LAMCO TRUST I, 497, 1999-02-19

LAMCO TRUST I
497, 1999-02-19

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AL-01/639G-0299
January 15, 1999

LIBERTY ALL-STAR GROWTH AND INCOME FUND

PROSPECTUS

BEFORE YOU INVEST

Liberty Funds Distributor, Inc. (Distributor) and your full-service financial
advisor want you to understand both the risks and benefits of mutual fund
investing.

Please consult your full-service financial advisor to determine how investing in
this mutual fund may suit your unique needs, time horizon and risk tolerance.

The Fund is managed by Liberty Asset Management Company (Advisor), an investment
advisor since 1985 and an affiliate of the Distributor. The Fund's investment
program is based upon the Advisor's multi-manager concept. The Advisor allocates
the Fund's portfolio assets on an approximately equal basis among a number of
independent investment management organizations (Portfolio Managers). See "How
the Fund Pursues its Investment Objective and Certain Risk Factors."

This Prospectus explains concisely what you should know before investing in the
Fund. Read it carefully and retain it for future reference. More detailed
information about the Fund is in the January 15, 1999 Statement of Additional
Information which has been filed with the Securities and Exchange Commission and
is obtainable free of charge by calling the Distributor at 1-800-426-3750. The
Statement of Additional Information is incorporated by reference in (which means
it is considered to be a part of) this Prospectus.

The Fund offers multiple classes of shares. Class A shares are offered at net
asset value plus a sales charge imposed at the time of purchase; Class B shares
are offered at net asset value and are subject to an annual distribution fee and
a declining contingent deferred sales charge on redemptions made within six
years after purchase; and Class C shares are offered at net asset value and are
subject to an annual distribution fee and a contingent deferred sales charge on
redemptions made within one year after purchase. Class B shares automatically
convert to Class A shares after approximately eight years. See "How to Buy
Shares."

<TABLE>
<CAPTION>
Contents Page
<S> <C>
Summary of Expenses 2
The Fund's Investment Objective 3
How the Fund Pursues its Investment
Objective and Certain Risk Factors 3
How the Fund Measures its Performance 6
How the Fund is Managed 6
Year 2000 8
How the Fund Values its Shares 8
Distributions 8
Taxes 8
How to Buy Shares 9
How to Sell Shares 10
How to Exchange Shares 11
Telephone Transactions 11
12b-1 Plan 12
Organization and History 12
</TABLE>

This Prospectus is also available on-line at the Distributor's Web site
(http://www.libertyfunds.com). The SEC maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, materials that are
incorporated by reference into this Prospectus and the Statement of Additional
Information, and other information regarding the Fund.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

- ----------------------------- --------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<PAGE>

SUMMARY OF EXPENSES

Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your estimated
annual expenses for an investment in Class A, Class B and Class C shares of the
Fund. "Other expenses" are based on estimated amounts for the current fiscal
year. See "How the Fund is Managed" and "12b-1 Plan" for more complete
descriptions of the Fund's various costs and expenses.

Shareholder Transaction Expenses(1)(2)

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price)(3) 5.75% 0.00%(4) 0.00%(4)

Maximum Contingent Deferred Sales Charge (as a % of offering price)(3) 1.00%(5) 5.00% 1.00%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."

(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.

(3) Does not apply to reinvested distributions.

(4) Because of the 0.75% distribution fee applicable to Class B and Class C
shares, long-term Class B and Class C shareholders may pay more in
aggregate sales charges than the maximum initial sales charge permitted by
the National Association of Securities Dealers, Inc. However, because Class
B shares automatically convert to Class A shares after approximately 8
years, this is less likely for Class B shares than for a class without a
conversion feature.

(5) Only with respect to any portion of purchases of $1 million to $5 million
redeemed within approximately 18 months after purchase. See "How to Buy
Shares."

Estimated Annual Operating Expenses (as a % of average net assets)

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fees (after fee waiver)(6) 0.29% 0.29% 0.29%
12b-1 fees 0.25 1.00 1.00
Other expenses 0.96 0.96 0.96
---- ---- ----
Total operating expenses (after fee waiver)(6) 1.50% 2.25% 2.25%
===== ===== =====
</TABLE>

(6) The Advisor and the Administrator have voluntarily agreed to waive a
portion of their management fees such that "Total operating expenses"
(exclusive of brokerage, interest, taxes, 12b-1 distribution and service
fees and extraordinary expenses) do not exceed 1.25% per annum. The waiver
is expected to continue at least until April 30, 2000. Absent such
voluntary fee waiver, "Management fees" would be 0.80% per annum for each
Class of shares, and "Total operating expenses" would be 2.01% per annum
for Class A shares and 2.76% for each of Class B and Class C shares. See
"How the Fund is Managed" for other fees paid to the Advisor and its
affiliates.

Example

The following Example shows the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in the Class A, Class B and
Class C shares of the Fund for the periods specified, assuming a 5% annual
return and, unless otherwise noted, redemption at period end. The expense
numbers in the Example assume the fee waiver described above is in effect. The
5% return and expenses used in this Example should not be considered indicative
of actual or expected Fund performance or expenses, both of which will vary:

<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C> <C> <C>
Period: (7) (8) (7) (8)
1 year $72 $73 $23 $33 $23
3 years $102 $100 $70 $70(9) $70
</TABLE>

(7) Assumes redemption at period end.

(8) Assumes no redemption.

(9) Class C shares do not incur a contingent deferred sales charge on
redemptions made after one year.

2
<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks total investment return, comprised of long-term capital
appreciation and current income, through investment primarily in a diversified
portfolio of equity securities.

HOW THE FUND PURSUES ITS
INVESTMENT OBJECTIVE AND
CERTAIN RISK FACTORS

Investment Program; Multi-Management. The Fund invests primarily in equity
securities, defined as common and preferred stocks, securities convertible into
such stocks, and securities having common stock characteristics (such as
warrants and rights to purchase equity securities). The Fund also may invest in
sponsored and unsponsored American Depositary Receipts (receipts issued in the
U.S. by banks or trust companies evidencing ownership of underlying foreign
securities) (ADRs). The Fund may lend its portfolio securities.

The Fund's investment program is based upon the Advisor's multi-manager concept.
The Advisor allocates the Fund's portfolio assets on an approximately equal
basis among a number of independent investment management organizations
(Portfolio Managers)--currently five in number--each of which employs a
different investment style, and from time to time rebalances the portfolio among
the Portfolio Managers so as to maintain an approximately equal allocation of
the portfolio among them throughout all market cycles.

In the Advisor's opinion, the multi-manager concept provides advantages over the
use of a single manager because of the following primary factors:

(i) most equity investment management firms consistently employ a distinct
investment "style" which causes them to emphasize stocks with particular
characteristics;

(ii) because of changing investor preferences, any given investment style
will move into and out of market favor and will result in better investment
performance under certain market conditions but less successful performance
under other conditions;

(iii) consequently, by allocating the Fund's portfolio on an approximately
equal basis among Portfolio Managers employing different styles, the impact of
any one such style on investment performance will be diluted, and the investment
performance of the total portfolio will be more consistent and less volatile
over the long term than if a single style were employed throughout the entire
period; and

(iv) more consistent performance at a given annual rate of return over time
produces a higher rate of return for the long term than more volatile
performance having the same average annual rate of return.

The Advisor, based on the foregoing principles and on its analysis and
evaluation of information regarding the personnel and investment styles and
performance of a universe of several hundred professional investment management
firms, has selected Portfolio Managers representing a blending of different
investment styles which, in its opinion, is appropriate to the Fund's investment
objective.

The Advisor continuously monitors the performance and investment styles of the
Fund's Portfolio Managers and from time to time may recommend changes of
Portfolio Managers based on factors such as changes in a Portfolio Manager's
investment style or a departure by a Portfolio Manager from the investment style
for which it had been selected, a deterioration in a Portfolio Manager's
performance relative to that of other investment management firms practicing a
similar style, or adverse changes in its ownership or personnel. Portfolio
Manager changes may also be made to change the mix of investment styles employed
by the Fund's Portfolio Managers.

The Fund and Advisor have applied to the Securities and Exchange Commission for
an exemptive order that would permit the Advisor and the Trust to enter into a
portfolio management agreement with a new Portfolio Manager (whether in
connection with the replacement of an existing Portfolio Manager or the addition
of a Portfolio Manager), or with an existing Portfolio Manager (or its
successor) following a transaction resulting in a change of control of such
Portfolio Manager, in either case without a vote of shareholders of the Fund.
Information regarding any new or additional Portfolio Manager would be sent to
shareholders within 90 days of the date of the change or addition. Until such
exemptive order is issued, changes or additions of Portfolio Managers will
require shareholder approval.

The Fund's current Portfolio Managers are:

J. P. Morgan Investment Management Inc.
OpCap Advisors
Boston Partners Asset Management, L.P.
Westwood Management Corp.
Wilke/Thompson Capital Management, Inc.

3
<PAGE>

The Advisor also is the manager of Liberty All-Star Equity Fund, a multi-managed
closed-end fund, and Liberty All-Star Equity Fund, Variable Series, a
multi-managed open-end fund that serves as an investment vehicle for variable
annuities and life insurance policies issued by insurance companies. These other
funds have the same investment objective and investment program as the Fund, and
currently have the same Portfolio Managers (except that Oppenheimer Capital, an
affiliate of OpCap Advisors with the same portfolio management personnel, acts
as the Portfolio Manager of the other funds). The Advisor expects that all three
funds will make corresponding changes if and when Portfolio Managers are changed
in the future. Notwithstanding their identical investment objectives and
programs and Portfolio Managers, the Fund's investment performance may not be
the same as these other funds because they have different expense ratios,
commenced operations on different dates, may have a different cost basis in
commonly held securities, and may hold different securities. In addition, unlike
the Fund, Liberty All-Star Equity Fund as a closed-end investment company
operates with a relatively fixed capitalization and is not subject to inflows
and outflows of cash resulting from net sales or redemptions of its shares.

Although under normal circumstances the Fund will remain substantially fully
invested in equity securities, up to 35% of its total assets may be invested in
U.S. dollar denominated money market instruments of the type described under
"Cash Reserves and Repurchase Agreements." The Fund may temporarily reduce its
investments in equity securities and invest without limit in such money market
instruments for defensive purposes when the Advisor or the Portfolio Managers
deem that market conditions are such that a more conservative approach to
investment is desirable.

The Fund may remain substantially fully invested in equity securities during
periods when stock prices generally rise and also during periods when they
generally decline. The Fund is intended to be a long-term investment vehicle and
is not designed to provide a means of speculating on short-term stock market
movements.

Short-Term Trading and Portfolio Turnover. In seeking to attain the Fund's
objective, the Portfolio Managers will buy or sell portfolio securities whenever
they believe it appropriate from an investment standpoint. Their decisions will
not generally be influenced by how long the Fund may have owned the security.
Changes in the Fund's Portfolio Managers and rebalancings of its portfolio among
the Portfolio Managers may result in changes in the securities held by the Fund
that otherwise would not have been made. Changes in the securities held by the
Fund may result in the realization of distributable capital gains, which are
taxable to shareholders.

Cash Reserves and Repurchase Agreements. The Fund may invest temporarily
available cash in U.S. dollar denominated money market instruments. Such
domestic money market instruments may include: U.S. Government securities;
certificates of deposit; time deposits; bankers' acceptances; high quality
commercial paper; and repurchase agreements.

Under a repurchase agreement, the Fund purchases a security (usually a U.S.
Government security) from a securities dealer or bank, which simultaneously
agrees to repurchase the security from the Fund on an agreed upon date (usually
not more than seven days from the date of purchase), and at an agreed upon price
reflecting the original purchase price plus interest. The obligation of the
dealer or bank to repurchase the securities at the agreed upon repurchase price
is fully collateralized by the underlying securities, which are held for the
Fund by its custodian through the federal book entry system and are marked to
market on a daily basis. In the event of a bankruptcy or default of the
securities dealer or bank, the Fund could experience costs and delays in
liquidating the underlying security and might incur a loss if such collateral
declines in value during this period. Not more than 15% of the Fund's net assets
will be invested in repurchase agreements maturing in more than seven days and
other illiquid assets.

Securities Lending. The Fund may lend portfolio securities to certain
institutions (principally broker-dealers) that the Advisor considers qualified
in order to increase income. The loans will not exceed 30% of total assets.
Securities lending involves the risk of loss to the Fund if the borrower
defaults.

4
<PAGE>

ADRs which were not issued at the instance of the issuer of the underlying
foreign security ("unsponsored" ADRs), the Fund may be required to pay its
proportionate share of the expenses of the depository bank and may have greater
difficulty in receiving shareholder communications from the issuer of the
underlying foreign security than it would have with a sponsored ADR. Investment
in ADRs has certain advantages over direct investment in the underlying foreign
securities since: (i) ADRs are U.S. dollar-denominated investments that are
registered domestically, easily transferable and for which market quotations are
readily available; and (ii) issuers whose securities are represented by
sponsored ADRs are subject to the same auditing, accounting and financial
reporting standards as domestic issuers. Investments in ADRs, however, are
otherwise subject to the same general considerations and risks pertaining to
foreign securities , including the possibility of unfavorable currency exchange
rates, less liquid markets, the potential imposition of exchange control
regulations (including currency blockage), and political and economic
instability.

Certain Derivative Investments. The Fund may engage in transactions in certain
kinds of derivative instruments. Such transactions will be entered into (i) for
hedging purposes or (ii) to maintain market exposure in connection with (A) the
Advisor's rebalancing of the Fund's Portfolio among Portfolio Managers or (B)
changes in Portfolio Managers. The Fund also may purchase and sell options on
individual securities for hedging purposes or to increase investment return.

