LIBERTY TAX-MANAGED AGGRESSIVE GROWTH FUND PROSPECTUS, AUGUST 1, 2000
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CLASS A, B AND C SHARES
Advised by Stein Roe & Farnham Incorporated
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered in
this prospectus or determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
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TABLE OF CONTENTS
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THE FUND 2
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Investment Goals........................................................... 2
Principal Investment Strategies............................................ 2
Principal Investment Risks................................................. 2
Performance................................................................ 4
Your Expenses.............................................................. 5
YOUR ACCOUNT 6
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How to Buy Shares.......................................................... 6
Sales Charges.............................................................. 7
How to Exchange Shares..................................................... 10
How to Sell Shares......................................................... 10
Fund Policy on Trading of Fund Shares...................................... 12
Distribution and Service Fees.............................................. 12
Other Information About Your Account....................................... 12
MANAGING THE FUND 16
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Investment Advisor......................................................... 16
Portfolio Managers......................................................... 16
OTHER INVESTMENT STRATEGIES AND RISKS 17
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THE FUND
UNDERSTANDING TAX-MANAGED INVESTING
In managing the Fund, the advisor uses investment strategies that are designed
to reduce (but not eliminate) the payment by the Fund of taxable distributions
to shareholders. These strategies include: buying stocks that pay low dividends
or no dividends at all; seeking low portfolio turnover which helps to minimize
realization and distribution of taxable gains, except when portfolio turnover
may actually reduce shareholder exposure to taxes (such as when the advisor
sells securities to create a loss to offset gains realized on other securities);
deferring the sale of a security until the realized gain would qualify as a
long-term capital gain rather than a short-term capital gain; and selling the
higher cost basis portion of a security holding before the lower cost basis
portion. The investment advisor also may utilize certain active, tax-management
strategies. These include tax switches, dividend rolls and selling and
reinvesting strategies. See "Other Investment Strategies and Risks."
From time to time, the Fund expects to distribute taxable income and capital
gains. Market conditions may limit the Fund's ability to generate tax losses or
to avoid dividend income. Additionally, the ability to use certain tax
management techniques may be curtailed or eliminated in the future by tax
legislation or regulation.
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INVESTMENT GOALS
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The Fund seeks long-term capital growth while reducing shareholder exposure to
taxes.
PRINCIPAL INVESTMENT STRATEGIES
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The Fund invests primarily in common stocks of small and medium capitalization
companies that the portfolio managers believe have long-term growth potential.
These companies tend to operate within large and growing markets for the
companies' goods and services, are well capitalized and have accelerating rates
of corporate earnings and experienced and motivated management teams. At times,
the Fund may have a significant percentage of its assets invested in a broad
economic sector. (Manufacturing, energy and technology are examples of broad
economic sectors.) The Fund also may invest in large capitalization companies
and, to a limited extent, foreign companies.
Approval by the Fund's shareholders is not required to modify or change the
Fund's investment goals or investment strategies.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is its stock price
multiplied by the number of shares of stock it has issued and outstanding. In
the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
June 30, 2000, large cap companies had market capitalizations greater than $10.5
billion, mid cap companies had market capitalizations between $1.7 and $10.5
billion, and small cap companies had market capitalizations less than $1.7
billion. These amounts are subject to change.
PRINCIPAL INVESTMENT RISKS
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The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could prevent the Fund from achieving its investment goals. You may lose money
by investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
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2
THE FUND
Equity securities in which the Fund invests are subject to special risks.
Although the stock market has historically outperformed other asset classes over
the long term, the equity market tends to move in cycles and individual stock
prices may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These price movements may result from factors affecting
individual companies, industries or the securities market as a whole.
Growth stock prices may be more sensitive to changes in current or expected
earnings than the prices of other stocks. Growth stocks may not perform as well
as value stocks or the stock market in general.
Small cap and mid cap companies are more likely than larger companies to have
limited product lines, operating histories, markets or financial resources. They
may depend heavily on a small management team. Stocks of small and mid-size
companies may trade less frequently, in smaller volumes and fluctuate more
sharply in price than stocks of larger companies. In addition, they may not be
widely followed by the investment community, which can lower demand for their
stock.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Although the Fund will attempt to reduce
shareholder exposure to taxes, the Fund, from time to time, will generate and
distribute, and shareholders will be subject to, taxable income and capital
gains. The ability to use certain tax management techniques also may be
curtailed or eliminated in the future by tax legislation or regulation.
