COLONIAL TRUST VII
485APOS, 1999-03-02
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                                                    Registration Nos:  33-41559
                                                                       811-6347

                       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. 13                                  / X /

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940        / X /

      Amendment No. 16                                                 / X /


                               COLONIAL TRUST VII
               (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:

William J. Ballou, Esquire                              John M. Loder, Esquire
Colonial Management Associates, Inc.                    Ropes & Gray
One Financial Center                                    One International Place
Boston, MA  02111                                       Boston, MA  02110-2624


It is proposed that this filing will become effective (check appropriate box):

/     /               immediately upon filing pursuant to paragraph (b).

/     /               on (date) pursuant to paragraph (b).

/     /               60 days after filing pursuant to paragraph (a)(1).

/     /               on May 3, 1999 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.

                               COLONIAL TRUST VII

                  Cross Reference Sheet Pursuant to Rule 481(a)
                               Newport Tiger Fund
                               Classes A,B,C and T

Item Number of Form N-1A     Prospectus Location or Caption

Part A

1.                           Front Cover Page; Back Cover Page

2.                           The Fund; Other Investment Strategies and Risks

3.                           The Fund

4.                           The Fund

5.                           Not Applicable

6.                           Front Cover; Managing the Fund; Your Account

7.                           Your Account

8.                           The Fund; Your Account

9.                           Financial Highlights




<PAGE>


- --------------------------------------------------------------------------------
NEWPORT TIGER FUND            Prospectus, April 30, 1999
- --------------------------------------------------------------------------------


o CLASSES A, B, C AND T SHARES


Advised by Newport Fund Management, Inc.


[Begin Sidebar]

Although these securities have been 
registered with the Securities and Exchange
Commission, the Commission has not 
approved any shares offered in this prospectus
or determined whether this prospectus is 
accurate or complete. Any representation to 
the contrary is a criminal offense.


- --------------------------------------------
                        MAY LOSE VALUE
  NOT FDIC-INSURED
                       NO BANK GUARANTEE
- --------------------------------------------

[End Sidebar]


- -------------------------------------------------
T A B L E  O F  C O N T E N T S


THE FUND                                       2
- -------------------------------------------------
Investment Goals ............................. 2
Primary Investment Strategies ................ 2
Primary Investment Risks ..................... 2
Performance History .......................... 3
Your Expenses ................................ 4


YOUR ACCOUNT                                   6
- -------------------------------------------------
How to Buy Shares ............................ 6
Sales Charges ................................ 7
How to Exchange Shares ....................... 10
How to Sell Shares ........................... 10
Distribution and Service Fees ................ 11
Other Information About Your Account ......... 12


MANAGING THE FUND                              14
- -------------------------------------------------
Investment Advisor ........................... 14
Portfolio Managers ........................... 14
Year 2000 Compliance ......................... 14


FINANCIAL HIGHLIGHTS                           15
- -------------------------------------------------


<PAGE>

- --------------------------------------------------------------------------------
           The Fund      NEWPORT TIGER FUND
- --------------------------------------------------------------------------------

[Begin Sidebar]

UNDERSTANDING TAX-MANAGED 
INVESTING


In managing the Fund, the advisor uses
investment strategies that are designed
to reduce (but not eliminate) the payment
by the fund of taxable distributions to
shareholders. These strategies include:
buying stocks that pay low dividends or no
dividends at all; maintaining a low portfo-
lio turnover rate which helps to minimize
the realization and distribution of taxable
gains; deferring the sale of a security until
the realized gain would qualify as a long-
term capital gain rather than a short-term 
capital gain; selling securities to create a
loss to offset gains realized on other secu-
rities; and selling the higher cost basis
portion of a security holding before the 
lower cost basis portion.


==============================================

[End Sidebar]


INVESTMENT GOALS
- --------------------------------------------------------------------------------

The Fund seeks capital appreciation.



PRIMARY INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

Under normal market conditions, the Fund invests primarily in stocks of
companies located in the nine Tiger countries of Asia. The Tigers of Asia are
Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand, Indonesia, China
and the Philippines. In selecting investments for the Fund, the advisor
typically purchases stocks of larger, well-established companies.


At times the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit. Taking a temporary defensive
position may prevent the Fund from achieving its investment objective.


In seeking to achieve its goal, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principle focus of the Fund and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's Statement of Additional Information (SAI), which you may obtain by
contacting Liberty Funds Distributor, Inc. (see back cover for address and phone
number). Approval by the Fund's shareholders is not required to modify or change
the Fund's goals or investment strategies.


PRIMARY INVESTMENT RISKS

- --------------------------------------------------------------------------------

The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or which could prevent the Fund from achieving its
goals.

Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.

Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. The liquidity of foreign securities may be more limited than
domestic securities, which means that the Fund may at times be unable to sell
foreign securities at desirable prices. Fluctuations in currency exchange rates
may impact the value of foreign securities. Brokerage commissions, custodial
fees and other fees are generally higher for foreign investments. In addition,
foreign governments may impose withholding taxes which would reduce the amount
of income available to distribute to shareholders. Other risks include the
following: possible delays in the settlement of transactions; less publicly
available information about companies; the impact of political, social or
diplomatic events; and possible seizure, expropriation or nationalization of the
company or its assets.

Because the Fund's investments are concentrated in the nine Tiger countries of
Asia, the Fund is particularly susceptible to regional risks. Events in any one
Tiger country may impact the other countries on the Southeast Asian region as a
whole. As a result events in the region will generally have a greater effect on
the Fund than if it were more geographically diversified, which may result in
greater losses and volatility. 



                                                                            ----
                                                                               2
<PAGE>

THE FUND Newport Tiger Fund


[Begin Sidebar]

UNDERSTANDING PERFORMANCE

Calendar-year total return shows the
Fund's Class A share performance for each
complete calendar year since it commenced
operations. It includes the effects of
Fund expenses, but not the effects of
sales charges. If sales charges were
included, these returns would be lower.

Average annual total return is a measure
of the Fund's performance over the past
one-, five- and ten-year (or life of
fund) periods. It includes the effects of
Fund expenses. The table shows each
class's returns with sales charges.


The Fund's return is compared to========.

================================================

[End Sidebar]


PERFORMANCE HISTORY
- --------------------------------------------------------------------------------

The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's total calendar-year returns for its Class A shares. The
performance table following the bar chart shows how the Fund's average annual
returns for all share classes compare with those of a broad measure of market
performance for one year, five years and the life of the Fund. The chart and
table are intended to illustrate some of the risks of investing in the Fund by
showing the changes in the Fund's performance. All returns include the
reinvestment of dividends and distributions. As with all mutual funds, past
performance does not predict the Fund's future performance. Performance results
include the effect of any expense reduction arrangements. If these arrangements
were not in place, then the performance results would have been lower. Any
expense reduction arrangements may be discontinued at any time.



- --------------------------------------------------------------------------------
  Calendar-Year Total Returns (Class A)
- --------------------------------------------------------------------------------

[Begin Bar Chart]

1989        0
1990      -15.14  
1991       26.02 
1992       22.02 
1993       75.33 
1994      -11.96  
1995       16.27 
1996       10.94 
1997      -33.95  
1998      -12.08  
    
[End Bar Chart]


Best quarter: 4th quarter 1998, xx%
Worst quarter: 3rd quarter 1998, -xx%




- --------------------------------------------------------------------------------
 Average Annual Total Returns -- for periods ended December 31, 1998
- --------------------------------------------------------------------------------




                                                        Since Inception
                                 1 Year     5 Years          (xxx)

 Class A (%)
- --------------------------------------------------------------------------------
 Class B(1) (%) 
- --------------------------------------------------------------------------------
 Class C(1) (%)
- --------------------------------------------------------------------------------
 Class T (%)
- --------------------------------------------------------------------------------
 S&P Index (%)
- --------------------------------------------------------------------------------
 Lipper Average(%)


(1) Class B and Class C share (newer class shares) performance information
    includes returns of the Fund's Class A shares (the oldest existing fund
    class) for periods prior to the inception of the newer class shares. These
    Class A share returns are not restated to reflect any differences in
    expenses (like Rule 12b-1 fees) between Class A shares and the newer class
    shares. If differences in expenses were reflected, the returns for periods
    prior to the inception of the newer class shares would be lower.


                                                                            ----
                                                                               3
<PAGE>

THE FUND Newport Tiger Fund


[Begin Sidebar]

UNDERSTAND EXPENSES 

Shareholder Fees are paid directly by
shareholders to the Fund's distributor.


Annual Fund Operating Expenses are
deducted from the Fund. They include
management and administration fees, 12b-1
fees, brokerage costs and administrative
costs, including pricing and custody
services.


Example Expenses helps you compare the
cost of investing in the Fund to the cost
of investing in other mutual funds. The
table does not take into account any
expense reduction arrangements discussed
in the footnotes to the Annual Fund
Operating Expenses table. It uses the
following hypothetical conditions:

o $10,000 initial investment

o 5% total return for each year

o Fund operating expenses remain the same

o No expense reductions in effect

=============================================

[End Sidebar]


YOUR EXPENSES
- --------------------------------------------------------------------------------

Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.




- --------------------------------------------------------------------------------
 Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                       Class A        Class B         Class C         Class T  
<S>                                                      <C>            <C>             <C>             <C>  
 Maximum sales charge (load) on purchases (%)                                                                  
 (as a percentage of the offering price)                 5.75           0.00            0.00            5.75   
- --------------------------------------------------------------------------------------------------------------
 Maximum deferred sales charge (load) on                                                                       
 redemptions (%) (as a percentage of the                                                                       
 offering price)                                         1.00(2)        5.00            1.00            1.00   
- --------------------------------------------------------------------------------------------------------------
 Maximum contingent redemption fee (%)(3)                2.00           2.00            2.00            2.00   
- --------------------------------------------------------------------------------------------------------------
 Redemption fee(1) (as a percentage of amount                                                                  
 redeemed, if applicable)                             None             None            None            None    
</TABLE>



- --------------------------------------------------------------------------------
 Annual Fund Operating Expenses (deducted directly from Fund assets)
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                       Class A        Class B         Class C         Class T  
<S>                                                      <C>            <C>             <C>             <C>  
 Management and administration fees (%)
- --------------------------------------------------------------------------------------------------------------
 Distribution and service (12b-1) fees (%)
- --------------------------------------------------------------------------------------------------------------
 Other expenses (%)
- --------------------------------------------------------------------------------------------------------------
 Total annual fund operating expenses (%)
</TABLE>



(1) There is a $7.50 charge for wiring sale proceeds to your bank.

(2) This charge applies only to purchases of $1 million to $5 million if shares
    obtained through these purchases are redeemed within 18 months after 
    purchase.

(3) A 2% contingent redemption fee is imposed on redemptions and exchanges of
    Fund shares purchased and held for five business days or less.



                                                                            ----
                                                                               4
<PAGE>

THE FUND Newport Tiger Fund



- --------------------------------------------------------------------------------
 Example Expenses (your actual costs may be higher or lower)
- --------------------------------------------------------------------------------


 Class                                        1 Year  3 Years  5 Years  10 Years
        
  Class A
- ---------------------------------------------
  Class B: did not sell your shares
       sold all your shares at the end of the
       period
- ---------------------------------------------
  Class C: did not sell your shares
       sold all your shares at the end of the
       period
- ---------------------------------------------
  Class T: did not sell your shares
       sold all your shares at the end of the
       period





                                                                            ----
                                                                               5
<PAGE>

- --------------------------------------------------------------------------------
                                  Your Account
- --------------------------------------------------------------------------------


[Begin Sidebar]

INVESTMENT MINIMUMS(1)

Initial Investment................$1,000
                                 
Subsequent Investments..............$250
                                 
Automatic Purchase Plans.............$50
                                 
Retirement Plans.....................$25
                             
[End Sidebar]


HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. In "good form" means that you placed your
order with your brokerage firm or your payment has been received and your
application is complete, including all necessary signatures.


- --------------------------------------------------------------------------------
 Outlined below are various ways you can purchase shares:
- --------------------------------------------------------------------------------


 Method                Instructions

 Through your          Your financial advisor can help you establish your 
 financial advisor     account and buy Fund shares on your behalf. 
- --------------------------------------------------------------------------------
 By check              For new accounts, send a completed application and check
 (new account)         made payable to the Fund to the transfer agent, Liberty 
                       Funds Services, Inc., P.O. Box 1722, Boston, MA 
                       02105-1722.
- --------------------------------------------------------------------------------
 By check              For existing accounts, fill out and return the additional
 (existing account)    investment stub included in your quarterly statement, or
                       send a letter of instruction including your Fund name and
                       account number with a check made payable to the Fund to
                       Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
                       02105-1722.
- --------------------------------------------------------------------------------
 By exchange           You may acquire shares by exchanging shares you own in 
                       the fund for shares of the same share class of the Fund
                       at no additional cost. To exchange by telephone, call
                       1-800-422-3737.
- --------------------------------------------------------------------------------
 By wire               You may purchase shares by wiring money from your bank 
                       account to your fund account. To wire funds to your fund
                       account, call 1-800-422-3737 to obtain a control number
                       and the wiring instructions.
- --------------------------------------------------------------------------------
 By electronic         You may purchase shares by electronically transferring 
 funds transfer        money from your bank account to your fund account by
 (EFT)                 calling 1-800-422-3737. Your money may  take up to two 
                       business days to be invested. You must set up this
                       feature prior to your telephone request. Be sure to
                       complete the appropriate section of the application.
- --------------------------------------------------------------------------------
 Automatic             You may make monthly or quarterly investments
 investment plan       automatically from your bank  account to your fund 
                       account. You can select a pre-authorized amount to be
                       sent via EFT. Be sure to complete the appropriate section
                       of the application for this feature.
- --------------------------------------------------------------------------------
 By dividend           You may automatically invest dividends distributed by one
 diversification       fund into the same class of shares of another fund at no
                       additional sales charge. To invest your dividends in
                       another fund, call 1-800-345-6611.



(1) The Fund reserves the right to change the investment minimums. The fund also
    reserves the right to refuse a purchase order for any reason, including if
    it believes that doing so would be in the best interest of the Fund and its
    shareholders.


                                                                            ----
                                                                               6
<PAGE>

Your Account


[Begin Sidebar]

CHOOSING A SHARE CLASS

The Fund offers four classes of shares in
this prospectus -- Class A, B, C, and T.
Each share class has its own sales charge
and expense structure. Determining which
share class is best for you depends on
the dollar amount you are investing and
the number of years for which you are
willing to invest. Purchases of more than
$250,000 but less than $1 million can
only be made in Class A, C or Class T
shares. Purchases of $1 million or more
are automatically invested in Class A, or
T shares. Based on your personal
situation, your investment advisor can
help you decide which class of shares
makes the most sense for you. Class T
shares may be purchased only by certain
shareholders of the predecessor Newport
Fund as of March 24, 1995.

The Fund also offers Class Z shares which
are exclusive to certain institutional
and other investors and are made
available through a separate prospectus.

============================================

[End Sidebar]


SALES CHARGES
- --------------------------------------------------------------------------------

You may be subject to an initial sales charge when you purchase, or a contingent
deferred sales charge (CDSC) when you sell, shares of the Fund. These sales
charges are described below. In certain circumstances these sales charges are
waived, as described below and in the SAI.

Class A shares Your purchases of Class A shares generally are at the Public
Offering Price (POP). This price includes a sales charge that is based on the
amount of your initial investment when you open your account. The sales charge
you pay on additional investments is based on the total amount of your purchase
and the current value of your account. The amount of the sales charge differs
depending on the amount you invest as shown in the table below. The table below
also show the commission paid to the financial advisor firm on sales of Class A
shares. 




- --------------------------------------------------------------------------------
 The Fund
- --------------------------------------------------------------------------------


                                                                        % of
                                                                      offering
                                        As a % of                      price
                                        the Public       As a %     retained by
                                         Offering        of your     financial
 Amount of Purchase                     Price (POP)    investment  advisor firm

 Less than $50,000                         5.75           6.10            5.00
- --------------------------------------------------------------------------------
 $50,000 to less than $100,000             4.50           4.71            3.75
- --------------------------------------------------------------------------------
 $100,000 to less than $250,000            3.50           3.63            2.75
- --------------------------------------------------------------------------------
 $250,000 to less than $500,000            2.50           2.56            2.00
- --------------------------------------------------------------------------------
 $500,000 to less than $1,000,000          2.00           2.04            1.75
- --------------------------------------------------------------------------------
 $1,000,000 or more(1)                     0.00           0.00            0.00
                                  

(1) Redemptions from Class A share accounts with shares valued between $1
    million and $5 million may be subject to a CDSC. Class A share purchases
    that bring your account value above $1 million are subject to a 1% CDSC if
    redeemed within 18 months of their purchase date. The 18-month period begins
    on the first day of the month following each purchase.


                                                                            ----
                                                                               7
<PAGE>
Your Account


[Begin Sidebar]

UNDERSTANDING CONTINGENT 
DEFERRED SALES CHARGES (CDSC)


Certain investments in Class A, B and C
shares are subject to a CDSC . You will
pay the CDSC only on shares you sell
within a certain amount of time after
purchase. The CDSC generally declines
each year until there is no charge for
selling shares. The CDSC is applied to
the NAV at the time of purchase or sale,
whichever is lower. For purposes of
calculating a CDSC, the start of the
holding period is the month-end of the
month in which the purchase is made.
Shares you purchase with reinvested
dividends or capital gains are not
subject to a CDSC. When you place an
order to sell shares, the Fund will
automatically sell first those shares not
subject to a CDSC and then those you have
held the longest. This policy helps
reduce and possibly eliminate the
potential impact of the CDSC.


============================================

[End Sidebar]

Class A Shares For Class A share purchases of $1 million or more, financial
advisors receive a commission from the Fund's distributor, Liberty Funds
Distributor, Inc. (LFD), as follows:

- --------------------------------------------------------------------------------
 Purchases Over $1 Million
- --------------------------------------------------------------------------------


 Amount Purchased                                                Commission %

 First $3 million                                                   1.00
- --------------------------------------------------------------------------------
 Next $2 million                                                    0.50
- --------------------------------------------------------------------------------
 Over $5 million                                                    0.25(1)
                                        


Reduced Sales Charges for Larger Investments There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge. In addition, certain investors may
purchase shares at a reduced sales charge or net asset value (NAV), which is the
value of the Fund share excluding any sales charges. See the Statement of
Additional Information for a description of these situations.


Class B shares Your purchases of Class B shares are at the Fund's NAV. Class B
shares have no front-end sales charge, but carry a CDSC, or back-end charge,
that is only imposed on shares sold prior to the completion of the periods shown
in the chart below. The CDSC generally declines each year and eventually
disappears over time. Class B shares automatically convert to Class A shares
after eight years. LFD pays the financial advisor firm an upfront commission of
5.00% on sales of Class B shares.



- --------------------------------------------------------------------------------
 The Fund
- --------------------------------------------------------------------------------


                                                           % deducted when
 Holding period after purchase                             shares are sold

 Through first year                                              5.00
- --------------------------------------------------------------------------------
 Through second year                                             4.00
- --------------------------------------------------------------------------------
 Through third year                                              3.00
- --------------------------------------------------------------------------------
 Through fourth year                                             3.00
- --------------------------------------------------------------------------------
 Through fifth year                                              2.00
- --------------------------------------------------------------------------------
 Through sixth year                                              1.00
- --------------------------------------------------------------------------------
 Longer than six years                                           0.00
                         

 (1) Paid over 12 months but only to the extent the shares remain outstanding.


                                                                            ----
                                                                               8
<PAGE>

Your Account



Class C shares Similar to Class B shares, your purchases of Class C shares are
at the Fund's NAV. Although Class C shares have no front-end sales charge, they
carry a CDSC of 1% that is applied to shares sold within the first year after
they are purchased. After holding shares for one year, you may sell them at any
time without paying a CDSC. LFD pays the financial advisor firm an upfront
commission of 1.00% on sales of Class C shares.

Class T shares. Class T shares may be purchased only by shareholders of the
predecessor Newport Fund as of March 24, 1995, who paid a sales charge when they
purchased their shares of the Fund and who continue to hold Class T shares at
the time of purchase. Class T shares are offered at the POP as follows:



- --------------------------------------------------------------------------------
 The Fund
- --------------------------------------------------------------------------------

                                                                       % of
                                                                     offering
                                         As a % of                     price
                                        the Public      As a %      retained by
                                         Offering       of your      financial
 Amount of Purchase                     Price (POP)    investment  advisor firm

 Less than $50,000                         5.75            6.10         5.00
- --------------------------------------------------------------------------------
 $50,000 to less than $100,000             4.50            4.71         3.75
- --------------------------------------------------------------------------------
 $100,000 to less than $250,000            3.50            3.63         2.75
- --------------------------------------------------------------------------------
 $250,000 to less than $500,000            2.50            2.56         2.00
- --------------------------------------------------------------------------------
 $500,000 to less than $1,000,000          2.00            2.04         1.75
- -------------------------------------------------------------------------------
 $1,000,000 or more(1)                     0.00            0.00         0.00
                                             


Class T Shares For Class A share purchases of $1 million or more, financial
advisors receive a commission from the LFD, as follows:



- --------------------------------------------------------------------------------
 Purchases Over $1 Million
- --------------------------------------------------------------------------------
 Amount Purchased                                           Commission %

 First $3 million                                               1.00
- --------------------------------------------------------------------------------
 Next $2 million                                                0.50
- --------------------------------------------------------------------------------
 Over $5 million                                                0.25(1)
               


(1) Redemptions from Class A share accounts with shares valued between $1
    million and $5 million may be subject to a CDSC. Class A share purchases
    that bring your account value above $1 million are subject to a 1% CDSC if
    redeemed within 18 months of their purchase date. The 18-month period begins
    on the first day of the month following each purchase.



                                                                            ----
                                                                               9
<PAGE>

Your Account



- --------------------------------------------------------------------------------
 The Fund
- --------------------------------------------------------------------------------



 Years after purchase                         % deducted when shares are sold
 Through first year                                        1.00
- --------------------------------------------------------------------------------
 Longer than one year                                      0.00


HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------

You may exchange your shares for shares of the same share class of another fund
distributed by LFD at NAV. Class T shares may be exchanged only into the Class A
shares of another fund distributed by LFD. If your shares are subject to a CDSC,
you will not be charged a CDSC upon the exchange. However, when you sell the
shares acquired through the exchange, the shares sold may be subject to a CDSC,
depending upon when you originally purchased the shares you exchanged. For
purposes of computing the CDSC, the length of time you have owned your shares
will be computed from the date of your original purchase and the applicable CDSC
will be the CDSC of the original fund. Unless your account is part of a
tax-deferred retirement plan, an exchange is a taxable event. Therefore, you may
realize a gain or a loss for tax purposes. The Fund may terminate your exchange
privilege if the advisor determines that your exchange activity is likely to
adversely impact the advisor's ability to manage the Fund. To exchange by
telephone, call 1-800-422-3737. 



HOW TO SELL SHARES
- --------------------------------------------------------------------------------

Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.

When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold and (iii) any other required documents are attached. For additional
documents required for sales by corporations, agents, fiduciaries and surviving
joint owners, please call 1-800-345-6611. Retirement Plan accounts have special
requirements, please call 1-800-799-7526 for more information. 


The Fund will generally send proceeds from the sale to you within seven days.
However, if you purchased your shares by check, the Fund may delay sending the
proceeds for up to 15 days after your initial purchase to protect against checks
that are returned.


Contingent Redemption Fee The Fund can experience substantial price fluctuations
and is intended for long-term investors. Short-term "market timers" who engage
in frequent purchases and redemptions can disrupt the Fund's investment program
and create additional transaction costs that are borne by all shareholders. The
Fund will assess a 



                                                                            ----
                                                                              10
<PAGE>

Your Account



redemption fee in the amount of 2.00% on redemptions and exchanges of Fund
shares purchased and held for five business days or less.

The contingent redemption fee will be paid to the Fund to help offset
transaction costs. The Fund will use the "first-in, first-out" (FIFO) method to
determine the five business day holding period. Under this method, the date of
the redemption or exchange will be compared with the earliest purchase date of
shares held in the account. If this holding period is five business days or
less, the contingent redemption fee will be assessed.

The contingent redemption fee does not apply to any shares purchased through the
reinvestment of dividends. The fee may not apply to omnibus accounts.