The derivative instruments in which the Fund may engage include U.S. and foreign
stock and bond index futures contracts, U.S. and foreign interest rate futures
contracts, options on stock, bond and interest rate futures contracts, and
options on individual securities.

A financial futures contract creates an obligation by the seller of the contract
to pay to the buyer an amount of cash determined by multiplying a specified
amount by the difference between the value of a specified index (based on
stocks, bonds, or interest rates) at the contract's settlement date and some
specified benchmark index value. The seller's obligation under a futures
contract can be terminated before the settlement date by purchasing a similar
offsetting (opposite way) contract. Similarly, a purchase of a futures contract
can be terminated by a similar offsetting sale. Gain or loss on a futures
contract generally is realized upon such termination.

An option generally gives the option holder the right, but not the obligation,
to purchase or sell a specific security or futures contract at a specified price
prior to the option's specified expiration date. A call option gives the option
purchaser the right to buy from the option seller (writer); a put option gives
the option purchaser the right to sell to the option writer.

The Fund will pay a premium to purchase an option, which will become a loss if
the option expires unexercised. The Fund will receive a premium for writing an
option, which increases its return if the option expires unexercised or is
closed out at a profit. When the Fund writes a call option on a specific
security, it may become obligated to sell the security at a below market price.
Similarly, if the Fund writes a put option on a specific security, it may become
obligated to buy the security at an above market price.

With respect to each futures contract or call option purchased, the Fund will
set aside in a segregated account maintained with its custodian (or broker, if
legally permitted) cash or liquid securities in an amount equal to the market
value of the futures contract or option, less the initial margin deposit. The
Fund will write only "covered" options, meaning that, so long as the Fund is
obligated as the writer of a call option, it must own the underlying security
subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of a put option written by
the Fund, the Fund will maintain in a segregated account with the Fund's
custodian cash or liquid securities at all times to the price to be paid if the
option is executed.

Transactions in futures and options may not precisely achieve the goals of
hedging, gaining or maintaining market exposure or increasing returns, as
applicable, to the extent there is an imperfect correlation between the price
movements of the futures contracts or options and of the underlying securities.
In addition, if a Portfolio Manager's prediction on stock or bond market
movements or changes in interest or currency exchange rates is inaccurate, the
Fund may be worse off than if it had not used such derivative investment
techniques.

For more information on these derivative investments, see "Description of
Certain Investments--Futures Contracts and Related Options" and "--Options on
Securities" in the Statement of Additional Information.

5
<PAGE>

Leverage Risks Associated with Certain Investment Techniques. Certain
investment techniques that may be used by the Fund may present additional risks
associated with the use of leverage. These techniques are forward commitments
and the purchase of securities on a when-issued basis, the purchase and sale of
foreign currency on a forward basis, the purchase and sale of certain futures
contracts and options thereon, and the purchase and sale of certain options.
Leverage may magnify the effect on Fund shares of fluctuations in the values of
the securities underlying these transactions. In accordance with Securities and
Exchange Commission pronouncements designed to reduce (but not necessarily
eliminate) the effect of leverage, the Fund will either "cover" its obligations
under such transactions by holding the securities or other commodities (or
rights to acquire the securities or such commodities) it is obligated to deliver
under such transactions, or deposit and maintain in a segregated account with
its custodian cash, liquid securities or securities denominated in the
particular foreign currency equal in value to the Fund's obligations under such
transactions.

Certain Policies to Reduce Risk. The Fund has adopted certain investment
policies in managing its portfolio that are designed to maintain the diversity
of the Fund's investment portfolio and reduce risk. These investment
restrictions are set forth in the Statement of Additional Information.

Borrowing of Money. The Fund may borrow money from banks for temporary or
emergency purposes up to 10% of its net assets. However, the Fund will not
purchase additional portfolio securities while borrowings exceed 5% of net
assets.

Other Information. The Fund may not always achieve its investment objective.
The Fund's investment objective and non-fundamental investment policies may be
changed without shareholder approval. The Fund's investment policies that are
identified as "fundamental" in the Statement of Additional Information cannot be
changed without the approval of a majority of the Fund's outstanding voting
securities. Additional information concerning certain of the securities and
investment techniques described above is contained in the Statement of
Additional Information.

HOW THE FUND MEASURES ITS PERFORMANCE

The Fund's performance may be quoted in sales literature and advertisements.
Each Class's average annual total returns are calculated in accordance with the
Securities and Exchange Commission's formula and assume the reinvestment of all
distributions, the maximum initial sales charge on Class A shares, and the
contingent deferred sales charge applicable to the time period quoted on Class B
and Class C shares. Other total returns differ from average annual total return
only in that they may relate to different time periods, may represent aggregate
as opposed to average annual total returns, and may not reflect the initial or
contingent deferred sales charges.

Each Class's performance may be compared to various indices. Quotations from
various publications may be included in sales literature and advertisements. See
"Performance Measures" in the Statement of Additional Information for more
information. All performance information is historical and does not predict
future results. All performance information is historical and does not predict
future results.

HOW THE FUND IS MANAGED

The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Advisor.

The Distributor, a subsidiary of Colonial Management Associates, Inc.
(Administrator), serves as the distributor for the Fund's shares. Liberty Funds
Services, Inc. (Transfer Agent), an affiliate of the Administrator, serves as
the shareholder services and transfer agent for the Fund. Each of the Advisor,
the Administrator, the Distributor and the Transfer Agent is an indirect
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial), which in
turn is an indirect majority-owned subsidiary of Liberty Mutual Insurance
Company (Liberty Mutual). Liberty Mutual is an underwriter of workers'
compensation insurance and a property and casualty insurer in the U.S.

The Advisor furnishes the Fund with investment management services. Its
management agreement with the Fund authorizes the Advisor to recommend for
appointment one or more Portfolio Managers pursuant to a portfolio management
agreement among the Fund, the Advisor and the applicable Portfolio Manager, and
to allocate and reallocate from time to time the Fund's portfolio assets among
the Portfolio Managers for investment management. The Management Agreement
provides that each Portfolio Manager shall have full investment discretion and

6
<PAGE>

authority to make all determinations with respect to the investment of the
portion of the Fund's assets assigned to such Portfolio Manager by the Advisor.
For these services, the Fund pays the Advisor a monthly fee based on the average
daily net assets of the Fund at the annual rate of 0.60% (subject to the
voluntary fee waiver agreement referred to under "Estimated Annual Operating
Expenses" above).

Pursuant to the portfolio management agreements, the Advisor pays each such
Portfolio Manager other than OpCap Advisors a fee at the annual rate of 0.30% of
the average daily net asset value of that portion of the Fund's portfolio
assigned to such Portfolio Manager. The agreement with OpCap Advisors provides
for a fee of 0.40% per year of the average daily net asset value of the portion
of the Fund's portfolio assigned to it up to $100 million and 0.30% of such
average daily net asset value in excess of $100 million. OpCap Advisors has
voluntarily agreed, however, to waive any fee in excess of 0.30% until the
earlier of March 1, 2002 or the date the total of the Fund's net assets reaches
$100 million. Any increase in the fee payable to OpCap Advisors following the
expiration of its fee waiver agreement will be borne by the Advisor.

No one individual at the Advisor is responsible for the Advisor's investment
management of the Fund. The following individuals are responsible for the
management of the Fund's assets assigned to the particular Portfolio Manager:

Henry D. Cavanna, Managing Director of J.P. Morgan Investment Management, Inc.,
manages the portion of the Fund's portfolio assigned to that firm. J.P. Morgan
Investment Management, Inc. is a wholly-owned subsidiary of J.P. Morgan & Co.
Incorporated, a New York Stock Exchange listed bank holding company the
principal banking subsidiary of which is Morgan Guaranty Trust Company of New
York.

John Lindenthal, Managing Director of Oppenheimer Capital, the parent of OpCap
Advisors, manages the portion of the Fund's portfolio assigned to OpCap
Advisors.

Mark E. Donovan, Chairman of the Equity Strategy Committee of Boston Partners
Asset Management, L.P., manages the portion of the Fund's portfolio assigned to
that firm. Boston Partners Asset Management, L.P. (Boston Partners) was founded
in April, 1995 by three former principal officers of the Boston Company Asset
Management, Inc. Boston Partners is a limited partnership of which Boston
Partners, Inc. is the sole general partner.

Susan M. Byrne, President and Chief Executive Officer of Westwood Management
Corp., a wholly-owned subsidiary of Southwest Securities Group, Inc., manages
the portion of the Fund's portfolio assigned to that firm.

Mark A. Thompson, Chairman and Chief Investment Officer of Wilke/Thompson
Capital Management, Inc., manages the portion of the Fund's portfolio assigned
to that firm. Anthony L. Ventura, President, owns 23% of its outstanding shares,
and Mark A. Thompson, Chairman and Chief Investment Officer, owns 56% of its
outstanding shares. The balance of such shares are owned by other employees.

The Administrator provides certain administrative services to the Fund, for
which the Fund pays the Administrator a monthly fee at the annual rate of 0.20%
of the Fund's average daily net assets. The Administrator also provides pricing
and bookkeeping services to the Fund for a monthly fee of $3,000 plus a
percentage of the Fund's average daily net assets over $50 million.

The Transfer Agent provides transfer agency and shareholder services to the Fund
for a monthly fee at the annual rate of 0.236% of average daily net assets plus
certain out-of-pocket expenses.

Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Advisor and its affiliates may agree.

The Portfolio Managers place all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Portfolio Managers may consider
research and brokerage services furnished or made available by such
broker-dealers to the Advisor or the Portfolio Managers. In recognition of such
research and brokerage services, a Portfolio Manager may cause the Fund to pay
the selected broker-dealer a higher commission than would have been charged by
another broker-dealer not providing such services.

Fund expenses consist of the management, administration, pricing and
bookkeeping, shareholder service and transfer agent fees discussed above, the
12b-1 service and distribution fees discussed under the caption "12b-1 Plan,"
and all other expenses, fees, charges, taxes, organization costs and liabilities
incurred or arising in connection with the Fund or Trust or in connection with
the management thereof, including but not limited to, trustees' compensation and
expenses, auditing, counsel, custodian and other expenses deemed necessary and
proper by the Trustees.

7
<PAGE>

YEAR 2000

The Fund's Advisor, Administrator, Distributor and Transfer Agent (Liberty
Companies) are actively coordinating, managing and monitoring Year 2000
readiness for the Fund. The Liberty Companies are taking steps that they believe
are reasonably designed to address the Year 2000 problem and are communicating
with vendors who provide services, software and systems to the Fund to provide
that date-related information and data can be properly processed and calculated
on and after January 1, 2000. Many Fund service providers and vendors, including
the 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.

HOW THE FUND VALUES ITS SHARES

Per share net asset value is calculated by dividing the total value of each
Class's net assets by its number of outstanding shares. Shares of the Fund are
generally valued as of the close of regular trading on the New York Stock
Exchange (Exchange) (normally 4:00 p.m. Eastern time) each day the Exchange is
open. Portfolio securities for which market quotations are readily available are
valued at current market value. Short-term investments maturing in 60 days or
less are valued at amortized cost unless the Administrator determines that such
cost does not approximate current market value. All other securities and assets
are valued at their fair value following procedures adopted by the Trustees.

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 to
shareholders but will be invested in additional shares of the same Class of the
Fund at net asset value. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. To change your election, call the
Transfer Agent for information.

TAXES

This discussion of taxes is for general information only. Investors should
consult their own tax Advisors about their particular situations.

The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code and to distribute to shareholders net investment income
and any net realized capital gains in accordance with the timing requirements
imposed by the Code. The Fund does not expect to be required to pay any federal
income or excise taxes, although the Fund's foreign-source income may be subject
to foreign taxes.

Whether you receive distributions in cash or reinvest them in additional Fund
shares, you must report them as taxable income unless you are a tax-exempt
institution. Distributions designated as capital gain dividends are taxable as
long-term capital gains. Other distributions are generally taxable as ordinary
income. Some dividends paid in January may be taxable as if they had been paid
the previous December.

Fund distributions will reduce the Fund's net asset value per share. Therefore,
if you buy shares shortly before a distribution is declared, the distribution
will be taxable although it is, in effect, a partial return of the amount
invested. Each January, information on the amount and nature of distributions
for the prior year is sent to shareholders.

If you are not a U.S. citizen or resident, or if you are subject to "backup
withholding," the Fund may be required to withhold a portion of your
distributions and, in some cases, redemption proceeds, as a payment of federal
income tax.

A sale or redemption of your shares is generally a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell, you
may have a gain or loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.

8
<PAGE>

HOW TO BUY SHARES

Shares of the Fund are offered continuously. Orders received in good form prior
to the time at which the Fund values its shares (or placed with the financial
service firm before such time and transmitted by the financial service firm
before the Fund processes that day's share transactions) will be processed based
on that day's closing net asset value, plus any applicable initial sales charge.

The minimum initial investment is $1,000; subsequent investments may be as small
as $50. The minimum initial investment for the Colonial Fundamatic program is
$50; and the minimum initial investment for a Colonial retirement account is
$25. Certificates will not be issued for Class B or Class C shares and there are
some limitations on the issuance of Class A share certificates. The Fund may
refuse any purchase order for its shares. See the Statement of Additional
Information for more information.

The Fund also offers Class Z shares which are offered through a separate
prospectus only to certain institutions and other investors.