Additionally, the Fund may sell securities to realize capital losses to offset
capital gains. If the Fund engages in such transactions, it will pay more in
commissions, which may reduce returns.
Sector risk is inherent in the Fund's investment strategy. Companies that are in
different but closely related industries are sometimes described as being in the
same broad economic sector. The values of stocks of many different companies in
a market sector may be similarly affected by particular economic or market
events. Although the Fund does not intend to focus on any particular sector, at
times, the Fund may have a large portion of its assets invested in particular
sectors. An example of a sector in which the Fund may sometimes have a large
portion of its assets invested is technology. Technology companies may be
significantly affected by falling prices and profits, and intense competition.
In addition, the rate of technological change for technology companies is
generally higher than for other companies, often requiring extensive and
sustained investment in research and development, and exposing such companies to
the risk of rapid product obsolescence. The price of many technology stocks has
risen based on projections of future earnings and company growth. If a company
does not perform as expected, the price of the stock could decline
significantly. Many technology companies are currently operating at a loss and
may never be profitable.
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3
THE FUND
Foreign securities are subject to special risks. The Fund may invest in foreign
securities either indirectly (e.g., depositary receipts) or directly through
foreign stock markets. Foreign stock markets can be extremely volatile.
Fluctuations in currency exchange rates may impact the value of foreign
securities without a change in the intrinsic value of those securities. The
liquidity of foreign securities may be more limited than domestic securities,
which means that the Fund may, at times, be unable to sell foreign securities at
desirable prices. 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 and capital
gains available to distribute to shareholders. Other risks include the
following: possible delays in the settlement of transactions or the notification
of income; 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.
An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
PERFORMANCE
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Because the Fund is a new fund and has not completed one full year of investment
performance, information related to the Fund's performance, including a bar
chart showing the Fund's annual returns, has not been included in this
prospectus.
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4
THE FUND
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management and administration fees, 12b-1 fees, and administrative costs
including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
- Assumes Class B shares convert to Class A shares after 8 years.
YOUR EXPENSES
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Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
SHAREHOLDER FEES (paid directly from your investment)
CLASS A CLASS B CLASS C
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Maximum sales charge (load) on purchases(%)
(as a percentage of the offering price) 5.75 0.00 0.00
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Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser of purchase price or redemption price) 1.00(1) 5.00 1.00
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Redemption fee (%) (as a percentage of
amount redeemed, if applicable) (2) (2) (2)
A $10 annual fee is deducted from accounts of less than $1,000 and paid to the
transfer agent.
ANNUAL FUND OPERATING EXPENSES (deducted directly from Fund assets)
CLASS A CLASS B CLASS C
------- ------- -------
Management fees (3) (%) 1.00 1.00 1.00
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Distribution and service (12b-1) fees (%) 0.30 1.00 1.00
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Other expenses (4) (%) 0.55 0.55 0.55
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Total annual fund operating expenses (5) (%) 1.85 2.55 2.55
EXAMPLE EXPENSES (your actual costs may be higher or lower)
CLASS 1 YEAR 3 YEARS
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Class A $752 $1,123
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Class B: did not sell your shares $258 $793
Sold all your shares at
the end of the period $758 $1,093
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Class C: did not sell your shares $258 $793
Sold all your shares at
the end of the period $358 $793
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(1) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) The Fund pays a management fee of 0.80% and an administration fee of 0.20%.
(4) "Other Expenses" are based on estimated amounts for the current fiscal
year.
(5) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 1.25% of average net assets. The advisor may modify or terminate
this arrangement at any time.
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5
YOUR ACCOUNT
INVESTMENT MINIMUMS
Initial Investment ..................................... $1,000
Subsequent Investments.................................. $50
Automatic Investment Plan............................... $50
Retirement Plans........................................ $25
The Fund reserves the right to change these investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
HOW TO BUY SHARES
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Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. "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 THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
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Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. Your financial advisor
may charge you fees for executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Liberty
Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-
1722.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or
send a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
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By exchange You or your financial advisor may acquire shares
by exchanging shares you own in one fund for shares of the
same class of the Fund at no additional cost. There may be
an additional charge if exchanging from a money market
fund. To exchange by telephone, call 1-800-422-3737.
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By wire You may purchase shares by wiring money from your
bank account to your fund account. To wire funds to your
fund account, call 1-800-422-3737 to obtain a control
number and the wiring instructions.
