funds (except shares of
any money market fund, unless such shares were acquired by exchange from Class A
shares of another non-money market fund). The value is determined at the public
offering price on the date of the Statement. Purchases made through reinvestment
of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CISC will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFII the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFII an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, CISC will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from CISC at 1-800-345-6611.
Colonial Asset Builder Investment Program (this section currently applies only
to the Class A shares of Colonial Select Value Fund and The Colonial Fund, each
a series of Colonial Trust III). A reduced sales charge applies to a purchase of
certain funds' Class A shares under a Statement of Intent for the Colonial Asset
Builder Investment Program. The Program offer may be withdrawn at any time
without notice. A completed Program may serve as the initial investment for a
new Program, subject to the maximum of $4,000 in initial investments per
investor. Shareholders in this program are subject to a 5% sales charge. CISC
will escrow shares to secure payment of the additional sales charge on amounts
invested if the Program is not completed. Escrowed shares are credited with
distributions and will be released when the Program has ended. Shareholders are
subject to a 1% fee on the amount invested if they do not complete the Program.
Prior to completion of the Program, only scheduled Program investments may be
made in a fund in which an investor has a Program account. The following
services are not available to Program accounts until a Program has ended:
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
Statement of Intent
*Exchanges may be made to other funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. LFII may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
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Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.
Reinstatement Privilege. An investor who has redeemed Class A, B, C or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any fund at the NAV next determined
after CISC receives a written reinstatement request and payment. Any CDSC paid
at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or CISC. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax adviser.
Privileges of Colonial Employees or Financial Service Firms (in this section,
the "Adviser" refers to Colonial Management Associates, Inc. in its capacity as
the Adviser or Administrator to certain Funds). Class A shares of certain funds
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of funds advised or administered by the Adviser; directors,
officers and employees of the Adviser, LFII and other companies affiliated with
the Adviser; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with LFII; and such persons' families and their beneficial accounts.
Sponsored Arrangements. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Newport Tiger Fund who already own Class T
shares) of certain funds may be purchased at reduced or no sales charge pursuant
to sponsored arrangements, which include programs under which an organization
makes recommendations to, or permits group solicitation of, its employees,
members or participants in connection with the purchase of shares of the fund on
an individual basis. The amount of the sales charge reduction will reflect the
anticipated reduction in sales expense associated with sponsored arrangements.
The reduction in sales expense, and therefore the reduction in sales charge,
will vary depending on factors such as the size and stability of the
organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The funds reserve the right to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Newport Tiger Fund who already own Class T shares) of certain
funds may also be purchased at reduced or no sales charge by clients of dealers,
brokers or registered investment advisers that have entered into agreements with
LFII pursuant to which the funds are included as investment options in programs
involving fee-based compensation arrangements, and by participants in certain
retirement plans.
Waiver of Contingent Deferred Sales Charges (CDSCs) (in this section, the
"Adviser" refers to Colonial Management Associates, Inc. in its capacity as the
Adviser or Administrator to certain Funds) (Classes A, B and C) CDSCs may be
waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions within one year following
the death of (i) the sole shareholder on an individual account,
(ii) a joint tenant where the surviving joint tenant is the
deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to
Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other
custodial account. If, upon the occurrence of one of the foregoing,
the account is transferred to an account registered in the name of
the deceased's estate, the CDSC will be waived on any redemption
from the estate account occurring within one year after the death.
If the Class B shares are not redeemed within one year of the
death, they will remain subject to the applicable CDSC, when
redeemed from the transferee's account. If the account is
transferred to a new registration and then a redemption is
requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on
redemptions occurring pursuant to a monthly, quarterly or
semi-annual SWP established with CISC, to the extent the
redemptions do not exceed, on an annual basis, 12% of the account's
value, so long as at the time of the first SWP redemption the
account had had distributions reinvested for a period at least
equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three
month period prior to the first SWP redemption); otherwise CDSCs
will be charged on SWP redemptions until this requirement is met;
this requirement does not apply if the SWP is set up at the time
the account is established, and distributions are being reinvested.
See below under "Investor Services - Systematic Withdrawal Plan."
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3. Disability. CDSCs may be waived on redemptions occurring within one
year after the sole shareholder on an individual account or a joint
tenant on a spousal joint tenant account becomes disabled (as
defined in Section 72(m)(7) of the Internal Revenue Code). To be
eligible for such waiver, (i) the disability must arise after the
purchase of shares and (ii) the disabled shareholder must have been
under age 65 at the time of the initial determination of
disability. If the account is transferred to a new registration and
then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring
upon dissolution of a revocable living or grantor trust following
the death of the sole trustee where (i) the grantor of the trust is
the sole trustee and the sole life beneficiary, (ii) death occurs
following the purchase and (iii) the trust document provides for
dissolution of the trust upon the trustee's death. If the account
is transferred to a new registration (including that of a successor
trustee), the applicable CDSC will be charged upon any subsequent
redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return
the applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions
required to make distributions from qualified retirement plans
following normal retirement (as stated in the Plan document). CDSCs
also will be waived on SWP redemptions made to make required
minimum distributions from qualified retirement plans that have
invested in funds distributed by LFII for at least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will delay
sending proceeds for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to CISC, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, CISC and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call CISC for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to CISC and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any fund designated by the
shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election, of the shareholder's investment. Withdrawals from Class B
and Class C shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class C
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn in excess of 12% annually. If a shareholder wishes to
participate in a SWP, the shareholder must elect to have all of the
shareholder's income dividends and other fund distributions payable in shares of
the fund rather than in cash.
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A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, CISC will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All fund shareholders and/or their FSFs (except for
Colonial Newport Tiger Cub Fund, Newport Japan Opportunities Fund and Newport
Greater China Fund) are automatically eligible to redeem up to $50,000 of the
fund's shares by calling 1-800-422-3737 toll-free any business day between 9:00
a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time).
Transactions received after 4:00 p.m. Eastern time will receive the next
business day's closing price. Telephone redemption privileges for larger amounts
and for Colonial Newport Tiger Cub Fund, Newport Japan Opportunities Fund and
Newport Greater China Fund may be elected on the Application. CISC will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address and account number. FSFs will also be
required to provide their broker number. All telephone transactions are
recorded. A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to
execute the telephone authorization form or to use the telephone to execute
transactions.
Checkwriting (in this section, the "Adviser" refers to Colonial Management
Associates, Inc. in its capacity as the Adviser or Administrator of certain
Funds) (Available only on the Class A shares of certain funds) Shares may be
redeemed by check if a shareholder has previously completed an Application and
Signature Card. CISC will provide checks to be drawn on BankBoston (the "Bank").