Class A Shares. Class A shares are offered at net asset value plus an initial
sales charge as follows:

<TABLE>
<CAPTION>
Initial Sales Charge
----------------------------------
Retained
by
Financial
Service
as % of Firm as
---------------------- % of
Amount Offering Offering
Amount Purchased Invested Price Price
<S> <C> <C> <C>
Less than $50,000 6.10% 5.75% 5.00%
$50,000 to less than
$100,000 4.71% 4.50% 3.75%
$100,000 to less than
$250,000 3.63% 3.50% 2.75%
$250,000 to less than
$500,000 2.56% 2.50% 2.00%
$500,000 to less than
$1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>

On purchases of $1 million or more, the Distributor pays the financial service
firm a cumulative commission as follows:

<TABLE>
<CAPTION>
Amount Purchased Commission
<S> <C> <C>
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%(1)
</TABLE>

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

In determining the sales charge and commission applicable to a new purchase
under the above schedules, the amount of the current purchase is added to the
current value of shares previously purchased and still held by an investor. If a
purchase results in an account having a value from $1 million to $5 million,
then the shares purchased will be subject to a 1.00% contingent deferred sales
charge, payable to the Distributor, if redeemed within 18 months from the first
day of the month following the purchase. If the purchase results in an account
having a value in excess of $5 million, the contingent deferred sales charge
will not apply to the portion of the purchased shares comprising such excess
amount.

Class B Shares. Class B shares are offered at net asset value, without an
initial sales charge, subject to a 0.75% annual distribution fee for
approximately eight years (at which time they automatically convert to Class A
shares not bearing a distribution fee) and a declining contingent deferred sales
charge if redeemed within six years after purchase. As shown below, the amount
of the contingent deferred sales charge depends on the number of years after
purchase that the redemption occurs:

<TABLE>
<CAPTION>
Contingent
Years Deferred
After Sales
Purchase Charge
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
More than 6 0.00%
</TABLE>

Year one ends one year after the end of the month in which the purchase was
accepted and so on. The Distributor pays financial service firms a commission of
5% on Class B share purchases.

9
<PAGE>

Class C Shares. Class C shares are offered at net asset value and are subject
to a 0.75% annual distribution fee and a 1.00% contingent deferred sales charge
on redemptions made within one year after the end of the month in which the
purchase was accepted.

The Distributor pays financial service firms an initial commission of 1.00% on
Class C share purchases and an ongoing commission of 0.75% annually, commencing
after the shares purchased have been outstanding for one year. Payment of the
ongoing commission is conditioned on receipt by the Distributor of the 0.75%
annual distribution fee referred to above. The commission may be reduced or
eliminated by the Distributor at any time.

General. All contingent deferred sales charges are deducted from the amount
redeemed, not the amount remaining in the account, and are paid to the
Distributor. Shares issued upon distribution reinvestment and amounts
representing appreciation are not subject to a contingent deferred sales charge.
The contingent deferred sales charge is imposed on redemptions which result in
the account value falling below its Base Amount (the total dollar value of
purchase payments in the account reduced by prior redemptions on which a
contingent deferred sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is made, generally,
older shares will be redeemed first unless the shareholder instructs otherwise.
See the Statement of Additional Information for more information.

Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. Large investments, qualifying for a reduced Class A
sales charge, avoid the distribution fee. Investments in Class B shares have
100% of the purchase invested immediately. Investors investing for a relatively
short period of time might consider Class C shares. Purchases of $250,000 or
more must be for Class A or Class C shares. Purchases of $1,000,000 or more must
be for Class A shares. Consult your financial service firm.

Special Purchase Programs. The Fund allows certain investors or groups of
investors to purchase shares with reduced or without initial or contingent
deferred sales charges. These programs are described in the Statement of
Additional Information under "Programs for Reducing or Eliminating Sales
Charges."

Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.

Shareholder Services and Account Fees. A variety of shareholder services are
available. For more information about these services or your account, call
1-800-345-6611. Some services are described in the attached account application.
A shareholder's manual explaining all available services will be provided upon
request.

In June of any year, the Fund may deduct $10 (payable to the Transfer Agent)
from accounts valued at less than $1,000 unless the account value has dropped
below $1,000 solely as a result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value before the fee is
deducted. The Fund may also deduct annual maintenance and processing fees
(payable to the Transfer Agent) in connection with certain retirement plan
accounts. See "Special Purchase Programs/Investor Services" in the Statement of
Additional Information for more information.

HOW TO SELL SHARES

Shares of the Fund may be sold on any day the Exchange is open, either directly
to the Fund or through your financial service firm. Sale proceeds generally are
sent within seven days (usually on the next business day after your request is
received in good form). However, for shares recently purchased by check, the
Fund will 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 avoid delay in payment, investors are advised to
purchase shares unconditionally, such as by certified check or other immediately
available funds.

Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value (less any applicable
contingent deferred sales charge) next calculated after the Fund receives the
request in proper form. Signatures must be guaranteed by a bank, a member firm
of a national stock exchange or

10
<PAGE>

another eligible guarantor institution. Stock power forms are available from
financial service firms, the Transfer Agent and many banks. Additional
documentation is required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account holders. For details
contact:

Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

Selling Shares Through Financial Service Firms. Financial service firms must
receive requests prior to the time at which the Fund values its shares to
receive that day's price, are responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge for this service.

General. The sale of shares is a taxable transaction for income tax purposes
and may be subject to a contingent deferred sales charge. The contingent
deferred sales charge may be waived under certain circumstances. See the
Statement of Additional Information for more information. Under unusual
circumstances, the Fund may suspend repurchases or postpone payment for up to
seven days or longer, as permitted by federal securities law. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.

HOW TO EXCHANGE SHARES

Except as described below with respect to money market funds, the Fund's shares
may be exchanged at net asset value for shares of other mutual funds distributed
by the Distributor. Generally, such exchanges must be between the same classes
of shares. Consult your financial service firm or the Transfer Agent for
information regarding what funds are available.

Shares will continue to age without regard to the exchange for purposes of
conversion and determining the contingent deferred sales charge, if any, upon
redemption. Carefully read the prospectus of the fund into which the exchange
will go before submitting the request. Call 1-800-426-3750 to receive a
prospectus and an exchange authorization form. Call 1-800-422-3737 to exchange
shares by telephone. An exchange is a taxable capital transaction. The exchange
service may be changed, suspended or eliminated on 60 days' written notice. The
Fund will terminate the exchange privilege as to a particular shareholder if the
Advisor determines, in its sole and absolute discretion, that the shareholder's
exchange activity is likely to adversely impact the Portfolio Managers' ability
to manage the Fund's investments in accordance with its investment objective or
otherwise harm the Fund or its remaining shareholders.

Class A Shares. An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined (including sales
charge), except for amounts on which an initial sales charge was paid. Non-money
market fund shares must be held for five months before qualifying for exchange
to a fund with a higher sales charge, after which exchanges are made at the net
asset value next determined.

Exchanges of Class A shares are not subject to a contingent deferred sales
charge. However, in determining whether a contingent deferred sales charge is
applicable to redemptions, the schedule of the fund into which the original
investment was made should be used.

Class B Shares. Exchanges of Class B shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within six years after
the original purchase, a contingent deferred sales charge will be assessed using
the schedule of the fund into which the original investment was made.

Class C Shares. Exchanges of Class C shares are not subject to the contingent
deferred sales charge. However, if shares are redeemed within one year after the
original purchase, a 1.00% contingent deferred sales charge will be assessed.
Only one "round-trip" exchange of the Fund's Class C shares may be made per
three-month period, measured from the date of the initial purchase. For example,
an exchange from Fund X to Fund Y and back to Fund X would be permitted only
once during each three-month period.

TELEPHONE TRANSACTIONS

All shareholders and/or their financial advisors are automatically eligible to
exchange Fund shares and may 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 time
at which the Fund values its shares. 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

11
<PAGE>

a broker or furnishing a signature guaranteed request. Telephone redemption
privileges may be elected on the account application. The Transfer Agent will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine and may be liable for losses related to unauthorized or
fraudulent transactions in the event reasonable procedures are not employed.
Such procedures include restrictions on where proceeds of telephone redemptions
may be sent, limitations on the ability to redeem by telephone shortly after an
address change, recording of telephone lines and requirements that the redeeming
shareholder and/or his or her financial advisor provide certain identifying
information. Shareholders and/or their financial advisors wishing to redeem or
exchange shares by telephone may experience difficulty in reaching the Fund at
its toll-free telephone number during periods of drastic economic or market
changes. In that event, shareholders and/or their financial advisors should
follow the procedures for redemption or exchange by mail as described above
under "How to Sell Shares." The Advisor, the Administrator, the Transfer Agent
and the Fund reserve the right to change, modify or terminate the telephone
redemption or exchange services at any time upon prior written notice to
shareholders. Shareholders and/or their financial advisors are not obligated to
transact by telephone.

12B-1 PLAN

Under a 12b-1 Plan, the Fund pays the Distributor monthly a service fee at an
annual rate of 0.25% of the Fund's net assets attributed to Class A, Class B and
Class C shares. The 12b-1 Plan also requires the Fund to pay the Distributor
monthly a distribution fee at an annual rate of 0.75% of the average daily net
assets attributed to its Class B and Class C shares. Because the Class B and
Class C shares bear additional distribution fees, their dividends will be lower
than the dividends of Class A shares. Class B shares automatically convert to
Class A shares approximately eight years after the Class B shares were
purchased. Class C shares do not convert. The multiple class structure could be
terminated should certain Internal Revenue Service rulings be rescinded. See the
Statement of Additional Information for more information. The Distributor uses
the fees to defray the cost of commissions and service fees paid to financial
service firms which have sold Fund shares, and to defray other expenses such as
sales literature, prospectus printing and distribution, shareholder servicing
costs and compensation to wholesalers. Should the fees exceed the Distributor's
expenses in any year, the Distributor would realize a profit. The 12b-1 Plan
also authorizes other payments to the Distributor and its affiliates (including
the Advisor and the Administrator) which may be construed to be indirect
financing of sales of Fund shares.

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized in 1998. The Fund
commenced investment operations in 1999. As of the date of this prospectus, the
Advisor owned all of the outstanding shares of the Fund.

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 of any other series of the Trust that
may be in existence from time to time generally vote together except when
required by law to vote separately by fund or by class. Shareholders owning in
the aggregate ten percent of Trust shares may call meetings to consider removal
of Trustees. Under certain circumstances, the Trust will provide information to
assist shareholders in calling such a meeting. See the Statement of Additional
Information for more information.

12
<PAGE>

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13
<PAGE>

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14
<PAGE>

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15
<PAGE>

Investment Advisor
Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, MA 02110

Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621

Distributor
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621

Custodian
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017-2070

Shareholder Services and Transfer Agent
Liberty Funds Services, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611

Independent Auditors
KPMG LLP
99 High Street
Boston, MA 02110

Legal Counsel
Bingham Dana LLP
150 Federal Street
Boston, MA 02110

Your financial service firm is:

Printed in U.S.A.

January 15, 1999

LIBERTY ALL-STAR GROWTH AND INCOME FUND

PROSPECTUS

Liberty All-Star Growth and Income Fund seeks total investment return, comprised
of long-term capital appreciation and current income, through investment
primarily in a diversified portfolio of equity securities.

For more detailed information about the Fund, call the Distributor at
1-800-426-3750 for the January 15, 1999 Statement of Additional Information.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

16
<PAGE>
AL-01/638G-0299
January 15, 1999

LIBERTY ALL-STAR GROWTH AND INCOME FUND
CLASS Z SHARES

PROSPECTUS

BEFORE YOU INVEST

Liberty Funds Distributor, Inc. (Distributor) and your full-service financial
advisor want you to understand both the risks and benefits of mutual fund
investing.

While mutual funds offer significant opportunities and are professionally
managed, they also carry risks including possible loss of principal. Unlike
savings accounts and certificates of deposit, mutual funds are not insured or
guaranteed by any financial institution or government agency. Please consult
your full-service financial advisor to determine how investing in this mutual
fund may suit your unique needs, time horizon and risk tolerance.

Liberty All-Star Growth and Income Fund (Fund), a diversified portfolio of LAMCO
Trust I (Trust), an open-end management investment company, seeks total
investment return, comprised of long-term capital appreciation and current
income, through investment primarily in a diversified portfolio of equity
securities. The Fund is managed by Liberty Asset Management Company (Advisor),
an investment advisor since 1985 and an affiliate of the Distributor. The Fund's
investment program is based upon the Advisor's multi-manager concept. The
Advisor allocates the Fund's portfolio assets on an approximately equal basis
among a number of independent investment management organizations (Portfolio
Managers). See "How the Fund Pursues its Investment Objective and Certain Risk
Factors."

This Prospectus explains concisely what you should know before investing in the
Class Z shares of the Fund. Read it carefully and retain it for future
reference. More detailed information about the Fund is in the January 15, 1999
Statement of Additional Information which has been filed with the Securities and
Exchange Commission and is obtainable free of charge by calling the Distributor
at 1-800-426-3750. The Statement of Additional Information is incorporated by
reference in (which means it is considered to be a part of) this Prospectus.

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 the
Distributor 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 the Distributor provided that the clients meet certain criteria
established by the Distributor and its affiliates.

<TABLE>
<CAPTION>
Contents Page
<S> <C>
Summary of Expenses 2
The Fund's Investment Objective 3
How the Fund Pursues its Investment 3
Objective and Certain Risk Factors
How the Fund Measures its Performance 6
How the Fund is Managed 6
Year 2000 8
How the Fund Values its Shares 8
Distributions 8
Taxes 8
How to Buy Shares 9
How to Sell Shares 9
How to Exchange Shares 10
Telephone Transactions 10
Organization and History 11
</TABLE>

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

1
<PAGE>

SUMMARY OF EXPENSES

Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize your maximum transaction costs and your estimated
annual expenses for an investment in Class Z shares of the Fund. "Other
expenses" are based on estimated amounts for the current fiscal year. See "How
the Fund is Managed" for more complete descriptions of the Fund's various costs
and expenses.

