COLONIAL INVESTMENT GRADE INTERVAL TRUST, N-2, 1999-11-22

COLONIAL INVESTMENT GRADE INTERVAL TRUST
N-2, 1999-11-22

Previous: COLONIAL INVESTMENT GRADE INTERVAL TRUST, N-8A, 1999-11-22

Next: CONCHOLOGY INC, 10SB12G, 1999-11-22

<PAGE> 1

SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-2

(Check appropriate box or boxes)

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]
-----------

Post-Effective Amendment No. [ ]
-----------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. [ ]
---------------

COLONIAL INVESTMENT GRADE INTERVAL TRUST
(Exact Name of Registrant as Specified in Charter)

c/o ROPES & GRAY, ONE INTERNATIONAL PLACE, BOSTON, MA 02110
(Address of Principal Executive Offices)

(617) 951-7000
(Registrant's Telephone Number, including Area Code)

Name and Address of
Agent for Service

John M. Loder, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]

It is proposed that this filing will become effective (check appropriate box):
[X] when declared effective pursuant to Section 8(c)

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED (1) UNIT (1) PRICE (1) REGISTRATION FEE (2)
- ------------------- -------------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C>
Common Shares,
of Beneficial
Interest

Class A 2,812,500 $12.00 $33,750,000 $9,383
Class B 2,812,500 $12.00 $33,750,000 $9,383
Class C 562,500 $12.00 $6,750,000 $1,877
Class Z 62,500 $12.00 $750,000 $209

</TABLE>

(1) Estimated solely for purposes of calculating the registration fee.

(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE> 2

PROSPECTUS

INVESTMENT GRADE INTERVAL TRUST

CLASS A, B AND C SHARES
------------------
Investment Grade Interval Trust is a diversified, closed-end
management investment company that seeks, [as its primary investment objective,
to provide high current income. The Trust's secondary investment objective is to
seek total return.] Under normal circumstances, the Trust will invest at least
65% of its assets in investment grade debt securities (debt securities that are
rated at least Baa/BBB or their equivalent by a rating agency or are determined
by , the Trust's investment advisor (the "Advisor"), to be of
comparable quality). The Trust generally expects to maintain an intermediate to
long duration (approximately 3-7 years). The Trust expects that it will leverage
its portfolio, through bank borrowings or otherwise, when the Advisor believes
it would benefit the Trust. The use of leverage involves certain special risks.
(See "Summary -- Special Risk Considerations -- Leverage Risk.") No assurance
can be given that the Trust's investment objectives will be achieved. An
investment in the Trust is not appropriate for all investors.

This Prospectus sets forth concisely the information you should know before
investing, including information about risks. You should read this Prospectus
before you invest and keep it for future reference. The Trust's Statement of
Additional Information, contains additional information about the Trust and is
incorporated by reference into (which means it is considered to be a part of)
this Prospectus. You may obtain a free copy by calling at
1-800- . See page of this Prospectus for a table of contents of the
Statement of Additional Information.
------------------
INVESTING IN THE SHARES OF THE TRUST INVOLVES RISKS. SEE THE "SPECIAL RISK
CONSIDERATIONS" SECTION BEGINNING ON PAGE 2 OF THIS PROSPECTUS.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representations to the contrary is a
criminal offense.
------------------

<TABLE>
<CAPTION>
PER CLASS A PER CLASS B PER CLASS C
SHARE SHARE SHARE TOTAL
----------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Public Price(1)..................................... $ $12.00 $12.00 $
Sales Load(2)....................................... $ None None $
Proceeds to Trust (before expenses)(3).............. $12.00 $12.00 $12.00 $
</TABLE>

- ---------------
(1) The shares are offered on a best efforts basis at a price equal to net asset
value. It is expected that the net asset value per share of the Trust will
be $12.00.

(2) The maximum initial sales charge on Class A shares is 3.5% of the public
offering price. Class B and C shares are not subject to an initial sales
charge but are subject to an early withdrawal charge. Class A, B and C
shares are subject to a distribution fee and a service fee.
("Distributor") will pay all sales commissions to authorized dealers from
its own assets.

(3) Assumes the sale of all shares registered hereby, and the exclusion of
approximately $ of organizational and initial offering expenses
payable by the Trust.

PERIODIC TENDER OFFERS. To provide liquidity to shareholders, the Trust
will make quarterly repurchase offers, generally for 5% to 25% of its
outstanding shares. (See "Periodic Tender Offers.")

NOT EXCHANGE LISTED. The Trust does not intend to list the shares on any
national securities exchange. Shares of the Trust have no history of public
trading and there is not expected to be any secondary trading market in the
shares. An investment in the shares should be considered illiquid.
------------------
This prospectus applies to the offering of shares of beneficial interest of
the Trust, which may be continuously issued and sold from time to time by the
Trust through the Distributor, as distributor and principal underwriter, and
through your financial advisor. (See "How to Buy Shares.")

The Trust's Class A shares are subject to a front-end sales charge and to a
distribution fee and other expenses. The Trust's Class B shares will not be
subject to a front-end sales charge, but will be subject to a declining early
withdrawal charge (EWC) over a six-year period and a distribution fee, as well
as other expenses. Class B shares will covert automatically to Class A shares
eight years from the date of purchase. The Trust's Class C shares will not be
subject to a front-end sales charge, but will be subject to an EWC of 1% during
the first year a shareholder owns Class C shares and a distribution fee, as well
as other expenses. The Trust may add additional classes of shares in the future.
------------------
,
<PAGE> 3

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THE TRUST HAS NOT, AND THE UNDERWRITER HAS NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. THE TRUST IS NOT, AND THE UNDERWRITER IS NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
TRUST EXPENSES.............................................. 5
THE TRUST................................................... 6
USE OF PROCEEDS............................................. 6
USE OF LEVERAGE AND RELATED RISKS........................... 7
OTHER INVESTMENT STRATEGIES AND RISKS....................... 7
MANAGEMENT OF THE TRUST..................................... 9
DETERMINATION OF NET ASSET VALUE............................ 10
ORGANIZATION AND DESCRIPTION OF SHARES...................... 10
HOW TO BUY SHARES........................................... 11
PERIODIC TENDER OFFERS...................................... 12
MULTIPLE PRICING SYSTEM..................................... 14
TAX MATTERS................................................. 16
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
REGISTRAR................................................. 18
REPORTS TO SHAREHOLDERS..................................... 18
FURTHER INFORMATION......................................... 18
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 19
</TABLE>
<PAGE> 4
- --------------------------------------------------------------------------------

PROSPECTUS SUMMARY

This summary highlights selected information from this Prospectus. It may
not contain all of the information that is important to you. You should read
this entire Prospectus carefully, including the risk factors. This summary is
qualified in its entirety by reference to the detailed information included in
this Prospectus and the Statement of Additional Information.

THE TRUST..................... Investment Grade Interval Trust
is a newly organized diversified, closed-end
management investment company. See "The Trust."
The Trust was organized as a Massachusetts
business trust on November , 1999 and has
registered under the Investment Company Act of
1940.

The Trust intends to offer its shares
continuously through the Distributor, as
principal underwriter, and through financial
advisors at a price equal to the next
determined net asset value per share. [The
minimum initial investment is $10,000 and the
minimum subsequent investment is $250.] The
Trust reserves the right to change the
investment minimums and to refuse a purchase
order for any reason.

CLASSES OF SHARES............. The Trust offers three classes of shares in
this prospectus, with each class having its own
sales charge and expense structure. Each class
has distinct advantages and disadvantages for
different investors. (See "Multiple Pricing
System.")

INVESTMENT OBJECTIVES......... [The Trust's primary investment objective is to
provide high current income. The Trust's
secondary objective is to seek total return.]

INVESTMENT STRATEGIES......... The Trust seeks to achieve its investment goals
by investing in:

- Debt securities issued by the U.S.
government or U.S. corporations
(including mortgage and other
asset-backed securities); and

- Debt securities issued by foreign
governments or corporations.

The Trust has wide flexibility to vary its
allocation of investments among debt securities
at any given time based on the Advisor's
estimate of the expected performance and risk
of each type of investment.

The Trust may also invest to a lesser extent in
common and preferred stocks to pursue its goal
of total return.

The Trust may, to the extent permitted by the
Investment Company Act of 1940, "leverage" its
portfolio by investing borrowed money when the
Advisor believes it would benefit the Trust.
The Trust may also leverage its portfolio
through the use of reverse repurchase
agreements, short sales and certain derivative
instruments.

Although the Trust normally invests at least
65% of its assets in investment grade debt
securities, it may invest the remainder of its
assets in lower-rated corporate debt
securities. Lower-rated securities are:

- rated below BBB by Standard & Poor's
Corporation;

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

1
<PAGE> 5
- --------------------------------------------------------------------------------

- rated below BBB by Moody's Investor
Services, Inc.; or

- assigned a comparable rating by another
nationally recognized rating service, or

- unrated and believed by the Advisor to
be comparable in quality to a
lower-rated debt security.

The Trust may invest up to [ ] of its assets
in securities issued or guaranteed by foreign
governments or foreign companies, including
securities issued in emerging market countries.

Approval by the Trust's shareholders is not
required to modify or change the Trust's goals
or investment strategies.

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

No operating history. The Trust is a newly
organized closed-end investment company with no
history of operations.

Interest rate risk is the risk of a change in
the price of a bond when interest rates change.
In general, if interest rates rise, bond prices
fall and if interest rates fall, bond prices
rise. Changes in the values of bonds usually
will not affect the amount of income the Trust
receives from them but will affect the value of
the Trust's shares. Interest rate risk is
generally greater for bonds with longer
maturities.

Market risk is the risk that the price of a
security held by the Trust will fall due to
changing economic, political or market
conditions, or due to the financial condition
of the issuer of the security. Because stocks
purchased by the Trust pay dividends only after
payments are made to bond holders, the value of
such stock usually will react more strongly
than the bonds to actual or perceived changes
in the issuers' financial condition.

Leverage risk. The use of leverage through the
future bank borrowings by the Trust, as well as
through the purchase of certain derivative
instruments or the use of reverse repurchase
agreement or short sale transactions, will
create an opportunity for increased net income,
but will also create special risks. The Trust
intends to use leverage to provide the holders
of the shares with a potentially higher return,
but its leveraging strategy may not be
successful. Leverage creates risks for holders
of the shares, including the likelihood of
greater volatility of the net asset value and
market price of the shares.

If the income from the securities purchased
with leveraged proceeds is not sufficient to
cover the cost of leverage, the Trust's return
will be lower than if leverage had not been
used.

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

2
<PAGE> 6
- --------------------------------------------------------------------------------

securities at desirable prices. Fluctuations in
currency exchange rates may impact the value of
foreign securities. Brokerage commissions,
custodial fees and other fees are generally
higher for foreign investments. In addition,
foreign governments may impose withholding
taxes which would reduce the amount of income
available to distribute to shareholders. Other
risks include the following: possible delays in
the settlement of transactions; less publicly
available information about companies; the
impact of political, social or diplomatic
events; and possible seizure, expropriation or
nationalization of the company or its assets.
The risks of foreign investment are typically
increased in less developed and developing
countries, which are sometimes referred to as
emerging markets. For example, political and
economic structures in these countries may be
new and developing rapidly, which may cause
instability. These countries are also more
likely to experience high levels of inflation
or currency devaluations, which could hurt
their economies and securities markets.

Structure risk is the risk that an event will
occur (such as a security being prepaid or
called) that alters the security's cashflows.
Prepayment risk is a particular type of
structure risk that is present in the Trust
because of its investments in mortgage and
other asset-backed securities. Prepayment risk
is the possibility that, as interest rates
fall, homeowners (or other borrowers) are more
likely to refinance their home mortgages (or
other debt). When mortgages are refinanced, the
principal on mortgage-backed securities is paid
earlier than expected. In an environment of
declining interest rates, mortgage and other
asset-backed securities may offer less
potential for gain than any other debt
securities. During periods of rising interest
rates, mortgage and other asset-backed
securities have a high risk of declining in
price because the declining prepayment rates
effectively increase the maturity of
securities. In addition, the potential impact
of prepayment on the price of a mortgage and
other asset-backed security may be difficult to
predict and result in greater volatility.

Issuer risk is the possibility that changes in
the financial condition of the issuer of a
security, changes in general economic
conditions or changes in economic conditions
that affect the issuer's industry may impact
the issuer's ability to make timely payment of
interest or principal. Because the Trust may
invest in fixed income securities issued by
private entities, including certain types of
corporate bonds, the Trust is subject to issuer
risk. This could result in decreases in the
price of the security. Lower rated securities
have the added risk that the issuer of the
security may default and not make payment of
interest or principal.

Management risk, which exists in varying
amounts in most mutual funds, refers to the
possibility that the Advisor may fail to
anticipate market movements and the risks
described herein, or to execute the Trust's
strategy effectively.

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

3
<PAGE> 7
- --------------------------------------------------------------------------------

INVESTMENT ADVISOR............ , an investment adviser
registered under the Investment Advisers Act of
1940, has served as the Trust's Advisor since
the Trust's inception. The Advisor is a wholly
owned subsidiary of , which is
an indirect majority-owned subsidiary of
.

DISTRIBUTIONS................. Income dividends are normally declared each
business day, paid monthly, and confirmed at
least quarterly. Capital gains, if any, are
distributed at least annually, usually in
December. Income dividends and capital gains
distributions may be received in cash or
reinvested in additional full and fractional
shares of the Trust.

PERIODIC TENDER OFFERS........ The Trust has adopted a fundamental policy to
offer each calendar quarter to repurchase a
specified percentage (generally between 5% and
25%) of the shares then outstanding at its net
asset value. Such repurchase offers are
referred to as Tender Offers. Tender Offers are
scheduled to occur on the [15th] day (or the
next business day if the [15th] is not a
business day) in the months of [March, June,
September, and December]. (See "Periodic Tender
Offers.")

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

4
<PAGE> 8

TRUST EXPENSES

The following tables are intended to assist investors in understanding the
various costs and expenses directly or indirectly associated with investing in
the Trust.

<TABLE>
<CAPTION>
CLASS
CLASS A CLASS B (2) C
------- ----------- -----
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed (as a percentage of offering
price)...................................................... 3.50% None None
Sales Load Imposed on Reinvested Dividends.................. None None None
Early Withdrawal Charge(3).................................. None(8) 3.25% 1.00%
Exchange Fee................................................ None None None

ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS
EXCLUDING LEVERAGE)(4)
Management and Administrative Fee(5)........................ % % %
Distribution and Service Fees(3)............................ % % %
Other Operating Expenses(6)................................. % % %
Total Annual Expenses(7).................................... % % %
Expense Reimbursement(7).................................... % % %
Net Expenses(7)............................................. % % %
</TABLE>

- ---------------
(1) Financial advisors may independently charge additional fees for shareholder
transactions or for advisory services. Please see their materials for
details.

(2) Class B shares will automatically covert to Class A shares eight years after
purchase.

(3) The maximum EWC on Class B shares applies for repurchases during the first
year. The charge is 3.25% for shares submitted and accepted for repurchase
during the first year after each purchase, 3.00% during the second year,
2.00% during the third year, 1.50% during the fourth year, and 1.00% during
the fifth year. There is no EWC on Class B shares thereafter. The EWC on
Class C shares is 1% within the first year from each purchase. There is no
EWC on Class C shares thereafter.