- --------------------------------------------------------------------------------
 Outlined below are the various options for selling shares:
- --------------------------------------------------------------------------------


Method               Instructions

 Through your        You may call your financial advisor to place your sell 
 financial advisor   order. To receive the  current trading day's price, your 
                     financial advisor firm must receive your request prior to
                     the close of the NYSE, usually 4:00 p.m. Eastern time.
- --------------------------------------------------------------------------------
 By exchange         You or your financial advisor may sell shares by exchanging
                     from the fund into the same share class of another fund at
                     no additional cost. To exchange by telephone, call
                     1-800-422-3737.
- --------------------------------------------------------------------------------
 By telephone        You or your financial advisor may sell shares by telephone 
                     and request that a check be sent to your address of record
                     by calling 1-800-422-3737. The dollar limit for telephone
                     sales is $100,000 in a 30-day period. You do not need to
                     set up this feature in advance of your call.
- --------------------------------------------------------------------------------
 By mail             You may send a signed letter of instruction (LOI) or stock 
                     power form along with any certificates to be sold to the
                     address below. In your LOI, note your fund's name, share
                     class, account number, and the dollar value or number of
                     shares you wish to sell. All account owners must sign the
                     letter, and signatures must be guaranteed by either a bank,
                     a member firm of a national stock exchange or another
                     eligible guarantor institution. Additional documentation is
                     required for sales by corporations, agents, fiduciaries,
                     surviving joint owners and individual retirement account
                     (IRA) owners. For details, call 1-800-345-6611. 
                     Mail your LOI to Liberty Funds Services, Inc., P.O. Box 
                     1722, Boston, MA 02105-1722.
- --------------------------------------------------------------------------------
 By wire             You may sell shares and request that the proceeds be wired 
                     to your bank. You must set up this feature prior to your
                     telephone request. Be sure to complete the appropriate
                     section of the account application for this feature.
- --------------------------------------------------------------------------------
 By electronic       You may sell shares and request that the proceeds be 
 funds transfer      electronically transferred to your bank. Proceeds may take 
                     up to two business days to be received by your bank. You
                     must set up this feature prior to your request. Be sure to
                     complete the appropriate section of the account application
                     for this feature.


DISTRIBUTION AND SERVICE FEES
- --------------------------------------------------------------------------------

The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A, B and C shares
and the services provided to you by your financial advisor. These annual
distribution and service fees may equal up to 0.25% for Class A shares and 1.00%
for each of Class B and Class C shares and are paid out of the assets of these
classes. Over time, these fees will increase the cost of your shares and may
cost you more than paying other types of sales charges.(1)


(1) Class B shares automatically convert to Class A after eight years,
    eliminating the distribution fee.


                                                                            ----
                                                                              11


<PAGE>

Your Account



OTHER INFORMATION ABOUT YOUR ACCOUNT

- --------------------------------------------------------------------------------
How the Fund's Share Price is Determined The price of each class of the Fund's
shares is based on its NAV. The NAV is determined at the close of the NYSE,
usually 4:00 p.m. Eastern time, on each business day that the NYSE is open
(typically Monday through Friday).


When you request a transaction, it will be processed at the NAV (plus any
applicable sales charges) next determined after your request is received in good
form by LFD. In most cases, in order to receive that day's price, LFD must
receive your order before that day's transactions are processed. If you request
a transaction through your financial advisor's firm, the firm must receive your
order by the close of trading on the NYSE to receive that day's price.


The Fund determines its NAV for each share class by dividing its total net
assets by the number of shares outstanding. In determining the NAV, the Fund
must determine the price of each security in its portfolio at the close of each
trading day. Securities for which market quotations are available are valued
each day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.


You can find the daily price of many share classes for the Fund in most major
daily newspapers. You can find daily prices for all share classes by visiting
the Fund's website at www.libertyfunds.com.


Account Fees If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.


Share Certificates Share certificates are not available for Class B, C and T
shares. Certificates will be issued for Class A shares only if requested. If you
decide to hold share certificates, you will not be able to sell your shares
until you have endorsed your certificates and returned them to LFD.



                                                                            ----
                                                                              12
<PAGE>

Your Account



[Begin Sidebar]

UNDERSTANDING FUND
DISTRIBUTIONS

The Fund earns income from the securities
it holds. The Fund also may experience
capital gains and losses on sales of its
securities. The Fund distributes
substantially all of its net investment
income and capital gains to shareholders.
As a shareholder, you are entitled to a
portion of the Fund's income and capital
gains based on the number of shares you
own at the time these distributions are
declared.

============================================
[End Sidebar]


Dividends, Distributions, and Taxes The Fund has the potential to make the
following distributions:


- --------------------------------------------------------------------------------
 Types of Distributions
- --------------------------------------------------------------------------------



 Dividend/ordinary      Represents interest and dividends earned from securities
 income                 held by the Fund.   
- --------------------------------------------------------------------------------
 Capital gains          Represents capital gains on sales of securities.




Distribution Options The Fund distributes any dividends and capital gains at
least annually. You can choose one of following options for these distributions
when you open your account.(1) To change your distribution option call
1-800-345-6611.


- --------------------------------------------------------------------------------
 Distribution Options
- --------------------------------------------------------------------------------


                                                                       
 Reinvest all distributions in additional shares of your current fund
- --------------------------------------------------------------------------------
 Reinvest all distributions in shares of another fund
- --------------------------------------------------------------------------------
 Receive dividends in cash and  reinvest capital gains(2)
- --------------------------------------------------------------------------------
 Receive all distributions in cash (which one of the following options):(2)

o send the check to your address of record 
o send the check to a third party address
o transfer the money to your bank via electronic funds transfer (EFT)


Tax Consequences Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.


In general, any dividends and short-term capital gains distributions are taxable
as ordinary income. Distributions of long-term capital gains are generally
taxable as capital gains. You will be provided with information each year
regarding the amount of ordinary income and capital gains distributed to you for
the previous year and any portion of your distribution which is exempt from
state and local taxes. Your investment in the Fund may have additional personal
tax implications. Please consult your tax advisor on state, local or other
applicable tax laws.

In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal income tax.


(1) If you do not indicate on your application your preference for handling
    distributions, the Fund will automatically reinvest all distributions in
    additional shares of the Fund.

(2) Distributions of $10 or less will automatically be reinvested in
    additional Fund shares. If you elect to receive distributions by check and
    and the check is returned as undeliverable, or if you do not cash a
    distribution check within six months of the check date, the distribution
    will be reinvested in additional shares of the Fund.


                                                                            ----
                                                                              13
<PAGE>

- --------------------------------------------------------------------------------
                                Managing the Fund
- --------------------------------------------------------------------------------


INVESTMENT ADVISOR
- --------------------------------------------------------------------------------


Newport Fund Management, Inc. (Newport) located at 580 California Street, Suite
1960, San Francisco, CA 94104, is the Fund's investment advisor. In its duties
as investment advisor, Newport runs the Fund's day-to-day business, including
placing all orders for the purchase and sale of the Fund's portfolio securities.
Newport has been an investment advisor since 1987. As of February 28, 1999,
Newport managed over $xx billion in assets. 

For the 1998 fiscal year, aggregate advisory fees paid to Newport by the Fund
amounted to xx% of average daily net assets of the Fund.


PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------

Robert B. Cameron, Christopher Legallet, John M. Mussey and Thomas R. Tuttle
co-manage Fund.


Messrs. Mussey, President, and Tuttle, Senior Vice President, of Newport, have
each co-managed the Fund since 1989 and 1995, respectively. Messrs. Mussey and
Tuttle also are President and Director, and Senior Vice President, respectively,
of Newport Pacific Management, Inc., Newport's immediate parent, and have each
managed other funds or accounts on their behalf since 1983.

Mr. Cameron, Senior Vice President of Newport, has managed the Fund since
October 1998. Prior to joining Newport in 1996, Mr. Cameron was a branch
manager-equity sales at CS First Boston, Swiss Bank Corp. and Barings
Securities.


Mr. Legallet, Senior Vice President of Newport, has managed the Fund since
October 1998. He has been affiliated with Newport since 1997. Prior to his
affiliation with Newport, Mr. Legallet was a Managing Director of Jupiter
Tyndall (Asia) Ltd. in Hong Kong serving as lead manager for investment in
Asia.


YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------

Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the advisor and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's advisor,
administrator, distributor, and transfer agent (Liberty Companies) are taking
steps that they believe are reasonably designed to address the Year 2000
Problem, including communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and data can be
properly processed after January 1, 2000. Many Fund service providers and
vendors, including the Liberty Companies, are in the process of making Year 2000
modifications to their software and systems and believe that such modifications
will be completed on a timely basis prior to January 1, 2000. 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 Fund will not be adversely affected.


                                                                            ----
                                                                              14
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------


The financial highlights table is intended to help you understand the Fund's
financial performance. Information is shown for the Fund's last five fiscal
years, which run from January 1 to December 31. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been derived from the Fund's financial statements which have
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the Fund's financial statements, is included in the Fund's
annual report. The information presented for each period throughout December 31,
1994 has been audited by Tait, Weller and Baker, independent accountants, whose
report expressed an unqualified opinion on the financial highlights. You can
request a free annual report by calling 1-800-426-3750.




- --------------------------------------------------------------------------------
 The Fund
- --------------------------------------------------------------------------------




                                                                            ----
                                                                              15
<PAGE>


- --------------------------------------------------------------------------------
                                     Notes
- --------------------------------------------------------------------------------


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                                                                            ----
                                                                              16
<PAGE>

- --------------------------------------------------------------------------------
Notes
- --------------------------------------------------------------------------------


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                                                                            ----
                                                                              17
<PAGE>

- --------------------------------------------------------------------------------
Notes
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
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                                                                            ----
                                                                              18
<PAGE>

FOR MORE INFORMATION
- --------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.


You may wish to read the SAI for more information on the Fund and the securities
in which it invests. The SAI is incorporated into this prospectus by reference,
which means that it is considered to be part of this prospectus.


You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by writing or calling the Fund's
distributor at:

Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com

Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.

You can review and copy information about the Fund by visiting the following
location, and you can obtain copies, upon payment of a duplicating fee, by
writing or calling the:


Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.



Investment Company Act file numbers:

Colonial Trust VII: 811-6347

o Newport Tiger Fund


- --------------------------------------------------------------------------------

[Liberty Logo]

COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR

Liberty Funds Distributor, Inc. [copyright symbol]1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com

[End Liberty Logo]



NT-01/xxx-399


                               COLONIAL TRUST VII

                  Cross Reference Sheet Pursuant to Rule 481(a)
                               Newport Tiger Fund
                                     Class Z



Item Number of Form N-1A     Prospectus Location or Caption

Part A

1.                           Front Cover Page; Back Cover Page

2.                           The Fund; Other Investment Strategies and Risks

3.                           The Fund

4.                           The Fund

5.                           Not Applicable

6.                           Front Cover; Managing the Fund; Your Account

7.                           Your Account

8.                           The Fund; Your Account

9.                           Financial Highlights




<PAGE>
- --------------------------------------------------------------------------------
NEWPORT TIGER FUND Prospectus, April 30, 1999
- --------------------------------------------------------------------------------


[bullet] CLASS Z SHARES

Advised by Newport Fund Management, Inc.



The following eligible institutional investors may purchase Class Z shares: (i)
any retirement plan with aggregate assets of at least $5 million at the time of
purchase of Class Z shares and which purchases shares directly from Liberty
Funds Distributor, Inc. (LFD) or through a third party broker-dealer, (ii) any
insurance company, trust company or bank purchasing shares for its own account;
and (iii) any endowment, investment company or foundation. In addition, Class Z
shares may be purchased directly or by exchange by any clients of investment
advisor affiliates of LFD provided that these clients meet certain criteria
established by LFD and its affiliates.


Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved any shares offered in this
prospectus or determined whether this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.


- --------------------------------------------------------------------------------
T A B L E   O F   C O N T E N T S




<TABLE>
<S>                                              <C>
THE FUND
- ----------------------------------------------
Investment Goals .............................   2
Primary Investment Strategies ................   2
Primary Investment Risks .....................   2
Performance History ..........................   4
Your Expenses ................................   5


YOUR ACCOUNT
- -----------------------------------------------
How to Buy Shares ............................   6
Sales Charges ................................   7
How to Exchange Shares .......................   7
How to Sell Shares ...........................   7
Other Information About Your Account .........   9


</TABLE>
<TABLE>
<S>                                              <C>
MANAGING THE FUND
- -----------------------------------------------
Investment Advisor ...........................   11
Portfolio Managers ...........................   11
Year 2000 Compliance .........................   11


FINANCIAL HIGHLIGHTS
- -----------------------------------------------
</TABLE>



- ------------------------------------------
|                    |  MAY LOSE VALUE    |
|  NOT FDIC-INSURED  | NO BANK GUARANTEE  |
- ------------------------------------------

<PAGE>


- --------------------------------------------------------------------------------
The Fund NEWPORT TIGER FUND
- --------------------------------------------------------------------------------



UNDERSTANDING TAX-MANAGED INVESTING
In managing the Fund, the advisor uses investment strategies that are designed
to reduce (but not eliminate) the payment by the Fund of taxable distributions
to shareholders. These strategies include:
buying stocks that pay low dividends or no dividends at all; maintaining a low
portfolio turnover rate which helps to minimize the realization and distribution
of taxable gains; deferring the sale of a security until the realized gain would
qualify as a long-term capital gain rather than a short-term capital gain;
selling securities to create a loss to offset gains realized on other
securities; and selling the higher cost basis portion of a security holding
before the lower cost basis portion.
- --------------------------------------------------------------------------------

INVESTMENT GOALS
- --------------------------------------------------------------------------------
The Fund seeks capital appreciation.



PRIMARY INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Under normal market conditions, the Fund invests primarily in stocks of
companies located in the nine Tiger countries of Asia. The Tigers of Asia are
Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand, Indonesia, China
and the Philippines. In selecting investments for the Fund, the advisor
typically purchases stocks of larger, well-established companies.

At times the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not rered to, invest in cash or high quality,
short-term debt securities, without limit. Taking a temporary defensive position
may prevent the Fund from achieving its investment objective.

In seeking to achieve its goal, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principal focus of the Fund and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's Statement of Additional Information (SAI), which you may obtain by
contacting Liberty Funds Distributor, Inc. (see back cover for address and phone
number). Approval by the Fund's shareholders is not required to modify or change
the Fund's goals or investment strategies.


PRIMARY INVESTMENT RISKS
- --------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or which could prevent the Fund from achieving its
goals.

Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.

Foreign securities are subject to special risks. Foreign stock markets can be
extremely volatile. The liquidity of foreign securities may be more limited than
domestic securities, which means that the Fund may at times be unable to sell
foreign securities at desirable prices. Fluctuations in currency exchange rates
may impact the value of foreign securities. Brokerage commissions, custodial
fees and other fees are generally higher for foreign investments. In addition,
foreign governments may impose withholding taxes which would reduce the amount
of income available to distribute to shareholders. Other risks include the
following: possible delays in the settlement of transactions; less publicly
available information about companies; the impact of political, social or
diplomatic events; and possible seizure, expropriation or nationalization of the
company or its assets.


                                                                           ----
                                                                              2
<PAGE>


- --------------------------------------------------------------------------------
The Fund NEWPORT TIGER FUND
- --------------------------------------------------------------------------------

Because the Fund's investments are concentrated in the nine Tiger countries of
Asia, the Fund is particularly susceptible to regional risks. Events in any one
Tiger country may impact the other countries on the Southeast Asian region as a
whole. As a result events in the region will generally have a greater effect on
the Fund than if it were more geographically diversified, which may result in
greater losses and volatility.


                                                                           ----
                                                                               3
<PAGE>

NEWPORT TIGER FUND



UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
complete calendar year since it commenced operations. It includes the effects of
Fund expenses, but not the effects of sales charges.

Average annual total return is a measure of the Fund's performance over the past
one-, five- and ten-year (or life of fund) periods. It includes the effects of
fund expenses. The table shows Class Z returns with sales charges.

The Fund's return is compared to _______.

- ------------------------------------

PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's total calendar-year returns for its Class Z shares. The
performance table following the bar chart shows how the Fund's average annual
returns for all share classes compare with those of a broad measure of market
performance for one year and the life of the Fund. The chart and table are
intended to illustrate some of the risks of investing in the Fund by showing the
changes in the Fund's performance. All returns include the reinvestment of
dividends and distributions. As with all mutual funds, past performance does not
predict the Fund's future performance. Performance results include the effect of
any expense reduction arrangements. If these arrangements were not in place,
then the performance results would have been lower. Any expense reduction
arrangements may be discontinued at any time.


- --------------------------------------------------------------------------------
Calendar-Year Total Returns (Class Z)
- --------------------------------------------------------------------------------




[GRAPHIC OMITTED: Bar Chart]


<TABLE>
<S>     <C>
1989
1990    -15.14%
1991     26.02%
1992     20.02%
1993     75.33%
1994    -11.96%
1995     16.28%
1996     11.24%
1997    -33.76%
1998    -12.09%
</TABLE>

Best quarter: 4th quarter 1998, +xx%
Worst quarter: 3rd quarter 1998, -xx%


     Average Annual Total Returns -- for periods ended December 31, 1998




<TABLE>
<CAPTION>
                                                 Since Inception
                         1 Year     5 years     (December 6, 1996)
<S>                     <C>        <C>         <C>
 Class Z (%)
 S&P Index (%)
 Lipper Average (%)

</TABLE>



                                                                           ----
                                                                               4
<PAGE>

THE FUND Newport Tiger Fund



UNDERSTAND EXPENSES

Shareholder Fees are paid directly by shareholders to the Fund's distributor.

Annual Fund Operating Expenses are deducted from the Fund. They include
management and administration fees, brokerage costs and administrative costs,
including pricing and custody services.

Example Expenses helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:

[bullet] $10,000 initial investment

[bullet] 5% total return for each year

[bullet] Fund operating expenses remain the same

[bullet] No expense reductions in effect
- ----------------------------------------------------------------------------

YOUR EXPENSES
- --------------------------------------------------------------------------------

Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.


- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                   Class Z
<S>                                                                 <C>
 Maximum sales charge (load) on purchases (%)
 (as a percentage of the offering price)                            0.00
 Maximum deferred sales charge (load) on
 redemptions (%) (as a percentage of the offering price)            0.00
 Maximum contingent redemption fee(%)(2)                            2.00
- ----------------------------------------------------------          ----
 Redemption fee(1) (as a percentage of amount
 redeemed, if applicable)                                           None
</TABLE>


- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                   Class Z
<S>                                                                 <C>
 Management and administration fees (%)
 Distribution and service (12b-1) fees (%)
 Other expenses (%)
 Total annual fund operating expenses (%)
</TABLE>


- --------------------------------------------------------------------------------
Example Expenses (your actual costs may be higher or lower)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class       1 Year   3 Years   5 Years   10 Years
<S>            <C>      <C>       <C>       <C>
 Class Z       $        $         $         $

</TABLE>

(1) There is a $7.50 charge for wiring sale proceeds to your bank.


(2) A 2% contingent redemption fee is imposed on redemptions and exchanges of
    Fund shares purchased and held for five business days or less.


                                                                       --------
                                                                               5
<PAGE>


- --------------------------------------------------------------------------------
Your Account
- --------------------------------------------------------------------------------


HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated price. In "good form" means that you placed your order with your
brokerage firm or your payment has been received and your application is
complete, including all necessary signatures.


- --------------------------------------------------------------------------------
Outlined below are various ways you can purchase shares:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Method                Instructions
<S>                   <C>
Through your         Your financial advisor can help you establish your account
financial advisor    and buy Fund shares on your behalf.
- --------------------------------------------------------------------------------
By check             For new accounts, send acompleted application and check
(new account)        made payable to the Fund to the transfer agent, Liberty
                     Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-1722.
- --------------------------------------------------------------------------------
By check             For existing accounts, fill out and return the additional
(existing account)   investment stub included in your quarterly statement, or
                     send a letter of instruction including your Fund name and
                     account number with a check made payable to the Fund to
                     Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
                     02105-1722.
- --------------------------------------------------------------------------------
By exchange          You may acquire shares by exchanging shares you own in the
                     fund for shares of the same share class of the Fund or
                     Class A of another fund at no additional cost. To exchange
                     by telephone, call 1-800-422-3737.
- --------------------------------------------------------------------------------
By wire              You may purchase shares by wiring money from your bank
                     account to your fund account. To wire funds to your fund
                     account, call 1-800-422-3737 to obtain a control number and
                     the wiring instructions.
- --------------------------------------------------------------------------------
By electronic        You may purchase shares by electronically transferring
funds transfer       money from your bank account to your fund account by
(EFT)                calling 1-800-422-3737. Your money may take up to two
                     business days to be invested. You must set up this feature
                     prior to your telephone request. Be sure to complete the
                     appropriate section of the application.
- --------------------------------------------------------------------------------
Automatic            You may make monthly or quarterly investments automatically
investment plan      from your bank account to your fund account. You can select
                     a pre-authorized amount to be sent via EFT. Be sure to
                     complete the appropriate section of the application for
                     this feature.
- --------------------------------------------------------------------------------
By dividend          You may automatically invest dividends distributed by one
diversification      fund into the same class of shares of another fund at no
                     additional sales charge. To invest your dividends in
                     another fund, call 1-800-345-6611.
</TABLE>



                                                                           ----
                                                                               6
<PAGE>

Your Account



CHOOSING A SHARE CLASS

The Fund offers one class of shares in this prospectus -- Class Z.

The Fund also offers four additional classes of shares - Classes A, B, C and T.
Each share class has its own sales charge and expense structure. Determining
which share class is best for you depends on the dollar amount you are
investing and the number of years for which you are willing to invest. Shares
of Classes A, B, C and T are made available through a separate prospectus.
Based on your personal situation, your investment advisor can help you decide
which class of shares makes the most sense for you.
- --------------------------------------------------------------------------------


SALES CHARGES
- --------------------------------------------------------------------------------
Your purchases of Class Z shares generally are at net asset value (NAV), which
is the value of the Fund share excluding any sales charges, and are not subject
to an initial sales charge when you purchase, or a contingent deferred sales
charge when you sell, shares of the Fund. The following eligible institutional
investors may purchase Class Z shares: (i) any retirement plan with aggregate
assets of at least $5 million at the time of purchase of Class Z shares and
which purchases shares directly from LFD or through a third party broker-dealer,
(ii) any insurance company, trust company or bank purchasing shares for its own
account; and (iii) any endowment, investment company or foundation. In addition,
Class Z shares may be purchased directly or by exchange by any clients of
investment advisory affiliates of LFD provided that these clients meet certain
criteria established by LFD and its affiliates.



HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
or Class A shares of another fund distributed by LFD at NAV. Unless your account
is part of a tax-deferred retirement plan, an exchange is a taxable event.
Therefore, you may realize a gain or a loss for tax purposes. The Fund may
terminate your exchange privilege if the advisor determines that your exchange
activity is likely to adversely impact the advisor's ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.



HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.

When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements; please call 1-800-799-7526 for more information.

The Fund will generally send proceeds from the sale to you within seven days.
However, if you purchased your shares by check, the Fund may delay sending the
proceeds for up to 15 days after your initial purchase to protect against checks
that are returned.

Contingent Redemption Fee The Fund can experience substantial price fluctuations
and is intended for long-term investors. Short-term "market timers" who engage
in frequent purchases and redemptions can disrupt the Fund's investment program
and create addi-


                                                                           ----
                                                                               7
<PAGE>

Your Account

tional transaction costs that are borne by all shareholders. The Fund will
assess a redemption fee in the amount of 2.00% on redemptions and exchanges of
Fund shares purchased and held for five business days or less.

The contingent redemption fee will be paid to the Fund to help offset
transaction costs. The Fund will use the "first-in, first-out" (FIFO) method to
determine the five business day holding period. Under this method, the date of
the redemption or exchange will be compared with the earliest purchase date of
shares held in the account. If this holding period is five business days or
less, the contingent redemption fee will be assessed.

The contingent redemption fee does not apply to any shares purchased through the
reinvestment of dividends. The fee may not apply to omnibus accounts.


- --------------------------------------------------------------------------------
Outlined below are the various options for selling shares:
- --------------------------------------------------------------------------------



<TABLE>
<CAPTION>
Method               Instructions
<S>                  <C>
Through your         You may call your financial advisor to place your sell
financial advisor    order. To receive the current trading day's price, your
                     financial advisor firm must receive your request prior to
                     the close of the New York Stock Exchange (NYSE), usually
                     4:00 p.m Eastern time.
- --------------------------------------------------------------------------------
 By exchange         You or your financial advisor may sell shares by exchanging
                     from the Fund into Class Z shares or Class A shares of
                     another fund at no additional cost. To exchange by
                     telephone, call 1-800-422-3737.
- --------------------------------------------------------------------------------
 By telephone        You or your financial advisor may sell shares by telephone 
                     and request that a check be sent to your address of record 
                     by calling 1-800-422-3737. The dollar limit for telephone
                     sales is $100,000 in a 30-day period. You do not need to
                     set up this feature in advance of your call.
- --------------------------------------------------------------------------------
 By mail             You may send a signed letter of instruction (LOI) or stock
                     power form to be sold to the address below. In your LOI,
                     note your fund's name, share class, account number, and the
                     dollar value or number of shares you wish to sell. All
                     account owners must sign the letter, and signatures must be
                     guaranteed by either a bank, a member firm of a national
                     stock exchange or another eligible guarantor institution.
                     Additional documentation is required for sales by
                     corporations, agents, fiduciaries, surviving joint owners
                     and individual retirement account (IRA) owners. For
                     details, call 1-800-345-6611.