Shareholder Transaction Expenses(1)(2)

<TABLE>
<S> <C>
Maximum Initial Sales Charge Imposed on a Purchase (as a % of offering price) 0.00%
Maximum Contingent Deferred Sales Charge (as a % of offering price) 0.00%
</TABLE>

(1) For accounts less than $1,000 an annual fee of $10 may be deducted. See
"How to Buy Shares."

(2) Redemption proceeds exceeding $500 sent via federal funds wire will be
subject to a $7.50 charge per transaction.

Estimated Annual Operating Expenses (as a % of average net assets)

<TABLE>
<S> <C>
Management fees (after fee waiver)(3) 0.29%
12b-1 fees 0.00
Other expenses 0.96
----
Total operating expenses (after fee waiver)(3) 1.25%
====
</TABLE>

(3) The Advisor and the Administrator have voluntarily agreed to waive a
portion of their management fees such that "Total operating expenses"
(exclusive of brokerage, interest, taxes, 12b-1 distribution and service
fees and extraordinary expenses) do not exceed 1.25% per annum. The waiver
is expected to continue at least until April 30, 2000. Absent such
voluntary fee waiver, "Management fees" would be 0.80% per annum and "Total
operating expenses" would be 1.76% per annum. See "How the Fund is Managed"
for other fees paid to the Advisor and its affiliates.

Example

The following Example shows the cumulative transaction and operating expenses
attributable to a hypothetical $1,000 investment in the Class Z shares of the
Fund for the periods specified, assuming a 5% annual return with or without
redemption at period end. The expense numbers in the Example assume the fee
waiver described above is in effect. The 5% return and expenses used in this
Example should not be considered indicative of actual or expected Fund
performance or expenses, both of which will vary:

<TABLE>
<CAPTION>
Period:
<S> <C>
1 year $ 70
3 years $ 95
</TABLE>

2
<PAGE>

THE FUND'S INVESTMENT OBJECTIVE

The Fund seeks total investment return, comprised of long-term capital
appreciation and current income, through investment primarily in a diversified
portfolio of equity securities.

HOW THE FUND PURSUES ITS
INVESTMENT OBJECTIVE AND
CERTAIN RISK FACTORS

In the Advisor's opinion, the multi-manager concept provides advantages over the
use of a single manager because of the following primary factors:

(i) most equity investment management firms consistently employ a distinct
investment "style" which causes them to emphasize stocks with particular
characteristics;

The Advisor, based on the foregoing principles and on its analysis and
evaluation of information regarding the personnel and investment styles and
performance of a universe of several hundred professional investment management
firms, selected Portfolio Managers representing a blending of different
investment styles which, in its opinion, is appropriate to the Fund's investment
objective.

3
<PAGE>

changes or additions of Portfolio Managers will require shareholder approval.

The Fund's current Portfolio Managers are:

J. P. Morgan Investment Management Inc.
OpCap Advisors
Boston Partners Asset Management, L.P.
Westwood Management Corp.
Wilke/Thompson Capital Management, Inc.

The Advisor also is the manager of Liberty All-Star Equity Fund, a multi-managed
closed-end fund, and Liberty All-Star Equity Fund, Variable Series, a
multi-managed open-end fund that serves as an investment vehicle for variable
annuities and life insurance policies issued by insurance companies. These other
funds have the same investment objective and investment program as the Fund, and
currently have the same Portfolio Managers (except that Oppenheimer Capital, an
affiliate of OpCap Advisors with the same portfolio management personnel, acts
as the Portfolio Manager of the other funds). The Advisor expects that all three
funds will make corresponding changes if and when Portfolio Managers are changed
in the future. Notwithstanding their identical investment objectives and
programs and Portfolio Managers, the Fund's investment performance may not be
the same as these other funds because they have different expense ratios,
commenced operations on different dates, may have a different cost basis in
commonly held securities, and may hold different securities. In addition, unlike
the Fund, Liberty All-Star Equity Fund as a closed-end fund operates with a
relatively fixed capitalization and is not subject to inflows and outflows of
cash resulting from net sales or net redemptions of its shares.

Cash Reserves and Repurchase Agreements. The Fund may invest temporarily
available cash in U.S. dollar denominated money market instruments. Such
domestic money market instruments may include: U.S. Government securities;
certificates of deposit; bankers' acceptances; high quality commercial paper;
and repurchase agreements.

Under a repurchase agreement, the Fund purchases a security (usually a U.S.
Government security) from a securities dealer or bank, which simultaneously
agrees to repurchase the security from the Fund on an agreed upon date (usually
not more than seven days from the date of purchase), and at an agreed upon price
reflecting the original purchase price plus interest. The obligation of the
dealer or bank to repurchase the securities at the agreed upon repurchase price
if fully collateralized by the underlying securities, which are held for the
Fund by its custodian through the federal book entry system and are marked to
market on a daily basis. In the event of a bankruptcy or default of a securities
dealer or bank, the Fund could experience costs and delays in liquidating the
underlying security and might incur a loss if such collateral declines in value
during this period. Not more than 15% of the Fund's net assets will be invested
in repurchase agreements maturing in more than seven days and other illiquid
assets.

Securities Lending. The Fund may lend portfolio securities to certain
institutions (principally broker-dealers) that the Advisor considers qualified
in order

4
<PAGE>

to increase income. The loans will not exceed 30% of total assets. Securities
lending involves the risk of loss to the Fund if the borrower defaults.

ADRs. With respect to equity securities, the Fund may purchase sponsored and
unsponsored ADRs. ADRs are U.S. dollar-denominated certificates issued by a
United States bank or trust company representing the right to receive securities
of a foreign issuer deposited in a domestic bank or foreign branch of that bank
or a corresponding bank and traded on a United States exchange or in an
over-the-counter market. There are no fees imposed on the purchase or sale of
ADRs when purchased from the issuing bank or trust company in the initial
underwriting, although the issuing bank or trust company may impose charges for
the collection of dividends and the conversion of ADRs into the underlying
securities. In the case of ADRs which were not issued at the instance of the
issuer of the underlying foreign security ("unsponsored" ADRs), the Fund may be
required to pay its proportionate share of the expenses of the depository bank
and may have greater difficulty in receiving shareholder communications from the
issuer of the underlying foreign security than it would have with a sponsored
ADR. Investment in ADRs has certain advantages over direct investment in the
underlying foreign securities since: (i) ADRs are U.S. dollar-denominated
investments that are registered domestically, easily transferable and for which
market quotations are readily available; and (ii) issuers whose securities are
represented by sponsored ADRs are subject to the same auditing, accounting and
financial reporting standards as domestic issuers. Investments in ADRs, however,
are otherwise subject to the same general considerations and risks pertaining to
foreign securities, including the possibility of unfavorable currency exchange
rates, less liquid markets, the potential imposition of exchange control
regulations (including currency blockage), and political and economic
instability.

An option generally gives the option holder the right, but not the obligation,
to purchase or sell a specified security or futures contract at a specified
price prior to the option's specified expiration date. A call option gives the
option purchaser the right to buy from the option seller (writer); a put option
gives the option purchaser the right to sell to the option writer.

With respect to each futures contract or call option purchased, the Fund will
set aside in a segregated account maintained with its custodian (or broker, if
legally permitted) cash or liquid securities in an amount equal to the market
value of the futures contract or option, less the initial margin deposit. The
Fund will write only "covered" options, meaning that, so long as the Fund is
obligated as the writer of a call option, it must own the underlying security
subject to the option (or comparable securities satisfying the cover
requirements of securities exchange). In the case of a put option written by the
Fund, the Fund will maintain in a segregated account

5
<PAGE>

with the Fund's custodian cash or liquid securities at all times to the price to
be paid if the option is executed.

HOW THE FUND MEASURES ITS PERFORMANCE

The Fund's performance may be quoted in sales literature and advertisements.
Class Z average annual total returns are calculated in accordance with the
Securities and Exchange Commission's formula and assume the reinvestment of all
distributions. Other total returns differ from average annual total return only
in that they may relate to different time periods, may represent aggregate as
opposed to average annual total returns.

Class Z performance may be compared to various indices. Quotations from various
publications may be included in sales literature and advertisements. See
"Performance Measures" in the Statement of Additional Information for more
information. All performance information is historical and does not predict
future results.

HOW THE FUND IS MANAGED

The Trustees formulate the Fund's general policies and oversee the Fund's
affairs as conducted by the Advisor.

6
<PAGE>

shareholder services and transfer agent for the Fund. Each of the Advisor, the
Administrator, the Distributor and the Transfer Agent is an indirect subsidiary
of Liberty Financial Companies, Inc. (Liberty Financial), which in turn is an
indirect majority-owned subsidiary of Liberty Mutual Insurance Company (Liberty
Mutual). Liberty Mutual is an underwriter of workers' compensation insurance and
a property and casualty insurer in the U.S.

The Advisor furnishes the Fund with investment management services. Its
Management Agreement with the Fund authorizes the Advisor to recommend for
appointment one or more Portfolio Managers pursuant to a portfolio management
agreement among the Fund, the Advisor and the applicable Portfolio Manager, and
to allocate and reallocate from time to time the fund's portfolio assets among
the Portfolio Managers for investment management. The Management Agreement
provides that each Portfolio Manager shall have full investment discretion and
authority to make all determinations with respect to the investment of the
portion of the Fund's assets assigned to such Portfolio Manager by the Advisor,
in accordance with the Advisor's multi-manager concept. For these services, the
Fund pays the Advisor a monthly fee based on the average daily net assets of the
Fund at the annual rate of 0.60% (subject to the voluntary fee waiver agreement
referred to under "Estimated Annual Operating Expenses" above).

John Lindenthal, Managing Director of Oppenheimer Capital, the parent of OpCap
Advisors, manages the portion of the Fund's portfolio assigned to OpCap
Advisors.

Mark A. Thompson, Chairman and Chief Investment Officer of Wilke/Thompson
Capital Management, Inc., manages the portion of the Fund's portfolio assigned
to that firm. Anthony L. Ventura, President, owns 23% of its outstanding shares,
and Mark A. Thompson, Chairman and Chief Investment Officer, owns 56% of its
outstanding shares. (The balance of such shares are owned by other employees).

The Transfer Agent provides transfer agency and shareholder services to the Fund
for a monthly fee at the annual rate of 0.236% of average daily net assets plus
certain out-of-pocket expenses.

7
<PAGE>

Each of the foregoing fees is subject to any reimbursement or fee waiver to
which the Advisor and its affiliates may agree.

Fund expenses consist of management, administration, pricing and bookkeeping,
shareholder service and transfer agent fees discussed above, and all other
expenses, fees, charges, taxes, organization costs and liabilities incurred or
arising in connection with the Fund or Trust or in connection with the
management thereof, including but not limited to, trustees' compensation and
expenses, auditing, counsel, custodian and other expenses deemed necessary and
proper by the Trustees.

YEAR 2000

The Fund's Advisor, Administrator, Distributor and Transfer Agent (Liberty
Companies) are actively coordinating, managing and monitoring Year 2000
readiness for the Fund. The Liberty Companies are taking steps that they believe
are reasonably designed to address the Year 2000 problem and are communicating
with vendors who provide services, software and systems to the Fund to provide
that date-related information and data can be properly processed and calculated
on and after January 1, 2000. Many Fund service providers and vendors, including
the Colonial Companies, are in the process of making Year 2000 modifications to
their services, software and systems and believe that such modifications will be
completed on a timely basis prior to January 1, 2000. The cost of these
modifications will not affect the Fund. 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.

HOW THE FUND VALUES ITS SHARES

Per share net asset value is calculated by dividing the total value attributable
to Class Z by the number of Class Z shares outstanding. Shares of the Fund are
generally valued as of the close of regular trading on the New York Stock
Exchange (Exchange) (normally 4:00 p.m. Eastern time) each day the Exchange is
open. Portfolio securities for which market quotations are readily available are
valued at current market value. Short-term investments maturing in 60 days or
less are valued at amortized cost unless the Administrator determines that such
cost does not approximates current market value. All other securities and assets
are valued at their fair value following procedures adopted by the Trustees.

DISTRIBUTIONS

Distributions are invested in additional Class Z shares of the Fund at net asset
value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash to
shareholders but will be invested in additional Class Z shares at net asset
value. If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service selected by the
Transfer Agent is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically be converted
to having all dividend and other distributions reinvested in additional shares.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks. To change your election, call the Transfer Agent for
information.

TAXES

This discussion of taxes is for general information only. Investors should
consult their own tax Advisors about their particular situations.

8
<PAGE>

taxes, although the Fund's foreign-source income may be subject to foreign
taxes.

HOW TO BUY SHARES

Class Z shares are offered continuously at net asset value without a sales
charge. Orders received in good form prior to the time at which the Fund values
its shares (or placed with the financial service firm before such time and
transmitted by the financial service firm before the Fund processes that day's
share transactions) will be processed based on that day's closing net asset
value. Certificates will not be issued for Class Z shares. The Fund may refuse
any purchase order for its shares. See the Statement of Additional Information
for more information.

Other Classes of Shares. In addition to Class Z shares, the Fund offers three
other classes of shares, Classes A, B and C, through a separate Prospectus.
Which Class is more beneficial to an investor depends on the amount and intended
length of the investment. In general, anyone eligible to purchase Class Z
shares, which do not bear 12b-1 fees or contingent deferred sales charges,
should do so in preference over other classes.