(4) Figures assume the Trust borrows in an amount representing 33 1/3% of the
Trust's total assets (including the proceeds of such borrowing). If the
Trust does not utilize any leverage, the Trust estimates that annual
operating expenses would be approximately as follows:

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Management Fees........................................... % % %
Distribution and Service Fees............................. % % %
Other Expenses............................................ % % %
Total Annual Expenses -- Gross............................ % % %
Expense Reimbursement................................... % % %
Total Annual Expenses -- Net.............................. % % %
</TABLE>

(5) Management fees includes both the management fee and the administrative fee
charged to the Trust. Expressed as a percentage of average total net assets
excluding leverage, receives an annual management fee of [ %]
from the Trust and receives an administrative fee of [ %] from
the Trust. Expressed as a percentage of average total net assets including
leverage, receives a management fee of [ %] and
receives and administrative fee of [ %].

(6) Other Operating Expenses are based on estimated amounts for the current
fiscal year for Class A, B and C.

(7) has undertaken to reimburse the Trust for its operating
expenses to the extent that such expenses exceed [ %] for the Class A
shares, [ %] for the Class B shares, and [ %] for

5
<PAGE> 9

the Class C shares, respectively. Any such reimbursement will lower the
particular class's overall expense ratio and increase its overall return to
investors.

(8) Class A shares bought without an initial sales charge [in accounts
aggregating $1 million to $5 million] are subject to a 0.50% EWC if the
shares are sold within 18 months of the time of each purchase. The 18-month
period begins on the first day of the month following each purchase.

EXAMPLE. This Example helps you compare the cost of investing in the Trust to
the cost of investing in other mutual funds. The Example assumes that (i) you
invest $1,000 in the Trust, (ii) your investment has a 5% return each year,
(iii) operating expenses remain the same, (iv) all income dividends and capital
gains distributions are reinvested in additional shares, and (v) expense
reimbursements are in effect for the first year in the periods below:

WITH LEVERAGE*

<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Class A.............................................. $ $ $ $
Class B:
Did not sell your shares........................... $ $ $ $ **
Sold all your shares at the end of the period...... $ $ $ $ **
Class C:
Did not sell your shares........................... $ $ $ $
Sold all your shares at the end of the period...... $ $ $ $
</TABLE>

WITHOUT LEVERAGE

- ---------------
* The table assumes leverage representing 33 1/3% of total assets.

** Class B shares convert to Class A shares after eight years. The 10-year
expense example for Class B shares reflects Class B share expenses for eight
years and Class A expenses for two years.

THE TRUST

The Trust is a closed-end, diversified management investment company. [The
Trust's primary investment objective is to provide high current income. The
Trust's secondary investment objective is to seek total return.]. No assurance
can be given that the Trust's investment objectives will be achieved. The Trust
was organized as Massachusetts business trust under the laws of the Commonwealth
of Massachusetts on , 1999, and is registered under the Investment
Company Act of 1940. The Trust's principal office is located at ,
and its telephone number is .

USE OF PROCEEDS

The net proceeds from the sale of the shares offered hereby will be
invested in accordance with the Trust's investment objectives and policies. It
is presently anticipated that the Trust will be able to invest substantially all
of the net proceeds in debt securities that meet the Trust's investment
objectives at or shortly (within six to eight weeks) after the completion of the
offering. To the extent that all of the proceeds cannot be so invested, pending
such investment, the Trust will invest such proceeds initially in high-quality,
short-term money market securities.

6
<PAGE> 10

USE OF LEVERAGE AND RELATED RISKS

The Trust's leveraged capital structure creates special risks not
associated with unleveraged funds having similar investment objectives and
policies, including a higher volatility of the net asset value of the shares and
potentially more volatility in the market value of the shares. Any investment
income or gains earned by the Trust on amounts borrowed that is in excess of
interest and dividends due thereon will cause the value of and dividends, if
any, on the Trust's shares to rise more quickly than would otherwise be the
case. Conversely, if the investment performance by the Trust on leverage fails
to cover the interest and dividends on such leverage, the value of the shares
may decrease more quickly than would otherwise be the case and dividends thereon
will be reduced or eliminated. This is the speculative effect of "leverage."

If the Trust's current investment income were not sufficient to meet
interest payments on the of leverage, it could be necessary for the Trust to
liquidate certain of its investments, thereby reducing the net asset value
attributable to the shares. In addition, a decline in the net asset value of the
Trust's investments may affect the ability of the Trust to make dividend
payments on its shares and such failure to pay dividends or make distributions
may result in the Trust ceasing to qualify as a regulated investment company
under the Code. Leverage may constitute a substantial lien and burden on the
shares by reason of their prior claim against the income of the Trust and
against the net assets of the Trust in liquidation.

Successful use of a leveraging strategy may depend on the Advisor's ability
to correctly predict interest rates and market movements, and there is no
assurance that a leveraging strategy will be successful during any period in
which it is employed.

Assuming the utilization of leverage in the amount of % of the Trust's
total assets and an annual interest rate of [ %] payable on such leverage
based on market rates as of the date of this prospectus, the additional income
that the Trust must earn (net of expenses) in order to cover such dividend
payments would be [ %]. The Trust's actual cost of leverage will be based on
market rates at the time the Trust undertakes a leveraging strategy, and such
actual cost of leverage may be higher or lower than that assumed in the previous
example.

The following table is designed to illustrate the effect on the return to a
holder of the Trust's shares of leverage in the amount of approximately %
of the Trust's total assets, assuming hypothetical annual returns of the Trust's
portfolio of minus 10% to plus 10%. As the table shows, leverage generally
increases the return to shareholders when portfolio return is positive and
greater than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing in
the table are hypothetical and actual returns may be greater or less than those
appearing in the table.

<TABLE>
<S> <C> <C> <C> <C> <C>
Assuming Portfolio Return (net of expenses)................. (10%) (5%) 0% 5% 10%
Corresponding Share Return Assuming [ ]% Leverage......... (%) (%) (%) % %
</TABLE>

OTHER INVESTMENT STRATEGIES AND RISKS

HEDGING STRATEGIES

The Trust may enter into a number of hedging strategies, including futures
and options, to gain or reduce exposure to particular securities or markets.
These strategies, which are commonly referred to as derivatives, involve the use
of financial instruments whose value derives from the future, not current,
performance of an underlying security, an index or a currency. The Trust will
use these strategies for hedging purposes (attempting to offset a potential loss
in one position by establishing an interest in an opposite position) in
connection with the Trust's bond holdings or to adjust the duration of the
Trust's bond holdings. Hedging strategies involve the risk that they may
exaggerate a loss, potentially losing more

7
<PAGE> 11

money than the actual cost of the security, or limit a potential gain. Also,
with some hedging strategies there is the risk that the other party to the
transaction may fail to honor its contract terms, causing a loss to the Trust.

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS

When-issued securities and forward commitments are securities which are
purchased prior to the date they are actually issued or delivered. These
securities involve the risk that they may fall in value by the time they are
actually issued or that the other party may fail to honor the contract terms. In
a dollar roll, the Trust sells a mortgage-backed security and simultaneously
enters into a commitment to purchase a similar security at a later date. Dollar
rolls also involve the risk that the other party may not honor the contract
terms.

SHORT SALES

A short sale is effected by selling a security that the Trust does not own,
or, if the Trust does own such security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" to the extent that
the Trust contemporaneously owns or has the right to obtain securities identical
to those sold short without payment. If the price of the security sold short
increases between the time of the short sale and the time the Trust replaces the
borrowed security, the Trust will incur a loss; conversely, if the price
declines, the Trust will realize a capital gain. Because the Trust's loss on a
short sale arises from increases in the value of the security sold short, such
loss, like the price of the security sold short, is theoretically unlimited.

REVERSE REPURCHASE AGREEMENTS

The Trust may enter into reverse repurchase agreements by selling
securities and simultaneously agreeing to buy them back at a later date at a
price equal to the price paid to the Trust, together with an amount representing
interest on such amounts. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Trust may decline below the
repurchase price of the securities and, if the proceeds from the reverse
repurchase agreement are invested in securities, that the value of the
securities bought may decline at the same time there is a decline in the
securities sold (and required to be repurchased.)

ZERO COUPON BONDS

The Trust may invest in zero coupon bonds. Zero coupon bonds are issued at
less than their face value and do not make any payments of interest. As a
result, these bonds include greater credit risk and are subject to greater
volatility than bonds that pay cash interest on a current basis.

TEMPORARY DEFENSIVE STRATEGIES

The Advisor may determine that adverse market conditions make it desirable
to temporarily suspend the Trust's normal investment activities. During such
times, the Trust may invest in cash or high-quality, short-term debt securities,
without limit. Taking a temporary defensive position may prevent the Trust from
achieving its goals.

In seeking to achieve its goals, the Trust may invest in various types of
securities and engage in various investment techniques which are not the
principal focus of the Trust and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the SAI, which you may obtain by contacting [ at
1-800- - ].

[YEAR 2000 COMPLIANCE

8
<PAGE> 12

providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem". The Trust's advisor, distributor, and transfer agent are taking steps
that they believe are reasonably designed to address the Year 200 Problem,
including communicating with vendors who furnish services, software and systems
to the Trust, to provide that date-related information and data can be properly
processed after January 1, 2000. Many Trust service providers and vendors,
including , 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 Trust will not be adversely affected. The Trust invests in emerging markets
in developing countries and some reports indicate that developing countries may
be behind other countries with respect to Year 2000 compliance.]

MANAGEMENT OF THE TRUST

TRUSTEES AND OFFICERS

The Board of Trustees is responsible for the general supervision of the
Trust, including general supervision of the duties performed by the Advisor
under its Management Agreement with the Trust. There are trustees of the
Trust, of whom are "interested persons" (as defined in the Investment
Company Act of 1940) of the Trust, the Advisor or the Distributor. The names and
addresses of the trustees and officers of the Trust and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Trust" in the Statement of Additional Information.

THE ADVISOR

The Advisor is a corporation having its
principal offices at . The Advisor is a wholly owned subsidiary
of (" ") and both and the Advisor
are indirect, majority-owned subsidiaries of (" "),
an in the United States. The Advisor has been an investment
adviser since 19 . As of the date of this Prospectus, the Advisor serves as
investment adviser or sub-adviser for open-end and closed-end management
investment companies and manages over $ billion in assets.

The Advisor's investment advisory business is managed together with the
mutual funds and institutional investment advisory business of its affiliate,
(" "), by a combined management team of employees
from both companies. also shares personnel, facilities and
systems with the Advisor that may be used in providing administrative services
to the Trust. Both the Advisor and are subsidiaries of
.

, a of the Advisor, will manage the Trust.
joined the Advisor in as and has managed
various other funds for the Advisor since that time. Prior to joining the
Advisor, was a with from
to .

MANAGEMENT AGREEMENT

The Management Agreement between the Advisor and the Trust (the "Management
Agreement") provides that, subject to the direction of the Board of Trustees of
the Trust and the applicable provisions of the Investment Company Act of 1940,
the Advisor is responsible for the actual management of the Trust's portfolio.
The responsibility for making decisions to buy, sell or hold a particular
investment rests with the Advisor, subject to review by the Board of Trustees of
the Trust and compliance with the applicable provisions of the Investment
Company Act of 1940.

9
<PAGE> 13

The Advisor provides the Trust with accounting, bookkeeping and pricing
services and other services and office facilities (the expenses of which are
borne by the Trust as specified below), except to the extent these services are
provided by an administrator or an accounting firm hired by the Trust.

Under the Management Agreement with the Trust, the Advisor receives a
monthly advisory fee at the annual rate of [ %] of the average weekly net
assets of the Trust including assets representing leverage.

The Advisor places all orders for the purchase and sale of portfolio
securities. In selecting broker-dealers, the Advisor may consider research and
brokerage services furnished by such broker-dealers to the Advisor and its
affiliates. In recognition of the research and brokerage services provided, the
Advisor may cause the Trust to pay the selected broker-dealer a higher
commission than would have been charged by another broker-dealer not providing
such services. Subject to seeking best execution, the Advisor may consider sales
of shares of certain Trusts distributed by affiliates of in
selecting broker-dealers for portfolio security transactions.

DETERMINATION OF NET ASSET VALUE

The net asset value of the Trust will be determined no less frequently than
as of the close of regular trading on the New York Stock Exchange (generally
4:00 p.m. Eastern time) on the last business day of each week (generally
Friday), and at such other times as the Trust may authorize. The net asset value
of the Trust equals the value of the Trust's assets less the Trust's
liabilities. Portfolio securities for which market quotations are readily
available are valued at current market value. Short-term investments maturing in
60 days or less are valued at amortized cost when the Advisor determines,
pursuant to procedures adopted by the Board of Trustees, that such cost
approximates current market value. All other securities and assets are valued at
their fair value following procedures adopted by the Board of Trustees.

ORGANIZATION AND DESCRIPTION OF SHARES

The Trust is a Massachusetts business trust organized under an Agreement
and Declaration of Trust ("Declaration of Trust") dated , 1999, which
provides that each shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust offers four classes of shares:
Class A, Class B, Class C and Class Z.

Under Massachusetts law, shareholders of a Massachusetts business trust
such as the Trust could, in some circumstances, be held personally liable for
unsatisfied obligations of the Trust. However, the Declaration of Trust provides
that persons extending credit to, contracting with, or having any claim against,
the Trust shall look only to its assets for payment under such credit, contract
or claim, and that the shareholders, trustees and officers of the Trust shall
have no personal liability therefor. The Declaration of Trust requires that
notice of such disclaimer of liability be given in each contract, instrument or
undertaking executed or made on behalf of the Trust. Further, the Declaration of
Trust provides for indemnification of any shareholder against any loss and
expense arising from personal liability solely by reason of being or having been
a shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is believed to be remote, because it would be
limited to circumstances in which the disclaimer was inoperative and the Trust
was unable to meet its obligations.

The shares are not, and are not expected to be, listed for trading on any
national securities exchange nor, to the Trust's knowledge, is there, or is
there expected to be, any secondary trading market in the shares.

STATUS OF SHARES. The Board of Trustees may classify or reclassify any
issued or unissued shares of the Trust into shares of any class by redesignating
such shares or by setting or changing in any one or more respects, from time to
time, prior to the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions or

10
<PAGE> 14

repurchase of such shares. Any such classification or reclassification will
comply with the provisions of the 1940 Act. As of , 1999, the
following shares of the Trust were outstanding:

<TABLE>
<CAPTION>
(2) (3) (4)
(1) AMOUNT AMOUNT HELD BY TRUST AMOUNT OUTSTANDING
TITLE OF CLASS AUTHORIZED OR FOR ITS ACCOUNT EXCLUSIVE OF AMOUNT SHOWN UNDER (3)
- -------------- ---------- -------------------- -----------------------------------
<S> <C> <C> <C>
Class A.........................
Class B.........................
Class C.........................
Class Z.........................
</TABLE>

HOW TO BUY SHARES

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

Outlined below are various ways you can purchase shares:

<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
- ------ ------------
<S> <C>
Through your financial advisor Your financial advisor can help you establish your
account and buy Trust shares on your behalf.
By check (new account) For new accounts, send a completed application and check
made payable to the Trust to the transfer agent,
.
By check (existing account) For existing accounts, fill out and return the
additional investment stub included in your quarterly
statement, or send a letter of instruction, including
your Trust name and account number with a check made
payable to the Trust to .
[By exchange You or your financial advisor may acquire shares by
exchanging shares you own in another fund for
shares of the same class of the Trust at no additional
cost. To exchange by telephone, call 1-800- .
There may be an additional charge when exchanging from a
money market fund.]
By wire You may purchase shares by wiring money from your bank
account to your Trust account. To wire funds to your
Trust account, call 1-800- to obtain a control
number and the wiring instructions.
By electronic funds transfer You may purchase shares by electronically transferring
money from your bank account to your Trust account by
calling 1-800- . Your money may take up to two
business days to be invested. You must set up this
feature prior to your telephone request. Be sure to
complete the appropriate section of the application.
Automatic investment plan You can make monthly or quarterly investments
automatically from your bank account to your Trust
account. You can select a pre-authorized amount to be
sent via electronic funds transfer. Be sure to complete
the appropriate section of the application for this
feature.
</TABLE>

11
<PAGE> 15

<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
- ------ ------------
<S> <C>
By dividend diversification You may automatically invest dividends distributed by
the Trust into the same class of shares of another fund
at no additional sales charge. To invest your dividends
in another fund, call 1-800- .
Investment Minimums Initial Investment $10,000
Subsequent Investments $50
</TABLE>

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

PERIODIC TENDER OFFERS

The Board has adopted share repurchase policies as fundamental policies.
Those policies, which may not be changed without the vote of the holders of a
majority of the Trust's outstanding voting securities, provide that each
calendar quarter, the Trust intends to make a Tender Offer to repurchase a
portion of the outstanding shares from shareholders who request repurchase. The
price of the repurchase of shares normally will be the net asset value per share
determined as of the close of business (4:00 p.m., Eastern time) on the date the
Tender Offer ends or within a maximum of 14 days after the Tender Offer ends as
described below.