These checks may be made payable to the order of any person in the amount of not
less than $500 nor more than $100,000. The shareholder will continue to earn
dividends on shares until a check is presented to the Bank for payment. At such
time a sufficient number of full and fractional shares will be redeemed at the
next determined net asset value to cover the amount of the check. Certificate
shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a fund's net asset
value, a fund may make the payment or a portion of the payment with portfolio
securities held by that fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
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DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Money Market Fund and Colonial
Municipal Money Market Fund will be earned starting with the day after that fund
receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered funds (with certain exceptions) on the basis of the NAVs
per share at the time of exchange. Class T and Z shares may be exchanged for
Class A shares of the other funds. The prospectus of each fund describes its
investment objective and policies, and shareholders should obtain a prospectus
and consider these objectives and policies carefully before requesting an
exchange. Shares of certain funds are not available to residents of all states.
Consult CISC before requesting an exchange.
By calling CISC, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting CISC by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. CISC
will also make exchanges upon receipt of a written exchange request and, share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, CISC will require customary additional documentation.
Prospectuses of the other funds are available from the LFII Literature
Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or CISC. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the fund.
An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A fund may not suspend shareholders' right of redemption or postpone payment for
more than seven days unless the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is restricted or during any emergency which makes
it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the fund or the
Trust's Trustees. The Declaration provides for indemnification out of fund
property for all loss and expense of any shareholder held personally liable for
the
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obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus of
each fund, the fund will not hold annual shareholders' meetings. The Trustees
may fill any vacancies in the Board of Trustees except that the Trustees may not
fill a vacancy if, immediately after filling such vacancy, less than two-thirds
of the Trustees then in office would have been elected to such office by the
shareholders. In addition, at such times as less than a majority of the Trustees
then in office have been elected to such office by the shareholders, the
Trustees must call a meeting of shareholders. Trustees may be removed from
office by a written consent signed by a majority of the outstanding shares of
the Trust or by a vote of the holders of a majority of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon written
request of the holders of not less than 10% of the outstanding shares of the
Trust. Upon written request by the holders of 1% of the outstanding shares of
the Trust stating that such shareholders of the Trust, for the purpose of
obtaining the signatures necessary to demand a shareholders' meeting to consider
removal of a Trustee, request information regarding the Trust's shareholders,
the Trust will provide appropriate materials (at the expense of the requesting
shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the
Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non-money market. The yield for each class of shares of a fund is determined by
(i) calculating the income (as defined by the SEC for purposes of advertising
yield) during the base period and subtracting actual expenses for the period
(net of any reimbursements), and (ii) dividing the result by the product of the
average daily number of shares of the fund that were entitled to dividends
during the period and the maximum offering price of the fund on the last day of
the period, (iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares of a fund is
calculated by annualizing the most current period's distributions and dividing
by the maximum offering price on the last day of the period. Generally, the
fund's distribution rate reflects total amounts actually paid to shareholders,
while yield reflects the current earning power of the fund's portfolio
securities (net of the fund's expenses). The fund's yield for any period may be
more or less than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as are listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Adviser to be reputable, and publications in
the press pertaining to a fund's performance or to the Adviser or its
affiliates, including comparisons with competitors
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and matters of national and global economic and financial interest. Examples
include Forbes, Business Week, Money Magazine, The Wall Street Journal, The New
York Times, The Boston Globe, Barron's National Business & Financial Weekly,
Financial Planning, Changing Times, Reuters Information Services, Wiesenberger
Mutual Funds Investment Report, Lipper Analytical Services Corporation,
Morningstar, Inc., Sylvia Porter's Personal Finance Magazine, Money Market
Directory, SEI Funds Evaluation Services, FTA World Index and Disclosure
Incorporated.
All data are based on past performance and do not predict future results.
General. From time to time, the Fund may discuss, or quote its current portfolio
manager as well as other investment personnel, including such persons' views on:
the economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund, including the New
ValueTM investment strategy that expands upon the principles of traditional
value investing; the Fund's portfolio holdings; the investment research and
analysis process; the formulation and evaluation of investment recommendations;
and the assessment and evaluation of credit, interest rate, market and economic
risks and similar or related matters.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts, and use charts and graphs to illustrate the past performance of
various indices such as those mentioned in Appendix II and illustrations using
hypothetical rates of return to illustrate the effects of compounding and
tax-deferral. The Fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar costs averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low.
From time to time, the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; general investment techniques (e.g.,
asset allocation and disciplined saving and investing); business succession;
issues with respect to insurance (e.g., disability and life insurance and
Medicare supplemental insurance); issues regarding financial and health care
management for elderly family members; and similar or related matters.
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APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
31
<PAGE>
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
32
<PAGE>
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience,
33
<PAGE>
(c) rentals which begin when facilities are completed, or (d) payments to which
some other limiting conditions attach. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICES
Investment Grade Bond Ratings
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in the
`AAA' and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse
34
<PAGE>
impact on these securities and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher than
for securities with higher ratings.
Conditional
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
Speculative-Grade Bond Ratings
BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, and D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.
DUFF & PHELPS CREDIT RATING CO.
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA - High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A - Protection factors are average but adequate. However, risk factors