Financial service firms may receive different compensation rates for selling
different classes of shares. The Distributor may pay additional compensation to
financial service firms which have made or may make significant sales. Initial
or contingent deferred sales charges may be reduced or eliminated for certain
persons or organizations purchasing Fund shares alone or in combination with
certain other mutual funds distributed by the Distributor. See the Statement of
Additional Information for more information.

HOW TO SELL SHARES

9
<PAGE>

avoid delay in payment, investors are advised to purchase shares
unconditionally, such as by certified check or other immediately available
funds.

Selling Shares Directly To The Fund. Send a signed letter of instruction or
stock power form to the Transfer Agent, along with any certificates for shares
to be sold. The sale price is the net asset value 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 financial service firms, the
Transfer Agent and many banks. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and individual
retirement account holders. For details contact:

Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611

HOW TO EXCHANGE SHARES

Class Z shares may be exchanged at net asset value into the Class A or Class Z
shares of any other mutual funds distributed by the Distributor. Carefully read
the prospectus of the fund into which the exchange will go before submitting the
request. Call 1-800-426-3750 to receive a prospectus and an exchange
authorization form. Call 1-800-422-3737 to exchange shares by telephone. An
exchange is a taxable capital transaction. The exchange service may be changed,
suspended or eliminated on 60 days' written notice. The Fund will terminate the
exchange privilege as to a particular shareholder if the Advisor determines, in
its sole and absolute discretion, that the shareholder's exchange activity is
likely to adversely impact the Portfolio Managers' ability to manage the Fund's
investments in accordance with its investment objective or otherwise harm the
Fund or its remaining shareholders.

TELEPHONE TRANSACTIONS

All shareholders and/or their financial advisors are automatically eligible to
exchange Fund shares and 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 time at
which the Fund values its shares. Telephone redemptions are limited to a total
of $100,000 in a 30-day period. Redemptions that exceed $100,00 may be done by
placing a wire order trade through a broker or furnishing a signature guaranteed
request. Telephone redemption privileges may be elected on the account
application. The Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and may be liable for
losses related to unauthorized or fraudulent transactions in the event
reasonable procedures are not employed. Such procedures include restrictions on
where proceeds of telephone redemptions may be sent, limitations on the ability
to redeem by telephone shortly after an address change, recording of telephone
lines and requirements that the redeeming shareholder and/or his or her
financial advisor provide certain identifying information. Shareholders and/or
their financial advisors wishing to redeem or exchange shares by telephone may
experience difficulty in reaching the Fund at its toll-free telephone number
during periods of drastic economic or market changes. In that event,
shareholders and/or their financial advisors should follow the procedures for
redemption or exchange by mail as described above under "How to Sell Shares."
The Advisor, the Administrator, the Transfer Agent and the Fund reserve the
right to change, modify or terminate the telephone redemption or exchange
services at any time upon prior written notice to shareholders. Shareholders
and/or their financial advisors are not obligated to transact by telephone.

10
<PAGE>

ORGANIZATION AND HISTORY

The Trust is a Massachusetts business trust organized in 1998. The Fund
commenced investment operations in 1999. As of the date of this Prospectus the
Advisor owned all of the outstanding shares of the Fund.

11
<PAGE>

Investment Advisor

Liberty Asset Management Company
Federal Reserve Plaza
600 Atlantic Avenue
Boston, MA 02110

Administrator
Colonial Management Associates, Inc.
One Financial Center
Boston, MA 02111-2621

Distributor
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621

Custodian
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017-2070

Shareholder Services and Transfer Agent
Colonial Investors Service Center, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-345-6611

Independent Auditors
KPMG LLP
99 High Street
Boston, MA 02110

Legal Counsel
Bingham Dana LLP
150 Federal Street
Boston, MA 02110

Your financial service firm is:
Printed in U.S.A.

January 15, 1999

LIBERTY ALL-STAR
GROWTH AND INCOME FUND
CLASS Z SHARES

PROSPECTUS

For more detailed information about the Fund, call the Distributor at
1-800-426-3750 for the January 15, 1999 Statement of Additional Information.

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

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

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

12
<PAGE>
LIBERTY ALL-STAR GROWTH AND INCOME FUND
Statement of Additional Information
January 15, 1999

This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Liberty
All-Star Growth and Income 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 January 15, 1999. This SAI should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus from Liberty
Funds Distributor, Inc., One Financial Center, Boston, MA 02111-2621.

This SAI contains specific information about the Fund and additional information
about certain securities and investment techniques described in the Fund's
Prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Definitions 2
Investment Objective and Policies 2
Fundamental Investment Policies 2
Other Investment Policies 3
Investment Management and Other Services 3
Portfolio Turnover 4
Other Charges and Expenses 4
Custodian 6
Independent Auditors 6
Description of Certain Investments 6
Taxes 12
Management of the Fund 14
Determination of Net Asset Value 19
How to Buy Shares 19
Special Purchase Programs/Investor Services 20
Programs for Reducing or Eliminating Sales Charges 21
How to Sell Shares 23
Distributions 24
How to Exchange Shares 25
Suspension of Redemptions 25
Shareholder Liability 25
Shareholder Meetings 26
Performance Measures 26
Financial Statements 28
</TABLE>

<PAGE>

The Fund is newly created and has no operating history.

DEFINITIONS

<TABLE>
<S> <C>
"Trust" LAMCO Trust I
"Fund" Liberty All-Star Growth and Income Fund
"Advisor" Liberty Asset Management Company, the Fund's investment Advisor
"Administrator" Colonial Management Associates, Inc., the Fund's administrator
"LFDI" Liberty Funds Distributor, Inc., the Fund's distributor
"LFSI" Liberty Funds Services, Inc., the Fund's shareholder services and transfer agent
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

The Fund's Prospectus describes its investment objective and investment
policies. This SAI includes additional information concerning, among other
things, the fundamental investment policies of the Fund. This SAI also contains
additional information about the securities and investment techniques that are
described or referred to in the Prospectus.

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 Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.

The Fund may:

1. 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;

2. Own real estate only if acquired as the result of owning securities and not
more than 5% of total assets;

3. Purchase and sell futures contracts and related options as long as the
total initial margin and premiums do not exceed 5% of total assets;

4. Underwrite securities issued by others only when disposing of portfolio
securities;

5. Make loans only (a) through lending of securities, (b) through the purchase
of debt instruments or similar evidences of indebtedness typically sold
privately to financial institutions or traded in public securities markets,
(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 interfund 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; and

6. Not concentrate 25% or more of its total assets in any industry (other than
securities issued or guaranteed as to principal and interest by the
Government of the United States or any agency or instrumentality thereof).
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.

7. Not purchase securities of any one issuer, if (a) more than 5% of the
Fund's total assets taken at market value would at the time be invested in
the securities of such issuer, except that such restriction does not apply
to securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities or corporations sponsored thereby, and except that up
to 25% of the Fund's total assets may be invested without regard to this
limitation; or (b) such purchase would at the time result in more than 10%
of the outstanding voting securities of such issuer being held by the Fund,
except that up to 25% of the Fund's total assets may be invested without
regard to this limitation.

OTHER INVESTMENT POLICIES

2
<PAGE>

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

a. Have a short sales position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of securities;
and

b. Invest more than 15% of its net assets in illiquid assets.

Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. Except for the
restrictions on borrowings and investments in illiquid assets, all percentage
limitations will apply at the time of investment and are not violated unless an
excess or deficiency occurs as a result of such investment. For the purpose of
restriction 7 above, an issuer is the entity whose revenues support the
security.

INVESTMENT MANAGEMENT AND OTHER SERVICES

General

The Fund's investment program is based upon the Advisor's multi-manager concept.
The Advisor allocates the Fund's portfolio assets on an equal basis among a
number of independent investment management organizations (Portfolio Managers)--
currently five in number--each of which employs a different investment style,
and periodically rebalances the Fund's portfolio among the Portfolio Managers so
as to maintain an approximately equal allocation of the portfolio among them
throughout all market cycles. Each Portfolio Manager provides these services
under a Portfolio Management Agreement (Portfolio Management Agreements) among
the Trust, on behalf of the Fund, the Advisor and such Portfolio Manager. Under
a Fund Management Agreement with the Fund, the Advisor monitors the investment
performance and styles of, and from time to time recommends changes in, the
Portfolio Managers, and allocates and reallocates the Fund's portfolio assets
among them. For these services, the Fund pays the Advisor a monthly fee based on
the average of the daily closing value of the total net assets of the Fund at
the annual rate of 0.60%. From this fee, the Advisor pays each Portfolio Manager
other than OpCap Advisors a monthly fee at the annual rate of 0.30% on the
average of the daily closing value of the net assets of the Fund assigned to
that Portfolio Manager. OpCap Advisors' agreement provides for a fee of 0.40% on
the average of the daily closing value of the net assets assigned to it up to
$100 million and 0.30% on such average daily closing value in excess of $100
million. OpCap Advisors has voluntarily agreed, however, to waive any fee in
excess of 0.30% until the earlier of March 1, 2002 or the date the total of the
Fund's net assets reaches $100 million. Under the Fund Management Agreement, any
liability of the Advisor to the Trust, the 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 Fund Management 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
Fund Management Agreement will automatically terminate upon any assignment
thereof and shall continue in effect following its second anniversary and from
year to year thereafter 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 or an affiliate thereof pays all salaries of officers of the Trust.
The Fund pays all expenses not assumed by the Advisor including, but not limited
to, auditing, legal, custodial, investor servicing and shareholder reporting
expenses. The Fund pays the cost of printing and mailing any Prospectuses sent
to shareholders. LFDI pays the cost of printing and distributing all other
Prospectuses.

As of the date of this Statement of Additional Information, the following
entities serve as the Fund's Portfolio Managers:

J.P. Morgan Investment Management, Inc. J.P. Morgan Investment Management
Inc., 522 Fifth Avenue, New York, New York 10036, is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated, a New York Stock Exchange
listed bank holding company the principal banking subsidiary of which is
Morgan Guaranty Trust Company of New York. J.P. Morgan's principal
executive officer is Keith M. Schappert, and its directors are Mr.
Schappert and William L. Cobb, Jr., C. Nicolas Potter, Michael R. Granito,
John R. Thomas, Thomas M. Luddy, Michael E. Patterson, Jean Louis Pierre
Brunel, Robert A. Anselmi, Milan Steven Soltis and K. Warren Anderson.

3
<PAGE>

OpCap Advisors. OpCap Advisors, Oppenheimer Tower, World Financial Center,
New York, New York 10281, is a majority-owned subsidiary of Oppenheimer
Capital, which inturn is a wholly-owned subsidiary of PIMCO Advisors L.P.
OpCap Advisors' principal executive officer is Bernard H. Garil.

Boston Partners Asset Management, L.P. ("Boston Partners"), One Financial
Center, Boston, Massachusetts 02111, was founded in April, 1985 by three
former principal officers of The Boston Company Asset Management, Inc.
Boston Partners is a limited partnership of which Boston Partners, Inc.,
One Financial Center, Boston, Massachusetts, is the sole general partner.

Westwood Management Corp. Westwood Management Corp., 300 Crescent Court,
Suite 1300, Dallas, Texas 75201, is a wholly owned subsidiary of Southwest
Securities Group, Inc., a New York Stock Exchange listed securities firm.
Its principal executive officer is Susan M. Byrne. Its directors are Ms.
Byrne, Raymond E. Wooldridge, Don A. Buchhotz, David M. Glatstein and
Patricia R. Fraze.

Wilke/Thompson Capital Management, Inc. Wilke/Thompson Capital Management,
Inc., 2950 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota
55402, is a corporation of which Anthony L. Ventura, its President, owns
23%, and Mark A. Thompson, its Chairman and Chief Investment Officer, owns
56% of its outstanding shares. (The balance of such shares are owned by
other employees.) Messrs. Thompson and Ventura comprise its Board of
Directors.

Under the Fund Management and Portfolio Management Agreements, neither the
Advisor nor the Portfolio Managers are liable for actions taken by them in good
faith and without gross negligence or willful misfeasance. Although the
Portfolio Managers' activities are subject to general oversight by the Advisor
and the Trustees and officers of the Trust, neither the Advisor nor such
Trustees and officers evaluate, or have liability for, the investment merits of
the Portfolio Managers' selections of individual securities.

Expense Limitations

The Advisor and Administrator have agreed to waive or reimburse all expenses,
including management and administration fees, but excluding 12b-1 distribution
and service fees, interest, taxes, brokerage, and other expenses which are
capitalized in accordance with generally accepted accounting principles, and
extraordinary expenses, incurred by the Fund in excess of 1.25% of average net
asset value per annum. Such arrangement may be terminated by the Advisor and the
Administrator at any time.

PORTFOLIO TURNOVER

The Fund cannot accurately predict portfolio turnover, but the Advisor
anticipates that it will not exceed 100% annually. If the Fund writes a
substantial number of call or put options (on securities or indexes) or engages
in the use of futures contracts or options on futures contracts (all referred to
as "Collateralized Transactions"), and the market prices of the securities
underlying the Collateralized Transactions move inversely to the Collateralized
Transaction, there may be a very substantial turnover of the portfolio. The Fund
pays brokerage commissions in connection with options and futures transactions
and effecting closing purchase or sale transactions, as well as for the
purchases and sales of other portfolio securities other than fixed income
securities. High portfolio turnover may result in correspondingly greater
brokerage commissions and other transaction costs, which would be borne directly
by the Fund, and may result in the realization of distributable capital gains,
which are taxable to non-exempt shareholders. Changes in the Fund's Portfolio
Managers and rebalancings of its portfolio among the Portfolio Managers may
result in higher portfolio turnover than would otherwise be the case.