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By electronic funds You may purchase shares by electronically transferring
transfer money from your bank account to your fund account by
calling 1-800-422-3737. Electronic funds transfers may
take up to two business days to settle and be considered
in "good form." You must set up this feature prior to your
telephone request. Be sure to complete the appropriate
section of the application.
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Automatic You can make monthly or quarterly investments
investment plan automatically from your bank account to your fund account.
You can select a pre-authorized amount to be sent via
electronic funds transfer. Be sure to complete the
appropriate section of the application for this feature.
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By dividend You may automatically invest dividends distributed by one
diversification fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in
another fund, call 1-800-345-6611.
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6
YOUR ACCOUNT
CHOOSING A SHARE CLASS
The Fund 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. If your financial
advisor firm does not participate in the Class B discount program, then
purchases in excess of $250,000 must be for Class A or Class C shares only.
Purchases of over $1 million can be made in Class A shares only. Based on your
personal situation, your investment advisor can help you decide which class of
shares makes the most sense for you.
The Fund also offers an additional class of shares, Class Z shares, exclusively
to certain institutional and other investors. Class Z shares are made available
through a separate prospectus provided to eligible institutional and other
investors.
SALES CHARGES
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You may be subject to an initial sales charge when you purchase, or a contingent
deferred sales charge (CDSC) when you sell, shares of the Fund. These sales
charges are described below. In certain circumstances, these sales charges are
waived, as described below and in the Statement of Additional Information.
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. A portion of the sales
charge is the commission paid to the financial advisor firm on the sale of Class
A shares. The sales charge you pay on additional investments is based on the
total amount of your purchase and the current value of your account. The amount
of the sales charge differs depending on the amount you invest as shown in the
table below.
CLASS A SALES CHARGES
% OF
OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTMENT ADVISOR FIRM
------------------ ---------- ---------- ------------
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
Class A shares bought without an initial sales charge for amounts exceeding $1
million are subject to a 1.00% CDSC if the shares are sold within 18 months of
the time of purchase. The 18-month period begins on the first day of the month
following each purchase.
For Class A share purchases of $1 million or more, financial advisors receive a
commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION %
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First $3 million 1.00
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Next $2 million 0.50
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Over $5 million 0.25
The commission to financial advisors for Class A share purchases over $5 million
is paid over 12 months but only to the extent the shares remain outstanding.
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7
YOUR ACCOUNT
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class A, B and C shares are subject to a CDSC, a sales
charge applied at the time you sell your shares. You will pay the CDSC only on
shares you sell within a certain amount of time after purchase. The CDSC
generally declines each year until there is no charge for selling shares. The
CDSC is applied to the net asset value at the time of purchase or sale,
whichever is lower. For purposes of calculating the CDSC, the start of the
holding period is the month-end of the month in which the purchase is made.
Shares you purchase with reinvested dividends or capital gains are not subject
to a CDSC. When you place an order to sell shares, the Fund will automatically
sell first those shares not subject to a CDSC and then those you have held the
longest. This policy helps reduce and possibly eliminate the potential impact of
the CDSC.
REDUCED SALES CHARGES FOR LARGER INVESTMENTS You may pay a lower sales charge
when purchasing Class A shares 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 in vest a total of at least $50,000 within 13
months. If your Statement of Intent purchases are not completed within 13
months, you will be charged the applicable sales charge on the amount you had
invested to that date. In addition, certain investors may purchase shares at a
reduced sales charge or net asset value, which is the value of a fund share
excluding any sales charges. See the Statement of Additional Information for a
description of these situations.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset
value. Class B shares have no front-end sales charge, but they do carry a CDSC
that is imposed only on shares sold prior to the completion of the periods shown
in the charts below. The CDSC generally declines each year and eventually
disappears over time. The distributor pays the financial advisor firm an
up-front commission on sales of Class B shares as depicted in the charts below.
PURCHASES OF LESS THAN $250,000:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ----------------
Through first year 5.00
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Through second year 4.00
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Through third year 3.00
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Through fourth year 3.00
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Through fifth year 2.00
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Through sixth year 1.00
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Longer than six years 0.00
Commission to financial advisors is 5.00%.
Automatic conversion to Class A shares is eight years after purchase.
You can pay a lower CDSC and reduce the holding period when making purchases of
Class B shares through a financial advisor firm which participates in the Class
B share discount program for larger purchases as described in the charts below.