are more available and greater in periods of economic stress.
BBB+, BBB, BBB - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC - Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
35
<PAGE>
APPENDIX II
<TABLE>
<CAPTION>
1997
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
<S> <C> <C>
Donoghue Tax-Free Funds 4.93
Donoghue U.S. Treasury Funds 4.65
Dow Jones & Company Industrial Index 24.87
Morgan Stanley Capital International EAFE Index 1.78
Morgan Stanley Capital International EAFE GDP Index 5.77
Libor Six-month Libor N/A
Lipper Short U.S. Government Funds 5.82
Lipper California Municipal Bond Funds 9.15
Lipper Connecticut Municipal Bond Funds 8.53
Lipper Closed End Bond Funds 12.01
Lipper Florida Municipal Bond Funds 8.53
Lipper General Municipal Bonds 9.11
Lipper Global Funds 13.04
Lipper Growth Funds 25.30
Lipper Growth & Income Funds 27.14
Lipper High Current Yield Bond Funds 12.96
Lipper High Yield Municipal Bond Debt 10.11
Lipper Fixed Income Funds 8.67
Lipper Insured Municipal Bond Average 8.39
Lipper Intermediate Muni Bonds 7.16
Lipper Intermediate (5-10) U.S. Government Funds 8.08
Lipper Massachusetts Municipal Bond Funds 8.64
Lipper Michigan Municipal Bond Funds 8.50
Lipper Mid Cap Funds 19.76
Lipper Minnesota Municipal Bond Funds 8.15
Lipper U.S. Government Money Market Funds 4.90
Lipper New York Municipal Bond Funds 8.99
Lipper North Carolina Municipal Bond Funds 8.84
Lipper Ohio Municipal Bond Funds 8.16
Lipper Small Cap Funds 20.75
Lipper General U.S. Government Funds 8.84
Lipper Pacific Region Funds-Ex-Japan (35.52)
Lipper International Funds 5.44
Lipper Balanced Funds 19.00
Lipper Tax-Exempt Money Market 3.08
Lipper Multi-Sector 8.77
Lipper Corporate Debt BBB 10.08
Lipper High Yield Municipal - Closed Ends 9.66
Lipper High Current Yield - Closed Ends 14.31
Lipper General Municipal Debt - Closed Ends 10.26
Lipper Intermediate Investment Grade Debt 8.57
Lipper Utilities 26.01
Lipper Japan (14.07)
Lipper China (22.92)
Shearson Lehman Composite Government Index 9.59
Shearson Lehman Government/Corporate Index 9.76
Shearson Lehman Long-term Government Index 9.58
Shearson Lehman Municipal Bond Index 9.19
Shearson Lehman U.S. Government 1-3 6.65
S&P S&P 500 Index 33.35
S&P Utility Index 24.65
S&P Barra Growth 36.38
S&P Barra Value 29.99
S&P Midcap 400 19.00
First Boston High Yield Index 12.63
36
<PAGE>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
Swiss Bank 10 Year U.S. Government (Corporate Bond) 11.20
Swiss Bank 10 Year United Kingdom (Corporate Bond) 12.54
Swiss Bank 10 Year France (Corporate Bond) (4.79)
Swiss Bank 10 Year Germany (Corporate Bond) (6.13)
Swiss Bank 10 Year Japan (Corporate Bond) (3.39)
Swiss Bank 10 Year Canada (Corporate Bond) 7.79
Swiss Bank 10 Year Australia (Corporate Bond) (3.93)
Morgan Stanley Capital International 10 Year Hong Kong (Equity) 19.18
Morgan Stanley Capital International 10 Year Belgium (Equity) 14.43
Morgan Stanley Capital International 10 Year Austria (Equity) 7.58
Morgan Stanley Capital International 10 Year France (Equity) 13.27
Morgan Stanley Capital International 10 Year Netherlands (Equity) 18.61
Morgan Stanley Capital International 10 Year Japan (Equity) (2.90)
Morgan Stanley Capital International 10 Year Switzerland (Equity) 18.53
Morgan Stanley Capital International 10 Year United Kingdom (Equity) 13.95
Morgan Stanley Capital International 10 Year Germany (Equity) 13.75
Morgan Stanley Capital International 10 Year Italy (Equity) 6.15
Morgan Stanley Capital International 10 Year Sweden (Equity) 17.62
Morgan Stanley Capital International 10 Year United States (Equity) 17.39
Morgan Stanley Capital International 10 Year Australia (Equity) 9.25
Morgan Stanley Capital International 10 Year Norway (Equity) 13.29
Morgan Stanley Capital International 10 Year Spain (Equity) 10.58
Morgan Stanley Capital International World GDP Index 13.35
Morgan Stanley Capital International Pacific Region Funds Ex-Japan (31.00)
Bureau of Labor Statistics Consumer Price Index (Inflation) 1.70
FHLB-San Francisco 11th District Cost-of-Funds Index N/A
Salomon Six-Month Treasury Bill 5.41
Salomon One-Year Constant-Maturity Treasury Rate N/A
Salomon Five-Year Constant-Maturity Treasury Rate N/A
Frank Russell Company Russell 2000(R)Index 22.36
Frank Russell Company Russell 1000(R)Value Index 35.18
Frank Russell Company Russell 1000(R)Growth Index 30.49
Bloomberg NA NA
Credit Lyonnais NA NA
Statistical Abstract of the U.S. NA NA
World Economic Outlook NA NA
</TABLE>
The Russell 2000(R) Index, the Russell 1000(R) Value Index and the Russell
1000(R) Growth Index are each a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
*in U.S. currency
37
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A
Summary of Expenses
The Funds' Financial History
Incorporated by reference into Part B are the financial
statements contained in the Annual Reports for the Registrant's
series, each as of January 31, 1998, which have previously been
filed electronically pursuant to Section 30(b)(2) of the
Investment Company Act of 1940:
Fund Accession Number
---- ----------------
Colonial California Tax-Exempt Fund 0000276716-98-000009
Colonial Connecticut Tax-Exempt Fund 0000276716-98-000010
Colonial Florida Tax-Exempt Fund 0000276716-98-000011
Colonial Massachusetts Tax-Exempt Fund 0000276716-98-000012
Colonial Michigan Tax-Exempt Fund 0000276716-98-000013
Colonial Minnesota Tax-Exempt Fund 0000021847-98-000030
Colonial New York Tax-Exempt Fund 0000276716-98-000014
Colonial North Carolina Tax-Exempt Fund 0000021847-98-000031
Colonial Ohio Tax-Exempt Fund 0000276716-98-000015
The Financial Statements contained in each series' Annual Report
are as follows:
<PAGE>
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants
(b) Exhibits:
1. Amended Agreement and Declaration of Trust (3)
2. Amended By-Laws (2)
3. Not Applicable
4. Form of Specimen Share Certificate (incorporated
herein by reference to Exhibit 4 to
Post-Effective Amendment No. 45 to the
Registration Statement of Colonial Trust IV,
Registration Nos. 2-62492 and 811-2865)
5.(a) Form of Management Agreement between Colonial
Trust V and Colonial Management Associates,
Inc.(1)
(b) Amendment No. 1 to the Management Agreement
between Colonial Trust V and
Colonial Management Associates, Inc. (3)
6.(a) Distributor's Contract with Liberty Financial
Investments, Inc.(incorporated herein by
reference to Exhibit 6(a) to Post-Effective
Amendment No. 44 to the Registration Statement
of Colonial Trust I,
Registration Nos. 811-2214 & 2-41251)
(b) Form of Selling Agreement with Colonial
Investment Services (incorporated
herein by reference to Exhibit 6(b) to Post-
Effective Amendment No. 10 to
the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529)
(c) Form of Bank and Bank Affiliated Selling
Agreement (incorporated herein by
reference to Exhibit 6(c) to Post-Effective
Amendment No. 10 to the
Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529)
(d) Investment Account Application (incorporated
herein by reference to Prospectus)
(e) Form of Asset Retention Agreement (incorporated
herein by reference to Exhibit 6(d) to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529)
7. Not Applicable
8. (a) Custodian Agreement with The Chase
Manhattan Bank (incorporated herein by
reference to Exhibit 8. to Post-Effective
Amendment No. 13 to the Registration
Statement of Colonial Trust VI, Registration
Nos. 33-45117 and 811-6529)
(b) Form of Customer, Safekeeping and Procedural
Agreements (incorporated herein
by reference to Exhibit 8(c) to Post-Effective
Amendment No. 42 to the
Registration Statement of Colonial Trust I,
Registration Nos. 811-2214 and
2-41251)
9. (a) Amended and Restated Shareholders' Servicing
and Transfer Agent Agreement as amended
(incorporated by reference to Exhibit 9(b) to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust VII,
Registration Nos.
33-41559 and 811-6347)
(b) Amendment No. 10 to Schedule A of Amended and
Restated Shareholders' Servicing
and Transfer Agent Agreement as amended
(incorporated herein by reference to
Exhibit 9(a)(ii) to Post-Effective Amendment
No. 13 to the Registration
Statement of Colonial Trust VI, Registration Nos.