REPURCHASE PROCEDURE. At the beginning of each Tender Offer, shareholders
will be notified in writing about the Tender Offer, how they may request that
the Trust repurchase their shares and the deadline for shareholders to provide
their repurchase requests to the Distributor (the "Repurchase Request
Deadline"), which is the date the Tender Offer ends. The time between the
notification of the shareholders and the Repurchase Request Deadline may vary
from no more than six weeks to no less than three weeks. For each Tender Offer,
it is anticipated that each Repurchase Request Deadline will be on the [15th
day] in each of the months of [March, June, September and December], or, if the
[15th] day is not a business day, the next business day. The repurchase price of
the shares will be the net asset value as of the close of regular trading on the
NYSE on the date on which the repurchase price of shares will be determined (the
"Repurchase Pricing Date"). It is anticipated that normally the Repurchase
Pricing Date will be the same date as the Repurchase Request Deadline, and if
so, the Repurchase Request Deadline will be set for a time no later than the
close of regular trading on the NYSE on such date. The Trust has determined that
the Repurchase Pricing Date may occur no later than the 14th day after the
Repurchase Request Deadline or the next business day if the 14th day is not a
business day.

The Board may establish other policies for repurchases of shares that are
consistent with the 1940 Act and other pertinent laws. Shares tendered by
shareholders by any Repurchase Request Deadline will be repurchased subject to
the aggregate repurchase amounts established for that Repurchase Request
Deadline. Repurchase proceeds will be paid to shareholders in cash within seven
days after each Repurchase Pricing Date. The end of the seven days is referred
to as the "Repurchase Payment Deadline."

Repurchase offers and the need to fund repurchase obligations may affect
the ability of the Trust to be fully invested, which may reduce returns.
Moreover, diminution in the size of the Trust through repurchases without
offsetting new sales may result in untimely sales of portfolio securities and a
higher expense ratio, and may limit the ability of the Trust to participate in
new investment opportunities. The Trust may borrow to meet repurchase
obligations, which entails certain risks and costs. The Trust may also sell
portfolio securities to meet repurchase obligations which, in certain
circumstances, may adversely affect the market for portfolio securities and
reduce the Trust's value.

REPURCHASE AMOUNTS. The Board, in its sole discretion, will determine the
number of shares that the Trust will offer to repurchase (the "Tender Offer
Amount") for a given Repurchase Request Deadline. However, the Tender Offer
Amount will be at least 5% and no more than 25% of the total number of shares
outstanding on the Repurchase Request Deadline.

12
<PAGE> 16

If shareholders tender more than the Tender Offer Amount for a given Tender
Offer, the Trust may repurchase an additional amount of shares of up to 2% of
the shares outstanding on the Repurchase Request Deadline. If the Trust
determines not to repurchase more than the Tender Offer Amount, or if the Trust
determines to repurchase the additional 2% of the shares outstanding, but Trust
shareholders tender shares in excess of that amount, the Trust will repurchase
the shares on a pro rata basis. The Trust may, however, accept all shares
tendered by shareholders who own less than 100 shares and who tender all their
shares, before accepting on a pro rata basis shares tendered by other
shareholders.

NOTICES TO SHAREHOLDERS. Notice of each quarterly Tender Offer (and any
additional discretionary repurchase offers) will be given to each beneficial
owner of shares between 21 and 42 days before each Repurchase Request Deadline.
The notice will contain information shareholders should consider in deciding
whether or not to tender their shares. The notice will also include detailed
instructions on how to tender shares. The notice will state the Tender Offer
Amount. The notice will also identify the dates of the Repurchase Request
Deadline, scheduled Repurchase Pricing Date, and scheduled Repurchase Payment
Deadline. The notice will describe the risk of fluctuation in the net asset
value between the Repurchase Request Deadline and the Repurchase Pricing Date,
if such dates do not coincide, and the possibility that the Trust may use an
earlier Repurchase Pricing Date than the scheduled Repurchase Pricing Date under
certain circumstances (if the scheduled Repurchase Pricing Date is not the
Repurchase Request Deadline). The notice will describe (i) the procedures for
shareholders to tender their shares, (ii) the procedures for the Trust to
repurchase shares on a pro rata basis, (iii) the circumstances in which the
Trust may suspend or postpone a Tender Offer, and (iv) the procedures that will
enable shareholders to withdraw or modify their tenders of shares until the
Repurchase Request Deadline. The notice will set forth the net asset value of
the shares to be repurchased no more than seven days before the date of
notification, and how shareholders may ascertain the net asset value after the
notification date.

REPURCHASE PRICE. The notice of the Tender Offer will also provide
information concerning the net asset value per share, such as the net asset
value as of a recent date or a sampling of recent net asset values, and a
toll-free number for information regarding the Tender Offer.

SUSPENSION OR POSTPONEMENT OF REPURCHASE OFFER. The Trust may suspend or
postpone a repurchase offer only: (A) if making or effecting the repurchase
offer would cause the Trust to lose its status as a regulated investment company
under the Internal Revenue Code; (B) for any period during which the NYSE or any
market on which the securities owned by the Trust are principally traded is
closed, other than customary weekend and holiday closings, or during which
trading in such market is restricted; (C) for any period during which an
emergency exists as a result of which disposal by the Trust of securities owned
by it is not reasonably practicable, or during which it is not reasonably
practicable for the Trust fairly to determine the value of its net assets; or
(D) for such other periods as the SEC may by order permit for the protection of
shareholders of the Trust.

LIQUIDITY REQUIREMENTS. The Trust must maintain liquid assets equal to
their Tender Offer Amount from the time that the notice is sent to shareholders
until the Repurchase Pricing Date. The Trust and the Portfolio will ensure that
a percentage of its respective net assets equal to at least 100% of the Tender
Offer Amount consists of assets (a) that can be sold or disposed of in the
ordinary course of business at approximately the price at which the Trust has
valued the investment within the time period between the Repurchase Request
Deadline and the Repurchase Payment Deadline; or (b) that mature by the
Repurchase Payment Deadline.

The Board of Trustees has adopted procedures that are reasonably designed
to ensure that the assets are sufficiently liquid so that the Trust can comply
with the Tender Offer and the liquidity requirements described in the previous
paragraph. If, at any time, the Trust falls out of compliance with these
liquidity requirements, the Board will take whatever action it deems appropriate
to ensure compliance.

13
<PAGE> 17

MULTIPLE PRICING SYSTEM

CHOOSING A SHARE CLASS. The Trust offers three classes of shares in this
prospectus: Class A, B and C. Each share class has its own sales charge and
expense structure. Determining which share class is best for you depends on the
dollar amount you are investing and the number of years for which you are
willing to invest. Purchases of $1 million or more are automatically invested in
Class A shares. Based on your personal situation, your financial advisor can
help you decide which class of shares makes the most sense for you. The Trust
also offers Class Z shares, which are available only to institutional and other
investors through a separate prospectus.

SALES CHARGES. You may be subject to an initial sales charge when you
purchase or an early withdrawal charge ("EWC") when you tender shares of the
Trust. These sales charges are described below. In certain circumstances, these
sales charges are waived, as described below and in the SAI.

CLASS A SHARES. Your purchases of Class A shares generally are at the
public offering price. This price includes a sales charge that is based on the
amount of your initial investment when you open your account. The sales charge
you pay on additional investments is based on the amount of your additional
purchase, plus the current value of your account. The amount of the sales charge
differs depending on the amount you invest as shown in the table below. The
table below also shows the commission paid to the financial advisor firm on
sales of Class A shares.

<TABLE>
<CAPTION>
AS A % OF % OF OFFERING
THE PUBLIC AS A % PRICE PAID TO
OFFERING OF YOUR FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTMENT ADVISOR FIRM
- ------------------ ---------- ---------- -------------
<S> <C> <C> <C>
Less than $100,000......................................... 3.50 3.25
$100,000 to less than $500,000............................. 2.25 2.00
$500,000 to less than $1,000,000........................... 1.25 1.00
$1,000,000 or more*........................................ 0.00 0.50
</TABLE>

- ---------------
* Class A shares bought without an initial sales charge [in accounts aggregating
$1 million to $5 million] are subject to a 0.50% EWC if the shares are sold
within 18 months of the time of each purchase. The 18-month period begins on
the first day of the month following each purchase.

CLASS A SHARES. For Class A share purchases of $1 million or more,
financial advisors receive a commission from the Distributor as follows:

<TABLE>
<CAPTION>
AMOUNT PURCHASED COMMISSION %
- ---------------- ------------
<S> <C>
First $5 million............................................ 0.50
Over $5 million............................................. 0.25*
</TABLE>

- ---------------
* Paid over 12 months but only to the extent the shares remain outstanding.

REDUCED SALES CHARGES FOR LARGER INVESTMENTS. There are two ways for you
to pay a lower sales charge when purchasing Class A shares. The first is through
Rights of Accumulation. If the combined value of the Trust accounts maintained
by you, your spouse or your minor children reaches a discount level (according
to the chart on the previous page), your next purchase will receive the lower
sales charge. The second is by signing a Statement of Intent within 90 days of
your purchase. By doing so, you would be able to pay the lower sales charge on
all purchases by agreeing to invest a total of at least $100,000 within 13
months. If your Statement of Intent purchases are not completed within 13
months, you will be charged the applicable sales charge. In addition, certain
investors may purchase Class A shares at a reduced sales charge or net asset
value, which is the value of a Trust share excluding any sales charges. See the
SAI for a description of these situations.

CLASS B SHARES. Your purchases of Class B shares are at the Trust's net
asset value. Class B shares have no front-end sales charge, but carry an EWC
that is imposed only on shares sold prior to the completion of the periods shown
in the chart below. The EWC generally declines each year and eventually

14
<PAGE> 18

disappears. Class B shares automatically convert to Class A shares after eight
years. The Distributor pays the financial advisor firm an up-front commission of
3.25% on sales of Class B shares.

<TABLE>
<CAPTION>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
- ----------------------------- ---------------
<S> <C>
Through first year.................................... 3.25
Through second year................................... 3.00
Through third year.................................... 2.00
Through fourth year................................... 1.50
Through fifth year.................................... 1.00
Longer than five years................................ 0.00
</TABLE>

CLASS C SHARES. Similar to Class B shares, your purchases of Class C
shares are at the Trust's net asset value. Although Class C shares have no
front-end sales charge, they carry an EWC of 1% that is applied to shares sold
within the first year after they are purchased. After holding shares for one
year, you may sell them at any time without paying an EWC. Class C shares do not
convert into Class A shares. The Distributor pays the financial advisor firm an
up-front commission of 1.00% on sales of Class C shares.

DISTRIBUTION AND SERVICE FEES. In addition to an EWC, each class of shares
is authorized under a distribution plan (Plan) to use the assets attributable to
a class to finance certain activities relating to the distribution of shares to
investors. These include marketing and other activities to support the
distribution of the Class A, B, and C shares and the services provided to you by
your financial advisor. The Plan was approved and reviewed in a manner
consistent with Rule 12b-1 under the 1940 Act, which regulates the manner in
which an open-end investment company may directly or indirectly bear the
expenses of distributing its shares. Although the Trust is not an open-end
investment company, it has undertaken to comply with the terms of Rule 12b-1 as
a condition of a pending exemptive order under the 1940 Act to permit it to have
a multi-class structure, EWCs, and distribution fees.

Under the Plan, the Trust pays the Distributor monthly distribution and
service fees at an annual rate of up to 0.25% of average daily net assets
attributable to Class A shares, [0.60%] of average daily net assets attributable
to Class B shares, and [0.85%] of average daily net assets attributable to Class
C shares, respectively. The Trust's trustees currently limit amounts payable
with respect to Class A shares to an annual rate of 0.15% of average daily net
assets. Since the distribution and service fees are payable regardless of the
Distributor's expenses, the Distributor may realize a profit from the fees. The
Plan authorizes any other payments by the Trust to the Distributor and its
affiliates to the extent that such payments might be construed to be indirect
financing of the distribution of Trust shares.

The trustees believe that the Plan could be a significant factor in the
growth and retention of Trust assets resulting in a more advantageous expense
ratio and increased investment flexibility which could benefit each class of
Trust 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
who 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 a 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 a vote of a majority of the Independent Trustees or by a 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 Independent Trustees is effected by such Independent Trustees.

EARLY WITHDRAWAL CHARGES ("EWC"). Certain investments in Class A, B and C
shares are subject to an EWC. You will pay the EWC only on shares you tender
within a certain amount of time after purchase. The EWC generally declines each
year until there is no charge for tendering shares. The EWC

15
<PAGE> 19

is applied to the net asset value at the time of purchase or repurchase,
whichever is lower. For purposes of calculating the EWC, the start of the
holding period is the first day of the month following each purchase. Shares you
purchase with reinvested dividends or capital gains are not subject to an EWC.
When shares are repurchased, the Trust will automatically repurchase those
shares not subject to an EWC and then those you have held the longest. This
policy helps reduce and possibly eliminate the potential impact of the EWC. In
certain circumstances, EWCs may be waived, as described in the SAI.

CONVERSION FEATURE. Class B shares will automatically convert to Class A
shares after eight years and after that date, Class B shares will no longer be
subject to the distribution fees applicable to Class B shares. Conversion will
be on the basis of the relative net asset values per share, without the
imposition of any sales charge, fee or other charge. The purpose of the
conversion feature is to relieve the holders of Class B shares from asset-based
distribution expenses applicable to such shares at such time as the Class B
shares have been outstanding for a duration sufficient for the Distributor to
have been substantially compensated for distribution-related expenses incurred
in connection with those shares. Class C shares do not convert to Class A
shares. Therefore, holders of Class C shares will continue to bear the
asset-based distribution fees on the Class C shares for as long as they hold
such shares.

[HOW TO EXCHANGE SHARES. Shareholders of the Trust whose shares are
repurchased during a Tender Offer may exchange those shares for shares of the
same class of a Trust distributed by the Distributor ( ) at net
asset value. Trust shareholders will not be able to participate in this exchange
privilege at any time other than in connection with a Tender Offer. If your
shares are subject to an EWC, you will not be charged an EWC upon the exchange.
However, when you sell the shares acquired through the exchange, the shares sold
may be subject to a CDSC (a CDSC is the deferred sales charge applicable to the
open-end funds) or EWC, depending upon when you originally purchased the shares
you exchanged. For purposes of computing the CDSC or EWC, the length of time you
have owned your shares will be computed from the date of your original purchase
and the applicable CDSC or EWC will be the EWC of the original Trust.

Unless your account is part of a tax-deferred retirement plan, an exchange
is a taxable event. Therefore, you may realize a gain or a loss for tax
purposes. The Trust may terminate your exchange privilege if the Advisor
determines that your exchange activity is likely to adversely impact its ability
to manage the Portfolio.]