                     Mail your LOI to Liberty Funds Services, Inc., P.O. Box
                     1722, Boston, MA 02105-1722.
- --------------------------------------------------------------------------------
By wire              You may sell shares and request that the proceeds be
                     wired to your bank. You must set up this feature prior to
                     your telephone request. Be sure to complete the appropriate
                     section of the account application for this feature.
- --------------------------------------------------------------------------------
By electronic        You may sell shares and request that the proceeds be
funds transfer       electronically transferred to your bank. Proceeds may take
                     up to two business days to be received by your bank. You
                     must set up this feature prior to your request. Be sure to
                     complete the appropriate section of the account application
                     for this feature.
</TABLE>



                                                                           ----
                                                                               8
<PAGE>

Your Account

OTHER INFORMATION ABOUT YOUR ACCOUNT
- --------------------------------------------------------------------------------
How the Fund's Share Price is Determined The price of the Fund's Class Z shares
is based on its NAV. The NAV is determined at the close of the NYSE, usually
4:00 p.m. Eastern time, on each business day that the NYSE is open (typically
Monday through Friday).

When you request a transaction, it will be processed at the NAV next determined
after your request is received in good form by LFD. In most cases, in order to
receive that day's price, LFD must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor's firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.

The Fund determines its NAV for its Class Z shares by dividing total net assets
attributable to Class Z shares by the number of shares outstanding. In
determining the NAV, the Fund must determine the price of each security in its
portfolio at the close of each trading day. Securities for which market
quotations are available are valued each day at the current market value.
However, where market quotations are unavailable, or when the advisor believes
that subsequent events have made them unreliable, the Fund may use other data to
determine the fair value of the securities.

You can find the daily price of many share classes of the Fund in most major
daily newspapers. You can find daily prices for all share classes by visiting
the Fund's website at www.libertyfunds.com.

Account Fees If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.

Share Certificates Share certificates are not available for Class Z shares.

                                                                           ----
                                                                               9
<PAGE>

Your Account



UNDERSTANDING FUND
DISTRIBUTIONS
The Fund earns income from the securities it
holds. The fund also may experience capital gains and losses on sales of its
securities. The Fund distributes substantially all of its net investment income
and capital gains to shareholders. As a shareholder, you are entitled to a
portion of the Fund's income and capital gains based on the number of shares you
own at the time these distributions are declared.
- ----------------------------------------------------------------------------

Dividends, Distributions, and Taxes The Fund has the potential to make the
following distributions:


- --------------------------------------------------------------------------------
Types of Distributions
- --------------------------------------------------------------------------------
<TABLE>
<S>              <C>
Dividend/        Represents interest and dividends earned from securities held
ordinary         by the Fund.
income
- --------------------------------------------------------------------------------
 Capital gains   Represents capital gains on sales of securities.
</TABLE>

Distribution Options The Fund distributes any dividends and capital gains at
least annually. You can choose one of following options for these distributions
when you open your account.(1) To change your distribution option call
1-800-345-6611.


- --------------------------------------------------------------------------------
Distribution Options
- --------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
- --------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
- --------------------------------------------------------------------------------
Receive dividends in cash and reinvest capital gains(2)
- --------------------------------------------------------------------------------
Receive all distributions in cash (which one of the following options):(2)
- --------------------------------------------------------------------------------

[bullet] send the check to your address of record 
[bullet] send the check to a third party address
[bullet] transfer the money to your bank via electronic funds transfer (EFT)

Tax Consequences Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.

In general, any dividends and short-term capital gains distributions are taxable
as ordinary income. Distributions of long-term capital gains are generally
taxable as capital gains. You will be provided with information each year
regarding the amount of ordinary income and capital gains distributed to you for
the previous year and any portion of your distributions which is exempt from
state and local taxes. Your investment in the Fund may have additional personal
tax implications. Please consult your tax advisor on state, local or other
applicable tax laws.

In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal income tax.


(1)   If you do not indicate on your application your preference for handling
      distributions, the Fund will automatically reinvest all distributions in
      additional shares of the Fund.

(2)   Distributions of $10 or less will automatically be reinvested in
      additional Fund shares. If you elect to receive distributions by check and
      the check is returned as undeliverable, or if you do not cash a
      distribution check within six months of the check date, the distribution
      will be reinvested in additional shares of the Fund.


                                                                       --------
                                                                              10
<PAGE>


- --------------------------------------------------------------------------------
Managing the Fund
- --------------------------------------------------------------------------------

INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Newport Fund Management, Inc. (Newport) located at 580 California Drive, Suite
1960, San Francisco, CA 94104, is the Fund's investment advisor. In its duties
as investment advisor, Newport runs the Fund's day-to-day business, including
placing all orders for the purchase and sale of the Fund's portfolio securities.
Newport has been an investment advisor since 1987. As of February 28, 1999,
Newport managed over $xx billion in assets.

For the 1998 fiscal year, aggregate advisory fees paid to Newport by the Fund
amounted to 0.xx% of average daily net assets of the Fund.


PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
Robert B. Cameron, Christopher Legallet, John M. Mussey and Thomas R. Tuttle
co-manage the Fund.

Messrs. Mussey, President, and Tuttle, Senior Vice President, of Newport, have
each co-managed the Fund since 1989 and 1995, respectively. Messrs. Mussey and
Tuttle also are President and Director, and Senior Vice President, respectively,
of Newport Pacific Management, Inc., Newport's immediate parent, and have each
managed other funds or accounts on their behalf since 1983.

Mr. Cameron, Senior Vice President of Newport, has managed the Fund since
October 1998. Prior to joining Newport in 1996, Mr. Cameron was a branch
manager-equity sales at CS First Boston, Swiss Bank Corp. and Barings
Securities.

Mr. Legallet, Senior Vice President of Newport, has managed the Fund since
October 1998. He has been affiliated with Newport since 1997. Prior to his
affiliation with Newport, Mr. Legallet was a Managing Director of Jupiter
Tyndall (Asia) Ltd. in Hong Kong serving as lead manager for investment in
Asia.


YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the advisor and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's advisor,
administrator, distributor, and transfer agent (Liberty Companies) are taking
steps that they believe are reasonably designed to address the Year 2000
Problem, including communicating with vendors who furnish services, software and
systems to the Funds, to provide that date-related information and data can be
properly processed after January 1, 2000. Many Fund service providers and
vendors, including the Liberty Companies, are in the process of making Year 2000
modifications to their software and systems and believe that such modifications
will be completed on a timely basis prior to January 1, 2000. 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 Fund will not be adversely affected.


                                                                           ----
                                                                              11
<PAGE>


- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

The financial highlights table is intended to help you understand the Fund's
financial performance. Information is shown for the Fund's last five fiscal
years which run from January 1 to December 31. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Fund's annual report. The information presented for each period
throughout December 31, 1994 has been audited by Tait, Weller and Baker,
independent accountants, whose report expressed an unqualified opinion on the
financial highlights. You can request a free annual report by calling
1-800-426-3750.


- --------------------------------------------------------------------------------
The Fund
- --------------------------------------------------------------------------------



                                                                             --
                                                                              12
<PAGE>


Notes

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                                                                           ----
                                                                              13
<PAGE>

Notes

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                                                                           ----
                                                                              14
<PAGE>

Notes

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                                                                           ----
                                                                              15
<PAGE>

FOR MORE INFORMATION
- --------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.

You may wish to read the SAI for more information on the Funds and the
securities in which it invests. The SAI is incorporated into this prospectus by
reference, which means that it is considered to be part of this prospectus.

You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund's distributor at:

Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com

Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.

You can review and copy information about the Fund by visiting the following
location, and you can also obtain copies, upon payment of a duplicating fee, by
writing or calling the following:

Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009

Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.


Investment Company Act file numbers:


Colonial Trust VII 811-6347

o Newport Tiger Fund

- --------------------------------------------------------------------------------


Liberty Logo[ L I B E R T Y
               COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR

               Liberty Funds Distributor, Inc. [copyright] 1999
               One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
               Visit us at www.libertyfunds.com

NT-01/xx-0399


                               COLONIAL TRUST VII

                  Cross Reference Sheet Pursuant to Rule 481(a)
                               Newport Tiger Fund


                     Location or Caption in Statement of Additional Information
Item Number of Form N-1A

Part B

10.                   Cover Page; Table of Contents

11.                   Organization and History

12.                   Investment Objective and Policies; Fundamental Investment
                      Policies; Other Investment Policies; Miscellaneous 
                      Investment Practices

13.                   Fund Charges and Expenses

14.                   Fund Charges and Expenses

15.                   Fund Charges and Expenses

16.                   Fund Charges and Expenses; Management of the Funds

17.                   Management of the Funds

18.                   Shareholder Meetings; Shareholder Liability

19.                   Taxes

20.                   Fund Charges and Expenses; Management of the Funds

21.                   Investment Performance; Performance Measures

22.                   Independent Accountants



<PAGE>

                               NEWPORT TIGER FUND
                       Statement of Additional Information
   
                                 April 30, 1999
    
   
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Newport Tiger
Fund (Fund).  This SAI is not a prospectus  and is authorized  for  distribution
only when  accompanied or preceded by the Prospectus of the Fund dated April 30,
1999.  This SAI should be read together with the  Prospectus and the Fund's most
recent Annual Report dated  December 31, 1998.  Investors may obtain a free copy
of the  Prospectus and the Annual Report from Liberty Funds  Distributor,  Inc.,
One Financial Center, Boston, MA 02111-2621. The financial statements and Report
of Independent  Accountants appearing in the October 31, 1998 Annual Report, are
incorporated  in this SAI by  reference.  The Fund is the successor by merger to
the Newport Tiger Fund (predecessor Newport Fund). This merger occurred on March
24, 1995.  All  references  to the Fund as of a time prior to such date shall be
deemed to refer to the predecessor Newport Fund.
    
   
Part 1 of this SAI contains specific information about the Fund. Part 2 includes
information  about  the  funds  distributed  by  LFD  generally  and  additional
information about certain securities and investment  techniques described in the
Fund's Prospectus.
    

TABLE OF CONTENTS

      Part 1                                                        Page

   
      Definitions
      Organization and History
      Investment Objective and Policies
      Fundamental Investment Policies
      Other Investment Policies
      Fund Charges and Expenses
      Investment Performance
      Custodian
      Independent Accountants
      Management of the Fund
    

      Part 2
   
      Miscellaneous Investment Practices
      Taxes
      Management of the Funds
      Determination of Net Asset Value
      How to Buy Shares
      Special Purchase Programs/Investor Services
      Programs for Reducing or Eliminating Sales Charges
      How to Sell Shares
      Distributions
      How to Exchange Shares
      Suspension of Redemptions
      Shareholder Liability
      Shareholder Meetings
      Performance Measures
      Appendix I
      Appendix II

    
NT-



<PAGE>


                                     PART I
                               NEWPORT TIGER FUND
                       Statement of Additional Information
   
                                 April 30, 1999
    

DEFINITIONS
 "Trust"          Colonial Trust VII
 "Fund"           Newport Tiger Fund
   
 "Advisor"        Newport Fund Management, Inc., the Fund's investment advisor
 "Administrator"  Colonial Management Associates, Inc., the Fund's administrator
 "LFD"            Liberty Funds Distributor, Inc., the Fund's distributor
 "LFSI"           Liberty Funds Services, Inc., the Fund's shareholder services 
                  and transfer agent
    
   
ORGANIZATION AND HISTORY
The  Trust  is a  Massachusetts  business  trust  organized  in  1986.  The 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 the Fund and 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 Part 2 of this Statement of
Additional Information for more information.
    
   
Effective April 30, 1998, the Fund changed its name from "Colonial Newport Tiger
Fund" to its current name.
    

INVESTMENT OBJECTIVES AND POLICIES
   
The  Fund's  Prospectus   describes  its  investment  objective  and  investment
policies. Part 1 of this SAI includes additional information  concerning,  among
other  things,  the  investment  restrictions  of  the  Fund.  Part  2  contains
additional  information about the following securities and investment techniques
that are utilized by the Fund:
    

            Foreign Securities
            Foreign Currency Transactions
            Repurchase Agreements
            Futures Contracts and Related Options

Except  as  indicated  under  "Fundamental   Investment  Policies,"  the  Fund's
investment policies are not fundamental and the Trustees may change the policies
without shareholder approval.

FUNDAMENTAL INVESTMENT POLICIES
The investments of the Fund are subject to investment  limitations which may not
be changed  without  the vote of at least a majority  of the Fund's  outstanding
voting securities as defined in the Investment Company Act of 1940 (Act).

These investment restrictions specifically provide that the Fund may not:

   
1.      Not concentrate more than 25% of the Fund's total assets in any industry
        (other  than  obligations  issued  or  guaranteed  as to  principal  and
        interest  by the  Government  of the  United  States  or any  agency  or
        instrumentality  thereof) or with  respect to 75% of the Fund's  assets,
        purchase the  securities of any issuer if, as a result of such purchase,
        more  than 5% of the  Fund's  total  assets  would  be  invested  in the
        securities of such issuer.  Notwithstanding  the investment policies and
        restrictions  of the Fund,  the Fund may  invest all or a portion of its
        investable  assets in investment  companies with  substantially the same
        investment objective, policies and restrictions as the Fund;
2.      Underwrite securities issued by others only when disposing of portfolio
        securities;
3.      Borrow from banks, other affiliated funds and other persons to the 
        extent permitted by applicable law, provided that the Fund's borrowings
        shall not exceed 33 1/3% of the value of its total assets (including the
        amount borrowed) less liabilities (other than borrowings) or such other
        percentage permitted by law;
4.      Make loans (a) through  lending of securities,  (b) through the purchase
        of debt instruments or similar evidences of indebtedness  typically sold
        privately to financial  institutions,  (c) through an interfund  lending
        program with other  affiliated  funds  provided that no such loan may be
        made if, as a result,  the  aggregate of such loans would exceed 33 1/3%
        of the value of its total  assets  (taken at market value at the time of
        such loans), and (d) through repurchase agreements;
5.      Purchase and sell futures  contracts and related  options as long as the
        total initial margin and premiums do not exceed 5% of total assets; and
6.      Only own real estate acquired as the result of owning securities and 
        not more than 5% of total assets.
    
   
    
Percentage  limitations  in the  "Fundamental  Investment  Policies"  and "Other
Investment  Policies"  sections  are  determined  at the time  the Fund  makes a
purchase or loan  subject to such  percentage.  Total  assets and net assets are
determined  at  current  value  for  purposes  of  compliance   with  investment
restrictions  and  policies.  For  the  purpose  of  the  Act's  diversification
requirement, an issuer is the entity whose revenues support the security.

The  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.

OTHER INVESTMENT POLICIES
As  non-fundamental   investment   policies  which  may  be  changed  without  a
shareholder vote, the Fund may not:

   
1.      Invest more than 15% of its net assets in illiquid assets; and
2.      Have a short  sales  position,  unless  the Fund  owns,  or owns  rights
        (exercisable without payment) to acquire, an equal amount of securities.
    


FUND CHARGES AND EXPENSES
   
Under the Fund's management  agreement,  the Fund pays the Advisor a monthly fee
based on the average daily net assets of the Fund at the annual rate of 1.00% up
to $100 million and 0.75% thereafter (subject to reductions that the Advisor may
agree to periodically). Commencing October 1, 1997, the fee was reduced to 0.70%
in excess of $1.5 billion and 0.65% in excess of $2.5 billion.
    

Under the Fund's  administration  agreement,  the Fund pays the  Administrator a
monthly  fee at the  annual  rate of 0.25% of  average  daily net  assets  and a
monthly pricing and bookkeeping fee of $2,250 plus the following  percentages of
the Fund's average net assets over $50 million:

                               0.035%  on the next $950  million  0.025% on
                               the next $1  billion  0.015%  on the next $1
                               billion 0.001% on the excess over $3 billion

   
Recent Fees paid to the Advisor, the Administrator, LFD and LFSI (for the fiscal
years ended December 31) (dollars in thousands)
    
   
                                           1998          1997             1996
                                           ----          ----             ----

Management fee                                        $12,598          $11,000
Administration fee                                      4,116            3,583
Bookkeeping fee                                           576              511
Transfer agent fee                                      5,029            4,169
12b-1 fees:
  Service fee (Class A, Class B, Class C)               $2,940           $2,207
  Distribution fee (Class B)                             4,209            2,788
  Distribution fee (Class C)(a)                            745              553
    
   
    
   
(a) On July 1, 1997, the Fund's Class D shares were redesignated as Class C
    shares.
    

Brokerage Commissions (dollars in thousands)

                                                 Years ended December 31
                                           ------------------------------------
   
                                             1998         1997            1996
                                             ----         ----            ----
Total commissions                            $           $2,944          $5,388
Directed transactions                                         0               0
Commissions on directed transactions                          0               0
Commissions paid to AlphaTrade, Inc.
    



<PAGE>


Trustees and Trustees' Fees
   
For the fiscal and calendar year ended  December 31, 1998 the Trustees  received
the following compensation for serving as Trustee(b):
    
   
                                                   Total Compensation From Trust
                 Aggregate Compensation From Fund   and Fund Complex Paid to the
                     For The Fiscal Year Ended    Trustees For The Calendar Year
Trustee                 December 31, 1998             Ended December 31, 1998(c)
- -------                -----------------                  --------------------

Robert J. Birnbaum (d)                                         $ 99,429
Tom Bleasdale (d)                (e)                            115,000 (f)
John V. Carberry (g)(h)          N/A                                N/A
Lora S. Collins (d)                                              97,429
James E. Grinnell (d)            (i)                            103,071
William D. Ireland, Jr. (j)                                      35,333
Richard W. Lowry (d)                                             98,214
Salvatore Macera (k)                                             25,250
William E. Mayer (d)                                             99,286
James L. Moody, Jr. (d)          (l)                            105,857 (m)
John J. Neuhauser (d)                                           105,323
George L. Shinn (j)                                              31,334
Thomas E. Stitzel (k)                                            25,250
Robert L. Sullivan (d)                                          104,100
Anne-Lee Verville (d)(h)         (n)                             23,445 (o)
Sinclair Weeks, Jr. (j)                                          34,333
    
   
(b) The Fund does not currently  provide  pension or retirement plan benefits to
    the Trustees.
(c) At December  31,  1998,  the  Complex  consisted  of 47  open-end  and 5
    closed-end  management  investment  portfolios  in  the  Colonial  Funds
    (Colonial Funds) and 9 open-end management  investment portfolios in the
    Liberty Variable Investment Trust (LVIT) (together, the Fund Complex).
(d) Elected by the  shareholders  of LVIT on October 30,  1998. 
(e) Includes $     payable in later years as deferred compensation. 
(f) Includes $52,000 payable in later years as deferred compensation.
(g) Elected by the trustees of the closed-end Colonial Funds on June 18, 1998
    and by the shareholders of the open-end Colonial Funds on October 30, 1998.
(h) Does not receive compensation  because he is an affiliated  Trustee and
    employee of Liberty Financial Companies, Inc. (Liberty Financial).
(i) Includes $ payable in later years as deferred compensation. 
(j) Retired as a trustee of the Trust on April 24, 1998.
(k) Elected by the shareholders of the open-end Colonial funds on October 30,
    1998, and by the trustees of the closed-end Colonial Funds on December 17, 
    1998.
(l) Total compensation of $   for the fiscal year ended December 31, 1998, will
    be payable in later years as deferred compensation.
(m) Total compensation of $105,857 for the calendar year ended December 31,
    1998, will be payable in later years as deferred compensation.
(n) Total compensation of $   for the fiscal year ended December 31, 1998, will
    be payable in later years as deferred compensation.
(o) Total compensation of $23,445 for the calendar year ended December 31, 1998,
    will be payable in later years as deferred compensation.
    
   
For the fiscal year ended December 31, 1998, the Trustees received the following
compensation  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 All-Star Funds):
    
   
                                  Total Compensation From
                              Liberty All-Star Funds For The
Trustee                   Calendar Year Ended December 31, 1998(p)
- -------                   ----------------------------------------

Robert J. Birnbaum                     $25,000
John V. Carberry(q)(r)                     N/A
James E. Grinnell                       25,000
Richard W. Lowry                        25,000
William E. Mayer(s)                     14,000
John J. Neuhauser(t)                    25,000
    
   
(p) The  Liberty  All-Star  Funds are advised by Liberty  Asset  Management
    Company  (LAMCO).  LAMCO  is an  indirect  wholly-owned  subsidiary  of
    Liberty Financial (an intermediate parent of the Advisor).
(q) Does not receive  compensation  because he is an affiliated Trustee and
    employee of Liberty Financial Companies, Inc. (Liberty Financial).
(r) Elected by the trustees of the Liberty All-Star Funds on June 30, 1998.
(s) Elected by the  shareholders  of the  Liberty  All-Star  Equity Fund on
    April 22, 1998 and by the trustees of the Liberty All-Star Growth Fund,
    Inc. on December 17, 1998.
(t) Elected by the shareholders of the Liberty All-Star Funds on April 22, 1998.
    
   
    
   
    
   
    
   
    
Ownership of the Fund
   
The following information is as of March 31, 1999:
    
The officers and Trustees of the Trust as a group owned less than 1% of the
outstanding shares of the Fund.
   
The Colonial Group, Inc. Profit Sharing Plan, of which certain officers of the
Administrator serve as trustees, held approximately xx Class Z shares of the
Fund, representing x% of such class.
    
   
There were x Class A, x Class B, x Class C, x Class T and x Class Z shareholders
of record of the Fund.
    
   
As of record on April x, 1999  the following shareholders owned more than 5% of
the Fund's outstanding shares:
    

<PAGE>

Class A

Charles Schwab & Co.                                                       %
FBO Jackie Huey IRA
101 Montgomery Street, 7th Floor
San Francisco, CA  94104

Merrill Lynch Cust                                                         %
FBO Howie C. Le IRA
A/C 58686670
1 World Financial Center, North Tower
New York, NY  10281

Class B

Merrill Lynch Cust                                                         %
FBO Howie C. Le IRA
A/C 58686670
1 World Financial Center, North Tower
New York, NY  10281

Class C

Merrill Lynch Cust                                                         %
FBO Howie C. Le IRA
A/C 58686670
1 World Financial Center, North Tower
New York, NY  10281

Class Z

Charles Schwab & Co.                                                       %
FBO Jackie Huey IRA
101 Montgomery Street, 7th Floor
San Francisco, CA  94104

The James Irvine Foundation                                                %
One Market Spear Tower, Suite 1715
San Francisco, CA  94105

Wendel & Co.  A/C 951753                                                   %
C/o The Bank of New York
Mutual Fund/Reorg. Dept.
P.O. Box 1066 Wall Station
New York, NY  10268

The Northern Trust Co. Ttee.                                               %
Liberty Mutual 401(k) Retirement Plan
A/C Omnibus Account
P. O. Box 92956
Chicago, IL  60607



<PAGE>


Sales Charges (dollars in thousands)

   
                                            Class A, Class C and Class T Shares
                                                    Years ended December 31
                                              1998         1997           1996
                                              ----         ----           ----

Aggregate initial sales charges on 
Fund share sales                              $           $4,368       $12,002
Initial sales charges retained by LFD                        626         1,635
    




<PAGE>

                                                       Class B Shares
   
                                                   Years ended December 31
                                                 1998       1997          1996

Aggregate contingent deferred sales charges (CDSC)
  on Fund redemptions retained by LFD            $        $3,328         $771
    



<PAGE>

                                                           Class C Shares
   
                                                       Years ended December 31
                                                       1998      1997      1996

Aggregate CDSC on Fund redemptions retained by LFD     $          $107      $38
    
   
    
12b-1 Plan, CDSCs and Conversion of Shares
   
The Fund offers five  classes of shares - Class A, Class B, Class C, Class T and
Class Z. The Fund may in the future offer other classes of shares.  The Trustees
have  approved a 12b-1 Plan (Plan)  pursuant to Rule 12b-1 under the Act.  Under
the Plan,  the Fund pays LFD monthly a service fee at an annual rate of 0.25% of
net  assets  attributed  to  Classes  A, B and C shares.  The Fund also pays LFD
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.  LFD 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 LFD's
expenses, LFD may realize a profit from the fees.
    
   
The Plan  authorizes  any other  payments by the Fund to LFD and its  affiliates
(including the  Administrator  and the Advisor) to the extent that such payments
might be construed to be indirectly financing the distribution of Fund shares.
    