33-45117 and 811-6529)
(c) Amendment No. 15 to Appendix I of the Amended
and Restated Shareholders'
Servicing and Transfer Agent Agreement as amended
(incorporated herein by reference to Exhibit
9(a)(iii) to Post-Effective Amendment No. 13 t
the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529)
(d) Pricing and Bookkeeping Agreement (incorporated
herein by reference to Exhibit 9(b) to
Post-Effective Amendment No. 10 to the
Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529)
(e) Form of Agreement and Plan of Reorganization
(CCATEF, CMITEF, CMNTEF, CNYTEF,
COHTEF)(incorporated herein by reference to
Exhibit 9(e) to Post-Effective
Amendment No. 97 to the Registration Statment of
Colonial Trust III, Registration Nos. 811-881
and 2-15184)
(f) Credit Agreement (2)
(g) Amendment No. 1 to the Credit Agreement
(incorporated herein by reference to Exhibit 9(h)
to Post-Effective Amendment No. 99 to the
Registration of Colonial Trust III, Registration
Nos. 2-15184 and 811-881)
(h) Amendment No. 2 to the Credit Agreement
(incorporated herein by reference to
Exhibit 9(i) to Post-Effective Amendment No. 99
of Colonial Trust III,
Registration Nos. 2-15184 and 811-881)
(i) Amendment No. 3 to the Credit Agreement
(incorporated herein by reference to
Exhibit 9(j) to Post-Effective Amendment No. 99
of Colonial Trust III,
Registration Nos. 2-15184 and 811-881)
10. Opinion and Consent of Counsel, Colonial Trust V,
formerly known as Colonial
Massachusetts Tax-Exempt Trust (3)
(a) Opinion and Consent of Counsel (CCATEF) (3)
(b) Opinion and Consent of Counsel (CMITEF) (3)
(c) Opinion and Consent of Counsel (CMNTEF) (3)
(d) Opinion and Consent of Counsel (CNYTEF) (3)
(e) Opinion and Consent of Counsel (COHTEF) (3)
11. Consent of Independent Accountants
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Distribution Plan adopted pursuant to Section
12b-1 of the Investment Company Act of 1940
(incorporated herein by reference to Exhibit
6.(a) hereto.
16.(a)(1) Calculation of Performance Information (Classes A & B)
(CCATEF)(2)
(a)(2) Calculation of Yield (Classes A & B)
(CCATEF)(2)
(a)(3) Calculation of Performance Information
(Class C)(CCATEF)
(a)(4) Calculation of Yield (Class C)(CCATEF)
16.(b)(1) Calculation of Performance Information
(Classes A & B) (CCTTEF)(2)
(b)(2) Calculation of Yield (Classes A & B) (CCTTEF)(2)
(b)(3) Calculation of Performance Information (Class C)
(CCTTEF)
(b)(4) Calculation of Yield (Class C) (CCTTEF)
16.(c)(1) Calculation of Performance Information (Classes A & B)
(CFLTEF)(2)
(c)(2) Calculation of Yield (Classes A & B) (CFLTEF)(2)
(c)(3) Calculation of Performance Information (Class C)
(CFLTEF)
(c)(4) Calculation of Yield (Class C) (CFLTEF)
16.(d)(1) Calculation of Performance Information (Classes A & B)
(CMATEF)(2)
(d)(2) Calculation of Yield (Classes A & B) (CMATEF)(2)
(d)(3) Calculation of Performance Information (Class C)
(CMATEF)
(d)(4) Calculation of Yield (Class C) (CMATEF)
16.(e)(1) Calculation of Performance Information (Classes A & B)
(CMITEF)(2)
(e)(2) Calculation of Yield (Classes A & B) (CMITEF)(2)
(e)(3) Calculation of Performance Information (Class C)
(CMITEF)
(e)(4) Calculation of Yield (Class C) (CMITEF)
16.(f)(1) Calculation of Performance Information (Classes A & B)
(CMNTEF)(2)
(f)(2) Calculation of Yield (Classes A & B)
(CMNTEF)(2)
(f)(3) Calculation of Performance Information
(Class C)(CMNTEF)
(f)(4) Calculation of Yield (Class C)(CMNTEF)
16.(g)(1) Calculation of Performance Information (Classes A & B)
(CNYTEF)(2
(g)(2) Calculation of Yield (Classes A & B)
(CNYTEF)(2)
(g)(3) Calculation of Performance Information
(Class C) (CNYTEF)
(g)(4) Calculation of Yield (Class C)(CNYTEF)
16.(h)(1) Calculation of Performance Information (Classes A & B)
(CNCTEF)(2)
(h)(2) Calculation of Yield (Classes A & B) (CNCTEF)(2)
(h)(3) Calculation of Performance Information (Class C)
(CNCTEF)
(h)(4) Calculation of Yield (Class C) (CNCTEF)
16.(i)(1) Calculation of Performance Information (Classes A &
B)(COHTEF)(2)
(i)(2) Calculation of Yield (Classes A & B)
(COHTEF)(2)
(i)(3) Calculation of Performance Information
(Class C) (COHTEF)
(i)(4) Calculation of Yield (Class C)(COHTEF)
17.(a) Financial Data Schedule (Class A)(CCATEF)
(b) Financial Data Schedule (Class B)(CCATEF)
(c) Financial Data Schedule (Class C)(CCATEF)
(d) Financial Data Schedule (Class A)(CCTTEF)
(e) Financial Data Schedule (Class B)(CCTTEF)
(f) Financial Data Schedule (Class C)(CCTTEF)
(g) Financial Data Schedule (Class A)(CFLTEF)
(h) Financial Data Schedule (Class B)(CFLTEF)
(i) Financial Data Schedule (Class C)(CFLTEF)
(j) Financial Data Schedule (Class A)(CMATEF)
(k) Financial Data Schedule (Class B)(CMATEF)
(l) Financial Data Schedule (Class C)(CMATEF)
(m) Financial Data Schedule (Class A)(CMITEF)
(n) Financial Data Schedule (Class B)(CMITEF)
(o) Financial Data Schedule (Class C)(CMITEF)
(p) Financial Data Schedule (Class A)(CMNTEF)
(q) Financial Data Schedule (Class B)(CMNTEF)
(r) Financial Data Schedule (Class C)(CMNTEF)
(s) Financial Data Schedule (Class A)(CNYTEF)
(t) Financial Data Schedule (Class B)(CNYTEF)
(u) Financial Data Schedule (Class C)(CNYTEF)
(v) Financial Data Schedule (Class A)(CNCTEF)
(w) Financial Data Schedule (Class B)(CNCTEF)
(x) Financial Data Schedule (Class C)(CNCTEF)
(y) Financial Data Schedule (Class A)(COHTEF)
(z) Financial Data Schedule (Class B)(COHTEF)
(aa) Financial Data Schedule (Class C)(COHTEF)
18. (a) Power of Attorney for: Robert J. Birnbaum,
Tom Bleasdale, Lora S. Collins,
James E. Grinnell, Richard W. Lowry, William E.