OTHER CHARGES AND EXPENSES

Under the Fund's administration agreement, the Fund pays the Administrator a
monthly fee at the annual rate of 0.20% of the average daily net assets and a
monthly pricing and bookkeeping fee of $3,000 plus the following percentages per
annum of the Fund's average daily 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

4
<PAGE>

Under the Fund's transfer agency and shareholder servicing agreement, the Fund
pays LFSI a monthly fee at the annual rate of 0.236% of average daily net
assets, plus certain out-of-pocket expenses.

Trustees' Fees

The following tables set forth (i) the estimated amount of compensation to be
paid by the Trust to the Trustees for 1999, and (ii) the amount of compensation
paid to the Trustees of the Trust in their capacities as Trustees of the Liberty
Funds Complex for service during the calendar year ended December 31, 1998(a):

<TABLE>
<CAPTION>
+ Estimated Compensation From The Trust to Total Compensation From Liberty Funds
Be Paid To The Trustees For The Calendar Complex Paid To The Directors/Trustees
Year Ended For The Calendar Year Ended December 31,
Trustee December 31, 1999(b) 1998(c)
- ------- -------------------- -------
<S> <C> <C>
Robert J. Birnbaum $ 42,500 $124,429
John V. Carberry 0(d) 0(d)
James E. Grinnell 42,500 128,071
Richard W. Lowry 42,500 123,214
William E. Mayer 42,500 113,286
John J. Neuhauser 42,500 130,323
</TABLE>

(a) The Liberty Funds do not currently provide pension or retirement plan
benefits to the Trustees.

(b) The Trust, Liberty All-Star Equity Fund and Liberty All-Star Growth Fund,
Inc., each of which has the same Board of Trustees, pay aggregate Trustees'
fees of $125,000 per annum, assuming a minimum of four meetings are held
and attended, one third of which is allocated among the three funds on a
per fund basis and the remaining two thirds of which is allocated based on
net assets.

(c) At December 31, 1998, the Liberty Funds Complex consisted of 52 open-end
and 5 closed-end management investment company portfolios advised by the
Administrator or its affiliates, Newport Fund Management Inc. and Stein Roe
& Farnham Incorporated, nine funds of Liberty Variable Investment Trust
advised by Liberty Advisory Services Corp., an affiliate of the Advisor,
and the closed-end Liberty All-Star Equity and Liberty All-Star Growth
Fund, Inc. advised by the Advisor.

(d) Mr. Carberry does not receive compensation for serving as a Trustee because
he is an affiliated trustee and an employee of Liberty Financial Companies,
Inc.

Ownership of the Fund

At inception, the Advisor owned 100% of the Fund and, therefore, may be deemed
to "control" the Fund.

12b-1 Plan, CDSC and Conversion of Shares

The Fund offers four classes of shares - Class A, Class B, Class C 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 LFDI monthly a service fee at an annual rate of 0.25% of the
Fund's net assets attributed to Class A, Class B and Class C shares. The Fund
also pays LFDI monthly a distribution fee at an annual rate of 0.75% of average
daily net assets attributed to Class B and Class C shares. LFDI may use the
entire amount of such fees to defray the cost 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 LFDI's
expenses, LFDI may realize a profit from the fees. The Plan authorizes any other
payments by the Fund to LFDI and its affiliates (including the Advisor and the
Administrator) to the extent that such payments might be construed to be
indirect financing of 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

5
<PAGE>

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 of the Trust who are not interested persons of the Trust is effected by
such disinterested Trustees.

Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after 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 a CDSC. The CDSCs are described in the applicable
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 of any shares issued on the reinvestment of distributions on such
share will be automatically converted into a number of Class A shares having an
equal value. Class A shares are not subject to the 0.75% distribution fee.

CUSTODIAN
The Chase Manhattan Bank 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.

6
<PAGE>

INDEPENDENT AUDITORS

KPMG LLP are the Fund's independent auditors providing audit and tax return
preparation services and assistance and consultation in connection with the
review of various Securities and Exchange Commission (SEC) filings.

DESCRIPTION OF CERTAIN INVESTMENTS

The following is a description of certain types of investments which may be made
by the Fund.

Cash Reserves and Repurchase Agreements

As stated in the Prospectus, the Fund may invest in U.S. Government securities
(including direct U.S. Government obligations and U.S. Government Agency
securities described below), certificates of deposit, bankers' acceptances, time
deposits, high quality commercial paper and repurchase agreements. The money
market instruments that may be used by the Fund may include:

United States Government Obligations. These consist of various types of
marketable securities issued by the U.S. Treasury, i.e., bills, notes and bonds.
Such securities are direct obligations of the U.S. Government and differ mainly
in the length of their maturity. Treasury bills, the most frequently issued
marketable government security, have a maturity of up to one year and are issued
on a discount basis.

United States Government Agency Securities. These consist of debt securities
issued by agencies and instrumentalities of the U.S. Government, including the
various types of instruments currently outstanding or which may be offered in
the future. Agencies include, among others, the Federal Housing Administration,
Government National Mortgage Association, Farmer's Home Administration,
Export-Import Bank of the United States, Maritime Administration, and General
Services Administration. Instrumentalities include, for example, each of the
Federal Home Loan Banks, the National Bank for Cooperatives, the Federal Home
Loan Mortgage Corporation, the Farm Credit Banks, the Federal National Mortgage
Association, and the United States Postal Service. These securities are either:
(i) backed by the full faith and credit of the U.S. Government (e.g., U.S.
Treasury Bills); (ii) guaranteed by the U.S. Treasury (e.g., Government National
Mortgage Association mortgage-backed securities); (iii) supported by the issuing
agency's or instrumentality's right to borrow from the U.S. Treasury (e.g.,
Federal National Mortgage Association Discount Notes); or (iv) supported only by
the issuing agency's or instrumentality's own credit (e.g., securities issued by
the Farmer's Home Administration).

Bank and Savings and Loan Obligations. These include certificates of deposit
and bankers' acceptances. Certificates of deposit generally are short-term,
interest-bearing negotiable certificates issued by commercial banks or savings
and loan associations against funds deposited in the issuing institution.
Bankers' acceptances are time drafts drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction (e.g., to
finance the import, export, transfer, or storage of goods). With a bankers'
acceptance, the borrower is liable for payment as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most bankers' acceptances have maturities of six months or less and are
traded in secondary markets prior to maturity. Time deposits are generally
short-term, interest-bearing negotiable obligations issued by commercial banks
against funds deposited in the issuing institutions. The Funds will not invest
in any security issued by a commercial bank or a savings and loan association
unless the bank or savings and loan association is organized and operating in
the United States, has total assets of at least one billion dollars, and is a
member of the Federal Deposit Insurance Corporation (FDIC), in the case of
banks, or insured by the FDIC in the case of savings and loan associations;
provided, however, that such limitation will not prohibit investments in foreign
branches of domestic banks which meet the foregoing requirements. The Fund will
not invest in time-deposits maturing in more than seven days.

Short-Term Corporate Debt Instruments. These include commercial paper (i.e.,
short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs). Commercial paper is usually sold on a discount basis
and has a maturity at the time of issuance not exceeding nine months. Also
included are non-convertible corporate debt securities (e.g., bonds and
debentures). Corporate debt securities with a remaining maturity of less than 13
months are liquid (and tend to become more liquid as their maturities lessen)
and are traded as money market securities. The Fund may purchase corporate debt
securities having greater maturities.

Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an instrument under which the investor (such as the
Fund) acquires ownership of a security (known as the "underlying security") and
the seller (i.e., a bank or primary dealer) agrees, at the time of the sale, to
repurchase the underlying security at a mutually agreed upon time and

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<PAGE>

price, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period, unless the seller defaults on its repurchase obligations. The underlying
securities will consist only of securities issued by the U.S. Government, its
agencies or instrumentalities (U.S. Government Securities). Repurchase
agreements are, in effect, collateralized by such underlying securities, and,
during the term of a repurchase agreement, the seller will be required to
mark-to-market such securities every business day and to provide such additional
collateral as is necessary to maintain the value of all collateral at a level at
least equal to the repurchase price. Repurchase agreements usually are for short
periods, often under one week, and will not be entered into by the Fund for a
duration of more than seven days if, as a result, more than 15% of the value of
the Fund's net assets would be invested in such agreements or other securities
which are illiquid.

The Fund will seek to assure that the amount of collateral with respect to any
repurchase agreement is adequate. As with any extension of credit, however,
there is risk of delay in recovery or the possibility of inadequacy of the
collateral should the seller of the repurchase agreement fail financially. In
addition, the Fund could incur costs in connection with disposition of the
collateral if the seller were to default. The Fund will enter into repurchase
agreements only with sellers deemed to be creditworthy under creditworthiness
standards approved by the Board of Trustees and only when the economic benefit
to the Fund is believed to justify the attendant risks. The Board of Trustees
believes these standards are designed to reasonably assure that such sellers
present no serious risk of becoming involved in bankruptcy proceedings within
the time frame contemplated by the repurchase agreement. The Fund may enter into
repurchase agreements only with commercial banks or registered broker-dealers.

Options on Securities

The Fund may purchase and sell options on individual 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 a
Portfolio Manager, 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
then 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

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<PAGE>

complex and are fixed by individual brokers, subject to minimum requirements
currently imposed by the Federal Reserve Board and by stock exchanges and other
self-regulatory organizations.

Purchasing Put Options. The Fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
Fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.

Purchasing Call Options. The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the Fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Fund might
have realized had it bought the underlying security at the time it purchased the
call option.

Over-the-Counter (OTC) Options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the Fund and assets held to cover OTC options written
by the Fund are illiquid securities. Although the Staff has indicated that it is
continuing to evaluate this issue, pending further developments, the Fund will
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% 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 a Portfolio Manager 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 a Portfolio Manager deems it desirable to do so.
Although the Fund will take an option position only if a Portfolio Manager
believes there is a liquid secondary market for the option, there is no
assurance that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price.

If a secondary trading market in options were to become unavailable, the Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events--such as volume in excess of trading or clearing capability--were to
interrupt normal market operations.

A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the Fund's ability to
realize its profits or limit its losses.

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<PAGE>

Disruptions in the markets for the securities underlying options purchased or
sold by the Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.

Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.

Futures Contracts and Related Options

The Fund may buy and sell certain future contracts (and in certain cases related
options), to the extent and for the purposes specified in the Prospectus.

A futures contract sale creates an obligation by the seller to deliver the type
of financial 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 financial 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 a commodity exchange or boards of trade--known as
"contract markets"--approved for such trading by the Commodity Futures Trading
Commission, 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 the underlying financial instruments, 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 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 gain. Such closing transactions
involve additional commission costs.

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<PAGE>

The Fund will enter into futures contracts only when, in compliance with the
SEC's requirements, cash or high quality liquid debt 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.

Options on Futures Contracts. 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 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. The Fund will enter into
written options on futures contracts only when, in compliance with the SEC's
requirements, cash or equivalents equal in value to the commodity value (less
any applicable margin deposits) have been deposited in a segregated account of
the Fund's custodian.

Risks of Transactions in Futures Contracts and Related Options. Successful use
of futures contracts by the Fund is subject to a Portfolio Manager's ability to
predict correctly movements in the direction of interest rates and other factors
affecting securities markets.

Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those 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 contacts 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.

Index Futures Contracts and Related Options; Associated Risks. 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 future contracts, debt index futures contracts, or other index
futures contracts (e.g., an interest rate futures contract), as specified in the
Prospectus. The Fund may also purchase and sell options on index futures
contracts, to the extent specified in the Prospectus.

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

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<PAGE>

are the subject of the hedge. The Fund's Portfolio Managers 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 a Portfolio Manager'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 subject to the hedge held in the
Fund's portfolio may decline. If this occurs, the Fund would lose money on the
futures and also experience a decline in the value in its portfolio securities.
However, while this could occur to a certain degree, over time the value of the
Fund's portfolio should tend to move in the same direction as the market indices
which are intended to correlate to the price movements of the portfolio
securities sought to be hedged. It is also possible that, if the Fund has hedged
against the possibility of a decline in the market adversely affecting
securities held in its portfolio and securities prices increase instead, the
Fund will lose part or all of the benefit of the increased values of those
securities that it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements.

In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures markets
are less onerous than margin requirements in the securities markets, and as a
result the futures markets may attract more speculators than the securities
markets. Increased participation by speculators in the futures markets may also
cause temporary price distortions. Due to the possibility of price distortions
in the futures markets 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 Fund's Portfolio Managers may
still not result in a successful hedging transaction.

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.

Securities Loans

The Fund may make loans of its portfolio securities amounting to not more than
30% of its total assets. 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 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. This collateral is deposited with the
Trust's custodian which segregates and identifies these assets on its books as
security for the loan. The borrower pays to the Fund an amount equal to any
dividends, interest or other distributions received on securities lent. The
borrower is obligated to return identical securities on termination of the loan.
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. The Trust has adopted these policies, in part,
so that interest, dividends and other distributions received on the loaned
securities, the interest or fees paid by the borrower to the Fund

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<PAGE>

for the loan, and the investment income from the collateral will qualify under
certain investment limitations under Subchapter M of the Internal Revenue Code.

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<PAGE>

TAXES

The following discussion is a brief summary of some of the important federal
(and, where noted, state) income tax consequences affecting the Fund and its
shareholders. The discussion is very general and should not be viewed as a
substitute for careful tax planning. Prospective investors are urged to consult
their tax Advisors regarding the effect an investment in the Fund may have on
their own tax situation.

Taxation of the Fund.