The Trustees  believe the Plan could be a  significant  factor in the growth and
retention of Fund assets  resulting  in a more  advantageous  expense  ratio and
increased  investment  flexibility  which  could  benefit  each  class  of  Fund
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 and Class T 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  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.  Class Z shares are offered at net
asset  value and are not  subject to any CDSC.  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 a distribution fee.

   
Sales-related  expenses  (dollars in  thousands) of LFD relating to the Fund for
the fiscal year ended December 31, 1998 were:
    
   
<TABLE>
<CAPTION>
<S>                                              <C>                <C>                <C>                <C>  
                                                  Class A Shares     Class B Shares     Class C Shares     Class Z Shares

Fees to FSFs                                         $                  $                  $                 $
Cost of sales material relating to the Fund
  (including printing and mailing expenses)
Allocated travel, entertainment and other
  promotional expenses (including advertising)
</TABLE>
    

INVESTMENT PERFORMANCE
   
The Fund's average annual total returns at December 31, 1998 were as follows:
    
   
<TABLE>
<CAPTION>
<S>                                         <C>                                                             
                                                                      Class A Shares
                                            ---------------------------------------------------------------------
                                                                                   Period May 31, 1989
                                                                         (commencement of investment operations)
                                                1 Year        5 Years           through December 31, 1998
                                                ------        -------           -------------------------

With sales charge of 5.75%                         %             %                          %
Without sales charge                               %             %                         ()%

                                                                       Class B Shares
                                            ---------------------------------------------------------------------
                                                                                  Period April 1, 1995
                                                                         (commencement of investment operations)
                                                1 Year                          through December 31, 1998
                                                ------                          -------------------------

With applicable CDSC                        % (x% CDSC)                         % (x% CDSC)
Without CDSC                                      %                                       %

                                                                       Class C Shares
                                            ---------------------------------------------------------------------
                                                                                  Period April 1, 1995
                                                                         (commencement of investment operations)
                                                1 Year                          through December 31, 1998
                                                ------                          -------------------------

With applicable CDSC                        % (x% CDSC)                                     %
Without CDSC                                      %                                         %


                                                                       Class T Shares
                                            ---------------------------------------------------------------------
                                                                                 Period May 31, 1989(q)
                                                                         (commencement of investment operations)
                                                1 Year        5 Years           through December 31, 1998
                                                ------        -------           -------------------------

With sales charge of 5.75%                         %             %                          %
Without sales charge                               %             %                          %



<PAGE>


                                                                       Class Z Shares
                                            ---------------------------------------------------------------------
                                                                                 Period May 31, 1989(u)
                                                                         (commencement of investment operations)
                                                1 Year        5 Years           through December 31, 1998
                                                ------        -------           -------------------------

Without sales charge                              ()%            %                          %
</TABLE>
    
   
(u)     Performance  since shares were  initially  offered on May 31,  1989, is
        assigned to Class T and Class Z shares.
    

See Part 2 of this SAI, "Performance Measures," for how calculations are made.

   
CUSTODIAN The Chase Manhattan Bank, located at 270 Park Avenue,  New York, NY
10017-0270  is  the  Fund's   custodian.   The  custodian  is  responsible   for
safeguarding the Fund's cash and securities, receiving and delivering securities
and collecting the Fund's interest and dividends.
    

INDEPENDENT ACCOUNTANTS
   
PricewaterhouseCoopers   LLP,  located  at  160  Federal  Street,   Boston,   MA
02110-2624,  are the  Fund's  independent  accountants  providing  audit and tax
return  preparation  services and assistance and consultation in connection with
the review of various  Securities  Exchange  Commission  filings.  The financial
statements  incorporated by reference in this SAI have been so incorporated  and
the  financial  highlights  included in the  Prospectus  as of and for the years
ended December 31, 1998, 1997 and 1996, have been so included,  in reliance upon
the report of PricewaterhouseCoopers  LLP given on the authority of said firm as
experts in accounting  and auditing.  The financial  highlights  for the periods
prior to January 1, 1995 included in the financial statements and Prospectus and
incorporated  by reference  into this SAI have been so included in reliance upon
the report of Tait, Weller and Baker who served as the Fund's independent public
accountants prior to March 31, 1995.
    
   
    

MANAGEMENT OF THE FUND Officers of the Fund.
   
<TABLE>
<CAPTION>
<S>                              <C>       <C>                        <C>
Name                             Age        Position with Fund         Principal Occupation During Past Five Years

Robert B. Cameron(v)             44         Vice President             Senior Vice President of the Advisor and Newport
                                                                       Pacific since 1996 (formerly branch manager -
                                                                       equity sales at CS First Boston and Swiss Bank
                                                                       Corp.)
Lynda Couch(v)                   56         Vice President             Senior Vice President of the Advisor and Newport
                                                                       Pacific Management, Inc. (Newport Pacific) since
                                                                       1996 (formerly Vice President of the Advisor and
                                                                       Newport Pacific and Vice President-Research at
                                                                       Global Strategies and at Smith Bellingham
                                                                       International, Inc.)

John M. Mussey(v)(w)             56         Vice President             President of the Advisr and President and Director
                                                                       of Newport Pacific
Thomas R. Tuttle(v)              56         Vice President             Senior Vice President of the Advisor and Newport
                                                                       Pacific, respectively
</TABLE>
    

Trustees of the Fund and officers of the Administrator are described under
"Management of the Funds."

   
(v) The  address of each officer is 580 California  Street,  Suite 1960, San
    Francisco,  CA 94104. 
(w) Mr. Mussey received  Morningstar's  International Fund Manager of the Year
    award for 1995. The annual award is presented to fund managers who best
    exemplify the qualities of courage, discipline and independence that bring 
    shareholders long-term profits.
    

                        STATEMENT OF ADDITIONAL INFORMATION

                                     PART 2

   
The following information applies generally to most funds advised by the
Advisor. "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 Advisor will buy or sell
portfolio securities whenever it believes it is appropriate. The Advisor'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 Advisor 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 or 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 Advisor'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.

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 



<PAGE>
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. This "excess
distribution" will be allocated over the fund's holding period for such
investment and the PFIC tax is the highest ordinary income rate in effect for
any period multiplied by the portion of the "excess distribution" allocated to
such period, 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.

OTHER INVESTMENT COMPANIES
The fund may invest in other investment companies. Such investments will involve
the payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies.

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 more 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
Advisor 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
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
    


                                       2

<PAGE>
   
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 notes
issued by businesses to finance short-term needs (including those with floating
or variable interest rates, or including a frequent interval put feature).
SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. PARTICIPATION INTERESTS include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
    

SECURITIES LOANS
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.

   
FORWARD COMMITMENTS ("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 Advisor deems it appropriate to do so. The
fund may realize short-term profits or losses (generally taxed at ordinary
income tax rates in the hands of the shareholders) 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.

   
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations"
(CMOs) and "real estate mortgage investment conduits" (REMICs), evidence
ownership in a pool of mortgage loans made by certain financial institutions
that may be insured or guaranteed by the U.S. government or its agencies. CMOs
are obligations issued by special-purpose trusts, secured by mortgages. REMICs
are entities that own mortgages and elect REMIC status under the Internal
Revenue Code. Both CMOs and REMICs issue one or more classes of securities of
which one (the Residual) is in the nature of equity. The funds will not invest
in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs
may be prepaid if the underlying mortages are prepaid. Prepayment rates for
mortgage-backed securities tend to increase as interest rates decline
(effectively shortening the security's life) and decrease as interest rates rise
(effectively lengthening the security's life). Because of the prepayment
feature, these securities may not increase in value as much as other debt
securities 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.

NON-AGENCY MORTGAGE-BACKED SECURITIES
The fund may invest in non-investment grade mortgage-backed securities that are
not guaranteed by the U.S. Government or an Agency. Such securities are subject
to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed
Securities". In addition, although the underlying mortgages provide collateral
for the security, the Fund may experience losses, costs and delays in enforcing
its rights if the issuer defaults or enters bankruptcy and may incur a loss.
    

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 


                                       3

<PAGE>
   
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 Advisor 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 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 Advisor,
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 


                                       4

<PAGE>
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 (SEC) has taken the
position that OTC options purchased by the fund and assets held to cover OTC
options written by the fund are illiquid securities. Although the Staff has
indicated that it is continuing to evaluate this issue, pending further
developments, the fund intends to enter into OTC options transactions only with
primary dealers in U.S. government securities and, in the case of OTC options
written by the fund, only pursuant to agreements that will assure that the fund
will at all times have the right to repurchase the option written by it from the
dealer at a specified formula price. The fund will treat the amount by which
such formula price exceeds the amount, if any, by which the option may be
"in-the-money" as an illiquid investment. It is the present policy of the fund
not to enter into any OTC option transaction if, as a result, more than 15% (10%
in some cases, refer to your fund's Prospectus) of the fund's net assets would
be invested in (i) illiquid investments (determined under the foregoing formula)
relating to OTC options written by the fund, (ii) OTC options purchased by the
fund, (iii) securities which are not readily marketable, and (iv) repurchase
agreements maturing in more than seven days.

RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the fund's options
strategies depends on the ability of the Advisor 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 Advisor deems it desirable to do so. Although
the fund will take an option position only if the Advisor 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 option 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.


                                       5

<PAGE>
   
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures 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 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 exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
    

Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.

Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.

Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."

The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.

   
OPTIONS ON FUTURES CONTRACTS. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
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 Advisor`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 


                                       6

<PAGE>
circumstances when the purchase of a call or put option on a futures contract
would result in a loss to the fund when the purchase or sale of a futures
contract would not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.

There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.

To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

   
USE BY TAX-EXEMPT FUNDS OF 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
Advisor, 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 Advisor 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 Advisor'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 of its portfolio securities. However, while
this could occur to a certain degree, the Advisor 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.
    


                                       7

<PAGE>
   
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 Advisor may still not result in a
successful hedging transaction.
    

OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.

OPTIONS ON INDICES. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.

FOREIGN CURRENCY TRANSACTIONS
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.

The fund may engage in both "transaction hedging" and "position hedging." When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.

The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.

For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.

When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.

The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.

It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the 


                                       8

<PAGE>
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
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 Advisor 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. dollar, 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 
    


                                       9

<PAGE>

odd lot market for the underlying currencies in connection with options at
prices that are less favorable than for round lots. Foreign governmental
restrictions or taxes could result in adverse changes in the cost of acquiring
or disposing of currencies.

There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.

SETTLEMENT PROCEDURES. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.

FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.

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% 


                                       10

<PAGE>
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.

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 of 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 Advisor, 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 Advisor will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Advisor 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 Advisor 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 advisor for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons or not U.S. citizens or
resident aliens.
    

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 advisors 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. 
    


                                       11

<PAGE>
   
Distributions of long-term 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) will be taxable to shareholders as such,
regardless of how long a shareholder has held the shares in the fund. In
general, any distributions of net capital gains will be taxed at a rate of 20%.

Distributions will be taxed as described above whether received in cash or in
fund shares. Dividends and distributions on a fund's shares are generally
subject to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when a fund's net asset value reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when a fund's net asset value also reflects unrealized
losses.
    

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 long-term capital gains will in general be
taxable to shareholders as long-term capital gains (generally subject to a 20%
tax rate) regardless of the length of time fund shares are held. 

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
    


                                       12

<PAGE>
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 generally will be treated as long-term capital gain if the shares have
been held for more than 12 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.

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, LFSI 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 Advisor 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; and (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, convert
long-term capital gains into short-term capital gains 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
(possibly at a timewhen 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 Advisor 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), 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 not a deduction) for
such foreign taxes.
    


                                       13

<PAGE>
   
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) in order 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 "ADVISOR" REFERS TO
COLONIAL MANAGEMENT ASSOCIATES, INC.) 

The Advisor is the investment advisor to each of the funds (except for Colonial
Money Market Fund, Colonial Municipal Money Market Fund, Colonial Global
Utilities Fund, Newport Tiger Fund, Newport Tiger Cub Fund, Newport Japan
Opportunities Fund, Newport Greater China Fund and Newport Asia Pacific Fund -
see Part I of each Fund's respective SAI for a description of the investment
advisor). The Advisor is a subsidiary of COGRA, LLC (COGRA), One Financial
Center, Boston, MA 02111. COGRA is an indirect wholly-owned subsidiary of
Liberty Financial Companies, Inc. (Liberty Financial), which in turn is a direct
majority-owned subsidiary of Liberty Corporate Holdings, Inc., which in turn is
a direct wholly-owned subsidiary of LFC Management Corporation, which in turn is
a direct wholly-owned subsidiary of LFC Holdings, Inc., which in turn is a
direct wholly-owned subsidiary of Liberty Mutual Equity Corporation, which in
turn is a direct 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 united States. 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      PRINCIPAL OCCUPATION  DURING PAST FIVE YEARS
- ----------------                 ---      --------------     --------------------------------------------
                                          FUND
                                          ----

<S>                              <C>      <C>                <C>                                                    
Robert J. Birnbaum               71       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                    68       Trustee            Retired (formerly Chairman of the Board and Chief
11 Carriage Way                                              Executive Officer, Shore Bank & Trust Company from
Danvers, MA 01923                                            1992-1993);  Director of The Empire Company since June,
                                                             1995.

John V. Carberry *               51       Trustee            Senior Vice President of Liberty Financial Companies,
56 Woodcliff Road                                            Inc. (formerly Managing Director, Salomon Brothers
Wellesley Hills, MA  02481                                   (investment banking) from January, 1988 to January, 1998).

Lora S. Collins                  63       Trustee            Attorney  (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road                                               Frankel from  September, 1986 to November, 1996).
Southold, NY 11971

James E. Grinnell                69       Trustee            Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
</TABLE>
    


                                       14

<PAGE>
   
<TABLE>
<CAPTION>
<S>                              <C>      <C>                <C>  
Richard W. Lowry                 62       Trustee            Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963

Salvatore Macera                 67       Trustee            Private Investor (formerly Executive Vice President of
26 Little Neck Lane                                          Itek Corp. and President of Itek Optical & Electronic
New Seabury, MA  02649                                       Industries, Inc. (electronics)).

William E. Mayer*                58       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.              67       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                55       Trustee            Dean, Boston College School of Management since
140 Commonwealth Avenue                                      September, 1977.
Chestnut Hill, MA 02167

Thomas E. Stitzel                58       Trustee            Professor of Finance, College of Business, Boise State
2208 Tawny Woods Place                                       University (higher education); Business consultant and
Boise, ID  83706                                             author.


Robert L. Sullivan               70       Trustee            Retired Partner, KPMG Peat Marwick LLP
45 Sankaty Avenue
Siasconset, MA 02564

Anne-Lee Verville                53       Trustee            Consultant (formerly General Manager, Global Education
359 Stickney Hill Road                                       Industry from 1994 to 1997, and President, Applications
Hopkinton, NH  03229                                         Solutions Division from 1991 to 1994, IBM Corporation
                                                             (global education and global applications)).
</TABLE>
    


                                       15

<PAGE>
   
<TABLE>
<CAPTION>
<S>                              <C>      <C>                <C>  
Stephen E. Gibson                45       President          President of the Funds since June, 1998, Chairman of
                                                             the Board since July, 1998, Chief Executive Officer and
                                                             President since December 1996 and Director, since July
                                                             1996 of the Advisor (formerly Executive Vice President
                                                             from July, 1996 to December, 1996); Director, Chief
                                                             Executive Officer and President of COGRA since
                                                             December, 1998 (formerly Director, Chief Executive
                                                             Officer and President of The Colonial Group, Inc. (TCG)
                                                             from December, 1996 to December, 1998); Assistant
                                                             Chairman of Stein Roe & Farnham Incorporated (SR&F)
                                                             since August, 1998 (formerly Managing Director of
                                                             Marketing of Putnam Investments, June, 1992 to July,
                                                             1996.)

J. Kevin Connaughton             34       Controller and     Controller and Chief Accounting Officer of the Funds 
                                          Chief Accounting   since February, 1998; Vice President of the Advisor  
                                          Officer            since February, 1998 (formerly Senior Tax Manager,   
                                                             Coopers & Lybrand, LLP from April, 1996 to January,  
                                                             1998; Vice President, 440 Financial Group/First Data 
                                                             Investor Services 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, The Boston 
                                                             Company from March, 1992 to December, 1993).         

Timothy J. Jacoby                45       Treasurer and      Treasurer and Chief Financial Officer of the Funds   
                                          Chief Financial    since October, 1996 (formerly Controller and Chief   
                                          Officer            Accounting Officer from October, 1997 to February,   
                                                             1998); Senior Vice President of the Advisor since    
                                                             September, 1996; Vice President, Chief Financial     
                                                             Officer and Treasurer since December, 1998 of COGRA  
                                                             (formerly Vice President, Chief Financial Officer and
                                                             Treasurer from July, 1997 to December, 1998 of TCG); 
                                                             Senior Vice President of SR&F since August, 1998     
                                                             (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).                                    
</TABLE>
    
                                                             

                                       16

<PAGE>
   
<TABLE>
<CAPTION>
<S>                              <C>      <C>                <C>  
                                                             Advisor

Nancy L. Conlin                  45       Secretary          Secretary of the Funds since April, 1998 (formerly
                                                             Assistant Secretary from July, 1994 to April, 1998);
                                                             Director, Senior Vice President, General Counsel, Clerk
                                                             and Secretary of the Advisor since April, 1998
                                                             (formerly Vice President, Counsel, Assistant Secretary
                                                             and Assistant Clerk from July, 1994 to April, 1998);
                                                             Vice President, General Counsel and Secretary of COGRA
                                                             since December, 1998 (formerly Vice President-, General
                                                             Counsel and Clerk of TCG from April, 1998 to December,
                                                             1998; (formerly Assistant Clerk from July, 1994 to
                                                             April, 1998); (formerly Partner, Mintz, Levin, Cohn,
                                                             Ferris, Glovsky and Popeo from June, 1990 to June, 1994)

Davey S. Scoon                   51       Vice President     Vice President of the Funds since June, 1993;,
                                                             Executive Vice President since July, 1993 and Director
                                                             since March, 1985 of the Advisor (formerly Senior Vice
                                                             President and Treasurer of the Advisor from March, 1985
                                                             to July, 1993); Executive Vice President and Chief
                                                             Operating Officer of COGRA since December, 1998
                                                             (formerly Executive Vice President and Chief Operating
                                                             Officer, TCG from March, 1995 to December, 1998; Vice
                                                             President - Finance and Administration from November,
                                                             1985 to March, 1995); Executive Vice President of SR&F
                                                             since August, 1998.
</TABLE>
    

   
*        A Trustee who is an "interested person" (as defined in the Investment
         Company Act of 1940 ("1940 Act")) of the fund or the Advisor.
    

   
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 (except Mr.
Carberry) 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 and the lead Trustee receive an annual retainer of $5,000 and
Committee chairs receive $1,000 for each special meeting attended on a day other
than a regular joint meeting day. Committee members receive an annual retainer
of $1,000 and $1,000 for each special meeting attended on a day other than a
regular joint meeting day. 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 Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Advisor currently serves as investment advisor or
administrator for 39 open-end and 5 closed-end management investment company
portfolios. Trustees and officers of the Trust, who are also officers of the
Advisor 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 advisors 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.
    


                                       17

<PAGE>
   
The Trustees have the authority to convert the funds into a master fund/feeder
fund structure. Under this structure, a fund may invest all or a portion of its
investable assets in investment companies with substantially the same investment
objectives, policies and restrictions as the fund. The primary reason to use the
master fund/feeder fund structure is to provide a mechanism to pool, in a single
master fund, investments of different investor classes, resulting in a larger
portfolio, investment and administrative efficiencies and economies of scale.

THE 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, NEWPORT TIGER CUB FUND,
NEWPORT GREATER CHINA FUND OR NEWPORT ASIA PACIFIC FUND)

Under a Management Agreement (Agreement), the Advisor 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 Advisor to the Trust, a fund and/or its shareholders is limited
to situations involving the Advisor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.

The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Advisor 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
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.

The Advisor pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Advisor 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. LFD 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, NEWPORT TIGER CUB FUND,
NEWPORT GREATER CHINA FUND AND NEWPORT ASIA PACIFIC FUND AND THEIR RESPECTIVE
TRUSTS).

Under an Administration Agreement with each fund named above, the Advisor, 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 (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;
    


                                       18

<PAGE>
                        SR&F Cash Reserves Portfolio in which Colonial Money
                        Market Fund is invested; and 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 Advisor is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this SAI.
    

   
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor provides pricing and bookkeeping services to each fund pursuant to a
Pricing and Bookkeeping Agreement. The Advisor, 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
$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, Newport Tiger Cub Fund, Newport Greater China Fund and
Newport Asia Pacific Fund), the Advisor 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 Advisor provides pricing and bookkeeping services to Newport Tiger Fund,
Newport Japan Opportunities Fund, Newport Tiger Cub Fund, Newport Greater China
Fund and Newport Asia Pacific 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 advisor 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 ADVISOR OF NEWPORT TIGER
FUND, NEWPORT JAPAN OPPORTUNITIES FUND, NEWPORT TIGER CUB FUND, NEWPORT GREATER
CHINA FUND AND NEWPORT ASIA PACIFIC FUND FOLLOWS THE SAME PROCEDURES AS THOSE
SET FORTH UNDER "BROKERAGE AND RESEARCH SERVICES."

INVESTMENT DECISIONS. The Advisor acts as investment advisor 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, Newport Tiger Cub Fund, Newport Greater China Fund and
Newport Asia Pacific Fund, each of which is administered by the Advisor. The
Advisor'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 Advisor. The funds and clients
advised by the Advisor or the funds administered by the Advisor 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 Advisor as investment advisor to
the funds outweighs the disadvantages, if any, which might result from these
practices.
    

   
The portfolio managers of Colonial Utilities Fund, a series of Colonial Trust
IV, will use the trading facilities of Stein Roe & Farnham Incorporated, an
affiliate of the Advisor, 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 Advisor 
    


                                       19

<PAGE>

   
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 Advisor places the transactions of the funds with broker-dealers selected by
the Advisor 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.

It is the Advisor'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 fFunds may be executed by broker-dealers who also
provide research services (as defined below) to the Advisor and the funds. The
Advisor 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
Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion,
it is impossible to assign an exact dollar value for such services.

The Trustees have authorized the Advisor to cause the Funds to pay a
broker-dealer which provides brokerage and research services to the Advisor 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 Advisor 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 Advisor's
overall responsibilities to the funds and all its other clients.

The Trustees have authorized the Advisor 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 Advisor 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 1940 Act Rule
17e-1. Under the Rule, the Advisor 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
Advisor 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
LFD is the principal underwriter of the Trust's shares. LFD 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
LFSI 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 LFSI 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 LFSI.
The agreement continues indefinitely but may be terminated by 90 days' notice by
the fund to LFSI or generally by 6 months' notice by LFSI to the fund. The
agreement limits the liability of LFSI to the fund for loss or damage incurred
by the fund to situations involving a failure of LFSI 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 LFSI against, among other things, loss or
damage incurred by LFSI 
    


                                       20

<PAGE>

   
on account of any claim, demand, action or suit made on or against LFSI not
resulting from LFSI's bad faith or negligence and arising out of, or in
connection with, its duties under the agreement.

DETERMINATION OF NET ASSET VALUE
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., Central
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 Advisor 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
Advisor in good faith under the direction of the Trust's Board of 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 Board of Trustees.

(The following two paragraphs are applicable only to Newport Tiger Fund, Newport
Japan Opportunities Fund, Newport Tiger Cub Fund, Newport Greater China Fund and
Newport Asia Pacific Fund. "Advisor" in these two paragraphs refers to each
fund's Advisor, 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 Advisor, 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 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.


                                       21

<PAGE>
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 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 LFSI,
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, LFD'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 LFD retains the entire sales charge on any sales made to a
shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFD generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFD 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.

LFSI 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 LFSI, provided the new FSF has a sales agreement
with LFD.

Shares credited to an account are transferable upon written instructions in good
order to LFSI 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
LFSI 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., Crabbe Huson Group, Inc. and Stein
Roe & Farnham Incorporated may be purchased through the Fundamatic Program.
Preauthorized monthly bank drafts or electronic funds transfers for a fixed
amount of at least $50 are used to purchase a fund's shares at the public
offering price next determined after LFD 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 LFD.

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
any mutual fund advised by Colonial, Newport Fund Management, Inc., 
    


                                       22

<PAGE>
   
Crabbe Huson Group, 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 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 generally 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 Liberty Funds Services,
Inc. P.O. Box 1722, Boston, MA 02105-1722.

You should consult your FSF or investment advisor to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.

LFD 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. LFD 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. Investors Bank & Trust
Company is the Trustee of LFD prototype plans and charges a $15 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from LFD.