Mayer, James L. Moody, Jr.,
John J. Neuhauser and Robert L. Sullivan
(incorporated herein by reference
to Exhibit 18(a) to Post-Effective Amendment
No. 99 to the Registration
Statement of Colonial Trust III, Registration
Nos. 2-15184 and 811-881)
(b) Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
(incorporated herein by reference to Exhibit
18(b) to Post-Effective
Amendment No. 44 to the Registration Statement
of Colonial Trust I,
Registration Nos. 2-41251 & 811-2214)
- ---------------------------------
(1) Incorporated by reference to Post-Effective Amendment No.
18 to the Registration Statement filed on or about
May 22, 1995
(2) Incorporated by reference to Post-Effective Amendment No.
19 to the Registration Statement filed on or about
May 20, 1996.
(3) Incorporated by reference to Post-Effective Amendment No.
21 to the Registration Statement filed on or about
May 23, 1997.
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders at
April 30, 1998
-------------- ---------------------------
Shares of beneficial Interest 4,122 Class A (CCATEF)
1,921 Class B
33 Class C
Shares of beneficial Interest 1,554 Class A (CCTTEF)
1,660 Class B
10 Class C
Shares of beneficial Interest 559 Class A (CFLTEF)
574 Class B
2 Class C
Shares of beneficial Interest 3,568 Class A (CMATEF)
1,619 Class B
7 Class C
Shares of beneficial Interest 1,043 Class A (CMITEF)
312 Class B
5 Class C
Shares of beneficial Interest 1,087 Class A (CMNTEF)
584 Class B
3 Class C
Shares of beneficial Interest 1,099 Class A (CNYTEF)
1,012 Class B
3 Class C
Shares of beneficial Interest 451 Class A (CNCTEF)
421 Class B
2 Class C
Shares of beneficial Interest 2,010 Class A (COHTEF)
1,532 Class B
3 Class C
Item 27. Indemnification
See Article VIII of Amendment No. 3 to the Agreement and
Declaration of Trust filed as Exhibit 1 (c) hereto.
Item 28. Business and Other Connections of Investment Adviser
The following sets forth business and other connections of each
director and officer of Colonial Management Associates, Inc.
(see next page):
Registrant's investment adviser/administrator, Colonial Management
Associates, Inc. ("Colonial"), is registered as an investment adviser under
the Investment Advisers Act of 1940 (1940 Act). Colonial Advisory Services,
Inc. (CASI), an affiliate of Colonial, is also registered as an investment
adviser under the 1940 Act. As of the end of its fiscal year, December
31, 1996, CASI had one institutional, corporate or other account under
management or supervision, the market value of which was approximately $42.0
million. As of the end of its fiscal year, December 31, 1997, Colonial
was the investment adviser, sub-adviser and/or administrator to 50 Colonial
mutual funds (including funds sub-advised by Colonial, the market value of
which investment companies was approximately $17,319.00 million. Liberty
Financial Investments, Inc., a subsidiary of Colonial Management Associates,
Inc., is the principal underwriter and the national distributor of all of
the funds in the Colonial Mutual Funds complex, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 11/01/97. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Allard, Laurie V.P.
Archer, Joseph A. V.P.
Ballou, William J. V.P., Colonial Trusts I through VII Asst. Sec.
Asst. Colonial High Income
Sec., Municipal Trust Asst. Sec.
Counsel Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.
Berliant, Allan V.P.
Bertocci, Bruno V.P. Stein Roe Global Capital Mngmt. Principal
Boatman, Bonny E. Sr.V.P.; Colonial Advisory Services, Inc. Exec. V.P.
IPC Mbr.
Bunten, Walter V.P.
Campbell, Kimberly V.P.
Carnabucci,
Dominick V.P.
Carroll, Sheila A. Sr.V.P.;
Citrone, Frank V.P.
Cogger, Harold W. Dir.; The Colonial Group, Inc. Dir.;
Chairman; Chrm.
IPC Mbr.; Colonial Trusts I through VII Pres.
Colonial High Income
Municipal Trust Pres.
Colonial InterMarket Income
Trust I Pres.
Colonial Intermediate High
Income Fund Pres.
Colonial Investment Grade
Municipal Trust Pres.
Colonial Municipal Income
Trust Pres.
LFC Utilities Trust Pres.
Liberty Financial Exec V.P.;
Companies, Inc. Dir.
Stein Roe & Farnham Dir.
Incorporated
Conlin, Nancy L. Sr. V.P.; Colonial Trusts I through VII Secretary
Sec.; Clerk Colonial High Income
IPC Mbr.; Municipal Trust Secretary
Dir; Gen. Colonial InterMarket Income
Counsel Trust I Secretary
Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
LFC Utilities Trust Secretary
Liberty Financial Investments,
Inc. Dir., Clerk
Colonial Investors Service
Center, Inc. Clerk, Dir.
The Colonial Group, Inc. V.P., Gen.
Counsel and
Clerk
Colonial Advisory Services,
Inc. Dir., Clerk
AlphaTrade Inc. Dir., Clerk
Connaughton,
J. Kevin V.P.; Colonial Trust I through VII CAO; Controller
Controller LFC Utilities Trust CAO; Controller
Colonial High Income
Municipal Trust CAO; Controller
Colonial Intermarket Income
Trust I CAO; Controller
Colonial Intermediate High
Income Fund CAO; Controller
Colonial Investment Grade
Municipal Trust CAO; Controller
Colonial Municipal Income
Trust CAO; Controller
Daniszewski, V.P.
Joseph J.
Desilets, Marian V.P. Liberty Financial Investments,
Inc. V.P.
DiSilva-Begley, V.P. Colonial Advisory Services, Compliance
Linda IPC Mbr. Inc. Officer
Ericson, Carl C. Sr.V.P. Colonial Intermediate High
IPC Mbr. Income Fund V.P.
Colonial Advisory Services,
Inc. Exec. V.P.
Evans, C. Frazier Sr.V.P. Liberty Financial Investments,
Inc. Mng. Director
Feingold, Andrea S. V.P. Colonial Intermediate High
Income Fund V.P.
Colonial Advisory Services,
Inc. Sr. V.P.
Feloney, Joseph L. V.P.
Asst. Treasurer
Finnemore, V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.
Franklin, Sr. V.P. AlphaTrade Inc. President
Fred J. IPC Mbr.
Gibson, Stephen E. Dir.; Pres.; The Colonial Group, Inc. Dir.;
CEO; Pres.; CEO;
Exec. Cmte.
Mbr.
Liberty Financial Investments, Dir.; Chm.
Inc.
Colonial Advisory Services, Dir.; Chm.
Inc.
Colonial Investors Service Dir.; Chm.
Center, Inc.
AlphaTrade Inc. Dir.
Hanson, Loren Sr. V.P.
Harasimowicz, V.P.
Stephen
Harris, David V.P. Stein Roe Global Capital Mngmt Principal
Hartford, Brian V.P.
Haynie, James P. V.P. Colonial Advisory Services,
Inc. Sr. V.P.