Some financial advisor firms are not able to participate because their record
keeping or transaction processing systems are not designed to accommodate these
reductions. For non-participating firms, purchases of Class B shares must be for
amounts less than $250,000. Consult your financial advisor to see whether it
participates in the discount program for larger purchases. For participating
firms, Rights of Accumulation apply, so that if the combined value of the Fund
accounts maintained by you, your spouse or your minor children is at or above a
discount level, your next purchase will receive the lower CDSC and the
applicable reduced holding period.
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8
YOUR ACCOUNT
PURCHASES OF $250,000 TO LESS THAN $500,000:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 3.00
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Through second year 2.00
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Through third year 1.00
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Longer than three years 0.00
Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares is four years after purchase.
PURCHASES OF $500,000 TO LESS THAN $1 MILLION:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 3.00
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Through second year 2.00
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Through third year 1.00
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Longer than three years 0.00
Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares is three years after purchase.
If you exchange into a fund participating in the Class B share discount program
or transfer your fund account from a financial advisor which does not
participate in the program to one who does, the exchanged or transferred shares
will retain the pre-existing CDSC but any additional purchases of Class B shares
which cause the exchanged or transferred account to exceed the applicable
discount level will receive the lower CDSC and the reduced holding period for
amounts in excess of the discount level. Your financial advisor will receive the
lower commission for purchases in excess of the applicable discount level. If
you exchange from a participating fund or transfer your account from a financial
advisor that does participate in the program into a fund or financial advisor
which does not, the exchanged or transferred shares will retain the pre-existing
CDSC but all additional purchases of Class B shares will be in accordance with
the higher CDSC and longer holding period of the non-participating fund or
financial advisor.
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9
YOUR ACCOUNT
CLASS C SHARES Similar to Class B shares, your purchases of Class C shares are
at Class C's net asset value. Although Class C shares have no front-end sales
charge, they carry a CDSC of 1.00% that is applied to shares sold within the
first year after they are purchased. After holding shares for one year, you may
sell them at any time without paying a CDSC. The distributor pays the financial
advisor firm an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
YEARS AFTER PURCHASE % DEDUCTED WHEN SHARES ARE SOLD
-------------------- -------------------------------
Through first year 1.00
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Longer than one year 0.00
HOW TO EXCHANGE SHARES
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You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at net asset value. If your
shares are subject to a CDSC, you will not be charged a CDSC upon the exchange.
However, when you sell the shares acquired through the exchange, the shares sold
may be subject to a CDSC, depending upon when you originally purchased the
shares you exchanged. For purposes of computing the CDSC, the length of time you
have owned your shares will be computed from the date of your original purchase
and the applicable CDSC will be the CDSC of the original fund. Unless your
account is part of a tax-deferred retirement plan, an exchange is a taxable
event. Therefore, you may realize a gain or a loss for tax purposes. The Fund
may terminate your exchange privilege if the advisor determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
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Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" also means (i) your letter has complete instructions, the proper
signatures and signature guarantees, (ii) you have included any certificates for
shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement plan accounts
have special requirements; please call 1-800-799-7526 for more information.
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10
YOUR ACCOUNT
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, the Fund may delay
sending the proceeds from the sale of your shares for up to 15 days after your
purchase to protect against checks that are returned. No interest will be paid
on uncashed redemption checks. Redemption proceeds may be paid in securities,
rather than in cash, if the investment advisor determines that it is in the best
interest of the Fund.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
------ ------------
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor firm must receive your request prior to
the close of the NYSE, usually 4:00 p.m. Eastern time.
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By exchange You or your financial advisor may sell shares by
exchanging from the Fund into the same share class of
another fund at no additional cost.
To exchange by telephone, call 1-800-422-3737.
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By telephone You or your financial advisor may sell shares by
telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales
is $100,000 in a 30-day period. You do not need to set
up this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details,
call 1-800-345-6611.
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By mail You may send a signed letter of instruction or stock power
form along with any certificates to be sold to the address
below. In your letter of instruction, note the Fund's
name, share class, account number, and the dollar value
or number of shares you wish to sell. All account owners
must sign the letter, and signatures must be guaranteed
by either a bank, a member firm of a national stock
exchange or another eligible guarantor institution.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details,
call 1-800-345-6611.
Mail your letter of instruction to Liberty Funds Services,
Inc., P.O. Box 1722, Boston, MA 02105-1722.
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By wire You may sell shares and request that the proceeds be
wired to your bank. You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be
sure to complete the appropriate section of the account
application for this feature.