TAX MATTERS

The following federal tax discussion reflects provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing Treasury regulations,
rulings published by the Internal Revenue Service, and other applicable
authority, as of the date of this Prospectus. These authorities are subject to
change by legislative or administrative action. The following discussion is only
a summary of some of the important federal tax considerations generally
applicable to investments in the Trust. There may be other tax considerations
applicable to particular investors. In addition, income earned through an
investment in the Trust may be subject to foreign, state and local taxes.
Prospective shareholders are therefore urged to consult their tax advisors with
respect to the tax consequences to them of an investment in the Trust. For more
information on federal income tax considerations, see "Tax Matters" in the
Statement of Additional Information.

FEDERAL TAXATION OF THE TRUST

The Trust intends to qualify each year for taxation as a regulated
investment company under Subchapter M of the Code. If the Trust so qualifies,
the Trust will not be subject to federal income tax on income distributed in a
timely manner to Trust shareholders in the form of dividends or capital gain
distributions. The Trust intends to distribute all its net investment income
(tax-exempt or taxable) and all its net capital gains to shareholders at least
annually. [If the Trust is determined not to have distributed all its net
investment income, it could owe tax at the corporate level and, in certain
circumstances, lose its eligibility to be treated as a regulated investment
company.] For more information on the requirements the
16
<PAGE> 20

Trust must satisfy in order to qualify as a regulated investment company, see
"Tax Matters -- Federal Taxation of the Trust" in the Statement of Additional
Information.

The Trust's investments and hedging activities are subject to special
federal tax rules. Federal rules governing the Trust's hedging transactions
(including hedging transactions in futures and options) may alter the character
of distributions to shareholders. The Trust's investment in securities issued at
a discount will (and investments in securities purchased at a discount may)
require the Trust to accrue and distribute income not yet received. Therefore,
in order to generate sufficient cash to make the requisite distributions, the
Trust may be required to sell securities in its portfolio that it otherwise
would have continued to hold.

FEDERAL TAXATION OF SHAREHOLDERS

DIVIDENDS AND OTHER DISTRIBUTIONS. Distributions of net investment income
(including the excess, if any, of net short-term capital gain over net long-term
capital loss), will be taxable to shareholders as ordinary income, and will not
qualify for the corporate dividends-received reduction. Distributions of net
capital gain will be taxable to shareholders as long-term capital gain
(generally, at a 20% rate for noncorporate shareholders), without regard to how
long a shareholder has held shares of the Trust, and will not qualify for the
corporate dividends-received deduction.

Distributions of income and capital gain are taxable whether received in
cash or reinvested in additional shares. If a dividend or distribution is made
shortly after a shareholder purchases shares of the Trust, while in effect a
return of capital to the shareholder, the dividend or distribution is taxable,
as described above. This is called "buying a dividend" and should be avoided, if
possible.

The Trust's net investment income calculated for accounting purposes and
distributed to shareholders may in certain circumstances exceed or be less than
the Trust's net tax-exempt and taxable income. If the Trust distributes amounts
in excess of the Trust's "earnings and profits" (which provides the measure of
the Trust's dividend-paying capacity for tax purposes), such distributions to
shareholders will be treated as a return of capital to the extent of a
shareholder's basis in his or her shares, and thereafter as gain from the sale
or exchange of a capital asset. [This may occur for instance, if the
distribution and service fees paid by the Trust are determined not to be capital
expenditures.] A return of capital is not taxable to a shareholder and has the
effect of reducing a shareholder's basis in the relevant shares, which basis
reduction would cause shareholders to realize gain if their shares were sold for
an amount equal to the liquidation price.

Any dividend paid by the Trust during January of a given year generally is
deemed to have been received by shareholders on December 31 of the preceding
year, provided that the dividend actually was declared by the Trust in October,
November and December of such preceding year and payable to shareholders of
record on a date in such a month.

The Trust will notify shareholders each year of the amount and tax status
of dividends and other distributions, including the amount of any distribution
of net capital gain.

SALE OR REDEMPTION OF SHARES. In some circumstances, the sale or exchange
of shares in the Trust may give rise to gain or loss. In general, any gain or
loss realized upon a taxable disposition of shares in the Trust by a shareholder
will be treated as long-term capital gain or loss if the shares have been held
for more than twelve months, and otherwise as short-term capital gain or loss.
However, if a shareholder buys shares in the Trust and sells them at a loss
within six months, any loss will be disallowed for federal income tax purposes
to the extent of any exempt-interest dividends received on such shares. In
addition, any loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares in the Trust held for
six months or less will be treated as long-term, rather than short-term, capital
loss to the extent of any net capital gain distributions received by the
shareholder with respect to those shares. All or a portion of any loss realized
upon a taxable disposition of shares in the Trust will be disallowed if other
shares in the Trust are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased shares in the
Trust will be adjusted to reflect the disallowed loss.

17
<PAGE> 21

Gain or loss, if any, resulting from a redemption of shares in the Trust
generally will be treated as gain or loss from the sale or exchange of a capital
asset under Section 302 of the Code, rather than as a dividend, but only if the
redemption distribution (i) is deemed not to be essentially equivalent to a
dividend, (ii) is in complete redemption of an owner's interest in the Trust,
(iii) is substantially disproportionate with respect to the owner, or (iv) with
respect to non-corporate owners, is in partial liquidation of the Trust.

CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

The Trust's securities and cash are held by [The Chase Manhattan Bank],
whose principal business address is [270 Park Avenue, New York, New York
10017-2070], as custodian (the "Custodian") under a custodian contract.

[ ],
whose principal business address is [100 Federal Street, Boston, Massachusetts
02110], serves as dividend disbursing agent and as transfer agent and registrar
for the Trust's shares.

REPORTS TO SHAREHOLDERS

The Trust will send unaudited semiannual and audited annual reports to its
shareholders, including, as currently required by regulations of the Securities
and Exchange Commission, a list of investments held.

FURTHER INFORMATION

The Trust has filed with the Securities and Exchange Commission (the
"Commission"), Washington, DC 20549, a Registration Statement under the
Securities Act with respect to the shares offered hereby. Further information
concerning these securities and the Trust may be found in the Registration
Statement, of which this Prospectus constitutes a part, on file with the
Commission. The Registration Statement may be inspected without charge at the
Commission's office in Washington, DC, and copies of all or any part thereof may
be obtained from such office after payment of the fees prescribed by the
Commission.

The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, and in accordance
therewith files reports and other information with the Commission. Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, DC 20549 and the Commission's regional offices,
including offices at Seven World Trade Center, New York, New York 10048. Call
1-800-SEC-0330 for information about the public reference facilities. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed rates.
Such reports and other information concerning the Trust may also be inspected at
the offices of the New York Stock Exchange. The Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference into this Prospectus and the Statement of
Additional Information, and reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.

18
<PAGE> 22

TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... B-2
Trust Charges and Expenses.................................. B-3
Tender Offer Fundamental Policy............................. B-3
Management of the Trust..................................... B-3
Portfolio Transactions...................................... B-6
Net Asset Value............................................. B-7
Description of Shares....................................... B-7
Miscellaneous Investment Practices.......................... B-8
Tax Matters................................................. B-20
Shareholder Liability....................................... B-23
Custodian................................................... B-24
Independent Accountants..................................... B-24
</TABLE>

19
<PAGE> 23

RULE 497(h)
FILE NO. 333-81131
PROSPECTUS
INVESTMENT GRADE INTERVAL TRUST

CLASS Z SHARES
------------------

Investment Grade Interval Trust is a diversified, closed-end
management investment company that seeks, [as its primary investment objective,
to provide high current income. The Trust's secondary investment objective is to
seek total return.] Under normal circumstances, the Trust will invest at least
65% of its assets in investment grade debt securities (debt securities that are
rated at least Baa/BBB or their equivalent by a rating agency or are determined
by , the Trust's investment advisor (the "Advisor"), to be of
comparable quality). The Trust generally expects to maintain an intermediate to
long duration (approximately 3-7 years). The Trust expects that it will leverage
its portfolio, through bank borrowings or otherwise, when the Advisor believes
it would benefit the Trust. The use of leverage involves certain special risks.
(See "Summary -- Special Risk Considerations -- Leverage Risk.") No assurance
can be given that the Trust's investment objectives will be achieved. An
investment in the Trust is not appropriate for all investors.

INVESTING IN THE SHARES OF THE TRUST INVOLVES RISKS. SEE THE "SPECIAL RISK
CONSIDERATIONS" SECTION BEGINNING ON PAGE 2 OF THIS PROSPECTUS.

<TABLE>
<CAPTION>
[ PER CLASS Z
SHARE
-----------
<S> <C>
Public Price(1).......................................... $12.00
Sales Load............................................... None
Proceeds to Trust (before expenses)(2)................... $12.00
</TABLE>

- ---------------
(1) The shares are offered on a best efforts basis at a price equal to net asset
value. It is expected that the net asset value per share of the Trust will
be $12.00.

(2) Assumes the sale of all shares registered hereby, and the exclusion of
approximately $ of organizational and initial offering expenses
payable by the Trust. These expenses will be charged as operating expenses
of the Trust.]

PERIODIC TENDER OFFERS. To provide liquidity to shareholders, the Trust
will make quarterly repurchase offers, generally for 5% to 25% of its
outstanding shares. (See "Periodic Tender Offers.")

This prospectus applies to the offering of shares of beneficial interest of
the Trust, which may be continuously issued and sold from time to time by the
Trust through the Distributor, as distributor and principal underwriter, and
through your financial advisor. (See "How to Buy shares.")

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 Trust's distributor; (ii) any registered investment adviser purchasing
shares for its clients; (iii) any insurance company, trust company or investment
company or foundation; [and (v) any trustee of the Trust, any employee of
, or any of its affiliates, or any member of the immediate family
of any trustee or employee.]
------------------

,
<PAGE> 24

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
TRUST EXPENSES.............................................. 5
THE TRUST................................................... 5
USE OF PROCEEDS............................................. 5
USE OF LEVERAGE AND RELATED RISKS........................... 5
OTHER INVESTMENT STRATEGIES AND RISKS....................... 6
MANAGEMENT OF THE TRUST..................................... 8
DETERMINATION OF NET ASSET VALUE............................ 9
ORGANIZATION AND DESCRIPTION OF SHARES...................... 9
HOW TO BUY SHARES........................................... 10
PERIODIC TENDER OFFERS...................................... 11
MULTIPLE SHARE CLASSES...................................... 12
TAX MATTERS................................................. 13
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND
REGISTRAR................................................. 14
REPORTS TO SHAREHOLDERS..................................... 14
FURTHER INFORMATION......................................... 14
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 16
</TABLE>
<PAGE> 25
- --------------------------------------------------------------------------------

PROSPECTUS SUMMARY

The Trust intends to offer its shares
continuously through the Distributor, as
principal underwriter, and through financial
advisors at a price equal to the next
determined net asset value per share. The Trust
reserves the right to change the investment
minimums and to refuse a purchase order for any
reason.

CLASSES OF SHARES............. The Trust offers Class Z shares in this
prospectus.

INVESTMENT OBJECTIVES......... [The Trust's primary investment objective is to
provide high current income. The Trust's
secondary objective is to seek total return.]

INVESTMENT STRATEGIES......... The Trust seeks to achieve its investment goals
by investing in:

- Debt securities issued by the U.S.
government or U.S. corporations
(including mortgage and other asset-
backed securities); and

- Debt securities issued by foreign
governments or corporations.

The Trust may also invest to a lesser extent in
common and preferred stocks to pursue its goal
of total return.

- rated below BBB by Standard & Poor's
Corporation;

- rated below BBB by Moody's Investor
Services, Inc.; or

- assigned a comparable rating by another
nationally recognized rating service, or

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

1
<PAGE> 26
- --------------------------------------------------------------------------------

- unrated and believed by the Advisor to
be comparable in quality to a
lower-rated debt security.

The Trust may invest up to [ ] of its
assets in securities issued or guaranteed by
foreign governments or foreign companies,
including securities issued in emerging market
countries.

Approval by the Trust's shareholders is not
required to modify or change the Trust's goals
or investment strategies.

No operating history. The Trust is a newly
organized closed-end investment company with no
history of operations.

If the income from the securities purchased
with leveraged proceeds is not sufficient to
cover the cost of leverage, the Trust's return
will be lower than if leverage had not been
used.

Foreign securities are subject to special
risks. Foreign stock markets can be extremely
volatile. The liquidity of foreign securities
may be more limited than domestic securities,
which means that the Trust may, at times, be
unable to sell foreign securities at desirable
prices. Fluctuations in currency exchange rates
may impact the value of foreign securities.
Brokerage commissions, custodial fees and other
fees are generally higher for foreign
investments. In addition, foreign governments
may

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

2
<PAGE> 27
- --------------------------------------------------------------------------------

impose withholding taxes which would reduce the
amount of income available to distribute to
shareholders. Other risks include the
following: possible delays in the settlement of
transactions; less publicly available
information about companies; the impact of
political, social or diplomatic events; and
possible seizure, expropriation or
nationalization of the company or its assets.
The risks of foreign investments are typically
increased in less developed and developing
countries, which are sometimes referred to as
emerging markets. For example, political and
economic structures in these countries may be
new and developing rapidly, which may cause
instability. These countries are also more
likely to experience high levels of inflation
or currency devaluations, which could hurt
their economies and securities markets.

INVESTMENT ADVISOR............ , an investment adviser
registered under the Investment Advisers Act of
1940, has served as the Trust's Advisor since
the Trust's inception. The Advisor is a wholly

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

3
<PAGE> 28
- --------------------------------------------------------------------------------

owned subsidiary of , which is
an indirect majority-owned subsidiary of
.

Income dividends and capital gains
distributions may be received in cash or
reinvested in additional full and fractional
shares of the Trust.

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

4
<PAGE> 29

TRUST EXPENSES

The following tables are intended to assist investors in understanding the
various costs and expenses directly or indirectly associated with investing in
the Trust.

<TABLE>
<S> <C>
ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management and Administrative Fees.......................... %
Other Operating Expenses(1)................................. %
Total Annual Expenses(2).................................... %
Expense Reimbursement(2).................................... %
Net Expenses(2)............................................. %
</TABLE>

- ---------------
(1) Other Operating Expenses are based on estimated amounts for the current
fiscal year for Class Z.

(2) has undertaken to reimburse the Trust for its operating
expenses to the extent that such expenses exceed 0.50% for the Class Z
shares. Any such reimbursement will lower the class's overall expense ratio
and increase its overall return to investors.

<TABLE>
<CAPTION>
[CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class Z........................... $ $ $ $ ]
</TABLE>

THE TRUST

USE OF PROCEEDS

USE OF LEVERAGE AND RELATED RISKS

5
<PAGE> 30

Assuming the utilization of leverage in the amount of [ %] of the
Trust's total assets and an annual interest rate of [ %] payable on such
leverage based on market rates as of the date of this prospectus, the additional
income that the Trust must earn (net of expenses) in order to cover such
dividend payments would be [ %]. The Trust's actual cost of leverage will be
based on market rates at the time the Trust undertakes a leveraging strategy,
and such actual cost of leverage may be higher or lower than that assumed in the
previous example.

The following table is designed to illustrate the effect on the return to a
holder of the Trust's shares of leverage in the amount of approximately [ %]
of the Trust's total assets, assuming hypothetical annual returns of the Trust's
portfolio of minus 10% to plus 10%. As the table shows, leverage generally
increases the return to shareholders when portfolio return is positive and
greater than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing in
the table are hypothetical and actual returns may be greater or less than those
appearing in the table.