Hernon, Mary V.P.
Hill, William V.P.
Iudice, Jr. Philip V.P.; The Colonial Group, Inc. Controller,
Controller CAO, Asst.
Asst. Treas.
Treasurer Liberty Financial Investments, CFO,
Inc. Treasurer
Colonial Advisory Services,
Inc. Controller;
Asst. Treas.
AlphaTrade Inc. CFO, Treas.
Jacoby, Timothy J. Sr. V.P.; The Colonial Group, Inc. V.P., Treasr.,
CFO; CFO
Treasurer Colonial Trusts I through VII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO
LFC Utilities Trust
Treasr.,CFO
Colonial Advisory Services,
Inc. CFO, Treasr.
Johnson, Gordon V.P.
Knudsen, Gail V.P.
Lasher, Ben V.P.
Lennon, John E. V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lessard, Kristen V.P.
Loring, William C. V.P.
MacKinnon,
Donald S. Sr.V.P.
Marcus, Harold V.P.
Muldoon, Bob V.P.
Newman, Maureen V.P.
O'Brien, David V.P.
Ostrander, Laura V.P.
Peterson, Ann T. V.P. Colonial Advisory Services,
Inc. V.P.
Rao, Gita V.P.
Reading, John V.P.; Colonial Investors Service
Asst. Center, Inc. Asst. Clerk
Sec.; The Colonial Group, Inc. Asst. Clerk
Asst Colonial Advisory Services,
Clerk and Inc. Asst. Clerk
Counsel Liberty Financial Investments,
Inc. Asst. Clerk
AlphaTrade Inc. Asst. Clerk
Colonial Trusts I through VII Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
LFC Utilities Trust Asst. Sec.V.P.
Rega, Michael V.P. Colonial Advisory Services
Inc. Vice President
Scoon, Davey S. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Colonial Trusts I through VII V.P.
LFC Utilities Trust V.P.
Colonial Investors Service Dir; Pres.
Center, Inc.
The Colonial Group, Inc. COO; Ex. V.P.
Liberty Financial Investments,
Inc. Director
AlphaTrade Inc. Director
Seibel, Sandra L. V.P.
Spanos, Gregory Sr. V.P.
Stern, Arthur O. Exe.V.P.; The Colonial Group, Inc. Exec. V.P.
Steck, Nicholas V.P.
Stevens, Richard V.P.
Stoeckle, Mark V.P. Colonial Advisory Services,
Inc. V.P.
Swayze, Gary V.P.
Wallace, John V.P.
Asst.Treasurer
Ware, Elizabeth V.P.
- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.
Item 29 Principal Underwriter
- ------- ---------------------
(a) Liberty Financial Investments, Inc. (LFII), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFII acts in such capacity for Colonial Trust I, Colonial
Trust II, Colonial Trust III, Colonial Trust IV, Colonial Trust V,
Colonial Trust VI and Colonial Trust VII, Stein Roe Advisor Trust,
Stein Roe Income Trust, Stein Roe Municipal Trust, Stein Roe Investment
Trust and Stein Roe Trust. LFII is also the sponsor for Colony Growth
Plans (public offering of which were discontinued June 14, 1971).
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------
Anderson, Judith V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Ballou, Rick V.P. None
Balzano, Christine R. V.P. None
Bartlett, John Managing Director None
Blumenfeld, Alex V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Butch, Tom Sr. V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Claiborne, V.P. None
Douglas
Clapp, Elizabeth A. Sr. V.P. None
Conlin, Nancy L. Dir; Clerk Secretary
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. None
Devaney, James V.P. None
DiMaio, Steve V.P. None
Downey, Christopher V.P. None
Emerson, Kim P. V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Managing Director None
Feldman, David Sr. V.P. None
Fifield, Robert V.P. None
Gauger, Richard V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman None
of the Board
Goldberg, Matthew V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Hodgkins, Joseph Sr. V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Karagiannis, Managing Director None
Marilyn
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Libutti, Chris V.P. None
Marcel, Anne V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morner, Patrick V.P. None
Morse, Jonathan V.P. None
O'Shea, Kevin Managing Director None
Piken, Keith V.P. None
Predmore, Tracy V.P. None
Quirk, Frank V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Sandberg, Travis V.P. None
Scarlott, Rebecca V.P. None
Schulman, David V.P. None
Scoon, Davey Director V.P.
Scott, Michael W. Sr. V.P. None
Sideropoulos, Lou V.P. None
Smith, Darren V.P. None
Studer, Eric V.P. None
Sutton, R. Andrew V.P. None
Tambone, James CEO None
Tasiopoulos, Lou President None
Tuttle, Brian V.P. None
VanEtten, Keith H. Sr. V.P. None
Villanova, Paul V.P. None
Wallace, John V.P. None
Walter, Heidi V.P. None
Wess, Valerie V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and
other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules thereunder
include Registrant's Secretary; Registrant's investment adviser
and/or administrator, Colonial Management Associates, Inc.;
Registrant's principal underwriter, Liberty Financial
Investments, Inc.; Registrant's transfer and dividend disbursing
agent, Colonial Investors Service Center, Inc.; and the
Registrant's custodian, The Chase Manhattan Bank. The address
for each person except the Registrant's custodian is One
Financial Center, Boston, MA 02111. The address for the
custodian is 270 Park Avenue, New York, NY 10017-2070.
Item 31. Management Services
See Item 5(c) as discussed in Part A and Item 16(d) as discussed
in Part B.
Item 32. Undertakings
(1) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon
the question of removal of any trustee when requested in
writing to do so by the record holders of not less than
10 per cent of the Registrant's outstanding shares and to
assist its shareholders in the communicating with other
shareholders in accordance with the requirements of
Section 16(c) of the Investment Company Act of 1940.
(2) The Registrant undertakes to comply with Section 16(c) of
the Investment Company Act of 1940 as though such
provisions of the Act were applicable to the Fund, except
that the request referred to in the third full paragraph
thereof may only be made by shareholders who hold in the
aggregate at least 1% of the outstanding shares of the
Fund, regardless of the net asset value of shares held by
such requesting shareholders.
(3) The Registrant hereby undertakes to furnish free of
charge to each person to whom a prospectus is delivered,
a copy of the applicable series' annual report to
shareholders containing the information required by Item
5A of Form N-1A.
<PAGE>
************
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of
Colonial Trust V (Trust) is on file with the Secretary of The Commonwealth of
Massachusetts and notice is hereby given that this amendment to the Trust's
Registration Statement has been executed on behalf of the Trust by an officer of
the Trust as an officer and by its Trustees as trustees and not individually and
the obligations of or arising out of this Registration Statement are not binding
upon any of the Trustees, officers or shareholders individually but are binding
only upon the assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of the Registration Statement pursuant to Rule 485(b) and has
duly caused this Post-Effective Amendment No. 23 to its Registration Statement
under the Securities Act of 1933 and Amendment No. 24 to its Registration
Statement under the Investment Company Act of 1940, to be signed in this City of
Boston and The Commonwealth of Massachusetts on this 29th day of May, 1998.