Federal Taxes. The Fund has elected to be treated, and intends to qualify each
year, as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), by meeting all applicable
requirements of Subchapter M, including requirements as to the nature of the
Fund's gross income, the amount of Fund distributions and the composition of its
portfolio assets. Because the Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Fund will be required to pay any federal income or excise taxes, although the
Fund's foreign-source income may be subject to foreign taxes. If the Fund should
fail to qualify as a "regulated investment company" in any year, the Fund would
incur a regular federal corporate income tax upon its taxable income and the
Fund's distributions would generally be taxable as ordinary dividend income to
its shareholders.

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; (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).

Massachusetts Taxes. As long as it qualifies as a regulated investment company
under the Code, the Fund will not be required to pay Massachusetts income or
excise taxes.

Taxation of Shareholders.

Fund Distributions. In general, shareholders of the Fund normally will have to
pay federal income tax and any state or local income taxes on the dividends and
capital gain distributions they receive from the Fund. Distributions from the
Fund will be taxable to shareholders as ordinary income to the extent derived
from the Fund's investment income and net short-term gains. Distributions of net
capital gain (i.e., the excess of net long-term capital gain over net short-term
capital loss) are taxable to shareholders as long-term capital gains for federal
income tax purposes without regard to the length of time the shareholders have
held their shares. Any Fund dividend that is declared in October, November, or
December of any calendar year, payable to shareholders of record in such a
month, and paid during the following January will be treated as if received by
the shareholders on December 31 of the year in which the dividend is declared.
The Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year. Distributions will be taxed
as described above whether received in cash or reinvested in additional Fund
shares.

Any Fund distribution will have the effect of reducing the per share net asset
value of Fund shares by the amount of the distribution. Shareholders purchasing
shares shortly before the record date of any such distribution may thus pay the
full price for the shares and then effectively receive a portion of the purchase
price back as a taxable distribution.

Dispositions of Shares. The sale, exchange or redemption of Fund shares may
give rise to a gain or loss realized upon a disposition of Fund shares by a
shareholder that holds such shares as a capital asset will treated as a
long-term capital gain or loss if the shares have been held for more than twelve
months and otherwise as a short-term capital gain or loss. However, any

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<PAGE>

loss realized upon a taxable disposition of shares held for six months or less
will be treated as long-term capital loss to the extent of any distributions of
net capital gain made 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.

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. The portion of the Fund's ordinary income
dividends attributable to dividends received with respect to equity securities
of U.S. issuers is normally eligible for the dividends received deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of Fund shares. Availability of the deduction for
particular corporate shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax or result in
certain basis adjustments.

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.

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 and certain of its agencies and
instrumentalities (but generally not distributions of capital gains realized
upon the dispositions of such obligations). 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.

Dividend/Accounting Policies. The Fund's current dividend and accounting
policies will affect the amount, timing, and character of distributions to
shareholders and may, under certain circumstances, make an economic return of
capital taxable to shareholders.

Certain Specific Investments. Any investment in zero-coupon bonds, deferred
interest bonds, payment-in-kind bonds, certain stripped securities, and certain
securities purchased at a market discount will cause the Fund to recognize
income prior to the receipt of cash payments with respect to those securities.
In order to distribute this income and avoid a tax on the Fund, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold, potentially resulting in additional taxable gain or loss to
the Fund.

Options and Futures Contracts. The Fund's transactions in options and futures
contracts will be subject to special tax rules that may affect the amount,
timing and character of Fund income and distributions to shareholders. For
example, certain positions will be marked to market (i.e., treated as if closed
out) on that day, and any gain or loss associated with the positions will be
treated as 60% long-term and 40% short-term capital gain or loss. Certain
positions held by the Fund that substantially diminish its risk of loss with
respect to other positions in its portfolio may constitute "straddles," and may
be subject to special tax rules that would cause deferral of Fund losses,
adjustments in the holding periods of Fund securities, and conversion of
short-term into long-term capital losses. Certain tax elections exist for
straddles that may alter the effects of these rules. The Fund intends to limit
its activities in options and futures contracts to the extent necessary to meet
the requirements of Subchapter M of the Code.

Foreign Investments. Special tax considerations apply with respect to foreign
investments by the Fund. Foreign exchange gains and losses realized by the Fund
will generally be treated as ordinary income and loss. Use of non-U.S.
currencies for non-hedging purposes and investment by the Fund in certain
"passive foreign investment companies" may be limited in order to avoid a tax on
the Fund. The Fund may elect to mark to market any investments in "passive
foreign investment companies" on the last day of each taxable year. This
election may cause the Fund to recognize income prior to the receipt of cash
payments with

15
<PAGE>

respect to those investments; in order to distribute this income and avoid a tax
on the Fund, the Fund may be required to liquidate portfolio securities that it
might otherwise have continued to hold.

Foreign Income Taxes. Investment income received by the Fund from foreign
securities may be subject to foreign income taxes withheld at the source; the
Fund does not expect to be able to pass through to shareholders foreign tax
credits with respect to such foreign taxes. The United States has entered into
tax treaties with many foreign countries that may entitle the Fund to a reduced
rate of tax or an exemption from tax on such income; the Fund intends to qualify
for treaty reduced rates where available. It is not possible, however, to
determine the Fund's effective rate of foreign tax in advance, since the amount
of the Fund's assets to be invested within various countries is not known.

U.S. Taxation of Non-U.S. Persons. Dividends and certain other payments to
persons who are not citizens or residents of the United States or U.S. entities
("Non-U.S. Persons") are generally subject to U.S. tax withholding at the rate
of 30%. The Fund intends to withhold U.S. federal income tax at the rate of 30%
(or any lower rate permitted under an applicable treaty) on taxable dividends
and other payments to Non-U.S. Persons that are subject to such withholding. Any
amounts overwithheld may be recovered by such persons by filing a claim for
refund with the U.S. Internal Revenue Service within the time period appropriate
to such claims.

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.

MANAGEMENT OF THE FUND

The Advisor is the investment Advisor to the Fund. The Advisor is a indirect
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial), which in
turn is a direct majority-owned subsidiary of LFC Holdings, Inc., which in turn
is a direct subsidiary of Liberty Mutual Equity Corporation, which in turn is a
wholly-owned subsidiary of Liberty Mutual Insurance Company (Liberty Mutual).
Liberty Mutual is an underwriter of workers' compensation insurance and a
property and casualty insurer in the U.S. Liberty Financial's address is 600
Atlantic Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley
Street, Boston, MA 02117.

16
<PAGE>

Trustees and Officers

The Trustees and officers of the Trust, together with information as to their
principal addresses and business occupations during the last five years, are
shown below.

<TABLE>
<CAPTION>
Positions(s) held
Name and Address Age with the Trust Principal occupations during past five years
- ---------------- --- -------------- --------------------------------------------
<S> <C> <C> <C>
Robert J. Birnbaum 70 Trustee Consultant (formerly Special Counsel, Dechert
313 Bedford Road Price & Rhoadsfrom September, 1988 to December,
Ridgewood, NJ 07450 1993, President, New York Stock Exchange from
May 1985 to June 1988, President, American
Stock Exchange, Inc. from 1977 to May 1985).

John V. Carberry* 51 Chairman of the Board and Senior Vice President, Liberty Financial
Federal Reserve Plaza Trustee Companies, Inc. (since February, 1998);
600 Atlantic Avenue Managing Director, Salomon Brothers, Inc.
Boston, MA 02210 (from December, 1974 to February, 1998).

James E. Grinnell 68 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945

Richard W. Lowry 62 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963

William E. Mayer* 58 Trustee Partner, Development Capital, LLC
500 Park Avenue, 5th Floor (formerly Dean, College of Business and
New York, NY 10022 Management, University of Maryland from
October, 1992 to November, 1996, Dean,
Simon Graduate School of Business,
University of Rochester from October,
1991 to July, 1992).

John J. Neuhauser 55 Trustee Dean, Boston College School of Management
140 Commonwealth Avenue since September, 1977.
Chestnut Hill, MA 02167

Christopher S. Carabell 33 Vice President Vice President, Investments, LAMCO
Federal Reserve Plaza Advisor (March, 1996 to present);
600 Atlantic Avenue Associate Director, U.S. Equity Research,
Boston, MA 02210 Rogers Casey & Associates, January, 1995
to March, 1996; Director of Investments,
Boy Scouts of America, Inc., June, 1990
to January, 1995

Richard R. Christensen 65 President Chairman of
Federal Reserve Plaza the Advisor (since January, 1995);
600 Atlantic Avenue President, Liberty Investment Services,
Boston, MA 02210 Inc. (April, 1987 to March, 1995).

17
<PAGE>

J. Kevin Connaughton 34 Controller and Chief Controller and Chief Accounting Officer
One Financial Center Accounting Officer of the Colonial Funds since February,
Boston, MA 02110 1998, Vice President of Colonial
Management Associates, Inc. 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).

John L. Davenport 62 Secretary Vice President and Associate General
Federal Reserve Plaza Counsel of Liberty Financial Companies,
600 Atlantic Avenue Inc. and predecessor (since January,
Boston, MA 02210 1984).

Timothy J. Jacoby 45 Treasurer, Chief Treasurer, Controller, Chief Financial
One Financial Center Financial Officer Officer and Chief Accounting Officer of
Boston, MA 02111 the Colonial Funds; Senior Vice President
and Chief Financial Officer of Colonial
Management Associates, Inc. since
September, 1996; Vice President, Chief
Financial Officer and Treasurer since
December, 1998 of COGRA, LLC; Vice President,
Chief Financial Officer and Treasurer of
The Colonial Group, Inc. from July, 1998 to
December, 1998; Senior Vice President of Stein
Roe & Farnham Incorporated since August, 1998;
formerly Senior Vice
President, Fidelity Accounting and
Custody Services, Inc. (October, 1993 to
September 1996) and Assistant Treasurer
to the Fidelity Group of Funds (August,
1990 to September, 1993).

William R. Parmentier, Jr. 45 Vice President President, Chief Executive Officer and Chief
Federal Reserve Plaza Investment Officer, Advisor (April, 1995
600 Atlantic Avenue to present); Chief Investment Officer of
Boston, MA 02210 Grumman Corporation, 1979-1994

Davey S. Scoon 51 Vice President Vice President of Colonial Funds (since
One Financial Center June 1993); Executive Vice President
Boston, MA 02111 (since July 1993), Senior Vice President
and Treasurer (March 1985 to July 1993)
of Colonial Management Associates, Inc.;
Executive Vice President and Chief Operating
Officer of COGRA, LLC since December 1998;
Executive Vice President and Chief Operating
Officer of The Colonial Group, Inc. from
March, 1995 to December, 1998; Vice President-
Finance and Administration from November 1985,
to March, 1995; Executive Vice President of
Stein Roe & Farnham Incorporated since
August, 1998.
</TABLE>

As indicated in the above table, certain Trustees and officers of the Trust also
hold positions with the Advisor, Liberty Financial, the Administrator, Stein Roe
& Farnham Incorporated and/or certain of their affiliates. Certain of the
Trustees and officers of the Trust hold comparable positions with certain other
investment companies.

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

The business address of the officers of the Trust is 600 Atlantic Avenue,
Boston, MA 02110.

The Boards of Trustees or Directors of the Trust, Liberty All-Star Equity Fund
and Liberty All-Star Growth Fund, Inc. are comprised of the same persons and
expect to hold their regular meetings concurrently. Each Trustee or Director
will receive an aggregate annual retainer of $10,000 and attendance fees of
$3,000 for each joint meeting attended, with a minimum total of $25,000 if less
than five meetings are held and all meetings are attended, plus out-of-pocket
expenses relating to attendance at

18
<PAGE>

meetings. One third of the aggregate of the Trustees and Directors fees and
expenses will be allocated among the Trust, Liberty All-Star Equity Fund and
Liberty All-Star Growth Fund, Inc. on a per fund basis, and the remaining
two-thirds will be allocated based on the relative net assets of the three
funds.

The Administrator and/or its affiliate, Colonial Advisory Services, Inc., has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Administrator currently serves as investment
Advisor and/or administrator for 47 open-end and 5 closed-end management
investment company portfolios (collectively, Colonial funds). Trustees and
officers of the Trust, who are also officers of the Advisor, the Administrator
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 Colonial 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.

Under an Administration Agreement with the Fund, the Administrator has
contracted to perform the following administrative services:

(a) providing office space, equipment and clerical personnel;

(b) arranging, if desired by the Trust, for its Directors, officers and
employees to serve as Trustees, officers or agents of the Trust;

(c) preparing and, if applicable, filing all documents required for
compliance by the 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 the Fund's other
third-party service providers; and

(f) maintaining certain books and records of the Fund.

The Advisor is paid a monthly fee at the annual rate of average daily net
assets. See "Investment Management and Other Services - General."

Portfolio Transactions and Brokerage

Each of the Fund's Portfolio Managers has discretion to select brokers and
dealers to execute portfolio transactions initiated by the Portfolio Manager for
the portion of the Fund's portfolio assets allocated to it, and to select the
markets in which such transactions are to be executed. The portfolio management
agreements with the Fund provide, in substance, that in executing portfolio
transactions and selecting brokers or dealers, the primary responsibility of the
Portfolio Manager is to seek to obtain best net price and execution for the
Fund.

The Portfolio Managers are authorized to cause the Fund to pay a commission to a
broker or dealer who provides research products and services to the Portfolio
Manager for executing a portfolio transaction which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction. The Portfolio Managers must determine in good faith, however, that
such commission was reasonable in relation to the value of the research products
and services provided to them, viewed in terms of that particular transaction or
in terms of all the client accounts (including the Fund) over which the
Portfolio Manager exercises investment discretion. It is possible that certain
of the services received by a Portfolio Manager attributable to a particular
transaction will primarily benefit one or more other accounts for which
investment discretion is exercised by the Portfolio Manager.