<TABLE>
<S> <C> <C> <C> <C> <C>
Assuming Portfolio Return (net of expenses)................. (10%) (5%) 0% 5% 10%
Corresponding share Return Assuming [ ]% Leverage....... (%) (%) (%) % %
</TABLE>

OTHER INVESTMENT STRATEGIES AND RISKS

HEDGING STRATEGIES

WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS

6
<PAGE> 31

SHORT SALES

REVERSE REPURCHASE AGREEMENTS

ZERO COUPON BONDS

TEMPORARY DEFENSIVE STRATEGIES

[YEAR 2000 COMPLIANCE

Like other investment companies, financial and business organizations and
individuals around the world, the Trust could be adversely affected if the
computer system used by the Advisor and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem". The Trust's advisor,
distributor, and transfer agent are taking steps that they believe are
reasonably designed to address the Year 200 Problem, including communicating
with vendors who furnish services, software and systems to the Trust, to provide
that date-related information and data can be properly processed after January
1, 2000. Many Trust service providers and vendors, including ,
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 Trust will not
be adversely affected. The Trust invests in emerging markets in developing
countries and some reports indicate that developing countries may be behind
other countries with respect to Year 2000 compliance.]

7
<PAGE> 32

MANAGEMENT OF THE TRUST

TRUSTEES AND OFFICERS

THE ADVISOR

, a of the Advisor, will manage the Trust.
joined the Advisor in as and has
managed various other funds for the Advisor since that time. Prior to joining
the Advisor, was a with from
to .

MANAGEMENT AGREEMENT

Under the Management Agreement with the Trust, the Advisor receives a
monthly advisory fee at the annual rate of [ ] of the average weekly net
assets of the Trust, including assets representing leverage.

8
<PAGE> 33

DETERMINATION OF NET ASSET VALUE

ORGANIZATION AND DESCRIPTION OF SHARES

The Trust is a Massachusetts business trust organized under an Agreement
and Declaration of Trust ("Declaration of Trust") dated , 1999,
which provides that each shareholder shall be deemed to have agreed to be bound
by the terms thereof. The Declaration of Trust may be amended by a vote of
either the Trust's shareholders or its trustees. The Trust offers four classes
of shares: Class A, Class B, Class C and Class Z.

Status of Shares. The Board of Trustees may classify or reclassify any
issued or unissued shares of the Trust into shares of any class by redesignating
such shares or by setting or changing in any one or more respects, from time to
time, prior to the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions or repurchase of such shares. Any such
classification or reclassification will comply with the provisions of the 1940
Act. As of , 1999, the following shares of the Trust were
outstanding:

9
<PAGE> 34

HOW TO BUY SHARES

Outlined below are various ways you can purchase shares:

METHOD INSTRUCTIONS

Through your financial advisor Your financial advisor can help you establish
your account and buy Trust shares on your
behalf

By check (new account) For new accounts, send a completed application
and check made payable to the Trust to the
transfer agent, .

By check (existing account) For existing accounts, fill out and return the
additional investment stub included in your
quarterly statement, or send a letter of
instruction, including your Trust name and
account number with a check made payable to the
Trust to .

[By exchange You or your financial advisor may acquire
shares by exchanging shares you own in another
fund for shares of the same
class of the Trust at no additional cost. To
exchange by telephone, call 1-800- .
There may be an additional charge when
exchanging from a money market fund.]

By wire You may purchase shares by wiring money from
your bank account to your Trust account. To
wire funds to your Trust account, call 1-
800- to obtain a control number and
the wiring instructions.

By electronic funds transfer You may purchase shares by electronically
transferring money from your bank account to
your Trust account by calling 1-800-
. Your money may take up to two
business days to be invested. You must set up
this feature prior to your telephone request.
Be sure to complete the appropriate section of
the application.

Automatic investment plan You can make monthly or quarterly investments
automatically from your bank account to your
Trust account. You can select a pre-authorized
amount to be sent via electronic funds
transfer. Be sure to complete the appropriate
section of the application for this feature.

By dividend diversification You may automatically invest dividends
distributed by the Trust into the same class of
shares of another fund at no additional sales
charge. To invest your dividends in another
fund, call 1-800- .

Investment Minimums Initial
Investment $10,000
Subsequent
Investments $50

10
<PAGE> 35

PERIODIC TENDER OFFERS

11
<PAGE> 36

tender shares. The notice will state the Tender Offer Amount. The notice will
also identify the dates of the Repurchase Request Deadline, scheduled Repurchase
Pricing Date, and scheduled Repurchase Payment Deadline. The notice will
describe the risk of fluctuation in the net asset value between the Repurchase
Request Deadline and the Repurchase Pricing Date, if such dates do not coincide,
and the possibility that the Trust may use an earlier Repurchase Pricing Date
than the scheduled Repurchase Pricing Date under certain circumstances (if the
scheduled Repurchase Pricing Date is not the Repurchase Request Deadline). The
notice will describe (i) the procedures for shareholders to tender their shares,
(ii) the procedures for the Trust to repurchase shares on a pro rata basis,
(iii) the circumstances in which the Trust may suspend or postpone a Tender
Offer, and (iv) the procedures that will enable shareholders to withdraw or
modify their tenders of shares until the Repurchase Request Deadline. The notice
will set forth the net asset value of the shares to be repurchased no more than
seven days before the date of notification, and how shareholders may ascertain
the net asset value after the notification date.

MULTIPLE SHARE CLASSES

CHOOSING A SHARE CLASS. The Trust offers one class of shares in this
prospectus -- Class Z shares, which are available to certain institutional and
other investors at net asset value without a sales charge or early withdrawal
charge. The Fund also offers Classes A, B and C shares through a separate
prospectus.

12
<PAGE> 37

shares will be computed from the date of your original purchase and the
applicable CDSC or EWC will be the EWC of the original Trust.

TAX MATTERS

FEDERAL TAXATION OF THE TRUST

FEDERAL TAXATION OF SHAREHOLDERS

Distributions of income and capital gains are taxable whether received in
cash or reinvested in additional shares. If a dividend or distribution is made
shortly after a shareholder purchases shares of the Trust, while in effect a
return of capital to the shareholder, the dividend or distribution is taxable,
as described above. This is called "buying a dividend" and should be avoided, if
possible.

Trust distributes amounts in excess of the Trust's "earnings and profits" (which
provides the measure of the Trust's dividend-paying capacity for tax purposes),
such distributions to shareholders will be treated as a return of capital to the
extent of a shareholder's basis in his or her shares and thereafter as gain from
the sale or exchange of a capital asset. [This may occur for instance, if the
distribution and service fees paid by the Trust are determined not to be capital
expenditures.] A return of capital is not taxable to a shareholder and has the
effect of reducing a shareholder's basis in the relevant shares, which basis
reduction would cause shareholders of a series of Municipal Preferred to realize
gain if their shares of such series of Municipal Preferred were sold for an
amount equal to the liquidation price.

The Trust will notify Shareholders each year of the amount and tax status
of dividends and other distributions, including the amount of any distribution
of net capital gain.

CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENTAND REGISTRAR

[ ], whose principal business address is
[ ], serves as dividend disbursing agent and as transfer
agent and registrar for the Trust's shares.

REPORTS TO SHAREHOLDERS

FURTHER INFORMATION

The Trust has filed with the Securities and Exchange Commission (the
"Commission"), Washington, DC 20549, a Registration Statement under the
Securities Act with respect to the shares offered hereby.

14
<PAGE> 39

Further information concerning these securities and the Trust may be found in
the Registration Statement, of which this Prospectus constitutes a part, on file
with the Commission. The Registration Statement may be inspected without charge
at the Commission's office in Washington, DC, and copies of all or any part
thereof may be obtained from such office after payment of the fees prescribed by
the Commission.

15
<PAGE> 40

TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... B-2
Trust Charges and Expenses.................................. B-3
Tender Offer Fundamental Policy............................. B-3
Management of the Trust..................................... B-6
Portfolio Transactions...................................... B-6
Net Asset Value............................................. B-7
Description of Shares....................................... B-7
Miscellaneous Investment Practices.......................... B-8
Tax Matters................................................. B-20
Shareholder Liability....................................... B-23
Custodian................................................... B-24
Independent Accountants..................................... B-24
</TABLE>

16
<PAGE> 41
___________ INVESTMENT GRADE INTERVAL TRUST
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information ("SAI") relating to the Class A,
B, C, and Z shares (together, the "shares") offered by the ___________
Investment Grade Interval Trust (the "Trust") contains information which may be
useful to investors but which is not included in the Prospectus of the Trust.
This SAI is not a prospectus and is authorized for distribution only when
accompanied or preceded by the Prospectus of the Trust dated ______________ ,
1999, describing the (the "Prospectus"). This SAI should be read together with
the Prospectus. Investors may obtain a free copy of the Prospectus by calling
[______________ at _____________]. Capitalized terms used but not defined in
this SAI have the meanings ascribed to them in the Prospectus.

INVESTMENT OBJECTIVES AND POLICIES.........................................B-2

TRUST CHARGES AND EXPENSES.................................................B-3

TENDER OFFER FUNDAMENTAL POLICY............................................B-3

MANAGEMENT OF THE TRUST....................................................B-3

PORTFOLIO TRANSACTIONS.....................................................B-6

NET ASSET VALUE............................................................B-7

DESCRIPTION OF SHARES......................................................B-7

MISCELLANEOUS INVESTMENT PRACTICES.........................................B-8

TAX MATTERS...............................................................B-20

SHAREHOLDER LIABILITY.....................................................B-23

CUSTODIAN.................................................................B-24

INDEPENDENT ACCOUNTANTS...................................................B-24

</TABLE>

The date of this Statement of Additional Information is ______________, 1999.
<PAGE> 42
INVESTMENT OBJECTIVES AND POLICIES

The Trust's Prospectus describes its investment objectives and investment
policies. This SAI includes additional information concerning, among other
things, the investment policies of the Trust and information about certain
securities and investment techniques that are described or referred to in the
Prospectus or in which the Trust expects to engage. Except as indicated under
"Fundamental Investment Policies," the Trust's investment policies are not
fundamental and the Trustees may change the policies without shareholder
approval.

FUNDAMENTAL INVESTMENT POLICIES

The following fundamental restrictions are for the protection of the
Trust's shareholders and cannot be changed without the approval of the holders
of a "majority of the outstanding" shares, voting together as a single class. A
"majority of the outstanding" shares means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act").

The Trust may:

1. issue senior securities or borrow money to the extent permitted by
the 1940 Act;

2. only own real estate acquired as a result of owning securities;

3. purchase and sell futures contracts and related options;

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

5. make loans through lending of securities, through the purchase of
debt instruments or similar evidences of indebtedness typically sold
to financial institutions and through repurchase agreements;

6. not concentrate more than 25% of its total assets in any one
industry, or with respect to 75% of total assets purchase any
security (other than obligations of the U.S. Government and cash
items including receivables) if as a result more than 5% of its
total assets would then be invested in securities of a single
issuer or purchase the voting securities of an issuer if, as a
result of such purchase, the Trust would own more than 10% of the
outstanding voting shares of such issuer (The Trust will treat
each state and each separate political subdivision, agency,
authority or instrumentality of such state, each multi state agency
or authority, and each guarantor, if any, as separate issuers. In
the utilities category, gas, electric, water and telephone
companies will be considered as separate industries.); and

7. not purchase or sell commodities or commodities contracts, except
that, consistent with its investment policies, the Trust may
purchase and sell financial futures contracts and options and may
enter into swap agreements, foreign exchange contracts and other
financial transactions not requiring the delivery of physical
commodities.

The restrictions and other limitations set forth above will apply only at
the time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.

B-2
<PAGE> 43
OTHER INVESTMENT POLICIES

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

1. purchase securities on margin, but it may receive short-term credit to
clear securities transactions and may make initial or maintenance
margin deposits in connection with futures transactions; and

2. invest in interests in oil, gas or other mineral exploration or
development programs, including leases.

TRUST CHARGES AND EXPENSES

Under the Trust's Management Agreement with the Advisor, the Trust pays
the Advisor a monthly fee based on the average weekly net assets of the Trust,
including the proceeds of the offering of the , if any, for such month at the
annual rate of [0.40%] of average weekly total net assets. Under the Management
Agreement, the Trust will pay the Advisor a percentage of the earnings of the
Trust's leverage in excess of the cost of such leverage.

BROKERAGE COMMISSIONS

The Trust recently commenced operations and has not paid any brokerage
commissions.

TENDER OFFER FUNDAMENTAL POLICY

The Board has adopted a resolution setting forth the Fund's fundamental
policy that it will conduct quarterly Tender Offers (the "Tender Offer
Fundamental Policy").

The Tender Offer Fundamental Policy sets the interval between each
Repurchase Offer at one quarter and provides that the Fund shall conduct a
Tender Offer each quarter (unless suspended or postponed in accordance with
regulatory requirements). The Repurchase Request Deadline will be established by
the Fund and will be based on factors such as market conditions, liquidity of
the Fund's assets and shareholder servicing conditions. The Tender Offer
Fundamental Policy also provides that the repurchase pricing shall occur not
later than fourteenth day after the Repurchase Request Deadline or the next
business day if the fourteenth day is not a business day.

The Tender Offer Fundamental Policy may be changed only by a majority vote
of the outstanding voting securities. For more information, please refer to the
Prospectus under the caption "Periodic Tender Offers."

MANAGEMENT OF THE TRUST

TRUSTEES AND OFFICERS

The names and business addresses of the Trustees and officers of the Trust
and their principal occupations and other affiliations during the past five
years are set forth below.

B-3
<PAGE> 44
NAME (AGE) POSITIONS AND PRINCIPAL OCCUPATIONS
AND ADDRESS OFFICES WITH TRUST DURING PAST FIVE YEARS
- ----------- ------------------ ----------------------

TRUSTEES AND TRUSTEES' FEES

It is estimated that the Trustees will receive the amount set
forth below for the fiscal year ending [ ]. For the calendar year ended December
31, 1998, the Trustees received the compensation set forth below for serving as
trustees of ____________________.

TOTAL COMPENSATION FROM THE
ESTIMATED COMPENSATION FROM FUND COMPLEX PAID TO THE
THE TRUST FOR THE FISCAL YEAR TRUSTEES FOR THE CALENDAR YEAR
TRUSTEE ENDING [ ] ENDED DECEMBER 31, 1998
- ------- ----------------------------- --------------------------

For the calendar year ended December 31, 1998, certain of the Trustees received
the following compensation in their capacities as trustees or directors of
____________________, ____________________, and ________________ formerly known
as ____________________, (together, the "____________________"):

TOTAL COMPENSATION FROM THE __________________
TRUSTEE FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1998
- ------- ---------------------------------------------

At [ ], the Trust's officers and Trustees as a group owned less
than 1% of the Trust's outstanding shares.

At _________, 1999,[ ] owned of record [ ]
shares, representing [ ] of the Trust's outstanding shares.

The Declaration provides that the obligations of the Trust are not binding
upon the Trustees of the Trust individually, but only upon the assets and
property of the Trust. The Declaration also provides that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which

B-4
<PAGE> 45
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.

INVESTMENT ADVISOR

____________________. (the "Advisor"), and/or its affiliate,
____________________, has rendered investment advisory services to investment
company, institutional and other clients since _____. The Advisor currently
serves as investment advisor, sub-advisor or administrator for [ ] open-end and
[ ] closed-end management investment company portfolios. Trustees and officers
of the Trust, who are also officers of the Advisor or its affiliates, will
benefit from the advisory fees, sales commissions and agency fees paid or
allowed by the Trust. More than 30,000 financial advisors have recommended
the__________ to over 800,000 clients worldwide, representing more than $16.3
billion in assets.