COLONIAL TRUST V
By: /s/ HAROLD W. COGGER
-------------------------------
Harold W. Cogger, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment has been signed below by the following persons in their capacities and
on the date indicated.
SIGNATURES TITLE DATE
/S/ HAROLD W. COGGER President (chief May 29, 1998
- -------------------- executive officer)
Harold W. Cogger
/S/ TIMOTHY J. JACOBY Treasurer and Chief May 29, 1998
- --------------------- Financial Officer
Timothy J. Jacoby (principal financial officer)
/S/ J. KEVIN CONNAUGHTON Controller and Chief May 29, 1998
- ------------------------ Accounting Officer
J. Kevin Connaughton (principal accounting
officer)
<PAGE>
/S/ROBERT J. BIRNBAUM* Trustee
- ----------------------
Robert J. Birnbaum
/S/TOM BLEASDALE* Trustee
- -----------------
Tom Bleasdale
/S/LORA S. COLLINS* Trustee
- -------------------
Lora S. Collins
/S/JAMES E. GRINNELL* Trustee
- ----------------------
James E. Grinnell
*/S/WILLIAM J. BALLOU
----------------------
/S/RICHARD W. LOWRY* Trustee William J. Ballou
- -------------------- Attorney-in-fact
Richard W. Lowry May 29, 1998
/S/WILLIAM E. MAYER* Trustee
- --------------------
William E. Mayer
/S/JAMES L. MOODY, JR.* Trustee
- -----------------------
James L. Moody, Jr.
/S/JOHN J. NEUHAUSER* Trustee
- ---------------------
John J. Neuhauser
/S/ROBERT L. SULLIVAN* Trustee
- ----------------------
Robert L. Sullivan
<PAGE>
EXHIBIT INDEX
Exhibit
11 Consent of Independent Accountants
16(a)(3) Calculation of Performance Information (Class C) (CCATEF)
16(a)(4) Calculation of Yield (Class C) (CCATEF)
16(b)(3) Calculation of Performance Information (Class C) (CCTTEF)
16(b)(4) Calculation of Yield (Class C) (CCTTEF)
16(c)(3) Calculation of Performance Information (Class C) (CFLTEF)
16(c)(4) Calculation of Yield (Class C) (CFLTEF)
16(d)(3) Calculation of Performance Information (Class C) (CMATEF)
16(d)(4) Calculation of Yield (Class C) (CMATEF)
16(e)(3) Calculation of Performance Information (Class C) (CMITEF)
16(e)(4) Calculation of Yield (Class C) (CMITEF)
16(f)(3) Calculation of Performance Information (Class C) (CMNTEF)
16(f)(4) Calculation of Yield (Class C) (CMNTEF)
16(g)(3) Calculation of Performance Information (Class C) (CNYTEF)
16(g)(4) Calculation of Yield (Class C) (CNYTEF)
16(h)(3) Calculation of Performance Information (Class C) (CNCTEF)
16(h)(4) Calculation of Yield (Class C) (CNCTEF)
16(i)(3) Calculation of Performance Information (Class C) (COHTEF)
16(i)(4) Calculation of Yield (Class C) (COHTEF)
17(a) Financial Data Schedule (Class A)(CCATEF)
17(b) Financial Data Schedule (Class B)(CCATEF)
17(c) Financial Data Schedule (Class C)(CCATEF)
17(d) Financial Data Schedule (Class A)(CCTTEF)
17(e) Financial Data Schedule (Class B)(CCTTEF)
17(f) Financial Data Schedule (Class C)(CCTTEF)
17(g) Financial Data Schedule (Class A)(CFLTEF)
17(h) Financial Data Schedule (Class B)(CFLTEF)
17(i) Financial Data Schedule (Class C)(CFLTEF)
17(j) Financial Data Schedule (Class A)(CMATEF)
17(k) Financial Data Schedule (Class B)(CMATEF)
17(l) Financial Data Schedule (Class C)(CMATEF)
17(m) Financial Data Schedule (Class A)(CMITEF)
17(n) Financial Data Schedule (Class B)(CMITEF)
17(o) Financial Data Schedule (Class C)(CMITEF)
17(p) Financial Data Schedule (Class A)(CMNTEF)
17(q) Financial Data Schedule (Class B)(CMNTEF)
17(r) Financial Data Schedule (Class C)(CMNTEF)
17(s) Financial Data Schedule (Class A)(CNYTEF)
17(t) Financial Data Schedule (Class B)(CNYTEF)
17(u) Financial Data Schedule (Class C)(CNYTEF)
17(v) Financial Data Schedule (Class A)(CNCTEF)
17(w) Financial Data Schedule (Class B)(CNCTEF)
17(x) Financial Data Schedule (Class C)(CNCTEF)
17(y) Financial Data Schedule (Class A)(COHTEF)
17(z) Financial Data Schedule (Class B)(COHTEF)
17(aa) Financial Data Schedule (Class C)(COHTEF)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No.23
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated March 11 1998, relating to the financial statements and financial
highlights appearing in the January 31, 1998 Annual Reports to Shareholders 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, each a series of Colonial Trust V, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "The Funds' Financial History" in the
Prospectus and "Independent Accountants" in the Statement of Additional
Information.