Participants in non-LFD prototype Retirement Plans (other than IRAs) also are
charged a $10 annual fee unless the plan maintains an omnibus account with LFSI.
Participants in LFD 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 LFSI. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFD IRA Rollover account in
any fund, or if the Plan maintains an omnibus account.

Consultation with a competent financial and tax advisor 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 LFSI, 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 LFSI 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 distributed by LFD. The applicable sales
charge is based on the combined total of:
    

1.            the current purchase; and


                                       23

<PAGE>
   
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).

LFD 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 LFSI. 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, LFSI 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 LFD the excess commission previously paid
during the thirteen-month period.

If the amount of the Statement is not purchased, the shareholder shall remit to
LFD 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, LFSI 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 LFSI 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 (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. LFSI
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.


                                       24

<PAGE>
   
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. LFD 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.
    

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 LFSI 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 LFSI. 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 advisor.

PRIVILEGES OF COLONIAL EMPLOYEES OR FINANCIAL SERVICE FIRMS (IN THIS SECTION,
THE "ADVISOR" REFERS TO COLONIAL MANAGEMENT ASSOCIATES, INC. IN ITS CAPACITY AS
THE ADVISOR 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 Advisor; directors,
officers and employees of the Advisor, LFD and other companies affiliated with
the Advisor; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with LFD; 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 a 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 advisors that have entered into agreements with
LFD 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
"ADVISOR" REFERS TO COLONIAL MANAGEMENT ASSOCIATES, INC. IN ITS CAPACITY AS THE
ADVISOR 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 LFSI, 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."
    


                                       25

<PAGE>
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 LFD 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 LFSI, 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, LFSI and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call LFSI 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 LFSI 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.
    

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.


                                       26

<PAGE>
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, LFSI 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
Newport Tiger Cub Fund, Newport Japan Opportunities Fund, Newport Asia Pacific
Fund and Newport Greater China Fund) are automatically eligible to redeem up to
$100,000 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 redemptions are limited
to a total of $100,000 in a 30-day period. Redemptions that exceed $100,000 may
be accomplished by placing a wire order trade through a broker or furnishing a
signature guarantee request. Telephone redemption privileges for larger amounts
and for Newport Tiger Cub Fund, Newport Japan Opportunities Fund, Newport
Greater China Fund and Newport Asia Pacific Fund may be elected on the
Application. LFSI 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 "ADVISOR" REFERS TO COLONIAL MANAGEMENT
ASSOCIATES, INC. IN ITS CAPACITY AS THE ADVISOR 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. LFSI 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.
    


                                       27

<PAGE>
   
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 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 LFSI before requesting an exchange.

By calling LFSI, 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 LFSI 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. LFSI
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, LFSI will require customary additional documentation.
Prospectuses of the other funds are available from the LFD 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 LFSI. 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 generally 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 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.

                                       28

<PAGE>
   
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 $10,000 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 (i.e. cumulative) rather than
average annual total returns or may not reflect the sales charge or CDSC.

Total return for a newer class of shares for periods prior to inception includes
(a) the performance of the newer class of shares since inception and (b) the
performance of the oldest existing class of shares from the inception date up to
the date the newer class was offered for sale. In calculating total rate of
return for a newer class of shares in accordance with certain formulas required
by the SEC, the performance will be adjusted to take into account the fact that
the newer class is subject to a different sales charge than the oldest class
(e.g., if the newer class is Class A shares, the total rate of return quoted
will reflect the deduction of the initial sales charge applicable to Class A
shares; if the newer class is Class B or Class C shares, the total rate of
return quoted will reflect the deduction of the CDSC applicable to Class B or
Class C shares). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different class specific
expenses than the oldest class of shares (e.g., Rule 12b-1 fees). Therefore, the
total rate of return quoted for a newer class of shares will differ from the
return that would be quoted had the newer class of shares been outstanding for
the entire period over which the calculation is based (i.e., the total rate of
return quoted for the newer class will be higher than the return that would have
been quoted had the newer class of shares been outstanding for the entire period
over which the calculation is based if the class specific expenses for the newer
class are higher than the class specific expenses of the oldest class, and the
total rate of return quoted for the newer class will be lower than the return
that would be quoted had the newer class of shares been outstanding for this
entire period if the class specific expenses for the newer class are lower than
the class specific expenses of the oldest class). Performance results reflect
any voluntary waivers or reimbursements of fund expenses by the Advisor,
Administrator or its affiliates. Absent these waivers or reimbursements,
performance results would have been lower.
    

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 the Advisor or its affiliates have been added back to actual
expenses.
    


                                       29

<PAGE>
   
DISTRIBUTION RATE. The distribution rate for each class of shares of a fund is
usually calculated by dividing annual or annualized distributions by the maximum
offering price of that class 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 Advisor to be reputable, and publications in
the press pertaining to a fund's performance or to the Advisor or its
affiliates, including comparisons with competitors 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, Bloomberg and Ibbotson.

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 person's 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 cost 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 advisor 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.
    


                                       30

<PAGE>

                                   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.


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.

                                       31

<PAGE>
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.

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.


                                       32

<PAGE>
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, (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.


                                       33

<PAGE>
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 SERVICE
    

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 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.


                                       34

<PAGE>
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
                                      1998

SOURCE             CATEGORY                                       RETURN (%)
- ------             --------                                       ----------
CREDIT SUISSE FIRST BOSTON:
- -------------
                   First Boston High Yield                              0.58

LIPPER, Inc.:      AMEX Composite Index P                               0.64
                   AMEX Computer Tech IX P                             81.46
                   AMEX Institutional IX P                             37.59
                   AMEX Major Market IX P                              18.32
                   Aust Crdtstlt:Osh IX P                                N/A
                   Bse Sensex Index                                   -16.50
                   CAC 40:FFR IX P                                     31.47
                   CD Rate 1 Month Index Tr                             5.61
                   CD Rate 3 Month Index Tr                             5.59
                   CD Rate 6 Month Index Tr                             5.58
                   Consumer Price Index                                 1.61
                   Copnhgn SE:Dkr IX P                                   N/A
                   DAX:Dm IX Tr                                        17.71
                   Dow Jones 65 Comp Av P                              10.10
                   Dow Jones Ind Average P                             16.10
                   Dow Jones Ind Dly Reinv                             18.13
                   Dow Jones Ind Mth Reinv                             18.15
                   Dow Jones Trans Av P                                -3.29
                   Dow Jones Trans Av Tr                                0.02
                   Dow Jones Util Av P                                 14.37
                   Dow Jones Util Av Tr                                18.88
                   FT-SE 100:Pd IX P                                   14.55
                   Hang Seng:Hng Kng $ IX                              -6.29
                   Jakarta Composite Index                               N/A
                   Jasdaq Index:Yen P                                    N/A
                   Klse Composite Index                                -1.40
                   Kospi Index                                           N/A
                   Lear High Growth Rate IX                             1.53
                   Lear Low Priced Value IX                            -1.52
                   Lehman 1-3 Govt/Corp Tr                              6.96
                   Lehman Aggregate Bd P                                2.03
                   Lehman Aggregate Bd Tr                               8.69
                   Lehman Cp Bd Int Tr                                  8.29
                   Lehman Govt Bd Int P                                 1.99
                   Lehman Govt Bd Int Tr                                8.49
                   Lehman Govt Bd Long P                                6.59
                   Lehman Govt Bd Long Tr                              13.41
                   Lehman Govt Bd P                                     3.27
                   Lehman Govt Bd Tr                                    9.85
                   Lehman Govt/Cp Bd P                                  2.70
                   Lehman Govt/Cp Bd Tr                                 9.47
                   Lehman Govt/Cp Int P                                 1.78
                   Lehman Govt/Cp Int Tr                                8.44
                   Lehman High Yield P                                 -6.46
                   Lehman High Yield Tr                                 1.60
    


                                       36

<PAGE>
   
                   Lehman Muni 10 Yr IX Tr                              6.76
                   Lehman Muni 3 Yr IX Tr                               5.21
                   Lehman Muni Bond IX Tr                               6.48
                   Lehman 7-Year Muni Bond                              6.23
                   ML 0-3 Yr Muni IX P                                  0.02
                   ML 0-3 Yr Muni IX Tr                                 5.01
                   ML 1-3 Yr Treasury IX P                              0.60
                   ML 1-3 Yr Treasury IX Tr                             7.00
                   ML 1-5 Yr Gv/Cp Bd IX P                              1.12
                   ML 1-5 Yr Gv/Cp Bd IX Tr                             7.68
                   ML 1-5 Yr Treasury IX P                              1.32
                   ML 1-5 Yr Treasury IX Tr                             7.74
                   ML 10+ Yr Treasury IX Tr                            13.55
                   ML 15 Yr Mortgage IX P                               0.85
                   ML 15 Yr Mortgage IX Tr                              7.30
                   ML 3-5 Yr Govt IX P                                  2.40
                   ML 3-5 Yr Govt IX Tr                                 8.87
                   ML Corp Master Index P                               1.47
                   ML Corp Master Index Tr                              8.72
                   ML Glbl Govt Bond Inx P                              7.71
                   ML Glbl Govt Bond Inx Tr                            14.12
                   ML Glbl Gv Bond IX II P                              8.32
                   ML Glbl Gv Bond IX II Tr                            14.97
                   ML Global Bond Index P                               6.07
                   ML Global Bond Index Tr                             12.78
                   ML Gov Corp Master IX P                              2.69
                   ML Gov Corp Master IX Tr                             9.53
                   ML Govt Master Index P                               3.17
                   ML Govt Master Index Tr                              9.85
                   ML High Yld Master IX P                             -5.59
                   ML High Yld Master IX Tr                             3.66
                   ML Mortgage Master IX P                              0.68
                   ML Mortgage Master IX Tr                             7.19
                   ML Treasury Master IX P                              3.35
                   ML Treasury Master IX Tr                            10.03
                   MSCI AC Americas Free GD                            25.77
                   MSCI AC Americas Free ID                            23.77
                   MSCI AC Asia Fr-Ja IX GD                            -7.79
                   MSCI AC Asia Fr-Ja IX ID                           -10.27
                   MSCI AC Asia Pac - Ja GD                            -4.77
                   MSCI AC Asia Pac - Ja ID                            -7.30
                   MSCI AC Asia Pac Fr-J GD                            -4.42
                   MSCI AC Asia Pac Fr-J ID                            -7.12
                   MSCI AC Asia Pac IX GD                               2.03
                   MSCI AC Asia Pac IX ID                               0.53
                   MSCI AC Europe IX GD                                27.18
                   MSCI AC Europe IX ID                                24.84
                   MSCI AC Fe - Ja IX GD                               -4.83
                   MSCI AC Fe - Ja IX ID                               -7.16
                   MSCI AC Fe Fr-Ja IX GD                              -4.82
                   MSCI AC Fe Fr-Ja IX ID                              -7.39
                   MSCI AC Fe Free IX GD                                3.38
    



                                       37

<PAGE>
   
                   MSCI AC Fe Free IX ID                                2.07
                   MSCI AC Pac Fr-Jpn IX GD                            -2.07
                   MSCI AC Pac Fr-Jpn IX ID                            -4.86
                   MSCI AC World Fr-USA GD                             14.46
                   MSCI AC World Fr-USA ID                             12.36
                   MSCI AC World Free IX GD                            21.97
                   MSCI AC World IX GD                                 21.72
                   MSCI AC World IX ID                                 19.69
                   MSCI AC World-USA IX GD                             14.09
                   MSCI AC Wrld Fr-Ja IX GD                            24.09
                   MSCI AC Wrld Fr-Ja IX ID                            21.93
                   MSCI AC Wrld-Ja IX GD                               23.80
                   MSCI AC Wrld-Ja IX ID                               21.64
                   MSCI Argentina IX GD                               -24.30
                   MSCI Argentina IX ID                               -27.30
                   MSCI Australia IX GD                                 7.06
                   MSCI Australia IX ID                                 3.80
                   MSCI Australia IX ND                                 6.07
                   MSCI Austria IX GD                                   0.77
                   MSCI Austria IX ID                                  -0.91
                   MSCI Austria IX ND                                   0.35
                   MSCI Belgium IX GD                                  68.73
                   MSCI Belgium IX ID                                  64.84
                   MSCI Belgium IX ND                                  67.75
                   MSCI Brazil IX GD                                  -39.62
                   MSCI Brazil IX ID                                  -44.07
                   MSCI Canada IX GD                                   -5.70
                   MSCI Canada IX ID                                   -7.44
                   MSCI Canada IX ND                                   -6.14
                   MSCI Chile IX GD                                   -28.50
                   MSCI Chile IX ID                                   -30.65
                   MSCI China Dom Fr IX ID                            -51.52
                   MSCI China Free IX ID                              -43.83
                   MSCI China Non Dom IX ID                           -42.06
                   MSCI Colombia IX GD                                -42.17
                   MSCI Colombia IX ID                                -45.32
                   MSCI Czech Rep IX GD                                 0.54
                   MSCI Czech Rep IX ID                                -0.66
                   MSCI Denmark IX GD                                   9.38
                   MSCI Denmark IX ID                                   7.82
                   MSCI Denmark IX ND                                   8.99
                   MSCI EAFE + Canada IX GD                            19.11
                   MSCI EAFE + Canada IX ID                            17.02
                   MSCI EAFE + Canada IX ND                            18.76
                   MSCI EAFE + EMF IX GD                               15.25
                   MSCI EAFE + EMF IX ID                               13.13
                   MSCI EAFE + Em IX GD                                14.94
                   MSCI EAFE + Em IX ID                                12.84
                   MSCI EAFE - UK IX GD                                21.02
                   MSCI EAFE - UK IX ID                                19.17
                   MSCI EAFE - UK IX ND                                20.59
                   MSCI EAFE Fr IX ID                                  18.32
                   MSCI EAFE GDP Wt IX GD                              27.12
                   MSCI EAFE GDP Wt IX ID                              25.12
                   MSCI EAFE GDP Wt IX ND                              26.71
                   MSCI EAFE IX GD                                     20.33
    


                                       38

<PAGE>
   
                   MSCI EAFE IX ID                                     18.23
                   MSCI EAFE IX ND                                     20.00
                   MSCI EASEA IX GD                                    25.42
                   MSCI EASEA IX ID                                    22.94
                   MSCI EASEA IX ND                                    25.03
                   MSCI EMF Asia IX GD                                -11.00
                   MSCI EMF Asia IX ID                                -12.36
                   MSCI EMF Far East IX GD                             -6.23
                   MSCI EMF Far East IX ID                             -7.33
                   MSCI EMF IX GD                                     -25.34
                   MSCI EMF IX ID                                     -27.52
                   MSCI EMF Latin Am IX GD                            -35.11
                   MSCI EMF Latin Am IX ID                            -38.04
                   MSCI Em Asia IX GD                                  -8.57
                   MSCI Em Asia IX ID                                  -9.90
                   MSCI Em Eur/Mid East GD                            -26.01
                   MSCI Em Eur/Mid East ID                            -27.37
                   MSCI Em Europe IX GD                               -30.11
                   MSCI Em Europe IX ID                               -31.17
                   MSCI Em Far East IX GD                              -4.12
                   MSCI Em Far East IX ID                              -5.28
                   MSCI Em IX GD                                      -23.21
                   MSCI Em IX ID                                      -25.30
                   MSCI Em Latin Am IX GD                             -35.29
                   MSCI Em Latin Am IX ID                             -38.19
                   MSCI Europe - UK IX GD                              33.95
                   MSCI Europe - UK IX ID                              31.86
                   MSCI Europe - UK IX ND                              33.38
                   MSCI Europe GDP Wt IX ID                            31.74
                   MSCI Europe IX GD                                   28.91
                   MSCI Europe IX ID                                   26.53
                   MSCI Europe IX ND                                   28.53
                   MSCI European Union GD                              30.44
                   MSCI European Union ID                              27.93
                   MSCI Far East Free IX ID                             1.52
                   MSCI Far East IX GD                                  2.56
                   MSCI Far East IX ID                                  1.22
                   MSCI Far East IX ND                                  2.39
                   MSCI Finland IX GD                                 122.63
                   MSCI Finland IX ID                                 119.10
                   MSCI Finland IX ND                                 121.64
                   MSCI France IX GD                                   42.06
                   MSCI France IX ID                                   40.00
                   MSCI France IX ND                                   41.54
                   MSCI Germany IX GD                                  29.88
                   MSCI Germany IX ID                                  28.17
                   MSCI Germany IX ND                                  29.43
                   MSCI Greece IX GD                                   78.11
                   MSCI Greece IX ID                                   75.01
                   MSCI Hongkong IX GD                                 -2.92
                   MSCI Hongkong IX ID                                 -7.60
                   MSCI Hongkong IX ND                                 -2.92
                   MSCI Hungary IX GD                                  -8.16
                   MSCI Hungary IX ID                                  -8.70
                   MSCI India IX GD                                   -21.24
                   MSCI India IX ID                                   -22.89
    


                                       39

<PAGE>
   
                   MSCI Indonesia IX GD                               -31.53
                   MSCI Indonesia IX ID                               -32.40
                   MSCI Ireland IX ID                                  32.99
                   MSCI Israel Dom IX ID                              -16.20
                   MSCI Israel IX ID                                   -7.91
                   MSCI Israel Non Dom Ixid                            42.21
                   MSCI Italy IX GD                                    53.20
                   MSCI Italy IX ID                                    50.99
                   MSCI Italy IX ND                                    52.52
                   MSCI Japan IX GD                                     5.25
                   MSCI Japan IX ID                                     4.27
                   MSCI Japan IX ND                                     5.05
                   MSCI Jordan IX GD                                  -11.01
                   MSCI Jordan IX ID                                  -14.26
                   MSCI Kokusai IX GD                                  27.46
                   MSCI Kokusai IX ID                                  25.30
                   MSCI Kokusai IX ND                                  26.96
                   MSCI Korea IX GD                                   141.15
                   MSCI Korea IX ID                                   137.54
                   MSCI Luxembourg IX ID                                8.63
                   MSCI Malaysia IX GD                                -29.49
                   MSCI Malaysia IX ID                                -31.04
                   MSCI Mexico Free IX GD                             -33.53
                   MSCI Mexico Free IX ID                             -34.50
                   MSCI Mexico IX GD                                  -34.18
                   MSCI Mexico IX ID                                  -35.12
                   MSCI Netherland IX GD                               23.93
                   MSCI Netherland IX ID                               21.13
                   MSCI Netherland IX ND                               23.23
                   MSCI New Zealand IX GD                             -21.48
                   MSCI New Zealand IX ID                             -25.23
                   MSCI New Zealand IX ND                             -22.62
                   MSCI Nordic IX GD                                   23.83
                   MSCI Nordic IX ID                                   21.78
                   MSCI Nordic IX ND                                   23.25
                   MSCI Norway IX GD                                  -29.67
                   MSCI Norway IX ID                                  -31.21
                   MSCI Norway IX ND                                  -30.06
                   MSCI Nth Amer IX GD                                 29.04
                   MSCI Nth Amer IX ID                                 27.11
                   MSCI Nth Amer IX ND                                 28.46
                   MSCI Pac - Japan IX GD                              -6.22
                   MSCI Pac - Japan IX ID                              -9.55
                   MSCI Pac - Japan IX ND                              -6.64
                   MSCI Pacific Fr-Jpn ID                              -8.40
                   MSCI Pacific Free IX ID                              1.43
                   MSCI Pacific IX GD                                   2.69
                   MSCI Pacific IX ID                                   1.16
                   MSCI Pacific IX ND                                   2.44
                   MSCI Pakistan IX GD                                -56.61
                   MSCI Pakistan IX ID                                -60.56
                   MSCI Peru IX GD                                    -40.22
                   MSCI Peru IX ID                                    -42.11
                   MSCI Philippines Fr Ixgd                            13.45
                   MSCI Philippines Fr Ixid                            12.60
                   MSCI Philippines IX GD                              16.10
    


                                       40

<PAGE>
   
                   MSCI Philippines IX ID                              14.89
                   MSCI Portugal IX GD                                 27.90
                   MSCI Portugal IX ID                                 25.42
                   MSCI Russia IX GD                                  -82.99
                   MSCI Russia IX ID                                  -83.16
                   MSCI Sing/Mlysia IX GD                             -12.88
                   MSCI Sing/Mlysia IX ID                             -14.62
                   MSCI Sing/Mlysia IX ND                             -12.88
                   MSCI Singapore Fr IX GD                             -3.59
                   MSCI Singapore Fr IX ID                             -5.31
                   MSCI South Africa IX GD                            -27.56
                   MSCI South Africa IX ID                            -29.84
                   MSCI Spain IX GD                                    50.58
                   MSCI Spain IX ID                                    47.87
                   MSCI Spain IX ND                                    49.90
                   MSCI Sri Lanka IX GD                               -25.57
                   MSCI Sri Lanka IX ID                               -27.30
                   MSCI Sweden IX GD                                   14.54
                   MSCI Sweden IX ID                                   12.62
                   MSCI Sweden IX ND                                   13.96
                   MSCI Swtzrlnd IX GD                                 24.05
                   MSCI Swtzrlnd IX ID                                 22.57
                   MSCI Swtzrlnd IX ND                                 23.53
                   MSCI Taiwan IX GD                                  -20.64
                   MSCI Taiwan IX ID                                  -21.45
                   MSCI Thailand IX GD                                 19.09
                   MSCI Thailand IX ID                                 18.74
                   MSCI Turkey IX GD                                  -52.51
                   MSCI Turkey IX ID                                  -53.53
                   MSCI UK IX GD                                       17.80
                   MSCI UK IX ID                                       14.84
                   MSCI UK IX ND                                       17.80
                   MSCI USA IX GD                                      30.72
                   MSCI USA IX ID                                      28.79
                   MSCI USA IX ND                                      30.14
                   MSCI Venezuela IX GD                               -49.16
                   MSCI Venezuela IX ID                               -52.69
                   MSCI World - UK IX GD                               25.63
                   MSCI World - UK IX ID                               23.73
                   MSCI World - UK IX ND                               25.11
                   MSCI World - USA IX GD                              19.11
                   MSCI World - USA IX ID                              17.02
                   MSCI World - USA IX ND                              18.76
                   MSCI World GDP Wt IX ID                             25.61
                   MSCI World IX Free ID                               22.82
                   MSCI World IX GD                                    24.80
                   MSCI World IX ID                                    22.78
                   MSCI World IX ND                                    24.34
                   MSCI Wrld - Austrl IX GD                            25.03
                   MSCI Wrld - Austrl IX ID                            23.03
                   MSCI Wrld - Austrl IX ND                            24.58
                   Madrid SE:Pst IX P                                  37.19
                   NASDAQ 100 IX P                                     85.31
    

                                       41

<PAGE>
   

                   NASDAQ Bank IX P                                   -11.77
                   NASDAQ Composite IX P                               39.63
                   NASDAQ Industrial IX P                               6.82
                   NASDAQ Insurance IX P                               -0.06
                   NASDAQ Natl Mkt Cmp IX                              40.23
                   NASDAQ Natl Mkt Ind IX                               6.27
                   NASDAQ Transport IX P                               -7.85
                   NYSE Composite P                                    16.55
                   NYSE Finance IX P                                    5.13
                   NYSE Industrials IX P                               17.97
                   NYSE Transportation IX                               3.46
                   NYSE Utilities IX P                                 33.04
                   Nikkei 225 Avg:Yen P                                -9.28
                   Oslo SE Tot:Fmk IX P                                  N/A
                   PSE Technology IX P                                 54.60
                   Philippines Composite IX                              N/A
                   Russell 1000(R)Grow IX Tr                           38.71
                   Russell 1000(R)IX P                                 25.12
                   Russell 1000(R)IX Tr                                27.02
                   Russell 1000(R)Value IX Tr                          15.63
                   Russell 2000(R)Grow IX Tr                            1.23
                   Russell 2000(R)IX P                                 -3.45
                   Russell 2000(R)IX Tr                                -2.55
                   Russell 2000(R)Value IX Tr                          -6.45
                   Russell 3000(R)IX P                                 22.32
                   Russell 3000(R)IX Tr                                24.14
                   Russell Midcap(TM)Grow IX                           17.86
                   Russell Midcap(TM)Inx Tr                            10.09
                   Russell Midcap(TM)Value IX                           5.09
                   S & P 100 Index P                                   31.33
                   S & P 500 Daily Reinv                               28.58
                   S & P 500 Index P                                   26.67
                   S & P 500 Mnthly Reinv                              28.60
                   S & P 600 Index P                                   -2.10
                   S & P 600 Index Tr                                  -1.31
                   S & P Financial IX Tr                               11.43
                   S & P Financial Idx P                                9.58
                   S & P Industrial IX Tr                              33.71
                   S & P Industrials P                                 31.91
                   S & P Midcap 400 IX P                               17.68
                   S & P Midcap 400 IX Tr                              19.11
                   S & P Transport IX Tr                               -1.94
                   S & P Transport Index P                             -3.03
                   S & P Utility Index P                               10.10
                   S & P Utility Index Tr                              14.77
                   S & P/Barra Growth IX Tr                            42.15
    