The Advisor is a subsidiary of ____________________,
_____________________. _______ is an indirect wholly-owned subsidiary of
____________________, which in turn is a direct majority-owned subsidiary of
____________________, which in turn is a direct majority-owned subsidiary of
____________________, which in turn is a direct wholly-owned subsidiary of
____________________, which in turn is a direct wholly-owned subsidiary of
____________________, which in turn is a direct wholly-owned subsidiary of
____________________, which in turn is a direct wholly-owned subsidiary of
____________________. ___________________is an underwriter of workers'
compensation insurance and a property and casualty insurer in the United States.
____________________ address is ____________________.
___________________ address is ____________________.

Under a Management Agreement (the "Agreement"), the Advisor has contracted
to furnish the Trust with investment research and recommendations or trust
management, respectively, and accounting and administrative personnel and
services, and with office space, equipment and other facilities. For these
services and facilities, the Trust pays a monthly fee based on the average
weekly net assets of the Trust for such month. Under the Agreement, any
liability of the Advisor to the Trust and/or its shareholders is limited to
situations involving the Advisor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.

The Agreement may be terminated with respect to the Trust 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 Trust. The
Agreement will automatically terminate upon any assignment thereof and shall
continue in effect from year to year only so long a 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 Trust 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 of the Trust, cast in person at a meeting called for the
purpose of voting on such approval.

The Advisor pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Advisor, including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders.

The Advisor also provides the Trust with bookkeeping and pricing services,
and for these services, the Trust pays the Advisor a monthly fee of [$1,500 for
the first $50 million of Trust assets, plus a monthly percentage fee at the
following annual rates: 0.0233% on the next $950 million; 0.0167% on the next $1
billion; 0.0100% on the next $1 billion; and 0.0007% on the excess over $3
billion of the average net assets of the Trust for such month.]

B-5
<PAGE> 46
The Advisor also acts as investment advisor to the other
____________________ (described under "Management of the Trust - Trustees
and Trustees' Fees"). The Advisor's affiliate,__________., advises other
institutional, corporate, fiduciary and individual clients for which __________
performs various services. Various officers and Trustees of the Trust also serve
as officers, directors or trustees of other __________ and the other corporate
or fiduciary clients of the Advisor. The other investment companies and clients
advised by the Advisor may sometimes invest in securities and options in which
the Trust will also invest. If the Trust, such other investment companies and
such clients desire to buy or sell the same portfolio securities or options at
about the same time, the purchases and sales will normally be made as nearly as
practicable on a pro rata basis in proportion to the amounts desired to be
purchased or sold by each. Although in some cases these practices may have a
detrimental effect on the price or volume of the securities or options as far as
the Trust is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the Trustees that the
desirability of retaining the Advisor as investment advisor to the __________
outweighs the disadvantages, if any, which might result from these practices.

PORTFOLIO TRANSACTIONS

The Advisor is responsible for decisions to buy and sell securities and
other portfolio holdings for the Trust, the selection of brokers and dealers to
effect the transactions and the negotiation of brokerage commissions, if any.
Fixed-income securities are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated commission,
although the price of the security will likely include a profit to the dealer.
In underwritten offerings, securities are usually purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.

In placing orders for portfolio securities of the Trust, the Advisor is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Advisor will seek to execute each
transaction at a price and commission, if any, which provides the most favorable
total cost or proceeds reasonably attainable under the circumstances. In seeking
the most favorable price and execution, the Advisor, having in mind the Trust's
best interest, will consider all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, at the amount of commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-dealer involved and the quality of service rendered by
the broker-dealer in other transactions. Though the Advisor generally seeks
reasonably competitive spreads or commissions, the Trust will not necessarily be
paying the lowest spread or commission available. Within the framework of the
policy of obtaining the most favorable price and efficient execution, the
Advisor will consider research and investment services provided by brokers and
dealers who effect or are parties to portfolio transactions with the Trust, the
Advisor or the Advisor's other clients. Such research and investment services
are those which brokerage houses customarily provide to institutional investors
and include statistical and economic data and research reports on particular
issuers and industries. Such services are used by the Advisor in connection with
all of its investment activities, used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions for such other accounts, and the services furnished by such
brokers may be used by the Advisor in providing investment management for the
Trust. Commission rates are established pursuant to negotiations based on the
quality and quantity of execution services provided by the broker or dealer in
light of generally prevailing rates. The management fee paid by the Trust will
not be reduced because the Advisor and/or other clients receive such services.
The allocation of orders and the commission rates paid by the Trust will be
reviewed periodically by the Board of Trustees.

As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Advisor may cause the Trust to pay a broker-dealer
which provides "brokerage and research services" (as defined in

B-6
<PAGE> 47
the 1934 Act) to the Advisor, an amount of disclosed commission for effecting a
securities transaction for the Trust in excess of the commission which another
broker-dealer would have charged for effecting that transaction.

The Trust recently commenced operations and has not paid any brokerage
commissions for the execution of portfolio transactions. The rate of portfolio
turnover for the trust is expected to be approximately [ ]%.

NET ASSET VALUE

Net asset value of the Trust will be determined no less frequently than as
of the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally 4:00 p.m. Eastern time) on the last business day of each week
(generally Friday), and at such other items as the Trust may authorize. The net
asset value of the Trust equals the value of the Trust's assets less the Trust's
liabilities. Portfolio securities for which market quotations are readily
available are valued at current market value. Short-term investments maturing in
60 days or less are valued at amortized cost when the Advisor determines,
pursuant to procedures adopted by the Board of Trustees, that such cost
approximates current market value. All other securities and assets are valued at
their fair value following procedures adopted by the Board of Trustees.

In determining net asset value for the Trust, the Trust's custodian
utilizes the valuations of portfolio securities furnished by a pricing service
approved by the Board of Trustees. Securities for which quotations are not
readily available are valued at fair value as determined by the pricing service
using methods which include consideration of the following: yields or prices of
securities of comparable quality, type of issue, coupon, maturity and rating;
indications as to value from dealers; and general market conditions. The pricing
service may employ electronic data processing techniques or a matrix system, or
both, to determine valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under the general
supervision of the Board of Trustees.

DESCRIPTION OF SHARES

The descriptions of the shares contained in the Prospectus and this
Statement of Additional Information do not purport to be complete and are
subject to an qualified in their entireties by reference to the Declaration of
the Trust (the "Declaration") and the By-Laws of the Trust (the "By-Laws"), as
each from time to time is amended. Copies of the Declaration and the form of the
By-Laws are filed as exhibits to the Registration Statement of which the
Prospectus and this Statement of Additional Information are a part and may be
inspected, and copies thereof may be obtained, as described under "Further
Information" in the Prospectus.

The Declaration authorizes the issuance of an unlimited number of shares
no par value. All shares have equal rights as to the payment of dividends and
the distribution of assets upon liquidation. Shares will, when issued, be fully
paid and, subject to matters discussed in "Shareholder Liability,"
non-assessable, and will have no pre-emptive or conversion rights or rights to
cumulative voting.

B-7
<PAGE> 48
MISCELLANEOUS INVESTMENT PRACTICES

SHORT-TERM TRADING

In seeking the Trust's investment objective, the Advisor will buy or sell
portfolio securities whenever it deems it is appropriate. The Advisor's decision
will not generally be influenced by how long the Trust may have owned the
security. From time to time the Trust will buy securities intending to seek
short-term trading profits. A change in the securities held by the Trust is
known as "portfolio turnover" and generally involves some expense to the Trust.
These expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the Trust
to realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the Trust's investment policies, under certain market
conditions the Trust's portfolio turnover rate may be higher than that of other
mutual Trusts. The Trust's portfolio turnover rate for a fiscal year is the
ratio of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The Trust's portfolio turnover
rate is not a limiting factor when the Advisor considers a change in the Trust's
portfolio.

LOWER RATED BONDS

Lower rated bonds are those rated lower than Baa by Moody's, BBB by S&P,
or comparable unrated debt securities. Relative to debt securities of higher
quality,

1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for lower
rated bonds;

2. the secondary market for lower rated bonds may at times become less liquid
or respond to adverse publicity or investor perceptions, increasing the
difficulty in valuing or disposing of the bonds;

3. the Advisor's credit analysis of lower rated bonds may have a greater
impact on the Trust's achievement of its investment objective and

4. lower rated bonds are less sensitive to interest rate changes, but are more
sensitive to adverse economic developments.

In addition, certain lower rated bonds do not pay interest in cash on a
current basis. However, the Trust will accrue and distribute this interest on a
current basis, and may have to sell securities to generate cash for
distributions.

SMALL COMPANIES

Smaller, less well established companies may offer greater opportunities
for capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.

FOREIGN SECURITIES

The Trust may invest in securities traded in markets outside the United
States. Foreign investments can be affected favorably or unfavorably by changes
in currency rates and in exchange control regulations. There may be less
publicly available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting, auditing and
financial reporting standards comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage

B-8
<PAGE> 49
commissions and custodian fees may be higher than in the United States.
Investments in foreign securities can involve other risks different from those
affecting U.S. investments, including local political or economic developments,
exproporiation or nationalization of assets and imposition of withholding taxes
on dividend or interest payments. Foreign securities, like other assets of the
Trust, will be held by the Trust's custodian or by a subcustodian or depository.
See also "Foreign Currency Transactions" below.

The Trust may invest in certain Passive Foreign Investment Companies
(PFICs) which may be subject to U.S. federal income tax on a portion of any
"excess distribution" or gain (PFIC tax) related to the investment. The PFIC tax
is the highest ordinary income rate, and it could be increased by an interest
charge on the deemed tax deferral.

The Trust may elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the Trust to recognize as income
any appreciation (but not depreciation) on its holdings of PFICs as of the end
of its fiscal year. See "Taxation" below.

STRIPPED SECURITIES (STRIPS)

The Trust may invest in stripped securities (e.g. zero coupon securities)
which are securities issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security and in certificates representing undivided interests in the interest or
principal of mortgage-backed securities (interest only/principal only), which
tend to be more volatile than other types of securities. The Trust will accrue
and distribute income from stripped securities and certificates on a current
basis and may have to sell securities to generate cash for distributions.

STEP COUPON BONDS (STEPS)

The Trust may invest in debt securities which do not pay interest for a
stated period of time and then pay interest at a series of different rates for a
series of periods. In addition to the risks associated with the credit rating of
the issuers, these securities are subject to the volatility risk of stripped
securities for the period when no interest is paid.

PAY-IN-KIND (PIK) SECURITIES

The Trust may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risks that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.

MONEY MARKET INSTRUMENTS

GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. CERTIFICATES OF DEPOSITS are issued against deposits in a
commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. COMMERCIAL PAPER is promissory notes issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. PARTICIPATION INTERESTS include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the trust
would be allowed to invest in directly.

B-9
<PAGE> 50
SECURITIES LOANS

The Trust may make secured loans of its portfolio securities. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially. As a matter of policy,
securities loans are made to banks and broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the value of the securities on
loan. The borrower pays to the Trust an amount equal to any dividends or
interest received on securities lent. The Trust 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 Trust 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 Trust if the holders of such securities are asked
to vote upon or consent to matters materially affecting the investment. The
Trust may also call such loans in order to sell the securities involved.

FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)

The Trust may enter into contracts to purchase securities. fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the Trust holds until the settlement date, in a
segregated account, cash or liquid securities in an amount sufficient to meet
the purchase price, or if the Trust enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the Trust relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Trust of
an advantageous yield or price. Although the Trust will generally enter into
forward commitments with the intention of acquiring securities for its portfolio
or for delivery pursuant to options contracts it has entered into, the Trust may
dispose of a commitment prior to settlement if the Advisor deems it appropriate
to do so. The Trust may realize short-term profits or losses upon the sale of
forward commitments.

MORTGAGE DOLLAR ROLLS

In a mortgage dollar roll, the Trust sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The Trust either will be paid a fee by the counterparty upon
entering into the transaction or will be entitled to purchase the similar
security at a discount. As with any forward commitment, mortgage dollar rolls
involve the risk that the counterparty will fail to deliver the new security on
the settlement date, which may deprive the Trust of obtaining a beneficial
investment. In addition, the security to be delivered in the future may turn out
to be inferior to the security sold upon entering into the transaction. Also,
the transaction costs may exceed the return earned by the Trust from the
transaction.

REPURCHASE AGREEMENTS

The Trust may enter into repurchase agreements. A repurchase agreement is a
contract under which the Trust acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Trust to resell such security at a fixed time and price
(representing the Trust's cost plus interest). It is the Trust's present
intention to enter into repurchase agreements only with commercial banks and
registered broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase agreements may also
be viewed as loans made by the Trust which are collateralized by the securities
subject to repurchase. The Advisor will monitor such transactions to determine
that the value of the underlying securities is at least equal at all times to
the total amount of the repurchase obligation, including the interest factor. If
the seller defaults, the Trust could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale including accrued
interest are less than the resale price provided in the agreement including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Trust may incur delay and costs in selling the
underlying security or may suffer a loss of

B-10
<PAGE> 51
principal and interest if the Trust is treated as an unsecured creditor and
required to return the underlying collateral to the seller's estate.

REVERSE REPURCHASE AGREEMENTS

In a reverse repurchase agreement, the Trust sells a security and agrees
to repurchase the same security at a mutually agreed upon date and price. A
reverse repurchase agreement may also be viewed as the borrowing of money by the
Trust and, therefore, as a form of leverage. The Trust will invest the proceeds
of borrowings under reverse repurchase agreements. In addition, the Trust will
enter into a reverse repurchase agreement only when the interest income expected
to be earned from the investment of the proceeds is greater than the interest
expense of the transaction. The Trust will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The Trust may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. The Trust will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market
Trust's ability to maintain a net asset value of $1.00 per share.

OPTIONS ON SECURITIES

WRITING COVERED OPTIONS. The Trust may write covered call options and
covered put options on securities held in its portfolio when, in the opinion of
the Advisor, such transactions are consistent with the Trust's investment
objective and policies. Call options written by the Trust give the purchaser the
right to buy the underlying securities from the Trust at a stated exercise
price; put options give the purchaser the right to sell the underlying
securities to the Trust at a stated price. The Trust may write only covered
options, which means that, so long as the Trust 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 Trust will hold cash liquid assets
equal to the price to be paid if the option is exercised. In addition, the Trust
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 Trust may write combinations of covered puts and calls on the
same underlying security.

The Trust will receive a premium from writing a put or call option, which
increases the Trust'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 Trust 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 Trust 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 Trust 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 Trust 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.

B-11
<PAGE> 52
If the Trust writes a call option but does not own the underlying
security, and when it writes a put option, the Trust 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 Trust may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.

PURCHASING PUT OPTIONS

The Trust 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 Trust, 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 Trust 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 Trust may purchase call options to hedge against an increase in the
price of securities that the Trust wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Trust, 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 Trust
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
Trust and assets held to cover OTC options written by the Trust are illiquid
securities. Although the Staff has indicated that it is continuing to evaluate
this issue, pending further developments, the Trust intends to enter into OTC
options transactions only with primary dealers in U.S. Government Securities
and, in the case of OTC options written by the Trust, only pursuant to
agreements that will assure that the Trust will at all times have the right to
repurchase the option written by it from the dealer at a specified formula
price. The Trust 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.

RISK FACTORS IN OPTIONS TRANSACTIONS

The successful use of the Trust's options strategies depends on the
ability of the Advisor to forecast interest rate and market movements correctly.

When it purchases an option, the Trust runs the risk that it will lose
its entire investment in the option in a relatively short period of time, unless
the Trust 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 Trust will lose part or all of its investment in the option. This
contrasts with an investment by the Trust in the underlying securities, since
the Trust may continue to hold its investment in those securities
notwithstanding the lack of a change in price of those securities.