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11
YOUR ACCOUNT
FUND POLICY ON TRADING OF FUND SHARES
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The Fund does not permit short-term or excessive trading. Excessive purchases,
redemptions, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern of short-term or excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
DISTRIBUTION AND SERVICE FEES
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The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A, B and C shares
and the services provided to you by your financial advisor. The annual
distribution fee and service fee may equal up to 0.05% and 0.25%, respectively,
for Class A shares and 0.75% and 0.25%, respectively, for each of Class B and
Class C shares and are paid out of the assets of these classes. Over time, these
fees will increase the cost of your shares and may cost you more than paying
other types of sales charges. Class B shares automatically convert to Class A
shares after a certain number of years, eliminating a portion of the
distribution fee upon conversion. Conversion may occur three, four or eight
years after purchase, depending on the program you purchased your shares under.
See "Your Account; Sales Charges" for the conversion schedule applicable to
Class B shares.
OTHER INFORMATION ABOUT YOUR ACCOUNT
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HOW THE FUND'S SHARE PRICE IS DETERMINED The price of each class of the Fund's
shares is based on its net asset value. The net asset value is determined at the
close of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each
business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value
(plus any applicable sales charges) next determined after your request is
received in "good form" by the distributor. In most cases, in order to receive
that day's price, the distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each
class's total net assets by the number of that class's outstanding shares. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Securities for which
market quotations are available are valued each day at the current market value.
However, where market quotations are unavailable, or when the advisor believes
that subsequent events have made them unreliable, the Fund may use other data to
determine the fair value of the securities. Because the Fund holds securities
that are traded on foreign exchanges, the value of the Fund's securities may
change on days when shareholders will not be able to buy or sell Fund shares.
This will affect the Fund's net asset value on the day it is next determined.
----
12
YOUR ACCOUNT
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value) you may be subject to an annual account fee of $10.
This fee is deducted from the account in June each year. Approximately 60 days
prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
SHARE CERTIFICATES Share certificates are not available for Class B and C
shares. Certificates will be issued for Class A shares only if requested. If you
decide to hold share certificates, you will not be able to sell your shares
until you have endorsed your certificates and returned them to the distributor.
----
13
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may realize
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
TYPES OF DISTRIBUTIONS
Dividend Represents interest and dividends earned from securities
held by the Fund.
--------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
DISTRIBUTION OPTIONS The Fund distributes dividends and any capital gains
(including short-term capital gains) at least annually. You can choose one of
the options listed in the table below for these distributions when you open your
account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund
--------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
--------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains
--------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
Distributions of $10 or less will automatically be reinvested in additional Fund
shares. If you elect to receive distributions by check and the check is returned
as undeliverable, or if you do not cash a distribution check within six months
of the check date, the distribution will be reinvested in additional shares of
the Fund.
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital
gains are taxable as ordinary income. Distributions of long-term capital gains
are generally taxable as such, regardless of how long you have held your Fund
shares. You will be provided with information each year regarding the amount of
ordinary income and capital gains distributed to you for the previous year and
any portion of your distribution which is exempt from state and local taxes.
Your investment in the Fund may have additional personal tax implications.
Please consult your tax advisor on foreign, federal, state, local or other
applicable tax laws.
----
14
YOUR ACCOUNT
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state and local income tax.
----
15
MANAGING THE FUND
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Chicago, Illinois 60606, is the Fund's investment advisor. In its duties as
investment advisor, Stein Roe runs the Fund's day-to-day business, including
placing all orders for the purchase and sale of the Fund's portfolio securities.
Stein Roe has been an investment advisor since 1932.
Stein Roe's mutual funds and institutional investment advisory businesses are
part of a larger business unit that includes several separate legal entities
known as Liberty Funds Group LLC (LFG). LFG includes certain affiliates of Stein
Roe, principally Colonial Management Associates, Inc. (Colonial). Stein Roe and
the LFG business unit are managed by a single management team. Stein Roe,
Colonial and the other LFG entities also share personnel, facilities and systems
that may be used in providing administrative or operational services to the
Fund. Colonial is a registered investment advisor. Stein Roe, Colonial and the
other entities that make up LFG are subsidiaries of Liberty Financial Companies,
Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Fund's portfolio, pursuant to
procedures adopted by the Board of Trustees.
PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
STEVE D. HAYWARD, a senior vice president of Stein Roe, co-manages the Fund. Mr.