PRICE WATERHOUSE LLP
- --------------------
Price Waterhouse LLP
Boston, Massachusetts
May 29, 1998
PERFORMANCE CALCULATION
COLONIAL CALIFORNIA TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.66 $7.66
Initial Shares 130.548 130.548
Shares From Dist. 4.072 4.072
End of Period NAV $7.72 $7.72
CDSC Rate 1.00%
Total Return 2.93% 3.93%
Average Annual
Total Return N/A N/A
COLONIAL CALIFORNIA TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield= [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month................... $1,052,251 $416,279 $2,284
b = expenses accrued during the month 185,767 137,138 613
c = average dividend shares
outstanding during the month ........ 33,267,851 13,161,074 72,201
d = class maximum offering price per share
on the last day of the month ......... $8.10 $7.72 $7.72
YIELD............................... 3.89% 3.32% 3.62%
----- ----- -----
YIELD WITHOUT WAIVER............... N/A N/A 3.32%
--- --- -----
TAX-EQUIVALENT YIELD:............... 7.10% 6.06% 6.61%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL CONNECTICUT TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.71 $7.71
Initial Shares 129.702 129.702
Shares From Dist. 2.994 2.994
End of Period NAV $7.83 $7.83
CDSC Rate 1.00%
Total Return 2.90% 3.90%
Average Annual
Total Return N/A N/A
COLONIAL CONNECTICUT TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield= [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month ..................... $321,033 $337,205 $1,742
b = expenses accrued during the month.... 50,785 105,927 442
c = average dividend shares
outstanding during the month ........ 10,228,345 10,743,656 55,504
d = class maximum offering price per share
on the last day of the month ........ $8.22 $7.83 $7.83
YIELD............................... 3.89% 3.32% 3.62%
----- ----- -----
YIELD WITHOUT WAIVER.............. 3.71% 3.14% 3.12%
----- ----- -----
TAX-EQUIVALENT YIELD: ............ 6.74% 5.76% 6.28%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL FLORIDA TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.71 $7.71
Initial Shares 129.702 129.702
Shares From Dist. 2.971 2.971
End of Period NAV $7.79 $7.79
CDSC Rate 1.00%
Total Return 2.35% 3.35%
Average Annual
Total Return N/A N/A
COLONIAL FLORIDA TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield= [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month ................ $130,151 $137,066 $416
b = expenses accrued during the month 20,620 42,940 105
c = average dividend shares
outstanding during the month ..... 4,136,616 4,356,410 13,218
d = class maximum offering price per share
on the last day of the month ..... $8.18 $7.79 $7.79
YIELD............................. 3.92% 3.35% 3.66%
----- ----- -----
YIELD WITHOUT WAIVER............. 3.76% 3.19% 3.19%
----- ----- -----
TAX-EQUIVALENT YIELD:............. 6.49% 5.55% 6.06%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $8.07 $8.07
Initial Shares 123.916 123.916
Shares From Dist. 3.743 3.743
End of Period NAV $8.10 $8.10
CDSC Rate 1.00%
Total Return 2.40% 3.40%
Average Annual
Total Return N/A N/A
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
CLASS A CLASS B CLASS C
a = dividends and interest earned during
the month........................ $745,976 $243,241 $843
b = expenses accrued during the month 136,910 81,962 232
c = average dividend shares outstanding
during the month................... 22,579,035 7,362,414 25,501
d = class maximum offering price per share
on the last day of the month....... $8.50 $8.10 $8.10
YIELD............................ 3.84% 3.27% 3.57%
----- ----- -----
YIELD WITHOUT WAIVER............. N/A N/A 3.27%
--- --- -----
TAX-EQUIVALENT YIELD:........... 7.22% 6.15% 6.72%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL MICHIGAN TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.20 $7.20
Initial Shares 138.889 138.889
Shares From Dist. 3.073 3.073
End of Period NAV $7.32 $7.32
CDSC Rate 1.00%
Total Return 2.92% 3.92%
Average Annual
Total Return N/A N/A
COLONIAL MICHIGAN TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield= [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month................ $163,875 $53,501 $433
b = expenses accrued during the month 29,320 17,580 116
c = average dividend shares
outstanding during the month ... 5,352,103 1,747,316 14,145
d = class maximum offering price per share
on the last day of the month .... $7.69 $7.32 $7.32
YIELD........................... 3.96% 3.39% 3.70%
----- ----- -----
YIELD WITHOUT WAIVER............ 3.74% 3.17% 3.17%
----- ----- -----
TAX-EQUIVALENT YIELD:........... 6.86% 5.87% 6.41%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL MINNESOTA TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.47 $7.47
Initial Shares 133.869 133.869
Shares From Dist. 3.816 3.816
End of Period NAV $7.49 $7.49
CDSC Rate 1.00%
Total Return 2.13% 3.13%
Average Annual
Total Return N/A N/A
COLONIAL MINNESOTA TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield= [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month...................... $142,581 $86,827 $463
b = expenses accrued during the month..... 22,381 26,309 114
c = average dividend shares
outstanding during the month ......... 4,435,916 2,701,311 14,406
d = class maximum offering price per share
on the last day of the month ......... $7.86 $7.49 $7.49
YIELD................................ 4.17% 3.62% 3.91%
----- ----- -----
YIELD WITHOUT WAIVER............... 4.24% 3.68% 3.66%
----- ----- -----
TAX-EQUIVALENT YIELD:............... 7.55% 6.55% 7.07%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL NEW YORK TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.27 $7.27
Initial Shares 137.552 137.552
Shares From Dist. 3.426 3.426
End of Period NAV $7.38 $7.38
CDSC Rate 1.00%
Total Return 3.04% 4.04%
Average Annual
Total Return N/A N/A
COLONIAL NEW YORK TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield = [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month....................... $211,042 $216,335 $428
b = expenses accrued during the month 32,130 65,759 104
c = average dividend shares
outstanding during the month........... 6,927,500 7,101,059 14,042
d = class maximum offering price per share
on the last day of the month........... $7.75 $7.38 $7.38
YIELD.................................. 4.03% 3.47% 3.78%
----- ----- -----
YIELD WITHOUT WAIVER.................. 3.86% 3.30% 3.30%
----- ----- -----
TAX-EQUIVALENT YIELD:.................. 7.48% 6.44% 7.01%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.35 $7.35
Initial Shares 136.054 136.054
Shares From Dist. 3.132 3.132
End of Period NAV $7.45 $7.45
CDSC Rate 1.00%
Total Return 2.69% 3.69%
Average Annual
Total Return N/A N/A
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield= [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month ................. $65,932 $69,679 $511
b = expenses accrued during the month 10,119 21,595 129
c = average dividend shares
outstanding during the month ..... 2,212,456 2,338,206 17,131
d = class maximum offering price per share
on the last day of the month ..... $7.82 $7.45 $7.45
YIELD............................. 3.90% 3.34% 3.62%
----- ----- -----
YIELD WITHOUT WAIVER............. 3.36% 2.76% 2.72%
----- ----- -----
TAX-EQUIVALENT YIELD:............ 7.00% 5.99% 6.50%
----- ----- -----
PERFORMANCE CALCULATION
COLONIAL OHIO TAX-EXEMPT FUND - CLASS C
FISCAL YEAR END: 1/31/98
INCEPTION DATE: 8/1/97
SINCE INCEPTION
8/1/97 TO 1/31/98
Standard Non-Standard
Initial Inv. $1,000.00 $1,000.00
Amt. Invested $1,000.00 $1,000.00
Initial NAV $7.61 $7.61
Initial Shares 131.406 131.406
Shares From Dist. 3.069 3.069
End of Period NAV $7.72 $7.72
CDSC Rate 1.00%
Total Return 2.81% 3.81%
Average Annual
Total Return N/A N/A
COLONIAL OHIO TAX-EXEMPT FUND
FUND YIELD CALCULATION
(CALENDAR MONTH-END METHOD)
30-DAY BASE PERIOD ENDED 1/31/98
6
FundYield= [(a-b +1) ]
2[ --- -1]
[ cd ) ]
CLASS A CLASS B CLASS C
a = dividends and interest earned
during the month $259,264 $190,785 $545
b = expenses accrued during the month 45,789 62,800 146
c = average dividend shares
outstanding during the month 8,169,621 6,011,779 17,179
d = class maximum offering price per share
on the last day of the month $8.10 $7.72 $7.72
YIELD 3.90% 3.33% 3.64%
----- ----- -----
YIELD WITHOUT WAIVER 3.70% 3.12% 3.12%
----- ----- -----
TAX-EQUIVALENT YIELD: 6.96% 5.94% 6.49%
----- ----- -----
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<NAME> CCTTEFC
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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