B-12
<PAGE> 53
The effective use of options also depends on the Trust's ability to
terminate option positions at times when the Advisor deems it desirable to do
so. Although the Trust will take an option position only if the Advisor believes
there is a liquid secondary market for the option, there is no assurance that
the Trust 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
Trust 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 Trust's ability to
realize its profits or limit its losses.

Disruptions in the markets for the securities underlying options
purchased or sold by the Trust 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 Trust 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 Trust 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 Trust has
expired, the Trust could lose the entire value of its option.

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

FUTURES CONTRACTS AND RELATED OPTIONS

Upon entering into futures contracts, in compliance with the Securities
and Exchange Commission's requirements, cash or liquid securities, equal in
value to the amount of the Trust's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover"for such
obligation), will be segregated with the Trust's custodian.

A futures contract sale creates an obligation by the seller to deliver
the type of instrument called for in the contract in a specified delivery month
for a stated price. A futures contract purchase creates an obligation by the
purchaser to take delivery of the type of instrument called for in the contract
in a specified delivery month at a stated price. The specific instruments
delivered or taken at settlement date are not determined until on or near that
date. The determination is made in accordance with the rules of the exchanges on
which the futures contract was made. Futures contracts are traded in the United
States only on commodity exchange or boards of trade -- known as "contract
markets" -- approved for such trading by the Commodity Futures Trading
Commission (CFTC), and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant contract market.

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

B-13
<PAGE> 54
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 Trust purchases or sells a security, no price is paid or
received by the Trust upon the purchase or sale of a futures contract, although
the Trust 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
Trusts by the Trust 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 Trust 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 Trust 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 Trust. The
Trust may close its positions by taking opposite positions which will operate to
terminate the Trust'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 Trust, and the Trust realizes a loss or a gain. Such closing
transactions involve additional commission costs.

OPTIONS ON FUTURES CONTRACTS

The Trust will enter into written options on futures contracts only
when, in compliance with the SEC's requirements, cash or liquid securities equal
in value to the commodity value (less any applicable margin deposits) have been
deposited in a segregated account of the Trust's custodian. The Trust 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 Trust may use such options on futures contracts in lieu
of writing options directly on the underlying securities or purchasing and
selling the underlying futures contracts. Such options generally operate in the
same manner as options purchased or written directly on the underlying
investments.

As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected.

The Trust will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those described above.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS

Successful use of futures contracts by the Trust is subject to the
Advisor's ability to predict correctly movements in the direction of interest
rates and other factors affecting securities markets.

Compared to the purchase or sale of futures contracts, the purchase
of call or put options on futures contracts involves less potential risk to the
Trust 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
Trust when the purchase or sale of a futures contract would not, such as when
there is no movement in the prices of the hedged investments. The writing of an
option on a futures contract involves risks similar to those risks relating to
the sale of futures contracts.

B-14
<PAGE> 55
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 Trust, the Trust
may seek to close out a position. The ability to establish and close out
positions will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop or continue to
exist for a particular futures contract. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.

INDEX FUTURES CONTRACTS

An index futures contract is a contract to buy or sell units of an
index at a specified future date at a price agreed upon when the contract is
made. Entering into a contract to buy units of an index is commonly referred to
as buying or purchasing a contract or holding a long position in the index.
Entering into a contract to sell units of an index is commonly referred to as
selling a contract or holding a short position. A unit is the current value of
the index. The Trust may enter into stock index futures contracts, debt index
futures contracts, or other index futures contracts appropriate to its
objective(s). The Trust may also purchase and sell options on index futures
contracts.

There are several risks in connection with the use by the Trust of
index futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the index futures and movements
in the prices of securities which are the subject of the hedge. The Advisor will
attempt to reduce this risk by selling, to the extent possible, futures on
indices the movements of which will, in its judgment, have a significant
correlation with movements in the prices of the Trust's portfolio securities
sought to be hedged.

Successful use of index futures by the Trust for hedging purposes is
also subject to the Advisor's ability to predict correctly movements in the
direction of the market. It is possible that, where the Trust has sold futures
to hedge its portfolio against a decline in the market, the index on which the
futures are written may advance and the value of securities held in the Trust's
portfolio may decline. If this occurs, the Trust would lose money on the futures
and also experience a decline in the value in its portfolio securities. However,
while this could occur to a certain degree, the Advisor believes that over time
the value of the Trust's portfolio will tend to move in the same direction as
the market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the Trust
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the Trust 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 Trust has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.

B-15
<PAGE> 56
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the index futures and the
securities of the portfolio being hedged, the prices of index futures may not
correlate perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Advisor may still not result in a
successful hedging transaction.

OPTIONS ON INDEX FUTURES

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

OPTIONS ON INDICES

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

FOREIGN CURRENCY TRANSACTIONS

The Trust may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.

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

The Trust may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency. The
Trust

B-16
<PAGE> 57
may also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.

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

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

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

It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the Trust to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the Trust is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the Trust is obligated to deliver.

Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Trust owns or intends to purchase
or sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in value of
such currency.

CURRENCY FORWARD AND FUTURES CONTRACTS

Upon entering into such contracts, in compliance with the SEC's
requirements, cash or liquid securities, equal in value to the amount of the
Trust's obligation under the contract (less any applicable margin deposits and
any assets that constitute "cover" for such obligation), will be segregated with
the Trust's custodian.

A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future

B-17
<PAGE> 58
delivery of a specified amount of a foreign currency at a future date at a price
set at the time of the contract. Currency futures contracts traded in the United
States are designed and traded on exchanges regulated by the CFTC, such as the
New York Mercantile Exchange.

Forward currency contracts differ from currency futures contracts in
certain respects. For example, the maturity date of a forward contract may be
any fixed number of days from the date of the contract agreed upon by the
parties, rather than a predetermined date in a given month. Forward contracts
may be in any amounts agreed upon by the parties rather than predetermined
amounts. Also, forward contracts are traded directly between currency traders so
that no intermediary is required. A forward contract generally requires no
margin or other deposit. At the maturity of a forward or futures contract, the
Trust may either accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing transaction involving
the purchase or sale of an offsetting contract. Closing transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a clearing
corporation associated with the exchange assumes responsibility for closing out
such contracts.

Positions in currency futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market in such contracts.
Although the Trust intends to purchase or sell currency futures contracts only
on exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Trust would continue to be required to make daily
cash payments of variation margin.

CURRENCY OPTIONS

In general, options on currencies operate similarly to options on
securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.

The Trust will only purchase or write currency options when the Advisor
believes that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.

The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.

The value of a currency option reflects the value of an exchange rate,
which in turn reflects relative values of two currencies, the U.S. dollar and
the foreign currency in question. Because currency transactions occurring in the
interbank market involve substantially larger amounts than those that may be
involved in the exercise of currency options, investors may be disadvantaged by
having to deal in an odd lot market for the underlying currencies in connection
with options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.

B-18
<PAGE> 59
There is no systematic reporting of last sale information for currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect exchange rates for
smaller odd-lot transactions (less than $1 million) where rates may be less
favorable. The interbank market in currencies is a global, around-the-clock
market. To the extent that options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.

SETTLEMENT PROCEDURES

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

FOREIGN CURRENCY CONVERSION

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

INVERSE FLOATERS

Inverse floaters are derivative securities whose interest rates vary
inversely to changes in short-term interest rates and whose values fluctuate
inversely to changes in long-term interest rates. The value of certain inverse
floaters will fluctuate substantially more in response to a given change in
long-term rates than would a traditional debt security. These securities have
investment characteristics similar to leverage, in that interest rate changes
have a magnified effect on the value of inverse floaters.

RULE 144A SECURITIES

The Trust may purchase securities that have been privately placed but that
are eligible for purchase and sale under Rule 144A under the Securities Act of
1933 (the "1933 Act"). That Rule permits certain qualified institutional buyers,
such as the Trust, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. The Advisor, under the supervision of
the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Trust's investment restriction on
illiquid securities. A determination of whether a Rule 144A security is liquid
or not is a question of fact. In making this determination, the Advisor will
consider the trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the Advisor could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, and (4) nature
of the security and of marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).

B-19
<PAGE> 60
TAX MATTERS

FEDERAL INCOME TAX MATTERS

Federal Taxation of the Trust

The ability of the Trust to qualify for taxation as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") requires, among other things, that the Trust distribute to its
shareholders with respect to each year at least 90% of the sum of (1) its net
tax-exempt interest income and (2) its taxable net investment income (including,
generally, taxable interest, dividends and certain other income, less certain
expenses, and the excess, if any, of net short-term capital gain over net
long-term capital loss) (the "Distribution Requirement").

In addition to satisfying the Distribution Requirement for each taxable year, a
regulated investment company must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities, or
options and futures with respect to stock or securities) and 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 (the "Income Requirement").

Further, the Trust must satisfy an asset diversification test in order to
qualify as a regulated investment company. Under this test, at the close of each
quarter of the Trust's taxable year, at least 50% of the value of the Trust's
assets must consist of cash and cash items (including receivables), U.S.
Government securities, securities of other regulated investment companies, and
securities of other issuers (as to which the Trust has not invested more than 5%
of the value of the Trust's total assets in securities of such issuer and as to
which the Trust does not hold more than 10% of the outstanding voting securities
of such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Trust controls and which are engaged in the same or
similar trades or businesses or related trades or businesses.

A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount at least equal to the sum of
98% of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year), plus 100% of any
undistributed income from the preceding year. For the foregoing purposes, a
regulated investment company is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.

The Trust generally intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Trust may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability. In addition, the Trust may elect to pay the excise tax liability
if it determines that the costs of making an excise tax distribution are greater
than the excise tax liability that would be due upon the failure to make such
excise tax distribution.

B-20
<PAGE> 61

If the Trust does not qualify for taxation as a regulated investment company for
any taxable year, the Trust's income will be taxed subject to corporate income
taxes imposed at the Trust level, and all distributions from earnings and
profits, including distributions of net exempt-interest income and net capital
gain (i.e., the excess, if any, of net long-term capital gain over net
short-term capital loss), will be taxable to shareholders as ordinary income. In
addition, in order to requalify for taxation as a regulated investment company,
the Trust may be required to recognize unrealized gains, pay substantial taxes
and interest, and make certain distributions.

Federal Taxation of Shareholders

B-21
<PAGE> 62
Shareholders will be subject to federal income taxes on distributions, whether
received in cash or additional shares. Distributions of net income and
short-term capital gains, if any, will be taxable to shareholders as ordinary
income. Distributions designated by the Trust as deriving from net gains on
securities held for more than one year will be taxable to shareholders as
long-term captial gain (generally taxed at a rate of 20% to noncorporate
shareholders), without regard to how long a shareholder has held shares in the
Trust.

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

SALES OR REDEMPTIONS OF SHARES. From time to Time the trust may make a tender or
repurchase offer for its shares. It is expected that the terms of any such offer
will require a tendering shareholder to tender all shares, held or considered
under Code rules to be held by such shareholder. Shareholders who tender all
shares held, or considered held, by them will be treated as having sold such
shares and generally will realize a capital gain or loss. If, however, a
shareholder tenders fewer than all of its shares, such shareholder may be
treated as having received a taxable dividend upon the tender of its shares. In
such a case, there is a remote risk that non-tendering shareholders will be
treated as having received taxable distributions from the Trust.

BACKUP WITHHOLDING. The Trust generally is required to withhold and remit to the
U.S. Treasury 31% of the taxable dividends and other distributions paid to
non-corporate shareholders who fail to furnish the Trust with a

B-22
<PAGE> 63
correct taxpayer identification number, who have under reported dividends or
interest income, or who fail to certify to the Trust that they are not subject
to such withholding. An individual's taxpayer identification number is his or
her social security number.

FOREIGN INVESTORS. Non-resident alien individuals, foreign corporations and
certain other foreign entities generally will be subject to a U.S. withholding
tax at a rate of 30% on the Trust's distributions from its ordinary income and
the excess of its net short-term capital gain over its net long-term capital
loss, unless the tax is reduced or eliminated by an applicable tax treaty.
Distributions from the excess of the Trust's net capital gain received by such
shareholders and any gain from the sale or other disposition of shares of the
Trust generally will not be subject to U.S. Federal income taxation, provided
that non-resident alien status has been certified by the shareholder. Different
U.S. tax consequences may result if the shareholder is engaged in a trade or
business in the United States, is present in the United States for a sufficient
period of time during a taxable year to be treated as a U.S. resident, or fails
to provide any required certifications regarding status as a non-resident alien
investor. Foreign shareholders should consult their tax advisors regarding the
U.S. and foreign tax consequences of an investment in the Trust.

The Internal Revenue Service recently revised its regulations affecting the
application to foreign investors of the back-up withholding and withholding tax
rules described above. The new regulations will generally be effective for
payments made after December 31, 2000. In some circumstances, the new rules will
increase the certification and filing requirements imposed on foreign investors
in order to qualify for exemption from the 31% back-up withholding tax and for
reduced withholding tax rates under income tax treaties. Foreign investors in
the Trust should consult their tax advisors with respect to the potential
application of these new regulations.

The foregoing is a general, abbreviated summary of the provisions of the Code
and regulations thereunder presently in effect as they directly govern the
taxation of the Trust and shareholders. These provisions are subject to change
by legislative or administrative action, and any such change may be retroactive
with respect to Trust transactions.

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 Trust
and requires that a notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Declaration provides for indemnification out of Trust property for all loss
and expense of any shareholder held personally liable for the obligations of the
Trust. Thus, the risk of a

B-23
<PAGE> 64
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances (which are considered remote) in which the Trust would
be unable to meet its obligations and the disclaimer was inoperative.

CUSTODIAN

The Chase Manhattan Bank, located at 270 Park Avenue, New York, New York
10017-2070, is the Trust's custodian. The custodian is responsible for
safeguarding the Trust's cash and securities, receiving and delivering
securities and collecting the Trust's interest and dividends.

INDEPENDENT ACCOUNTANTS

[ ] are the Trust's independent accountants,
providing audit and tax return preparation services and assistance and
consultation in connection with the review of various securities and exchange
Commission filings. The address of [
]. [The financial statements included in this
SAI have been so included, and the financial highlights included in the
Prospectus have been so included, in reliance upon the report of
PricewaterhouseCoopers LLP given on the authority of said firm as experts in
accounting and auditing.]

B-24
<PAGE> 65
PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(1) Financial Statements:

Included in Part A

Financial Highlights
Capitalization at __________, 2000
Portfolio Composition

Included in Part B

Financial Statements

(2) Exhibits

(a) Agreement and Declaration of Trust(1)
(b) By-Laws(1)
(c) Not applicable
(d) None
(e) None
(f) None
(g) Management Agreement with _____________________(1)
(h) Form of Underwriting Agreement(1)
(i) None
(j)(1) Form of Custody Contract (1)

C-1
<PAGE> 66

(k)(1) Form of Transfer Agency Agreement (1)
(l) Opinion and Consent of Ropes & Gray, counsel to
Registrant(1)
(m) None
(n) Consent of independent accountants(1)
(o) None
(p) None
(q) None

- --------------------------------
(1) To be filed under amendment.

Item 25. Marketing Arrangements.

Not Applicable

Item 26. Other Expenses of Issuance and Distribution.

The following table sets forth the expenses to be incurred in
connection with the Offer described in this Registration Statement:

<TABLE>
<CAPTION>
<S> <C>
Registration fees(2) $
Printing(2)
Accounting fees and expenses(2)
Legal fees and expenses(2)
NASD fee(2)
State fees(2)
--------
Total(2) $
========
</TABLE>
(2) To be filed by amendment.

Item 27. Persons Controlled by or under Common Control with Registrant.

None.