                                       42

<PAGE>
   
                   S & P/Barra Value IX Tr                             14.68
                   S Afr All Mng:Rnd IX P                               3.72
                   SB Cr-Hdg Nn-US Wd IX Tr                            11.53
                   SB Cr-Hdg Wd Gv Bd IX Tr                            11.03
                   SB Non-US Wd Gv Bd IX Tr                            17.79
                   SB USD 3month Dom CD IX                              5.74
                   SB USD 3month Euro CD IX                             6.19
                   SB USD 3month Eurodep IX                             5.74
                   SB USD 3month Tbill IX                               5.11
                   SB Wd Gv Bd:Austrl IX Tr                             3.88
                   SB Wd Gv Bd:Germny IX Tr                            19.76
                   SB Wd Gv Bd:Japan IX Tr                             15.85
                   SB Wd Gv Bd:UK IX Tr                                20.88
                   SB Wd Gv Bd:US IX Tr                                10.00
                   SB World Govt Bond IX Tr                            15.31
                   SB World Money Mkt IX Tr                             9.11
                   Straits Times Index                                 -7.62
                   Swiss Perf:Sfr IX Tr                                15.37
                   T-Bill 1 Year Index Tr                               4.93
                   T-Bill 3 Month Index Tr                              4.88
                   T-Bill 6 Month Index Tr                              4.94
                   Taiwan SE:T$ IX P                                  -15.56
                   Thailand Set Index                                  -4.53
                   Tokyo 2nd Sct:Yen IX P                                N/A
                   Tokyo Se(Topix):Yen IX                                N/A
                   Toronto 300:C$ IX P                                 -3.19
                   Toronto SE 35:C$ IX P                               -2.05
                   Value Line Cmp IX-Arth                               5.82
                   Value Line Cmp IX-Geom                              -3.79
                   Value Line Industrl IX                              -7.27
                   Value Line Railroad IX                              -9.93
                   Value Line Utilties IX                               7.61
                   Wilshire 4500 Index Tr                               8.63
                   Wilshire 5000 (Cap Wt)Tr                            23.43
    


                                       43

<PAGE>
   

                   Wilshire 5000 Index P                               21.71
                   Wilshire Lg Cp Gro IX Tr                              N/A
                   Wilshire Lg Cp Val IX Tr                              N/A
                   Wilshire MD Cp Gro IX Tr                              N/A
                   Wilshire MD Cp Val IX Tr                              N/A
                   Wilshire Sm Cp Gro IX Tr                            -2.46
                   Wilshire Sm Cp Val IX Tr                            -4.87

THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST:
                   Real Estate Investment Trust Index                 -17.50

SALOMON SMITH BARNEY:

                   10 Year U.S. Government (Sovereign)                 10.00
                   10 Year United Kingdom (Sovereign)                  19.55
                   10 Year France (Sovereign)                          12.59
                   10 Year Germany (Sovereign)                         10.94
                   10 Year Japan (Sovereign)                            0.50
                   10 Year Canada (Sovereign)                           9.41
    





Part C.  OTHER INFORMATION

Item 23. Exhibits

      (a)         Amended and Restated Agreement and Declaration of Trust

      (b)         By-Laws(2)

      (c)         Form of Specimen Share Certificate - filed as
                  Exhibit   4  in  Part  C,   Item   24(b)   of
                  Post-Effective   Amendment   No.  45  to  the
                  Registration   Statement   on  Form  N-1A  of
                  Colonial  Trust IV  (File  Nos.  2-62492  and
                  811-2865)  and  is  hereby   incorporated  by
                  reference   and   made   a   part   of   this
                  Registration Statement

      (d)         Investment   Management   Agreement   between
                  Colonial  Trust  VII on  behalf  of CNTF  and
                  Newport Fund Management, Inc.(2)

      (d)  (1)    Amendment No. 1 to the Investment Management Agreement(3)

      (e)  (1)    Form of Distributor's Contract with Liberty Funds Distributor,
                  Inc. - filed as Exhibit (e)(1) in Part C, Item 23 of Post-
                  Effective Amendment No. 49 to the Registration Statement on 
                  Form N-1A of Colonial Trust IV (File Nos. 2-62492 and 
                  811-2865) and is hereby incorporated by reference and made a
                  part of this Registration Statement

      (e)  (2)    Appendix 1 of Distributor's Contract - filed as Exhibit
                  (e)(2) in Part C, Item 23 of Post-Effective Amendment No. 109
                  to the Registration Statement on Form N-1A of Colonial Trust
                  III (File Nos. 2-15184 and 811-881) and is incorporated by 
                  reference and made a part of this Registration Statement

      (e)  (3)    Appendix 2 of Distributor's Contract - filed as Exhibit (e)(3)
                  in Part C, Item 23 of Post-Effective Amendment No. 109 to the 
                  Registration Statement on Form N-1A of Colonial Trust III
                  (File Nos. 2-15184 and 811-881) and is incorporated by 
                  reference and made a part of this Registration Statement

      (e)  (4)    Form of Selling Agreement - filed as Exhibit (e)(2) in Part C,
                  Item 24(b) of Post-Effective Amendment No. 49 to the 
                  Registration Statement on Form  N-1A of Colonial Trust I 
                  (File Nos. 2-15184 and 811-881) and is hereby incorporated by
                  reference and made a part of this Registration Statement

      (e)  (5)    Form of Asset Retention Agreement - filed as Exhibit 6(d) in 
                  Part C, Item 24(b) of Post-Effective Amendment No. 10 to the
                  Registration Statement on Form N-1A of Colonial Trust VI 
                  (File Nos. 33-45117 and 811-6529) and is hereby incorporated
                  by reference and made a part of this Registration Statement

      (f)         Not applicable

      (g)   (1)   Global Custody Agreement with The Chase Manhattan Bank - filed
                  as Exhibit 8. in Part C, Item 24(b) of Post-Effective 
                  Amendment No 13 to the Registration Statement on Form N-1A of
                  Colonial Trust VI (File Nos. 33-45117 and 811-6529) and is 
                  hereby incorporated by reference and made a part of this 
                  Registration Statement

      (g)   (2)   Amendment 1 to Appendix A of Custody Agreement with the Chase
                  Manhattan Bank filed as Exhibit No. 9.(a)(3) in Part C, Item
                  24(b) of Post-Effective Amendment No. 14 to the Registration 
                  Statement on Form N-1A of Colonial Trust VI, (file Nos. 
                  33-45117 & 811-6529) and is hereby incorporated by reference 
                  and made a part of this Registration Statement

      (h)         Pricing and Bookkeeping  Agreement - filed as
                  Exhibit   9(b)  in  Part  C,  Item  24(b)  of
                  Post-Effective   Amendment   No.  10  to  the
                  Registration   Statement   on  Form  N-1A  of
                  Colonial  Trust VI (File  Nos.  33-45117  and
                  811-6529)  and  is  hereby   incorporated  by
                  reference   and   made   a   part   of   this
                  Registration Statement

      (h)   (2)   Amendment to Appendix I of Pricing and Bookkeeping Agreement -
                  filed as Exhibit (h)(5) in Part C, Item 23 of Post-Effective
                  Amendment No. 109 to the Registration Statement on Form N-1A 
                  of Colonial Trust III (File Nos. 2-15184 and 811-881) and is 
                  incorporated by reference and made a part of this Registration
                  Statement

      (h)   (3)   Amended and Restated Shareholders' Servicing and Transfer 
                  Agent Agreement as amended - filed as Exhibit No. 9.(b) in 
                  Part C, Item 24(b) of Post-Effective Amendment No. 10 to the
                  Registration Statement on Form N-1A of Colonial Trust VI, 
                  (File Nos. 33-45117 & 811-6529) and is hereby incorporated by 
                  reference and made a part of this Registration Statement

      (h)   (4)   Amendment No. 12 to Schedule A of Amended and Restated 
                  Shareholders' Servicing and Transfer Agent Agreement as 
                  amended - filed as Exhibit (h)(2) in Part C, Item 23 of Post-
                  Effective Amendment No. 109 to the Registration Statement on 
                  Form N-1A of Colonial Trust III (File Nos. 2-15184 & 811-881)
                  and is hereby incorporated by reference and made a part of
                  this Registration Statement

      (h)   (5)   Amendment No. 18 to Appendix I of Amended and Restated 
                  Shareholders' Servicing and Transfer Agent Agreement as
                  amended - filed as Exhibit (h)(3) in Part C, Item 23 of Post-
                  Effective Amendment No. 109 to the Registration Statement on
                  Form N-1A of Colonial Trust III (File Nos. 2-15184 & 811-881)
                  and is hereby incorporated by reference and made a part of
                  this Registration Statement

      (h)   (6)  Credit Agreement - filed as Exhibit 9.(f) in Part C, Item 24(b)
                 of Post-Effective Amendment No. 19 to the Registration 
                 Statement on Form N-1A of Colonial Trust V (File Nos. 33-12109
                 & 811-5030) and is hereby incorporated by reference and made a
                 part of this Registration Statement

      (h)   (7)  Amendment No. 1 to the Credit Agreement - filed as Exhibit 9(f)
                 in Part C, Item 24(b) of Post-Effective Amendment No. 99 to the
                 Registration Statement on Form N-1A of Colonial Trust III 
                 (File Nos. 2-15184 and 811-881) and is hereby incorporated by 
                 reference and made a part of this Registration Statement

      (h)   (8)  Amendment No. 2 to the Credit Agreement - filed as Exhibit 9(g)
                 in Part C, Item 24(b) of Post-Effective Amendment No. 99 to the
                 Registration Statement on Form N-1A of Colonial Trust III 
                 (File Nos. 2-15184 and 811-881) and is hereby incorporated by
                 reference and made a part of this Registration Statement

      (h)   (9)  Amendment No. 3 to the Credit Agreement - filed as Exhibit 9(h)
                 in Part C, Item 24(b) of Post-Effective Amendment No. 99 to the
                 Registration Statement on Form N-1A of Colonial Trust III (File
                 Nos. 2-15184 and 811-881) and is hereby incorporated by 
                 reference and made a part of this Registration Statement

      (h)  (10)  Amendment No. 4 to the Credit Agreement - filed as Exhibit 9(h)
                 in Part C, Item 24(b) of Post-Effective Amendment No. 102 to
                 the Registration Statement on Form N-1A of Colonial Trust III
                 (File Nos. 2-15184 & 811-881) and is hereby incorporated by 
                 reference and made a part of this Registration Statement

      (h)  (11)  Establishment and Designation of Colonial Newport Tiger Fund(2)

      (h)  (12)  Administration Agreement between Registrant and Colonial 
                 Management Associates, Inc.(2)

      (h)  (13)  Agreement and Plan of Reorganization dated January 25, 1995 
                 between The World Funds, Inc. on behalf of Newport Tiger Fund
                 and Registrant on behalf of Colonial Newport Tiger Fund(2)

      (i)        Opinion of Counsel (included with Registrant's Rule 24f-2 
                 Notice filed with the Commission  on  December  29,  1995  
                 for the fiscal year ended October 31, 1995)

      (j)   (1)  Consent of Independent Accountants(4)
                  (PricewaterhouseCoopers)

      (j)   (2)  Consent of Independent Accountants(4)
                  (Tait, Weller & Baker)

      (k)        Not applicable

      (l)        Not applicable

      (m)        Distribution Plan adopted pursuant to Section
                 12b-1 of the Investment  Company Act of 1940,
                 incorporated     by    reference    to    the
                 Distributor's   Contract   filed  as  Exhibit
                 (e)(1) hereto

      (n)   (1)  Financial Data Schedule (Class A)(4)

      (n)   (2)  Financial Data Schedule (Class B)(4)

      (n)   (3)  Financial Data Schedule (Class C)(4)

      (n)   (4)  Financial Data Schedule (Class T)(4)

      (n)   (5)  Financial Data Schedule (Class Z)(4)

      (o)        Plan  pursuant  to Rule  18f-3(d)  under  the
                 Investment  Company Act of 1940 (incorporated
                 herein   as    reference   to   Exhibit   (o)
                 Post-Effective   Amendment   No.   107  total
                 Registration Statement of Colonial Trust III,
                 Registration  Nos.  2-15184 and 811-881 filed
                 with the Commission on or about December 3, 1998)

Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale, John V. Carberry,
Lora S. Collins, James E. Grinnell, Richard W. Lowry, Salvatore Macera, 
William E. Mayer, James L. Moody, Jr., John J. Neuhauser, Thomas E. Stitzel, 
Robert L. Sullivan and Anne-Lee Verville - filed as Exhibit 18(a) in Part C, 
Item 24(b) of Post-Effective Amendment No. 50 to the Registration Statement on 
Form N-1A of Colonial Trust IV (File Nos. 2-62492 and 811-2865) and is hereby 
incorporated by reference and made a part of this Registration Statement

          (1)     Incorporated by reference to Post-Effective  Amendment
                  No. 8 filed with the Commission on December 16, 1994.
          (2)     Incorporated by reference to Post-Effective  Amendment
                  No. 10 filed with the Commission on April 24, 1996.
          (3)     Incorporated by reference to Post-Effective  Amendment
                  No. 12 filed with the Commission on April 27, 1998.
          (4)     To be filed by amendment.

Item 24.          Persons Controlled by our under Common Control with Registrant

                  None



<PAGE>


Item 25.                  Indemnification

                          See Article IV of the Amended and  Restated  Agreement
                          and Declaration of Trust filed as Exhibit (a) hereto.

                          The Registrant's  advisor or  administrator,  Colonial
                          Management   Associates,   Inc.,  has  an  ICI  Mutual
                          Insurance  Company Directors and  Officers/Errors  and
                          Omissions   Liability  insurance  policy.  The  policy
                          provides  indemnification to the Registrant's trustees
                          and officers.

Item 26.                  Business and Other Connections of Investment Adviser

                          Certain  information  pertaining to business and other
                          connections of the  Registrant's  investment  advisor,
                          Newport Fund Management  Inc., is incorporated  herein
                          by reference to the  Prospectus  and the  Statement of
                          Additional Information. The information required above
                          is incorporated  herein by reference from Newport Fund
                          Management  Inc.'s  Form ADV, as most  recently  filed
                          with the Securities and Exchange Commission.

                          The   following   sets   forth   business   and  other
                          connections  of each  director and officer of Colonial
                          Management Associates, Inc. (see next page):


<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 the  fiscal  year, December
31, 1998, CASI had four institutional,  corporate or other account under
management or  supervision,  the market value of which was  approximately $227
million.  As of  the  end  of the  fiscal  year,  December  31, 1998,  Colonial
was the  investment  adviser,  sub-adviser  and/or administrator to 57 
mutual funds, including funds sub-advised by Colonial, the market value of 
which investment companies was approximately  $18,950.90 million.  Liberty
Funds Distributor, Inc., a subsidiary  of Colonial  Management  Associates,
Inc., is the principal underwriter  and the  national  distributor of all of 
the funds in the Liberty 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 11/30/98.  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.
                                 AlphaTrade Inc.                 Asst. Clerk
                                 Liberty Funds Distributor,
                                   Inc.                          Asst. Clerk
                                 Liberty Financial Advisers,
                                   Inc.                          Asst. Sec.
                                 COGRA, LLC                      Asst. Sec.


Barron, Suzan M.    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.
                                 AlphaTrade Inc.                 Asst. Clerk
                                 Liberty Funds Distributor,
                                   Inc.                          Asst. Clerk
                                 Liberty Financial Advisers,
                                   Inc.                          Asst. Sec.
                                 COGRA, LLC                      Asst. Sec.


Berliant, Allan     V.P.                                           

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.                                           
                                                                   
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 Funds Distributor, 
                                   Inc.                          Dir.; Clerk
                                 Liberty Funds Services, Inc.    Clerk; Dir.
                                 COGRA, LLC                      V.P.; Gen.
                                                                 Counsel and
                                                                 Secretary
                                 Liberty Variable Investment
                                   Trust                         V.P.

                                 Colonial Advisory Services, 
                                   Inc.                          Dir.; Clerk
                                 AlphaTrade Inc.                 Dir.; Clerk
                                 Liberty Financial Advisors,     
                                   Inc.                          Dir.; Sec.
 
Connaughton,        V.P.         Colonial Trust I through VII    CAO; Controller
  J. Kevin                       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
                                 Liberty Variable Investment 
                                   Trust                         Controller

Daniszewski,        V.P.
 Joseph J.
                                                                   
Desilets, Marian H. V.P.         Liberty Funds Distributor,
                                   Inc.                          V.P.
                                 Colonial Trust I through VII    Asst. Sec.
                                 LFC Utilities Trust             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.

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,     Pres.; CEO
                                   Inc.                          and CIO
                                 Liberty Variable Investment
                                   Trust                         V.P.

Evans, C. Frazier   Sr.V.P.      Liberty Funds Distributor, 
                                   Inc.                          Mng. Director
                                                                   

Feloney, Joseph L.  V.P.         Colonial Advisory Services,             
                    Asst. Tres.    Inc.                          Asst. Treas.
                                 COGRA, LLC                      Asst. Treas.


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.; COGRA, LLC                      Dir.;
                    CEO;                                         Pres.; CEO;
                    Chairman of                                  Exec. Cmte.
                    the Board;                                   Mbr.; Chm.
                    IPC Mbr.     Liberty Funds Distributor,      
                                   Inc.                          Dir.; Chm.
                                 Colonial Advisory Services,     
                                   Inc.                          Dir.; Chm.
                                 Liberty Funds Services, Inc.    Dir.; Chm.
                                 AlphaTrade Inc.                 Dir.
                                 Colonial Trusts I through VII   President
                                 Colonial High Income            
                                   Municipal Trust               President
                                 Colonial InterMarket Income     
                                   Trust I                       President
                                 Colonial Intermediate High     
                                   Income Fund                   President
                                 Colonial Investment Grade       
                                   Municipal Trust               President
                                 Colonial Municipal Income       
                                   Trust                         President
                                 LFC Utilities Trust             President
                                 Liberty Financial Advisors, 
                                   Inc.                          Director
                                 Stein Roe & Farnham
                                   Incorporated                  Asst. Chairman

Hanson, Loren       Sr. V.P.;
                    IPC Mbr.

Harasimowicz,       V.P.         
 Stephen

Harris, David       V.P.         Stein Roe Global Capital Mngmt  Principal
                                 Liberty Variable Investment
                                   Trust                         V.P.
                                                                   
Hartford, Brian     V.P.
                                                                   
Haynie, James P.    V.P.         Colonial Advisory Services, 
                                   Inc.                          Sr. V.P.
                                 Liberty Variable Investment
                                   Trust                         V.P.

Hernon, Mary        V.P.

Hill, William       V.P.         Colonial Advisory Services,     V.P.
                                   Inc.

Iudice, Jr.         V.P.;        COGRA, LLC                      Controller,
 Philip J.          Controller                                   CAO, Asst.
                    Asst.                                        Treas.
                    Treasurer    Liberty Funds Distributor,      CFO,
                                   Inc.                          Treasurer
                                 Colonial Advisory Services,
                                   Inc.                          Controller;
                                                                 Asst. Treas.
                                 AlphaTrade Inc.                 CFO, Treas.
                                 Liberty Financial Advisors, 
                                   Inc.                          Asst. Treas.
  
Jacoby, Timothy J.  Sr. V.P.;    COGRA, LLC                      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.
                                 Liberty Financial Advisors,     
                                   Inc.                          Treasurer
                                 Stein Roe & Farnham
                                   Incorporated                  Snr. V.P.
                                 Liberty Variable Investment
                                   Trust                         Treasurer

Johnson, Gordon     V.P.         Liberty Variable Investment
                                   Trust                         V.P.

Knudsen, Gail E.    V.P.         Colonial Trusts I through VII   Asst. Treas.
                                 Colonial High Income       
                                   Municipal Trust               Asst. Treas.
                                 Colonial InterMarket Income         
                                   Trust I                       Asst. Treas.
                                 Colonial Intermediate High    
                                   Income Fund                   Asst. Treas.
                                 Colonial Investment Grade           
                                   Municipal Trust               Asst. Treas.
                                 Colonial Municipal Income 
                                   Trust                         Asst. Treas.
                                 LFC Utilities Trust             Asst. Treas.

 
Lasher, Bennett     V.P.

Lennon, John E.     V.P.         Colonial Advisory Services, 
                                   Inc.                          V.P.       
                                 Liberty Variable Investment
                                   Trust                         V.P.

Lenzi, Sharon       V.P.

Lessard, Kristen    V.P.

Loring, William
  C., Jr.           V.P.
                                                                   
MacKinnon,                                                    
  Donald S.         Sr.V.P.                                        
                                                              
Marcus, Harold      V.P.

Muldoon, Robert     V.P.

Newman, Maureen     V.P.
                        
O'Brien, David      V.P.
                           
Ostrander, Laura    V.P.         Colonial Advisory Services,
                                   Inc.                          V.P.

Peterson, Ann T.    V.P.         Colonial Advisory Services,
                                   Inc.                          V.P.

Rao, Gita           V.P.

Reading, John       V.P.;        Liberty Funds Services, Inc.    Asst. Clerk   
                    Asst.        COGRA, LLC                      Asst. Sec.
                    Sec.;        Colonial Advisory Services,     
                    Asst.          Inc.                          Asst. Clerk
                    Clerk and    Liberty Funds Distributor,  
                    Counsel        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.
                                 Liberty Financial Advisors,
                                   Inc.                          Asst. Sec.
                                 Liberty Variable Investment
                                   Trust                         Asst. Sec.

Rega, Michael       V.P.         Colonial Advisory Services,      
                                    Inc.                         V.P.


Schermerhorn, Scott Sr. V.P.

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.
                                 Liberty Funds Services, Inc.    Director
                                 COGRA, LLC                      COO; Ex. V.P.
                                 Liberty Funds Distributor, 
                                   Inc.                          Director   
                                 AlphaTrade Inc.                 Director
                                 Liberty Financial Advisors,  
                                   Inc.                          Director
                                 Stein Roe & Farnham
                                   Incorporated                  Exec. V.P.

Seibel, Sandra L.   V.P.         Colonial Advisory Services,
                                   Inc.                          V.P.          
                                                                   
Spanos, Gregory J.  Sr. V.P.     Colonial Advisory Services,
                                   Inc.                          Exec. V.P.

Stevens, Richard    V.P.         Colonial Advisory Services,     
                                   Inc.                          V.P.

Stoeckle, Mark      V.P.         Colonial Advisory Services, 
                                   Inc.                          V.P.
                                 Liberty Variable Investment
                                   Trust                         V.P.
Swayze, Gary        V.P.

Wallace, John       V.P.         Colonial Advisory Services,
                    Asst.Tres.     Inc.                          Asst. Treas.
                                 COGRA, LLC                      Asst. Treas.

Ware, Elizabeth M.  V.P.

- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.

Item 27   Principal Underwriter
- -------   ---------------------

(a)   Liberty Funds Distributor, Inc. (LFDI), a subsidiary of Colonial
      Management Associates, Inc., is the Registrant's principal
      underwriter. LFDI acts in such capacity for 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, Stein Roe
      Advisor Trust, Stein Roe Income Trust, Stein Roe Municipal Trust,
      Stein Roe Investment Trust and Stein Roe Trust.
      
(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

Anetsberger, Gary      Sr. V.P.              None

Babbitt, Debra         V.P. and              None
                       Comp. Officer

Ballou, Rick           Sr. V.P.              None
                                          
Balzano, Christine R.  V.P.                  None
                                          
Bartlett, John         Managing Director     None

Blakeslee, James       Sr. V.P.              None

Blumenfeld, Alex       V.P.                  None

Bozek, James           Sr. 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

Clapp, Elizabeth A.    Managing Director     None
                                          
Conlin, Nancy L.       Dir; Clerk            Secretary
                                         
Davey, Cynthia         Sr. V.P.              None

Desilets, Marian       V.P.                  Asst. Sec

Devaney, James         Sr. V.P.              None

DiMaio, Steve          V.P.                  None

Downey, Christopher    V.P.                  None

Dupree, Robert         V.P.                  None

Emerson, Kim P.        Sr. V.P.              None
                                          
Erickson, Cynthia G.   Sr. V.P.              None
                                          
Evans, C. Frazier      Managing Director     None
                                          
Feldman, David         Managing Director     None

Fifield, Robert        V.P.                  None

Gauger, Richard        V.P.                  None

Gerokoulis,            Sr. V.P.              None
 Stephen A.
                                          
Gibson, Stephen E.     Director; Chairman    President
                        of the Board

Goldberg, Matthew      Sr. V.P.              None

Guenard, Brian         V.P.                  None

Harrington, Tom        Sr. V.P.              None

Harris, Carla          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

Kelley, Terry M.       V.P.                  None
                                          
Kelson, David W.       Sr. V.P.              None

Libutti, Chris         V.P.                  None

Martin, Peter          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

Morse, Jonathan        V.P.                  None

O'Shea, Kevin          Managing Director     None

Piken, Keith           V.P.                  None

Place, Jeffrey         Managing Director     None

Pollard, Brian         V.P.                  None

Predmore, Tracy        V.P.                  None

Quirk, Frank           V.P.                  None

Raftery-Arpino, Linda  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

Santosuosso, Louise    V.P.                  None

Scarlott, Rebecca      V.P.                  None

Schulman, David        Sr. V.P.              None

Scoon, Davey           Director              V.P.