Hayward also is the portfolio manager of Stein Roe Midcap Growth Fund and a
co-portfolio manager of Stein Roe Capital Opportunities Fund. Prior to joining
Stein Roe in November 1999, he served as vice president, investments, for M&I
Investment Management from 1993 to 1999, where he managed the Marshall Mid-Cap
Fund and Marshall Small-Cap Growth Fund. Mr. Hayward earned a B.A. from North
Park College and an M.B.A. in finance from Loyola University.
WILLIAM M. GARRISON, a vice president of Stein Roe, co-manages the Fund. Mr.
Garrison joined Stein Roe in 1989 as an economic research assistant. From 1993
to 1999 he was an equity research analyst. He has been the portfolio manager of
the Stein Roe Small Company Growth Fund and Stein Roe Small Company Growth Fund,
Variable Series since 1998. Mr. Garrison earned a B.A. from Princeton University
and an M.B.A. from the University of Chicago.
----
16
OTHER INVESTMENT STRATEGIES AND RISKS
UNDERSTANDING THE FUND'S OTHER INVESTMENTS AND RISKS
The Fund's principal investments and risks are described under "The Fund --
Principal Investment Strategies" and "The Fund -- Principal Investment Risks."
In seeking to meet its investment goals, the Fund may also invest in other
securities and use certain other investment techniques. These securities and
investment techniques offer opportunities and carry various risks.
The investment advisor may elect not to buy any of these securities or use any
of these securities or use any of these techniques unless it believes that doing
so will help the Fund achieve its investment goals. The Fund may not always
achieve its investment goals.
Additional information about the Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
The Fund's principal investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its investment goals, the
Fund may invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goals or investment strategies.
TAX SWITCH
--------------------------------------------------------------------------------
A tax switch involves selling the stock of one issuer at a loss and
simultaneously purchasing the stock of another issuer that the advisor believes
has similar or better long-term growth potential. The Fund may use tax switches
to build inventories of losses, which can be used to offset further gains for up
to eight years, helping to increase the potential for tax efficiency.
DIVIDEND ROLLS
--------------------------------------------------------------------------------
A dividend roll program seeks to invest in high-dividend stocks shortly before
the dividend is paid and selling these stocks, at a loss, immediately after
collecting the dividend. The Fund's advisor may use various dividend roll
techniques to increase the potential for tax efficiency.
SELL AND REINVEST STRATEGIES
--------------------------------------------------------------------------------
The Fund generally has a long-term perspective when investing in stocks.
However, the advisor may sell a stock at a loss and repurchase that same stock
at a later date. The resulting loss can be used to offset future gains in the
portfolio while the Fund continues to maintain its position in that company's
long-term growth potential.
TEMPORARY DEFENSIVE STRATEGIES
--------------------------------------------------------------------------------
At times, the advisor may determine that adverse market conditions make it
desirable to temporarily suspend the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or
high-quality, short-term debt securities, without limit. Taking a temporary
defensive position may prevent the Fund from achieving its investment goals.
----
17
OTHER INVESTMENT STRATEGIES AND RISKS
DERIVATIVE STRATEGIES
--------------------------------------------------------------------------------
The Fund may enter into a number of hedging strategies, including those that
employ futures and options, to gain or reduce exposure to particular securities
or markets. These strategies, commonly referred to as derivatives, involve the
use of financial instruments whose values depend on, or are derived from, the
value of an underlying security, index or currency. The Fund may use these
strategies to adjust the Fund's sensitivity to changes in interest rates, for
hedging purposes (i.e., attempting to offset a potential loss in one position by
establishing an interest in an opposite position), and for tax management and
other purposes. Derivative strategies involve the risk that they may exaggerate
a loss, potentially losing more money than the actual cost of the underlying
security, or limit a potential gain. Also, with some derivative strategies there
is the risk that the other party to the transaction may fail to honor its
contract terms, causing a loss to the Fund.
PURCHASE AND SALE DECISIONS
--------------------------------------------------------------------------------
The advisor may sell a security if it believes that the current stock price is
not supported by the advisor's expectations regarding the company's future
growth potential. The advisor may purchase and sell securities in order to
reduce shareholder exposure to taxes as part of the Fund's active tax-management
strategy. The advisor will consider the tax effects of portfolio turnover in
deciding whether to purchase and sell individual securities.
----
18
NOTES
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19
FOR MORE INFORMATION
--------------------------------------------------------------------------------
More information about the Fund's investments will be published in the Fund's
semi-annual and annual reports to shareholders. The annual report will contain a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the Edgar database on the Securities and Exchange Commission internet site at
www.sec.gov.