19
<PAGE>

In addition, the portfolio management agreements with the Fund's Portfolio
Managers provide that the Advisor has the right to request that transactions
giving rise to brokerage commissions, in amounts to be agreed upon from time to
time between the Advisor and the Portfolio Manager, be executed by brokers and
dealers (to be agreed upon from time to time between the Advisor and the
Portfolio Manager) which provide or make available research products and
services to the Advisor. The commissions paid on such transactions may exceed
the amount of commission another broker would have charged for effecting that
transaction. Research products and services made available to the Advisor
through brokers and dealers executing transactions for the Fund and other
clients of the Advisor include performance and other qualitative and
quantitative data relating to investment managers in general and the Portfolio
Managers in particular; data relating to the historic performance of categories
of securities associated with particular investment styles; mutual fund
portfolio and performance data; data relating to portfolio manager changes by
pension plan fiduciaries; and related computer hardware and software, all of
which are used by the Advisor in connection with its selection and monitoring of
Portfolio Managers, the assembly of an appropriate mix of investment styles, and
the determination of overall portfolio strategies. These research products and
services may also be used by the Advisor in connection with its management of
other multi-managed clients of the Advisor. In instances where the Advisor
receives from or through brokers and dealers products or services which are used
both for research purposes and for administrative or other non-research
purposes, the Advisor makes a good faith effort to determine the relative
proportions of such products or services which may be considered as investment
research, based primarily on anticipated usage, and pays for the costs
attributable to the non-research usage in cash.

The Advisor from time to time reaches understandings with each of the Fund's
Portfolio Managers as to the amount of the portfolio transactions for the Fund
and other multi-managed clients of the Advisor initiated by such Portfolio
Manager that are to be directed to brokers and dealers that provide or make
available research products and services to the Advisor and the commissions to
be charged to the Fund in connection therewith. These amounts may differ among
the Portfolio Managers based on the nature of the market for the types of
securities managed by them and other factors.

Although the Fund does not permit a Portfolio Manager to act or have a
broker-dealer affiliate act as broker for Fund portfolio transactions initiated
by it, the Portfolio Managers are permitted to place Fund portfolio transactions
initiated by them with another Portfolio Manager or its broker-dealer affiliate
for execution on an agency basis, provided the commission does not exceed the
usual and customary broker's commission being paid to other brokers for
comparable transactions and is otherwise in accordance with the Fund's
procedures adopted pursuant to Rule 17e-1 under the Act.

Principal Underwriter

LFDI is the principal underwriter of the Fund's shares. LFDI has no obligation
to buy the Fund's shares, and purchases the Fund's shares only upon receipt of
orders from authorized financial service firms (FSFs) or investors.

20
<PAGE>

Investor Servicing and Transfer Agent

LFSI is the Fund's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Fund. The fee paid to LFSI is based on the average daily net assets of the Fund
plus reimbursement for certain out-of-pocket expenses. See "Other Charges and
Expenses" in 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 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

The Fund determines net asset value (NAV) per share for each Class as of the
close (normally 4:00 p.m. Eastern time) of the New York Stock Exchange
(Exchange) each day the Exchange is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor
Day, Thanksgiving and Christmas. Debt securities generally are valued by a
pricing service which determines valuations based upon market transactions for
normal, institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where the Administrator
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 Administrator in good faith under the direction
of the Trust's Trustees.

Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds
and U.S. Government securities) are determined based on market quotations
collected earlier in the day at the latest practicable time prior to the close
of the Exchange. Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will not be
reflected in the computation of the Fund's NAV. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value following procedures approved by the Trust's
Trustees.

HOW TO BUY SHARES

The Prospectuses contain 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, LFDI'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

21
<PAGE>

that LFDI retains the entire sales charge on any sales made to a shareholder who
does not specify a FSF on the Investment Account Application (Application). LFDI
generally retains 100% of any asset-based sales charge (distribution fee) or
contingent deferred sales charge. Such charges generally reimburse LFDI 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 will subject such purchaser 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 LFDI.

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 or Z
shares. 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 the Fund may be
purchased through the Fundamatic Program. Preauthorized monthly bank drafts or
electronic funds transfer for a fixed amount of at least $50 are used to
purchase the Fund's shares at the public offering price next determined after
LFDI 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 LFDI.

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. 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 a capital sale transaction for federal income tax purposes.

You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Colonial Investors
Service Center, Inc. P.O. Box 1722, Boston, MA 02105-1722.

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

LFDI 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. LFDI 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 LFDI prototype plans and charges a $15 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from LFDI.

22
<PAGE>

Participants in non-LFDI prototype Retirement Plans (other than IRAs) also are
charged a $15 annual fee unless the plan maintains an omnibus account with LFSI.
Participants in LFDI 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 LFDI 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 the Fund automatically invested in the same class of shares
of another fund distributed by LFDI. 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 (Available only on the Class A
shares). Reduced sales charges on Class A 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 LFDI. The applicable sales charge is based on the combined
total of:

1. the current purchase; and

2. the value at the public offering price at the close of business on the
previous day of all Colonial 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 and Z shares).

LFDI 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. The Fund may terminate or
amend this Right of Accumulation.

Any person may qualify for reduced sales charges on purchases of Class A 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 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 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 the 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 LFDI the excess commission previously paid
during the thirteen-month period.

23
<PAGE>

If the amount of the Statement is not purchased, the shareholder shall remit to
LFDI 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.

Reinstatement Privilege. An investor who has redeemed Class A, B or C 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 the 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 the 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 Employees or Financial Service Firms. Class A shares of the Fund
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of the Trust; directors, officers and employees of the Advisor
and the Administrator, LFDI and other companies affiliated with the Advisor and
the Administrator; registered representatives; employees of FSFs (including
their affiliates) and the Portfolio Managers and such Portfolio Managers'
immediate families that are parties to dealer agreements or other sales
arrangements with LFDI; and such persons' families and their beneficial
accounts.

Sponsored Arrangements. Class A shares of the Fund may be purchased at reduced
or no sales charge pursuant to sponsored arrangements, which include programs
under which an organization makes recommendations to, or permits group
solicitation of, its employees, members or participants in connection with the
purchase of shares of the fund on an individual basis. The amount of the sales
charge reduction will reflect the anticipated reduction in sales expense
associated with sponsored arrangements. The reduction in sales expense, and
therefore the reduction in sales charge, will vary depending on factors such as
the size and stability of the organization's group, the term of the
organization's existence and certain characteristics of the members of its
group. The Fund reserves the right to revise the terms of or to suspend or
discontinue sales pursuant to sponsored plans at any time.

Class A shares of the Fund 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 LFDI pursuant to which the Fund is included as an
investment option in programs involving fee-based compensation arrangements, and
by participants in certain retirement plans.

Waiver of Contingent Deferred Sales Charges (CDSCs) (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.

24
<PAGE>

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 How to Sell Shares -
Systematic Withdrawal Plan."

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 Colonial funds 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 the Fund 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

25
<PAGE>

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 the 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.

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.

The 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 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 guaranteed request. Telephone
redemption privileges 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.

Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of the Fund's net asset
value, the Fund may make the payment or a portion of the payment with portfolio
securities held by the Fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.

DISTRIBUTIONS

26
<PAGE>

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.

HOW TO EXCHANGE SHARES

Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered funds distributed by LFDI (with certain exceptions) on the
basis of the NAVs per share at the time of exchange. Class Z shares may be
exchanged for Class A shares of the other funds. The prospectus of each
LFDI-distributed 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
LFDI-distributed 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 Colonial Literature
Department by calling 1-800-426-3750.

A loss to a shareholder may result form 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 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 LFDI-distributed open-end funds generally may exchange
their shares at NAV for the same class of shares of the Fund.

An exchange is a capital sale transaction for federal income tax purposes. The
exchange privilege may be revised, suspended-or terminated at any time.

SUSPENSION OF REDEMPTIONS

The 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 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.

27
<PAGE>

The risk of the Fund incurring financial loss on account of another Colonial
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 Colonial
Fund was unable to meet its obligations.

SHAREHOLDER MEETINGS

As described under the caption "Organization and History" in the Prospectus of
the Fund, the Fund will not hold annual shareholders' meetings. The Trustees may
fill any vacancies in the Board of Trustees except that the Trustees may not
fill a vacancy if, immediately after filling such vacancy, less than two-thirds
of the Trustees then in office would have been elected to such office by the
shareholders. In addition, at such times as less than a majority of the Trustees
then in office have been elected to such office by the shareholders, the
Trustees must call a meeting of shareholders. Trustees may be removed from
office by a written consent signed by a majority of the outstanding shares of
the Trust or by a vote of the holders of a majority of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon written
request of the holders of not less than 10% of the outstanding shares of the
Trust. Upon written request by the holders of 1% of the outstanding shares of
the Trust stating that such shareholders of the Trust, for the purpose of
obtaining the signatures necessary to demand a shareholders' meeting to consider
removal of a Trustee, request information regarding the Trust's shareholders,
the Trust will provide appropriate materials (at the expense of the requesting
shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the
Trustees shall continue to hold office and may appoint their successors.

At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.

PERFORMANCE MEASURES

Total Return

Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
Fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the Fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.

Nonstandardized total return. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.

Distribution rate. The distribution rate for each class of shares of the Fund
is usually calculated by dividing annaul 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 and the Administrator to be reputable,
and publications in the press pertaining to a Fund's performance or to the
Advisor and the Administrator or their 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, Disclosure
Incorporated, Bloomberg and Ibbotson.

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, 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.

From time to time, the Fund may also discuss or quote the views of LFDI, the
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.

All data are based on past performance and do not predict future results.

28
<PAGE>

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
LIBERTY ALL-STAR GROWTH AND INCOME FUND
JANUARY 11, 1999

<TABLE>
<S> <C> <C> <C>
ASSETS:
Cash $100,000
---------
Total Assets 100,000

LIABILITIES:
Total Liabilities 0
---------

NET ASSETS:
$100,000
=========

Net assets consist of:
Paid in Capital $100,000

NET ASSETS: $100,000
Class A $10,000
Class B $10,000
Class C $10,000
Class Z $70,000

Shares
outstanding:
Class A 1,000
Class B 1,000
Class C 1,000
Class Z 7,000
NET ASSET
VALUE:
Class A $10.00
Class B $10.00
Class C $10.00
Class Z $10.00
</TABLE>

29
<PAGE>

Notes to
Financial
Statements
January 11, 1999

Note 1. Organization and Accounting Policies

Liberty All-Star Growth and Income Fund (the "Fund"), a diversified portfolio of
LAMCO Trust I, organized as a Massachusetts business trust on November 4, 1998,
is an open-end management investment company. The Fund's investment objective is
to seek total investment return, comprised of long-term capital appreciation and
current income, through investment primarily in a diversified portfolio of
equity securities. The Fund may issue an unlimited number of shares. The Fund
offers four classes of shares: Class A, Class B, Class C and Class Z. Class A
shares are sold with a front-end sales charge and a contingent deferred sales
charge on redemptions made within eighteen months on an original purchase of $1
million to $5 million. Class B shares are subject to an annual distribution fee
and a contingent deferred sales charge. Class B shares will convert to Class A
shares when they have been outstanding approximately eight years. Class C shares
are subject to a contingent deferred sales charge on redemptions made within one
year after purchase and an annual distribution fee. Class Z shares are offered
at net asset value. There are certain restrictions on the purchase of Class Z
shares; please refer to the prospectus.

Provision for Federal Income Tax- The Fund qualifies as a "regulated investment
company." As a result, a federal income tax provision is not required for
amounts distributed to shareholders.

Note 2. Fees Paid to Affiliates

Management Fee: Liberty Asset Management Company (the Advisor), an indirect
majority-owned subsidiary of Liberty Mutual Insurance Company, is the investment
Advisor of the Fund. The Fund's investment program is based upon the Advisor's
multi-manager concept. The Advisor allocates the Fund's portfolio assets on an
approximately equal basis among a number of independent investment management
organizations. Under the Fund's Management and Portfolio Management Agreements,
the Fund pays the Advisor a management fee for its investment management
services at an annual rate of 0.60% of the Fund's average daily net assets.

Administration fee: Colonial Management Associates, Inc. (the Administrator),
an affiliate of the Advisor, provides accounting and other services for a
monthly fee equal to 0.20% of the Fund's average daily net assets.

Bookkeeping fee: The Administrator provides bookkeeping and pricing services
for $36,000 per year plus a percentage of the Fund's net assets as follows:

<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
<S> <C>
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
Next $1 billion 0.015%
Over $3 billion 0.001%
</TABLE>

Transfer Agent: Liberty Funds Services, Inc. (the Transfer Agent), an affiliate
of the Administrator, provides shareholder services for a monthly fee equal to
0.236% annually of the Fund's average net assets and receives reimbursement for
certain out-of-pocket expenses.

Underwriting discounts, service and distribution fees: Liberty Funds
Distributor, Inc. (the Distributor), a subsidiary of the Administrator, is the
Fund's principal underwriter. The Fund has adopted a 12b-1 plan which requires
the payment of a service fee to the Distributor equal to 0.25% annually of the
Fund's net assets as of the 20th of each month. The plan also requires the
payment of a distribution fee to the Distributor equal to 0.75% annually of the
average net assets attributable to Class B and Class C shares.

The fees received from the 12b-1 plan are used principally as repayment to the
Distributor for amounts paid by the Distributor to dealers who sold such shares.

30
<PAGE>