Shea, Terence          V.P.                  None

Sideropoulos, Lou      V.P.                  None

Sinatra, Peter         V.P.                  None

Smith, Darren          V.P.                  None

Soester, Trisha        V.P.                  None

Studer, Eric           V.P.                  None

Sweeney, Maureen       V.P.                  None

Tambone, James         CEO                   None

Tasiopoulos, Lou       President             None

VanEtten, Keith H.     Sr. V.P.              None

Wallace, John          V.P.                  None

Walter, Heidi          V.P.                  None

Wess, Valerie          Sr. V.P.              None

Young, Deborah         V.P.                  None

- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.



Item 28.                  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 advisor,  Newport
                          Fund  Management,  Inc.,  Registrant's  administrator,
                          Colonial  Management  Associates,  Inc.;  Registrant's
                          principal  underwriter,   Liberty  Funds  Distributor,
                          Inc.;  Registrant's  transfer and dividend  disbursing
                          agent,   Liberty  Funds   Services,   Inc.;   and  the
                          Registrant's custodian,  The Chase Manhattan Bank. The
                          address  for  each  person  except  the   Registrant's
                          investment  advisor  and  custodian  is One  Financial
                          Center,  Boston,  MA 02111.  The investment  advisor's
                          address is 580  California  Street,  Suite  1960,  San
                          Francisco,  CA 94104.  The custodian's  address is 270
                          Park Avenue, New York, NY 10017-2070.

Item 29.                  Management Services
                          See Item 5, Part A and Item 16, Part B

Item 30.                  Undertakings
                          Not applicable.


<PAGE>



                                                ******************

                                     NOTICE

A copy of the Agreement and Declaration of Trust, as amended,  of Colonial Trust
VII is on file with the  Secretary  of The  Commonwealth  of  Massachusetts  and
notice is hereby given that the  instrument  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 instrument
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  has  duly  caused  this  Post-Effective
Amendment No. 13 to its Registration  Statement under the Securities Act of 1933
and the  Post-Effective  Amendment  No. 16 under the  Investment  Company Act of
1940, to be signed in this City of Boston, and The Commonwealth of Massachusetts
on the 2nd day of March, 1999.

                                                     COLONIAL TRUST VII


                                                     By:/s/ Stephen E. Gibson
                                                            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







STEPHEN E. GIBSON      President (chief                          March 2, 1999
- -----------------
Stephen E. Gibson      Executive officer)







TIMOTHY J. JACOBY      Treasurer and Chief Financial Officer     March 2, 1999
- -----------------
Timothy J. Jacoby      (principal financial officer)







J. KEVIN CONNAUGHTON    Controller and Chief Accounting          March 2, 1999
- --------------------
J. Kevin Connaughton    Officer (principal accounting officer)


<PAGE>







ROBERT J. BIRNBAUM*                 Trustee
Robert J. Birnbaum


TOM BLEASDALE*                      Trustee
Tom Bleasdale


JOHN CARBERRY*                      Trustee
John Carberry


LORA S. COLLINS*                    Trustee
Lora S. Collins


JAMES E. GRINNELL*                  Trustee
James E. Grinnell


RICHARD W. LOWRY*                   Trustee             */s/ WILLIAM J. BALLOU
Richard W. Lowry                                             William J. Ballou
                                                             Attorney-in-fact
                                                             For each Trustee
SALVATORE MACERA*                   Trustee                  March 2, 1999
Salvatore Macera


WILLIAM E. MAYER*                   Trustee
William E. Mayer


JAMES L. MOODY, JR. *               Trustee
James L. Moody, Jr.


JOHN J. NEUHAUSER*                  Trustee
John J. Neuhauser


THOMAS E. STITZEL*                  Trustee
Thomas E. Stitzel


ROBERT L. SULLIVAN*                 Trustee
Robert L. Sullivan


ANNE-LEE VERVILLE*                  Trustee
Anne-Lee Verville



<PAGE>



                               Exhibit Index


(a)                Amended and Restated Agreement and Declaration of Trust


                              AMENDED AND RESTATED
                       AGREEMENT AND DECLARATION OF TRUST
                              OF COLONIAL TRUST VII
                   (formerly known as Liberty Financial Trust)


THE AMENDED AND  RESTATED  AGREEMENT  AND  DECLARATION  OF TRUST made at Boston,
Massachusetts, this 30th day of October, 1998, by the Trustees hereunder, and by
the  holders  of  shares  of  beneficial  interest  to be  issued  hereunder  as
hereinafter provided.

WITNESSETH that

WHEREAS, this Trust has been formed to carry on the business of an investment 
company; and

WHEREAS, the Trustees have agreed to manage all property coming into their hands
as trustees of a Massachusetts  business trust in accordance with the provisions
hereinafter set forth.

NOW,  THEREFORE,  the  Trustees  hereby  declare  that  they will hold all cash,
securities  and other  assets,  which they may from time to time  acquire in any
manner as  Trustees  hereunder,  IN TRUST to manage and dispose of the same upon
the following  terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.

                                    ARTICLE I
                              NAME AND DEFINITIONS

Name

Section  1. This Trust  shall be known as  Colonial  Trust VII and the  Trustees
shall  conduct  the  business  of the Trust under that name or any other name as
they may from time to time determine.

Definitions

Section 2. Whenever  used herein,  unless  otherwise  required by the context or
specifically provided:

(a) The "Trust" refers to the  Massachusetts  business trust established by this
Amended and Restated Agreement and Declaration of Trust, as amended from time to
time;

(b)  "Trustees"  refers to the  Trustees of the Trust named herein or elected in
accordance with Article IV;

(c) "Shares" means the equal  proportionate  transferable units of interest into
which the  beneficial  interest in the Trust shall be divided  from time to time
or, if more than one series of Shares is authorized  by the Trustees,  the equal
proportionate  units into which each series of Shares shall be divided from time
to time or, if more than one class of Shares of any series is  authorized by the
Trustees,  the equal proportionate units into which each class of such series of
Shares shall be divided from time to time;

(d)  "Shareholder" means a record owner of Shares;

(e) The "1940 Act"  refers to the  Investment  Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;

(f) The  terms  "Affiliated  Person,"  "Assignment,"  "Commission,"  "Interested
Person," "Principal Underwriter" and "Majority Shareholder Vote" (the 67% or 50%
requirement of the third sentence of Section 2(a)(42) of the 1940 Act, whichever
may be applicable) shall have the meanings given them in the 1940 Act;

(g)  "Declaration  of Trust" shall mean this Amended and Restated  Agreement and
Declaration of Trust as amended or restated from time to time; and

(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to time.

                                   ARTICLE II
                                     PURPOSE

The purpose of the Trust is to provide investors a managed investment  primarily
in securities, commodities and debt instruments.

                                   ARTICLE III
                                     SHARES

Division of Beneficial Interest

Section 1. The Shares of the Trust  shall be issued in one or more series as the
Trustees may, without Shareholder approval, authorize. The Trustees may, without
Shareholder approval,  divide the Shares of any series into two or more classes,
Shares of each such class having such  preferences or special or relative rights
or  privileges  (including  conversion  rights,  if  any)  as the  Trustees  may
determine and as are not inconsistent  with any provision of this Declaration of
Trust.  Each series shall be  preferred  over all other series in respect of the
assets allocated to that series. The beneficial interest in each series shall at
all times be divided into Shares, without par value, each of which shall, except
as the  Trustees  may  otherwise  authorize  in the case of any  series  that is
divided into two or more classes,  represent an equal proportionate  interest in
the series with each other  Share of the same  series,  none having  priority or
preference over another. The number of Shares authorized shall be unlimited, and
the Shares so authorized may be represented  in part by fractional  shares.  The
Trustees  may from time to time  divide or  combine  the Shares of any series or
class into a greater or lesser number without thereby changing the proportionate
beneficial interests in the series or class.

Ownership of Shares

Section 2. The  ownership  of Shares shall be recorded on the books of the Trust
or its transfer or similar agent.  No  certificates  certifying the ownership of
Shares shall be issued except as the Trustees may otherwise  determine from time
to time. The Trustees may make such rules as they consider  appropriate  for the
issuance of Share certificates,  the transfer of Shares and similar matters. The
record books of the trust as kept by the Trust or any transfer or similar  agent
of the  Trust,  as the  case  may  be,  shall  be  conclusive  as to who are the
Shareholders  of each  series  and class and as to the  number of Shares of each
series and class held from time to time by each Shareholder.

Investments in the Trust; Assets of the Series

Section 3. The Trustees shall accept  investments in the Trust from such persons
and  on  such  terms  and,   subject  to  any  requirements  of  law,  for  such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they from time to time authorize.

All consideration  received by the Trust for the issue or sale of Shares of each
series,  together  with all  income,  earnings,  profits and  proceeds  thereof,
including any proceeds derived from the sale,  exchange or liquidation  thereof,
and any funds or payments derived from reinvestment of such proceeds in whatever
form the same may be,  shall  irrevocably  belong to the  series of Shares  with
respect to which the same were received by the Trust for all  purposes,  subject
only to the  rights  of  creditors,  and shall be so  handled  upon the books of
account of the Trust and are herein referred to as "assets of" such series.



<PAGE>


No Preemptive Rights

Section 4.  Shareholders  shall have no  preemptive  or other  right to receive,
purchase or subscribe for any additional  Shares or other  securities  issued by
the Trust.

Status of Shares and Limitation of Personal Liability

Section 5. Shares shall be deemed to be personal property giving only the rights
provided in this  instrument.  Every  Shareholder  by virtue of having  become a
Shareholder  shall be held to have  expressly  assented  and agreed to the terms
hereof and to have become a party hereto.  The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative  of any  deceased  Shareholder  to an  accounting  or to take any
action in a court or elsewhere  against the Trust or the  Trustees,  but only to
the rights of said  decedent  under this Trust.  Ownership  of Shares  shall not
entitle the Shareholder to any title in or to the whole or any part of the Trust
property  or right to call for a  partition  or  division  of the same or for an
accounting,  nor  shall the  ownership  of Shares  constitute  the  Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the  Trust,  shall have any power to bind  personally  any  Shareholder,  nor
except as  specifically  provided  herein to call upon any  Shareholder  for the
payment  of any sum of money or  assessment  whatsoever  other  than such as the
Shareholder may at any time personally agree to pay.

                                   ARTICLE IV
                                  THE TRUSTEES

Election

Section 1. The number of Trustees  shall be fixed by the Trustees,  except that,
subsequent to any sale of Shares pursuant to a public  offering,  there shall be
not less than three Trustees.  Any vacancies  occurring in the Board of Trustees
may be filled by the Trustees if, immediately after filling any such vacancy, at
least  two-thirds of the Trustees then holding office shall have been elected to
such  office  by the  Shareholders.  In the  event  that at any time less than a
majority of the Trustees then holding  office were elected to such office by the
Shareholders,  the Trustees shall call a meeting of Shareholders for the purpose
of  electing  Trustees.  Each  Trustee  elected  by the  Shareholders  or by the
Trustees  shall  serve  until the next  meeting of  Shareholders  called for the
purpose of electing  Trustees and until the election and qualification of his or
her  successor,  or until he or she  sooner  dies,  resigns or is  removed.  The
initial  Trustees,  each  of  whom  shall  serve  until  the  first  meeting  of
Shareholders  at which  Trustees  are elected and until his or her  successor is
elected and  qualified,  or until he or she sooner dies,  resigns or is removed,
shall be John A. McNeice,  Jr. and such other persons as the Trustee or Trustees
then in office shall, prior to any sale of Shares pursuant to a public offering,
appoint.  By vote of a majority of the Trustees then in office, the Trustees may
remove a Trustee with or without cause. At any meeting called for the purpose, a
Trustee  may be  removed,  with or  without  cause,  by vote of the  holders  of
two-thirds of the outstanding Shares.

Effect of Death, Resignation, etc. of a Trustee

Section  2.  The  death,  declination,   resignation,   retirement,  removal  or
incapacity of the Trustees,  or any one of them,  shall not operate to annul the
Trust or to revoke any  existing  agency  created  pursuant to the terms of this
Declaration of Trust.

Powers

Section 3. Subject to the provisions of this  Declaration of Trust, the business
of the Trust  shall be managed by the  Trustees,  and they shall have all powers
necessary or convenient to carry out that  responsibility.  Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with this Declaration
of Trust  providing  for the conduct of the  business of the Trust and may amend
and repeal them to the extent that such By-Laws do not reserve that right to the
Shareholders;  they may fill  vacancies  in their  number,  including  vacancies
resulting from increases in their number, and may elect and remove such officers
and appoint and  terminate  such agents as they consider  appropriate;  they may
appoint  from  their  own  number,  and  terminate,  any one or more  committees
consisting of two or more Trustees,  including an executive committee which may,
when the  Trustees  are not in  session,  exercise  some or all of the power and
authority of the Trustees as the  Trustees  may  determine;  they may appoint an
advisory  board,  the  members of which  shall not be  Trustees  and need not be
Shareholders;  they may employ one or more custodians of the assets of the Trust
and may authorize such custodians to employ  subcustodians and to deposit all or
any part of such  assets in a system or  systems  for the  central  handling  of
securities,  retain a transfer agent or a Shareholder  services  agent, or both,
provide  for the  distribution  of  Shares  by the  Trust,  through  one or more
principal  underwriters or otherwise,  set record dates for the determination of
Shareholders  with  respect to various  matters,  and in general  delegate  such
authority  as they  consider  desirable  to any  officer  of the  Trust,  to any
committee  of the  Trustees  and to any agent or employee of the Trust or to any
such custodian or underwriter.

Without limiting the foregoing, the Trustees shall have power and authority:

(a)  To invest and reinvest cash, and to hold cash uninvested;

(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and
lease any or all of the assets of the Trust;

(c) To vote or give assent, or exercise any rights of ownership, with respect to
stock or other  securities  or property;  and to execute and deliver  proxies or
powers of attorney to such person or persons as the Trustees  shall deem proper,
granting to such person or persons such power and  discretion  with  relation to
securities or property as the Trustees shall deem proper;

(d) To exercise  powers and rights of  subscription  or  otherwise  which in any
manner arise out of ownership of securities;

(e) To hold any security or property in a form not indicating any trust, whether
in bearer, unregistered or other negotiable form, or in the name of the Trustees
or of the Trust or in the name of a custodian,  subcustodian or other depository
or a nominee or nominees or otherwise;

(f) Subject to the  provisions  of Article III,  Section 3, to allocate  assets,
liabilities  and  expenses of the Trust to a  particular  series of Shares or to
apportion the same among two or more series,  provided that any  liabilities  or
expenses  incurred by a particular  series of Shares shall be payable solely out
of the assets of that series; and to the extent necessary or appropriate to give
effect to the  preferences  and special or relative rights and privileges of any
classes of Shares,  to allocate  assets,  liabilities,  income and expenses of a
series to a particular  class of Shares of that series or to apportion  the same
among two or more classes of Shares of that series;

(g)  To  consent  to  or  participate  in  any  plan  for  the   reorganization,
consolidation  or merger of any corporation or issuer,  any security of which is
or was held in the Trust; to consent to any contract, lease, mortgage,  purchase
or  sale  of  property  by such  corporation  or  issuer,  and to pay  calls  or
subscriptions with respect to any security held in the Trust;

(h) To  join  with  other  security  holders  in  acting  through  a  committee,
depository,  voting trustee or otherwise,  and in that connection to deposit any
security  with, or transfer any security to, any such  committee,  depository or
trustee,  and to delegate to them such power and authority  with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper,  and to agree to pay,  and to pay,  such  portion  of the  expenses  and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;

(i) To compromise,  arbitrate or otherwise  adjust claims in favor of or against
the Trust on any matter in controversy,  including but not limited to claims for
taxes;

(j) To enter into joint ventures,  general or limited partnerships and any other
combinations or associations;

(k)  To borrow funds;

(l) To endorse or guarantee the payment of any notes or other obligations of any
person;  to make  contracts  of  guaranty or  suretyship,  or  otherwise  assume
liability for payment thereof;  and to mortgage and pledge the Trust property or
any part thereof to secure any of or all of such obligations;

(m) To purchase  and pay for entirely out of Trust  property  such  insurance as
they  may  deem  necessary  or  appropriate  for the  conduct  of the  business,
including,  without  limitation,  insurance  policies insuring the assets of the
Trust and payment of distributions  and principal on its portfolio  investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents,  investment advisers or managers,  principal underwriters or independent
contractors  of the Trust  individually  against all claims and  liabilities  of
every nature arising by reason of holding,  being or having held any such office
or position, or by reason of any action alleged to have been taken or omitted by
any such person as Shareholder,  Trustee,  officer,  employee, agent, investment
adviser or manager,  principal underwriter or independent contractor,  including
any action taken or omitted that may be  determined  to  constitute  negligence,
whether or not the Trust would have the power to indemnify  such person  against
such liability; and

(n) To pay pensions for faithful service, as deemed appropriate by the Trustees,
and to adopt,  establish  and carry out  pension,  profit-sharing,  share bonus,
share  purchase,  savings,  thrift and other  retirement,  incentive and benefit
plans,  trusts and  provisions,  including the  purchasing of life insurance and
annuity  contracts as a means of providing such  retirement and other  benefits,
for any or all of the Trustees, officers, employees and agents of the Trust.

The  Trustees  shall not in any way be bound or limited by any present or future
law or custom in regard to investments by Trustees. Except as otherwise provided
herein  or from  time to time in the  By-Laws,  any  action  to be  taken by the
Trustees may be taken by a majority of the Trustees  present at a meeting of the
Trustees (a quorum being present),  within or without  Massachusetts,  including
any meeting  held by means of a  conference  telephone  or other  communications
equipment  by means of which all persons  participating  in the meeting can hear
each other at the same time, and  participation  by such means shall  constitute
presence  in person at a meeting,  or by written  consents  of a majority of the
Trustees then in office.

Payment of Expenses by Trust

Section 4. The Trustees are  authorized to pay or to cause to be paid out of the
principal or income of the Trust,  or partly out of principal  and partly out of
income, as they deem fair, all expenses,  fees,  charges,  taxes and liabilities
incurred or arising in  connection  with the Trust,  or in  connection  with the
management thereof,  including,  but not limited to, the Trustees'  compensation
and  such  expenses  and  charges  for the  services  of the  Trust's  officers,
employees,  investment  adviser  or  manager,  principal  underwriter,  auditor,
counsel,  custodian,  transfer agent,  Shareholder services agent and such other
agents or independent  contractors,  and such other expenses and charges, as the
Trustees may deem  necessary  or proper to incur,  provided,  however,  that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular  series of Shares,  as determined  by the  Trustees,  shall be
payable solely out of the assets of that series.

Ownership of Assets of the Trust

Section 5.  Title to all of the assets of each series of Shares and of the Trust
shall at all times be considered as vested in the Trustees.

Advisory, Management and Distribution

Section 6. Subject to a favorable  Majority  Shareholder Vote, the Trustees may,
at any time and  from  time to time,  contract  for  exclusive  or  nonexclusive
advisory  and/or  management  services  with  Newport Fund  Management,  Inc., a
Virginia  corporation,  or any other  corporation,  trust,  association or other
organization   (the  "Adviser"),   every  such  contract  to  comply  with  such
requirements and  restrictions as may be set forth in the By-Laws;  and any such
contract  may contain  such other terms  interpretive  of or in addition to said
requirements and restrictions as the Trustees may determine,  including, without
limitation,  authority to determine from time to time what investments  shall be
purchased,  held,  sold or exchanged and what portion,  if any, of the assets of
the  Trust  shall  be  held  uninvested,  and to  make  changes  in the  Trust's
investments.  The Trustees may also, at any time and from time to time, contract
with  the  Adviser  or  any  other  corporation,  trust,  association  or  other
organization,  appointing it exclusive or nonexclusive  distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and  restrictions as may be set forth in the By-Laws;  and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.

The fact that:

(i) any of the Shareholders, Trustees or officers of the Trust is a shareholder,
director,  officer, partner,  trustee,  employee,  manager,  adviser,  principal
underwriter  or  distributor  or  agent  of  or  for  any  corporation,   trust,
association or other  organization,  or of or for any parent or affiliate of any
organization,  with which an  advisory  or  management  contract,  or  principal
underwriter's or distributor's  contract,  or transfer,  shareholder services or
other  agency  contract  may have  been or may  hereafter  be made,  or that any
organization,  or any parent or affiliate  thereof,  is a Shareholders or has an
interest in the Trust, or that

(ii) any corporation,  trust,  association or other  organization  with which an
advisory or  management  contract or principal  underwriter's  or  distributor's
contract,  or transfer,  Shareholder  services or other agency contract may have
been or may  hereafter be made also has an advisory or management  contract,  or
principal  underwriter's or  distributor's  contract,  or transfer,  shareholder
services or other agency contract with one or more other  corporations,  trusts,
associations  or other  organizations,  or has other business or interests shall
not affect the  validity of any such  contract or  disqualify  any  Shareholder,
Trustee or officer of the Trust from voting upon or executing the same or create
any liability or accountability to the Trust or its Shareholders.

                                    ARTICLE V
                    SHAREHOLDERS' VOTING POWERS AND MEETINGS

Voting Powers

Section 1. The  Shareholders  shall have power to vote only (i) for the election
of  Trustees as  provided  in Article  IV,  Section 1, (ii) with  respect to any
Adviser as  provided  in  Article  IV,  Section  6,  (iii)  with  respect to any
termination  of this Trust to the extent and as provided in Article IX,  Section
4, (iv) with respect to any amendment of this Declaration of Trust to the extent
and as  provided  in  Article  IX,  Section  7,  (v) to the same  extent  as the
stockholders  of a  Massachusetts  business  corporation  as to whether or not a
court  action,   proceeding  or  claim  should  not  be  brought  or  maintained
derivatively  or as a class  action on behalf of the Trust or the  Shareholders,
and (vi) with respect to such additional matters relating to the Trust as may be
required by law, this  Declaration of Trust,  the By-Laws or any registration of
the Trust with the Securities and Exchange  Commission (or any successor agency)
or any state, or as the Trustees may consider necessary or desirable. Each whole
Share  shall be entitled to one vote as to any matter on which it is entitled to
vote and each fractional  Share shall be entitled to a proportionate  fractional
vote.  Notwithstanding  any other provision of this Declaration of Trust, on any
matter  submitted  to a vote of  Shareholders,  all  Shares  of the  Trust  then
entitled  to vote  shall be voted in the  aggregate  as a single  class  without
regard to series or class;  except (1) when required by the 1940 Act or when the
Trustees  shall have  determined  that the matter  affects one or more series or
classes  materially  differently,  Shares shall be voted by individual series or
class;  and (2) when the Trustees have  determined  that the matter affects only
the interests of one or more series or classes,  then only  Shareholders of such
series  or  classes  shall  be  entitled  to vote  thereon.  There  shall  be no
cumulative voting in the election of Trustees.  Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if  executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific  written notice to the contrary from any
one of them. A proxy  purporting to be executed by or on behalf of a Shareholder
shall be deemed  valid  unless  challenged  at or prior to its  exercise and the
burden of proving  invalidity  shall rest on the  challenger.  Until  Shares are
issued,  the Trustees may exercise all rights of  Shareholders  and may take any
action required by law, this  Declaration of Trust or the By-Laws to be taken by
Shareholders.

Voting Power and Meetings

Section 2. Meetings of  Shareholders  of the Trust or of any series or class may
be called by the Trustees or such other person or persons as may be specified in
the By-Laws and held from time to time for the purpose of taking action upon any
matter  requiring the vote or the authority of the  Shareholders of the Trust or
any series or class as herein  provided or upon any other  matter  deemed by the
Trustees to be necessary or desirable.  Meetings of Shareholders of the Trust or
of any series or class shall be called by the  Trustees or such other  person or
persons  as may be  specified  in the  By-Laws  upon  written  application.  The
Shareholders  shall be entitled to at least  seven days'  written  notice of any
meeting of the Shareholders.