You can review and copy information about the Fund by visiting the following
location, and you can obtain copies, upon payment of a duplicating fee by
electronic request at the E-mail address [email protected] or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty Funds Trust I: 811-2214
- Liberty Tax-Managed Aggressive Growth Fund
LIBERTY FUND
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
714-01/284C-0700
LIBERTY TAX-MANAGED AGGRESSIVE GROWTH FUND PROSPECTUS, AUGUST 1, 2000
CLASS Z SHARES
Advised by Stein Roe & Farnham Incorporated
The following eligible institutional investors may purchase Class Z shares:
(i) any retirement plan with aggregate assets of at least $5 million at the
time of purchase of Class Z shares and which purchases shares directly from
Liberty Funds Distributor, Inc., the Fund's distributor, or through a third
party broker-dealer, (ii) any insurance company, trust company or bank
purchasing shares for its own account; and (iii) any endowment, investment
company or foundation. In addition, Class Z shares may be purchased directly
or by exchange by any clients of investment advisory affiliates of the
distributor provided that the clients meet certain criteria established by the
distributor and its affiliates.
Although these securities have been registered with the Securities and
Exchange Commission, the Commission has not approved or disapproved any shares
offered in this prospectus or determined whether this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
--------------------------------------------------------------------------------
TABLE OF CONTENT
THE FUND 2
--------------------------------------------------------------------------------
Investment Goals............................................................ 2
Principal Investment Strategies............................................. 2
Principal Investment Risks.................................................. 2
Performance................................................................. 4
Your Expenses............................................................... 5
YOUR ACCOUNT 6
--------------------------------------------------------------------------------
How to Buy Shares........................................................... 6
Sales Charges............................................................... 7
How to Exchange Shares...................................................... 7
How to Sell Shares.......................................................... 7
Fund Policy on Trading of Fund Shares....................................... 8
Other Information About Your Account........................................ 9
MANAGING THE FUND 12
--------------------------------------------------------------------------------
Investment Advisor.......................................................... 12
Portfolio Managers.......................................................... 12
OTHER INVESTMENT STRATEGIES AND RISKS 13
--------------------------------------------------------------------------------
THE FUND
UNDERSTANDING TAX-MANAGED INVESTING
In managing the Fund, the advisor uses investment strategies that are designed
to reduce (but not eliminate) the payment by the Fund of taxable distributions
to shareholders. These strategies include: buying stocks that pay low dividends
or no dividends at all; seeking low portfolio turnover which helps to minimize
realization and distribution of taxable gains, except when portfolio turnover
may actually reduce shareholder exposure to taxes (such as when the advisor
sells securities to create a loss to offset gains realized on other
securities); deferring the sale of a security until the realized gain would
qualify as a long-term capital gain; and selling the higher cost basis portion
of a security holding before the lower cost basis portion. The investment
advisor also may utilize certain active, tax-management strategies. These
include tax switches, dividend rolls and selling and reinvesting strategies. See
"Other Investment Strategies and Risks."
From time to time, the Fund expects to distribute taxable income and capital
gains. Market conditions may limit the Fund's ability to generate tax losses or
to avoid dividend income. Additionally, the ability to use certain tax
management techniques may be curtailed or eliminated in the future by tax
legislation or regulation.
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks long-term capital growth while reducing shareholder exposure to
taxes.
PRINCIPAL INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund invests primarily in common stocks of small and medium capitalization
companies that the portfolio managers believe have long-term growth potential.
These companies tend to operate within large and growing markets for the
companies' goods and services, are well capitalized and have accelerating rates
of corporate earnings and experienced and motivated management teams. At times,
the Fund may have a significant percentage of its assets invested in a broad
economic sector. (Manufacturing, energy and technology are examples of broad
economic sectors.) The Fund also may invest in large capitalization companies
and, to a limited extent, foreign companies.
Approval by the Fund's shareholders is not required to modify or change the
Fund's investment goals or investment strategies.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is its stock price
multiplied by the number of shares of stock it has issued and outstanding. In
the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
June 30, 2000, large cap companies had market capitalizations greater than $10.5
billion, mid cap companies had market capitalizations between $1.7 and $10.5
billion, and small cap companies had market capitalizations less than $1.7
billion. These amounts are subject to change.