Item 28. Number of Holders of Securities

Title of Class Number of Record Holders

-------------- ------------------------
<S> <C>
Class A 0
Class B 0
Class C 0
Class Z 0

Common Shares of Beneficial Interest

</TABLE>

Item 29. Indemnification.

The Agreement and Declaration of Trust, as amended, filed as Exhibit
(a)(1) and (a)(2) to this Registration Statement provides for
indemnification to each of the Registrant's Trustees and officers
against all liabilities and expenses incurred in acting

C-2
<PAGE> 67

as Trustee or officer, except in the case of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Trustees and officers.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.

The Registrant, Colonial Management Associates, Inc. and their
respective trustees, directors and officers are insured by a
directors and officers/errors and omissions liability policy.

C-3
<PAGE> 68

Item 30. Business and Other Connections of Investment Adviser

The description of the business of Colonial Management Associates,
Inc., the Registrant's Investment Adviser, is set forth under the
caption "The Advisor" in the Prospectus forming part of this
Registration Statement. The following sets forth business and other
connections of each director and officer of Colonial Management
Associates, Inc.

Registrant's investment adviser/administrator, Colonial Management Associates,
Inc. ("Colonial"), is registered as an investment adviser under the Investment
Advisers Act of 1940 ("Advisers Act"). Colonial Advisory Services, Inc.
("CASI"), an affiliate of Colonial, is also registered as an investment adviser
under the Advisers Act. As of the end of the fiscal year, December 31, 1998,
CASI had four institutional, corporate or other accounts under management

C-4
<PAGE> 69

or supervision, the market value of which was approximately $227 million. As of
the end of the fiscal year, December 31, 1998, Colonial was the investment
adviser, sub-adviser and/or administrator to 57 mutual funds, including funds
sub-advised by Colonial, the total market value of which investment companies
was approximately $18,950.90 million. Liberty Funds Distributor, Inc., a
subsidiary of Colonial Management Associates, Inc., is the principal underwriter
and the national distributor of all of the open-end funds in the Liberty Mutual
Funds complex.

The following sets forth the business and other connections of each director and
officer of Colonial Management Associates, Inc.:

(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 06/30/99. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
<S> <C> <C> <C>
Allard, Laurie V.P.

Archer, Joseph A. V.P.

Ballou, William J. V.P., Liberty Funds Trusts I through IX Asst. Sec.
Asst. Colonial High Income
Sec., Municipal Trust Asst. Sec.
Counsel Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High

</TABLE>

C-5
<PAGE> 70

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
Liberty Financial Advisers,
Inc. Asst. Sec.
Liberty Funds Group LLC Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.

Barron, Suzan M. V.P., Liberty Funds Trusts I through IX Asst. Sec.
Asst. Colonial High Income
Sec., Municipal Trust Asst. Sec.
Counsel Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
Liberty Financial Advisers,
Inc. Asst. Sec.
Liberty Funds Group LLC Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.
</TABLE>

C-6
<PAGE> 71

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Barsketis, Ophelia Sr. V.P. Stein Roe & Farnham Incorporated Snr. V.P.

Berliant, Allan V.P.

Bissonnette, Michael Sr. V.P.

Boatman, Bonny E. Sr. V.P.; Colonial Advisory Services,
IPC Mbr. Inc. Exec. V.P.
Stein Roe & Farnham Incorporated Exec. V.P.

Bunten, Walter V.P.

Campbell, Kimberly V.P.

Carnabucci,
Dominick V.P.

Carome, Kevin M. Sr. V.P.; Liberty Funds Distributor,
IPC Mbr. Inc. Assistant Clerk
Liberty Funds Group LLC Sr. V.P.; General
Stein Roe & Farnham Counsel
Incorporated General Counsel;
Secretary
Stein Roe Services, Inc. Asst. Clerk

Carroll, Sheila A. Sr. V.P.

Citrone, Frank, Jr. Sr. V.P.

Conlin, Nancy L. Sr. V.P.; Liberty Funds Trusts I through IX Secretary
Sec.; Clerk Colonial High Income
IPC Mbr.; Municipal Trust Secretary
Dir; Gen. Colonial InterMarket Income
Counsel Trust I Secretary
Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Liberty Funds Distributor,
Inc. Dir.; Clerk
Liberty Funds Services, Inc. Clerk; Dir.
Liberty Funds Group LLC V.P.; Gen.
Counsel and
Secretary
Liberty Variable Investment
Trust Secretary

</TABLE>

C-7
<PAGE> 72

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Colonial Advisory Services,
Inc. Dir.; Clerk
AlphaTrade Inc. Dir.; Clerk
Liberty Financial Advisors,
Inc. Dir.; Sec.
Liberty All-Star Equity Fund Secretary
Liberty All-Star Growth Fund,
Inc. Secretary

Connaughton, V.P. Liberty Funds Trusts I through VIII CAO; Controller
J. Kevin Liberty Variable Investment
Trust CAO; Controller
Colonial High Income
Municipal Trust CAO; Controller
Colonial Intermarket Income
Trust I CAO; Controller
Colonial Intermediate High
Income Fund CAO; Controller
Colonial Investment Grade
Municipal Trust CAO; Controller
Colonial Municipal Income
Trust CAO; Controller
Liberty All-Star Equity Fund Controller
Liberty All-Star Growth Fund,
Inc. Controller
Liberty Trust IX Controller

Daniszewski, V.P.
Joseph J.

Dearborn, James V.P.

Desilets, Marian H. V.P. Liberty Funds Distributor,
Inc. V.P.
Liberty Funds Trusts I through IX Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial Intermarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
</TABLE>

C-8
<PAGE> 73

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.
DiSilva-Begley, V.P. Colonial Advisory Services, Compliance
Linda IPC Mbr. Inc. Officer

Eckelman, Marilyn Sr. V.P.

Ericson, Carl C. Sr. V.P. Colonial Intermediate High
IPC Mbr. Income Fund V.P.
Colonial Advisory Services, Pres.; CEO
Inc. and CIO

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

Feloney, Joseph L. V.P. Colonial Advisory Services,
Asst. Treas. Inc. Asst. Treas.
Liberty Funds Group LLC Asst. Treas.

Finnemore, Sr. V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.

Franklin, Sr. V.P. AlphaTrade Inc. President
Fred J. IPC Mbr. Liberty Financial Companies, Chief
Inc. Compliance
Officer; V.P.

Garrison,
William M. V.P. Stein Roe & Farnham
Incorporated V.P.

Gibson, Stephen E. Dir.; Pres.; Liberty Funds Group LLC Dir.;
CEO; Pres.; CEO;
Chairman of Exec. Cmte.
the Board; Mbr.; Chm.
IPC Mbr. Liberty Funds Distributor,
Inc. Dir.; Chm.
Colonial Advisory Services,
Inc. Dir.; Chm.
</TABLE>

C-9
<PAGE> 74

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Liberty Funds Services, Inc. Dir.; Chm.
AlphaTrade Inc. Dir.
Liberty Funds Trusts I
through VIII President
Colonial High Income
Municipal Trust President
Colonial InterMarket Income
Trust I President
Colonial Intermediate High
Income Fund President
Colonial Investment Grade
Municipal Trust President
Colonial Municipal Income
Trust President
Liberty Financial Advisors,
Inc. Director
Stein Roe & Farnham
Incorporated Asst. Chairman;
Exec. V.P.
Liberty Variable Investment
Trust President

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

Harasimowicz, V.P.
Stephen

Hartford, Brian Sr. V.P.

Haynie, James P. Sr. V.P. Colonial Advisory Services,
Inc. Sr. V.P.

Stein Roe & Farnham
Incorporated Sr. V.P.

Held, Dorothy V.P.

Hernon, Mary V.P.

Hounsell, Clare F. V.P. Stein Roe & Farnham
Incorporated V.P.

Iudice, V.P.; Liberty Funds Group LLC Controller,
Philip J., Jr. Controller CAO, Asst.
</TABLE>

C-10
<PAGE> 75

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Asst. Treas.
Treasurer Liberty Funds Distributor, CFO,
Inc. Treasurer
Colonial Advisory Services, Controller;
Inc. Asst. Treas.
AlphaTrade Inc. CFO, Treas.
Liberty Financial Advisors,
Inc. Asst. Treas.

Jacoby, Timothy J. Sr. V.P.; Liberty Funds Group LLC V.P., Treasr.,
CFO; CFO
Treasurer Liberty Funds Trusts I
through VIII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO
Colonial Advisory Services,
Inc. CFO, Treasr.
Liberty Financial Advisors,
Inc. Treasurer
Stein Roe & Farnham
Incorporated Snr. V.P.
Liberty Variable Investment
Trust Treasurer, CFO
Liberty All-Star Equity Fund Treasurer
Liberty All-Star Growth Fund,
Inc. Treasurer
Liberty Funds Trust IX Treasurer

Jansen, Deborah Sr. V.P. Stein Roe & Farnham
Incorporated Sr. V.P.

Jersild, North T. V.P. Stein Roe & Farnham
Incorporated V.P.
</TABLE>

C-11
<PAGE> 76

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Johnson, Gordon V.P.

Knudsen, Gail E. V.P. Liberty Funds Trusts I
through IX Asst. Treas.
Colonial High Income
Municipal Trust Asst. Treas.
Colonial InterMarket Income
Trust I Asst. Treas.
Colonial Intermediate High
Income Fund Asst. Treas.
Colonial Investment Grade
Municipal Trust Asst. Treas.
Colonial Municipal Income
Trust Asst. Treas.
Liberty Variable Investment
Trust Asst. Treas.
Liberty All-Star Equity Fund Asst. Treas.
Liberty All-Star Growth Fund,
Inc. Asst. Treas.

Lapointe, Thomas V.P.

Lasman, Gary V.P.

Lennon, John E. Sr. V.P. Colonial Advisory Services,
Inc. V.P.

Lenzi, Sharon V.P.

Lessard, Kristen V.P.

Loring, William
C., Jr. Sr. V.P.

MacKinnon,
Donald S. Sr. V.P.

Marcus, Harold V.P.

Muldoon, Robert V.P.

Newman, Maureen Sr. V.P.

O'Brien, David Sr. V.P.

Ostrander, Laura Sr. V.P. Colonial Advisory Services,
Inc. V.P.

Palombo, Joseph R. Dir.; Colonial Advisory Services,
Exe. V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income

</TABLE>

C-12
<PAGE> 77

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Municipal Trust V.P.
Colonial InterMarket
Income Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Liberty Funds Trusts I through IX V.P.
Liberty Funds Services, Inc. Director
Liberty Funds Group LLC CAO; Ex. V.P.
Liberty Funds Distributor,
Inc. Director
AlphaTrade Inc. Director
Liberty Financial Advisors,
Inc. Director
Stein Roe & Farnham
Incorporated Exec. V.P.
Liberty Variable Investment
Trust V.P.
Liberty All-Star Equity Fund V.P.
Liberty All-Star Growth Fund,
Inc. V.P.

Peishoff, William V.P.

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

Pielech, Mitchell V.P.

Pope, David V.P.

Reading, John V.P.; Liberty Funds Services, Inc. Asst. Clerk
Asst. Liberty Funds Group LLC Asst. Sec.
Sec.; Colonial Advisory Services,
Asst. Inc. Asst. Clerk
Clerk and Liberty Funds Distributor,
Counsel Inc. Asst. Clerk
AlphaTrade Inc. Asst. Clerk
Liberty Funds Trusts I through IX Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
</TABLE>

C-13
<PAGE> 78

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Liberty Financial Advisors,
Inc. Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.

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

Richards, Scott B. Sr. V.P. Colonial Advisory Services, Inc. Senior V.P.

Schermerhorn, Scott Sr. V.P.

Seibel, Sandra L. V.P. Colonial Advisory Services, Inc. V.P.

Shields, Yvonne B. V.P. Stein Roe & Farnham
Incorporated V.P.

Smalley, Gregg V.P.

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

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

Stoeckle, Mark Sr. V.P. Colonial Advisory Services, Inc. V.P.

Swayze, Gary Sr. V.P.

Thomas, Ronald V.P.

Turcotte,
Frederick J. V.P. Liberty Funds Services, Inc. V.P.
Liberty Funds Distributor, Inc. V.P.
Colonial Advisory Services, Inc. V.P.
AlphaTrade Inc. V.P.
Liberty Funds Group LLC V.P.
Liberty Financial Services, Inc. V.P.
Liberty Financial Companies, Inc. V.P. and
Managing Dir.
of Taxation
LREG, Inc. V.P.
Liberty Newport Holdings, Limited V.P.
Newport Pacific Management, Inc. V.P.
Newport Fund Management, Inc. V.P.
Newport Private Equity Asia, Inc. V.P.
Independent Holdings, Inc. V.P.
IFS Agencies, Inc. V.P.
IFMG Agencies of Maine, Inc. V.P.
IFMG Agencies of Oklahoma, Inc. V.P.
IFS Agencies of Alabama, Inc. V.P.
IFS Agencies of New Mexico, Inc. V.P.
IFS Insurance Agencies of Ohio, Inc. V.P.
IFS Insurance Agencies of Texas,
Inc. V.P.
Liberty Securities Corporation V.P.
Stein Roe Services, Inc. V.P.
Stein Roe & Farnham Incorporated V.P.
Stein Roe Futures, Inc. V.P.
Progress Investment Management
Company V.P.
Crabbe Huson Group, Inc. V.P.

Wallace, John R. V.P. Colonial Advisory Services,
Asst. Treas. Inc. Asst. Treas.
Liberty Funds Group LLC Asst. Treas.

Ware, Elizabeth M. V.P.

Wiley, Christine V.P.
</TABLE>

C-14
<PAGE> 79

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Wiley, Peter V.P.
</TABLE>

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

Item 31. Location of Accounts and Records

Registrant: Colonial Investment Grade Interval Trust
One Financial Center
Boston, Massachusetts 02111-2621

Investment Advisor: Colonial Management Associates, Inc.
One Financial Center
Boston, Massachusetts 02111-2621

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

Transfer Agent: Colonial Management Associates, Inc.
One Financial Center
Boston, Massachusetts 02111-2621

Item 32. Management Services

Not Applicable

Item 33. Undertakings

The Registrant hereby undertakes:

(1) To suspend the offering of its common shares of beneficial
interest until it amends its prospectus if (i) subsequent to the
effective date of this Registration Statement, the net asset value
per share of beneficial interest declines more than 10 percent
from its net asset value per share of beneficial interest as of
the effective date of this Registration Statement or, (ii) its net
asset value per share of beneficial interest increases to an
amount greater than its net proceeds as stated in the prospectus
contained herein.

(2) Not Applicable

(3) Not Applicable

(4) Not Applicable

(5) (a) That, for the purpose of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as a part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant under Rule 497(h) under the Securities Act
of 1933 shall be deemed to be part of this Registration Statement
as of the time it was declared effective; and

(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.

(6) To send by first class mail or other means designed to ensure
equally prompt delivery, within two business days of receipt of a
written or oral request, any Statement of Additional Information.

C-15
<PAGE> 80

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment Company
Act of 1940 the Registrant has duly caused this Registration Statement on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
the Commonwealth of Massachusetts on the 18th day of November, 1999.

COLONIAL INVESTMENT GRADE INTERVAL TRUST

By: /s/ STEPHEN E. GIBSON
----------------------
Stephen E. Gibson
President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in their capacities and
on the date indicated.

SIGNATURES TITLE DATE
- ---------- ----- ----

/s/ STEPHEN E. GIBSON President (chief November 18, 1999
- ------------------------ executive officer)
Stephen E. Gibson

/s/ J. KEVIN CONNAUGHTON Controller and Chief November 18, 1999
- ------------------------ Accounting Officer
J. Kevin Connaughton

/s/ TIMOTHY J. JACOBY Treasurer and Chief November 18, 1999
- ------------------------ Financial Officer
Timothy J. Jacoby