Quorum and Required Vote

Section 3. Thirty percent (30%) of the Shares entitled to vote shall be a quorum
for the  transaction of business at a Shareholders'  meeting,  except that where
any  provision of law or of this  Declaration  of Trust permits or requires that
holders of any  series or class  shall  vote as a series or class,  then  thirty
percent (30%) of the aggregate number of Shares of that series or class entitled
to vote  shall be  necessary  to  constitute  a quorum  for the  transaction  of
business  by that  series  or  class.  Any  lesser  number,  however,  shall  be
sufficient  for  adjournments.  Any  adjourned  session or sessions  may be held
within a reasonable time after the date set for the original meeting without the
necessity  of further  notice.  Except  when a larger  vote is  required  by any
provision of this Declaration of Trust or the By-Laws,  a majority of the Shares
voted shall decide any questions and a plurality shall elect a Trustee, provided
that  where any  provision  of law or of this  Declaration  of Trust  permits or
requires  that the  holders  of any  series or class  shall  vote as a series or
class,  then a majority of the Shares of that series or class vote on the matter
(or a plurality  with  respect to the  election of a Trustee)  shall decide that
matter insofar as that series or class is concerned.

Action by Written Consent

Section 4. Any action taken by Shareholders  may be taken without a meeting if a
majority  of  Shareholder  entitled  to  vote  on the  matter  (or  such  larger
proportion  thereof  as shall  be  required  by any  express  provision  of this
Declaration  of Trust or the By-Laws)  consent to the action in writing and such
written  consents  are filed with the records of the  meetings of  Shareholders.
Such  consent  shall be treated for all purposes as a vote taken at a meeting of
Shareholders.

Additional Provisions

Section 5. The By-Laws may include further  provisions for  Shareholders'  votes
and meetings and related matters.


<PAGE>



                                   ARTICLE VI
                   DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES,
                      AND DETERMINATION OF NET ASSET VALUE

Distributions

Section  1. The  Trustees  may,  but  need  not,  each  year  distribute  to the
Shareholders of each series or class such income and gains, accrued or realized,
as the Trustees may determine,  after providing for actual and accrued  expenses
and  liabilities  (including  such  reserves  as  the  Trustees  may  establish)
determined in accordance with good accounting practices. The Trustees shall have
full  discretion  to determine  which items shall be treated as income and which
items as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each series,  if any be made, may be made
in one or more payments, which shall be in Shares, in cash or otherwise and on a
date or dates and as of a record date or dates  determined by the  Trustees.  At
any time and from time to time in their discretion,  the Trustees may distribute
to the  Shareholders of any one or more series or classes as of a record date or
dates determined by the Trustees,  in Shares, in cash or otherwise,  all or part
of any gains  realized on the sale or  disposition  of property of the series or
otherwise,  or all or part of any other  principal of the Trust  attributable to
the series.  In the case of any series not divided  into two or more  classes of
Shares,  each  distribution  pursuant  to this  Section 1 shall be made  ratably
according to the number of Shares of the series held by the several Shareholders
on the applicable  record date thereof,  provided that no  distribution  need be
made on Shares purchased  pursuant to orders  received,  or for which payment is
made, after such time or times as the Trustees may determine. In the case of any
series  divided into two or more  classes,  each  distribution  pursuant to this
Section 1 may be made in whole or in such parts as the Trustees may determine to
the  Shareholders  of any  one or more  classes,  and  the  distribution  to the
Shareholders  of any class  shall be made  ratably  according  to the  number of
Shares of the class  (but need not be made  ratably  according  to the number of
Shares of the series,  considered  without  regard to class) held by the several
Shareholders on the record date thereof,  provided that no distribution  need be
made on Shares purchased  pursuant to orders  received,  or for which payment is
made,  after  such  time or  times  as the  Trustees  may  determine.  Any  such
distribution  paid in Shares  will be paid at the net  asset  value  thereof  as
determined in accordance with Section 7 of this Article VI.

Redemptions and Repurchases

Section  2. Any holder of Shares of the Trust may be  presentation  of a written
request,  together  with his or her  certificates,  if any, for such Shares,  in
proper form for transfer, at the office of the Trust or at a principal office of
a transfer  agent  appointed by the Trust,  redeem his or her Shares for the net
asset value thereof determined and computed in accordance with the provisions of
this Section 2 and the provisions of Section 7 of this Article VI.

Upon  receipt by the Trust or its  transfer  agent of such  written  request for
redemption  of Shares,  such Shares shall be redeemed at the net asset value per
share of the appropriate  series next determined  after such Shares are tendered
in proper  order for transfer to the Trust or  determined  as of such other time
fixed by the Trustees as may be permitted or required by the 1940 Act,  provided
that no such  tender  shall  be  required  in the  case of  Shares  for  which a
certificate or certificates  have not been issued,  and in such case such Shares
shall be  redeemed at the net asset  value per share of the  appropriate  series
next determined after such request has been received or determined at such other
time fixed by the Trustees as may be permitted or required by the 1940 Act.

The  obligation of the Trust to redeem its Shares of each series or class as set
forth above in this Section 2 shall be subject to the conditions that during any
time of emergency,  as hereinafter defined,  such obligation may be suspended by
the Trust by or under  authority  of the  Trustees  for such  period or  periods
during such time of emergency as shall be  determined  by or under  authority of
the Trustees.  If there is such a suspension,  any  Shareholder may withdraw any
demand for  redemption  and any tender of Shares which has been  received by the
Trust during any such period and any tender of Shares,  the applicable net asset
value of which would but for such  suspension  be calculated as of a time during
such period. Upon such withdrawal, the Trust shall return to the Shareholder the
certificates therefor, if any. For the purposes of any such suspension, "time of
emergency"  shall  mean,  either  with  respect  to all  Shares or any series of
Shares, any period during which:

(a) the New York Stock  Exchange is closed other than for customary  weekend and
holiday closings; or

(b) the Trustees or authorized  officers of the Trust shall have determined,  in
compliance  with any  applicable  rules and  regulations  of the  Securities and
Exchange  Commission,  either  that  trading on the New York Stock  Exchange  is
restricted, or that an emergency exists as a result of which (i) disposal of the
Trust of securities owned by it is not reasonably  practicable or (ii) it is not
reasonably  practicable  for the Trust fairly to determine  the current value of
its net assets; or

(c) the suspension or postponement of such  obligations is permitted by order of
the Securities and Exchange Commission.

The Trust may also purchase, repurchase or redeem Shares in accordance with such
other methods, upon such other terms and subject to such other conditions as the
Trustees may from time to time  authorize at a price not exceeding the net asset
value of such Shares in effect when the purchase or  repurchase  or any contract
to purchase or repurchase is made.

Payment in Kind

Section  3.  Subject  to any  generally  applicable  limitation  imposed  by the
Trustees,  any  payment  on  redemption  of Shares  may,  if  authorized  by the
Trustees,  be made wholly or partly in kind, instead of in cash. Such payment in
kind shall be made by distributing securities or other property constituting, in
the opinion of the  Trustees,  a fair  representation  of the  various  types of
securities  and other  property then held by the series of Shares being redeemed
(but not  necessarily  involving a portion of each of the series'  holdings) and
taken at their  value used in  determining  the net asset value of the Shares in
respect of which payment is made.

Redemptions at the Option of the Trust

Section  4. The  Trust  shall  have the right at its  option  and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with Section 7 of Article VI of this  Declaration of Trust: (i) if at
such time such Shareholder owns fewer Shares than, or Shares having an aggregate
net asset  value of less  than,  an amount  determined  from time to time by the
Trustees;  or  (ii)  to the  extent  that  such  Shareholder  owns  Shares  of a
particular  series  of  Shares  equal to or in  excess  of a  percentage  of the
outstanding  Shares  of  that  series  (determined   without  regard  to  class)
determined  from time to time by the Trustees;  or (iii) to the extent that such
Shareholder  owns Shares of the Trust  representing a percentage  equal to or in
excess of such percentage of the aggregate  number of outstanding  Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.

Dividends, Distributions, Redemptions and Repurchases

Section 5. No dividend  or  distribution  (including,  without  limitation,  any
distribution  paid upon  termination of the Trust or of any series) with respect
to, nor any  redemption  or  repurchase  of, the Shares of any series (or of any
class)  shall be effected by the Trust other than from the assets of such series
(or of the series of which such class is a part).



<PAGE>


Additional Provisions Relating to Redemptions and Repurchases

Section 6. The  completion  of  redemption  of Shares  shall  constitute  a full
discharge  of the Trust and the Trustees  with  respect to such shares,  and the
Trustees may require that any certificate or certificates issued by the Trust to
evidence the ownership of such Shares shall be  surrendered  to the Trustees for
cancellation or notation.

Determination of Net Asset Value

Section  7. The term "net  asset  value" of the  Shares of each  series or class
shall mean:  (i) the value of all the assets of such series or class;  (ii) less
the total  liabilities  of such series or class;  (iii) divided by the number of
Shares  of such  series or class  outstanding,  in each case at the time of each
determination.  The "number of Shares of such series or class  outstanding"  for
the purposes of such computation shall be exclusive of any Shares of such series
or class to be redeemed and not then redeemed as to which the  redemption  price
has been determined,  but shall include Shares of such series or class presented
for repurchase and not then repurchased and Shares of such series or class to be
redeemed  and not then  redeemed as to which the  redemption  price has not been
determined  and  Shares  of such  series  or class  the  sale of which  has been
confirmed.  Any  fractions  involved in the  computation  of net asset value per
share shall be adjusted to the nearer cent unless the Trustees  shall  determine
to adjust such fractions to a fraction of a cent.

The Trustees,  or any officer or officers or agent of this Trust  designated for
the purpose by the Trustees,  shall  determine the net asset value of the Shares
of each series or class,  and the  Trustees  shall fix the times as of which the
net asset value of the Shares of each series or class  shall be  determined  and
shall fix the periods  during  which any such net asset value shall be effective
as to sales,  redemptions  and repurchases  of, and other  transactions  in, the
Shares of such  series or class,  except as such times and  periods for any such
transaction may be fixed by other  provisions of this Declaration of Trust or by
the By-Laws.

In valuing the portfolio investments of any series or class for determination of
net asset value per share of such series or class,  securities  for which market
quotations are readily available shall be valued at prices which, in the opinion
of the Trustees, or any officer or officers or agent of the Trust designated for
the purpose by the  Trustees,  most nearly  represent  the market  value of such
securities,  which may, but need not, be the most recent bid price obtained from
one or more of the  market  makers for such  securities;  other  securities  and
assets  shall be  valued  at fair  value as  determined  by or  pursuant  to the
direction  of the  Trustees.  Notwithstanding  the  foregoing,  short-term  debt
obligations, commercial paper and repurchase agreements may be, but need not be,
valued on the basis of quoted  yields for  securities  of  comparable  maturity,
quality and type,  or on the basis of amortized  cost. In  determination  of net
asset value of any series or class, dividends receivable and accounts receivable
for  investments  sold and for Shares  sold shall be stated at the amounts to be
received therefor;  and income receivable accrued daily on bonds and notes owned
shall be stated at the amount to be  received.  Any other assets shall be stated
at fair value as determined  by the Trustees or such officer,  officers or agent
pursuant to the Trustees'  authority,  except that no value shall be assigned to
good will,  furniture,  lists,  reports,  statistics or other noncurrent  assets
other than real estate.  Liabilities of any series or class for accounts payable
for  investments  purchased and for Shares  tendered for redemption and not then
redeemed as to which the redemption price has been determined shall be stated at
the amounts payable  therefor.  In determining the net asset value of any series
or class, the person or persons making such determination on behalf of the Trust
may  include in  liabilities  such  reserves,  estimated  accrued  expenses  and
contingencies  as such person or persons may in its, his or their best  judgment
deem fair and reasonable under the circumstances. Any income dividends and gains
distributions payable by the Trust shall be deducted as of such time or times on
the record date therefor as the Trustees shall determine.

The  manner  of  determining  the  net  assets  of any  series  or  class  or of
determining  the net asset  value of the  Shares of any series or class may from
time to time be  altered  as  necessary  or  desirable  in the  judgment  of the
Trustees  to  conform  to  any  other  method  prescribed  or  permitted  by any
applicable law or regulation.

Determinations  under this Section 7 made in good faith and in  accordance  with
the provisions of the 1940 Act shall be binding on all parties concerned.

                                   ARTICLE VII
              COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES

Compensation

Section 1. The  Trustees as such shall be entitled  to  reasonable  compensation
from the Trust;  they may fix the amount of their  compensation.  Nothing herein
shall in any way prevent the employment of any Trustee for advisory, management,
legal, accounting, investment banking or other services and payment for the same
by the Trust.

Limitation of Liability

Section 2. The Trustees  shall not be responsible or liable in any event for any
neglect or  wrongdoing  of any officer,  agent,  employee,  adviser or principal
underwriter of the Trust,  nor shall any Trustee be  responsible  for the act or
omission of any other Trustee,  but nothing herein  contained  shall protect any
Trustee  against any liability to which he or she would  otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.

Every note, bond, contract,  instrument,  certificate,  Share or undertaking and
every  other  act or thing  whatsoever  executed  or done by or on behalf of the
Trust or the  Trustees  or any of them in  connection  with the  Trust  shall be
conclusively  deemed to have been  executed  or done only in or with  respect to
their or his or her  capacity  as  Trustees  or  Trustee,  and such  Trustees or
Trustee shall not be personally liable thereon.

                                  ARTICLE VIII
                                 INDEMNIFICATION

Trustees, Officers, etc.

Section  1.  The  Trust  shall  indemnify  each  of its  Trustees  and  officers
(including  persons who serve at the Trust's  request as directors,  officers or
trustees  of  another  organization  in which the Trust  has any  interest  as a
shareholder,  creditor  or  otherwise)  (hereinafter  referred  to as a "Covered
Person")  against all  liabilities  and  expenses,  including but not limited to
amounts  paid in  satisfaction  of  judgments,  in  compromise  or as fines  and
penalties,  and  counsel  fees  reasonably  incurred  by any  Covered  Person in
connection  with  the  defense  or  disposition  of any  action,  suit or  other
proceeding,  whether civil or criminal,  before any court or  administrative  or
legislative  body, in which such Covered Person may be or may have been involved
as a party or  otherwise  or with  which  such  person  may be or may have  been
threatened,  while in office or  thereafter,  by reason of being or having  been
such a Trustee or officer,  except that no Covered  Person shall be  indemnified
against any  liability  to the Trust or its  Shareholders  to which such Covered
Person would otherwise be subject by reason of willful  misfeasance,  bad faith,
gross negligence or reckless  disregard of the duties involved in the conduct of
such Covered Person's office.  Expenses,  including  counsel fees so incurred by
any  such  Covered  Person  (but  excluding  amounts  paid  in  satisfaction  of
judgments,  in  compromise or as fines or  penalties),  may be paid from time to
time by the Trust in advance of the final  disposition of any such action,  suit
or  proceeding  upon receipt of an  undertaking  by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article,  provided
that (a) such Covered Person shall provide security for his undertaking, (b) the
Trust shall be insured against losses arising by reason of such Covered Person's
failure to fulfill his  undertaking  or (c) a majority of the  Trustees  who are
disinterested  persons  and who  are not  Interested  Persons  (provided  that a
majority of such  Trustees  then in office act on the  matter),  or  independent
legal  counsel  in a  written  opinion,  shall  determine,  based on a review of
readily  available  facts  (but not a full  trial-type  inquiry),  that there is
reason  to  believe  such  Covered  Person   ultimately   will  be  entitled  to
indemnification.

Compromise Payment

Section  2. As to any matter  disposed  of  (whether  by a  compromise  payment,
pursuant to a consent decree or otherwise) without an adjudication in a decision
on the merits by a court,  or by any other body before which the  proceeding was
brought,  that such Covered Person is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of  the  duties  involved  in the  conduct  of  such  Covered  Person's  office,
indemnification shall be provided if (a) approved as in the best interest of the
Trust,  after  notice  that it  involves  such  indemnification,  by at  least a
majority of the Trustees who are  disinterested  persons and are not  interested
Persons  (provided  that a majority of such  Trustees  then in office act on the
matter),  upon a determination,  based upon a review of readily  available facts
(but not a full  trial-type  inquiry) that such Covered  Person is not liable to
the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless  disregard of the duties  involved in the conduct of such
Covered Person's office, or (b) there has been obtained an opinion in writing of
independent  legal counsel,  based upon a review of readily available facts (but
not a full-trial type inquiry) to the effect that such indemnification would not
protect such  Covered  Person  against any  liability to the Trust to which such
Covered Person would otherwise be subject by reason of willful misfeasance,  bad
faith,  gross  negligence  or reckless  disregard of the duties  involved in the
conduct of his office.  Any approval  pursuant to this Section shall not prevent
the recovery from any Covered  Person of any amount paid to such Covered  Person
in accordance  with this Section as  indemnification  if such Covered  Person is
subsequently  adjudicated  by a court of  competent  jurisdiction  to have  been
liable to the Trust or its  Shareholders by reason of willful  misfeasance,  bad
faith,  gross  negligence  or reckless  disregard of the duties  involved in the
conduct of such Covered Person's office.

Indemnification Not Exclusive

Section 3. The right of  indemnification  hereby provided shall not be exclusive
of or affect any other rights to which any such Covered  Person may be entitled.
As used in this Article  VIII,  the term  "Covered  Person"  shall  include such
person's heirs, executors and administrators,  and a "disinterested person" is a
person against whom none of the actions,  suits or other proceedings in question
or another  action,  suit or other  proceeding on the same or similar grounds is
then or has been  pending.  Nothing  contained in this article  shall affect any
rights to  indemnification  to which personnel of the Trust, other than Trustees
and officers,  and other persons may be entitled by contract or otherwise  under
law, nor the power of the Trust to purchase and maintain liability  insurance on
behalf of such persons.

Shareholders

Section 4. In case any  Shareholder  or former  Shareholder  shall be held to be
personally  liable  solely  by  reason  of his or her  being  or  having  been a
Shareholder  and not because of his or her acts or  omissions  or for some other
reason, the Shareholder or former  Shareholder (or his or her heirs,  executors,
administrators or other legal  representatives  or, in the case of a corporation
or other entity,  its corporate or other general successor) shall be entitled to
be held harmless from and indemnified  against all loss and expense arising from
such liability, but only out of the assets of the particular series of shares of
which he or she is or was a Shareholder.

                                   ARTICLE IX
                                  MISCELLANEOUS

Trustees, Shareholders, etc. Not Personally Liable; Notice

Section 1. All persons extending credit to, contracting with or having any claim
against the Trust or a particular series of Shares shall look only to the assets
of the Trust or the assets of that particular series of Shares for payment under
such credit,  contract or claim;  and neither the Shareholders nor the Trustees,
nor any of the Trust's officers,  employees or agents,  whether past, present or
future,  shall be personally  liable  therefor.  Nothing in this  Declaration of
Trust shall  protect any Trustee  against any  liability  to which such  Trustee
would otherwise be subject by reason of willful  misfeasance,  bad faith,  gross
negligence  or reckless  disregard of the duties  involved in the conduct of the
office of Trustee.

Every note,  bond,  contract,  instrument,  certificate or  undertaking  made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of State of The  Commonwealth
of  Massachusetts  and shall  recite that the same was executed or made by or on
behalf of the Trust or by them as  Trustees or Trustee or as officers or officer
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders  individually but are binding only upon the
assets and property of the Trust,  and may contain such further recital as he or
she or they may deem appropriate,  but the omission thereof shall not operate to
bind any  Trustees  or  Trustee  of  officers  or  officer  or  Shareholders  or
Shareholder individually.

Trustee's Good Faith Action, Expert Advice, No Bond or Surety

Section  2. The  exercise  by the  Trustees  of  their  powers  and  discretions
hereunder shall be binding upon everyone  interested.  A Trustee shall be liable
for his or her own willful misfeasance,  bad faith, gross negligence or reckless
disregard  of the duties  involved in the conduct of the office of Trustee,  and
for nothing else,  and shall not be liable for errors of judgment or mistakes of
fact or law.  The  Trustees  may take  advice of counsel or other  experts  with
respect to the meaning and operation of this  Declaration of Trust, and shall be
under no liability  for any act omission in  accordance  with such advice or for
failing to follow such advice.  The  Trustees  shall not be required to give any
bond as such, nor any surety if a bond is required.

Liability of Third Persons Dealing with Trustees

Section  3. No  person  dealing  with  the  Trustees  shall be bound to make any
inquiry  concerning  the validity of any  transaction  made or to be made by the
Trustees  or to  see  to  the  application  of any  payments  made  or  property
transferred to the Trust or upon its order.

Duration and Termination of Trust

Section 4. Unless  terminated  as  provided  herein,  the Trust  shall  continue
without  limitation of time.  The Trust may be terminated at any time by vote of
Shareholders  holding at least  two-thirds of the Shares of each series entitled
to vote or by the Trustees by written notice to the Shareholders.  Any series of
Shares may be  terminated at any time by vote of  Shareholders  holding at least
two-thirds  of the Shares of such series  entitled to vote or by the Trustees by
written notice to the Shareholders of such series.

Upon  termination  of the Trust or of any one or more  series of  Shares,  after
paying or otherwise providing for all charges,  taxes, expenses and liabilities,
whether due or accrued or anticipated as may be determined by the Trustees,  the
Trust  shall  in  accordance  with  such  procedures  as the  Trustees  consider
appropriate  reduce the remaining assets to distributable form in cash or shares
or other securities,  or any combination thereof, and distribute the proceeds to
the  Shareholders  of the series  involved,  ratably  according to the number of
Shares of such  series held by the  several  Shareholders  of such series on the
date of termination, except to the extent otherwise required or permitted by the
preferences  and special or  relative  rights and  privileges  of any classes of
Shares of that series,  provided that any  distribution to the Shareholders of a
particular  class  of  Shares  shall  be made to such  Shareholders  pro rata in
proportion to the number of Shares of such class held by each of them.



<PAGE>


Filing of Copies, References, Headings

Section  5. The  original  or a copy of this  instrument  and of each  amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder.  A copy of this  instrument and of each  amendment  hereto shall be
filed  by  the  Trust  with  the  Secretary  of  State  of The  Commonwealth  of
Massachusetts  and with the  Clerk of the City of  Boston,  as well as any other
governmental office where such filing may from time to time be required.  Anyone
dealing with the Trust may rely on a  certificate  by an officer of the Trust as
to whether or not any such  amendments  have been made and as to any  matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original,  may rely on a copy  certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any such
amendment,  references to this instrument, and all expressions such as "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such  amendments.  Headings are placed herein for convenience
of  reference  only and shall not be taken as a part hereof or control or affect
the meaning,  construction or effect of this instrument.  This instrument may be
executed  in any  number  of  counterparts,  each of which  shall be  deemed  an
original.

Applicable Law

Section  6.  This   Declaration  of  Trust  is  made  in  The   Commonwealth  of
Massachusetts,  and it is created  under and is to be governed by and  construed
and administered according to the laws of said Commonwealth.  The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the  provisions  hereof,  the Trust may exercise all powers which are ordinarily
exercised by such a trust.

Amendments

Section 7. This Declaration of Trust may be amended at any time by an instrument
in writing signed by a majority of the then Trustees when authorized so to do by
a vote of Shareholders holding a majority of the Shares entitled to vote, except
that an  amendment  which  shall  affect the  holders  of one or more  series or
classes of Shares  but not the  holders of all  outstanding  series and  classes
shall be authorized by vote of the Shareholders holding a majority of the Shares
entitled to vote of each series and class  affected and no vote of  Shareholders
of a series or class not  affected  shall be  required.  Amendments  having  the
purpose of changing the name of the Trust or of supplying any  omission,  curing
any  ambiguity  or  curing,   correcting  or  supplementing   any  defective  or
inconsistent  provision  contained  herein  shall not require  authorization  by
Shareholder vote.



<PAGE>


IN WITNESS WHEREOF, the undersigned have hereunto set their hands in the City of
Boston,  Massachusetts  for themselves and their assigns,  as of this ___ day of
____________, 1998.


- -------------------------------
Robert J. Birnbaum


- -------------------------------
Tom Bleasdale


- -------------------------------
John Carberry


- -------------------------------
Lora S. Collins


- -------------------------------
James E. Grinnell


- -------------------------------
Richard W. Lowry


- -------------------------------
Salvatore Macera


- -------------------------------
William E. Mayer


- -------------------------------
James L. Moody, Jr.


- -------------------------------
John J. Neuhauser


- -------------------------------
Thomas E. Stitzel


- -------------------------------
Robert L. Sullivan


- -------------------------------
Anne-Lee Verville


                        THE COMMONWEALTH OF MASSACHUSETTS


Boston, ss.                                                    October 30, 1998

Then personally appeared the above-named Trustees and acknowledged the foregoing
instrument to be their free act and deed, before me,

- --------------------------------
Notary Public

My commission expires:  ____________

(Notary's Seal)



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