PRINCIPAL INVESTMENT RISKS
--------------------------------------------------------------------------------
The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could prevent the Fund from achieving its investment goals. You may lose money
by investing in the Fund.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing market, economic or political conditions.
----
2
THE FUND
Equity securities in which the Fund invests are subject to special risks.
Although the stock market has historically outperformed other asset classes over
the long term, the equity market tends to move in cycles and individual stock
prices may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These price movements may result from factors affecting
individual companies, industries or the securities market as a whole.
Growth stock prices may be more sensitive to changes in current or expected
earnings than the prices of other stocks. Growth stocks may not perform as well
as value stocks or the stock market in general.
Small cap and mid cap companies are more likely than larger companies to have
limited product lines, operating histories, markets or financial resources. They
may depend heavily on a small management team. Stocks of small and mid-size
companies may trade less frequently, in smaller volumes and fluctuate more
sharply in price than stocks of larger companies. In addition, they may not be
widely followed by the investment community, which can lower demand for their
stock.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Although the Fund will attempt to reduce
shareholder exposure to taxes, the Fund, from time to time, will generate and
distribute, and shareholders will be subject to, taxable income and capital
gains. The ability to use certain tax management techniques also may be
curtailed or eliminated in the future by tax legislation or regulation.
Additionally, the Fund may sell securities to realize capital losses to offset
capital gains. If the Fund engages in such transactions, it will pay more in
commissions, which may reduce returns.
Sector risk is inherent in the Fund's investment strategy. Companies that are in
different but closely related industries are sometimes described as being in the
same broad economic sector. The values of stocks of many different companies in
a market sector may be similarly affected by particular economic or market
events. Although the Fund does not intend to focus on any particular sector, at
times, the Fund may have a large portion of its assets invested in particular
sectors. An example of a sector in which the Fund may sometimes have a large
portion of its assets invested is technology. Technology companies may be
significantly affected by falling prices and profits, and intense competition.
In addition, the rate of technological change for technology companies is
generally higher than for other companies, often requiring extensive and
sustained investment in research and development, and exposing such companies to
the risk of rapid product obsolescence. The price of many technology stocks has
risen based on projections of future earnings and company growth. If a company
does not perform as expected, the price of the stock could decline
significantly. Many technology companies are currently operating at a loss and
may never be profitable.
----
3
Foreign securities are subject to special risks. The Fund may invest in foreign
securities either indirectly (e.g., depositary receipts) or directly through
foreign stock markets. Foreign stock markets can be extremely volatile.
Fluctuations in currency exchange rates may impact the value of foreign
securities without a change in the intrinsic value of those securities. The
liquidity of foreign securities may be more limited than domestic securities,
which means that the Fund may, at times, be unable to sell foreign securities at
desirable prices. 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 and capital
gains available to distribute to shareholders. Other risks include the
following: possible delays in the settlement of transactions or the notification
of income; 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.
An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
PERFORMANCE
--------------------------------------------------------------------------------
Because the Fund is a new fund and has not completed one full year of investment
performance, information related to the Fund's performance, including a bar
chart showing the Fund's annual returns, has not been included in this
prospectus.
----
4
THE FUND
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Liberty Funds Distributor,
Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management and administration fees, brokerage costs, and administrative costs
including pricing and custody services.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
YOUR EXPENSES
--------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
SHAREHOLDER FEES (paid directly from your investment)
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
--------------------------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
lesser of purchase price or redemption price) 0.00
--------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of (1)
amount redeemed, if applicable)
A $10 annual fee is deducted from accounts of less than $1,000 and paid to the
transfer agent.
ANNUAL FUND OPERATING EXPENSES (deducted directly from Fund assets)
Management fees (2)(%) 1.00
--------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00
--------------------------------------------------------------------------------
Other expenses (3) (%) 0.55
--------------------------------------------------- -----------
Total annual fund operating expenses (4) (%) 1.55
EXAMPLE EXPENSES (your acvtual costs may be higher lor lower)
1 YEAR 3 YEARS
------ -------
$158 $490
----------
(1) There is a $7.50 charge for wiring sale proceeds to your bank.
(2) The Fund pays a management fee of 0.80% and an administration fee of 0.80%
and an administration fee of 0.20%.
(3) "Other expenses" are based on estimated amounts for the current fiscal
year.
(4) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 1.25% of average net assets. The advisor may modify or terminate
this arrangement at any time.
----
5
WHO IS ELIGIBLE TO BUY CLASS Z 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
distributor or through a third party broker-dealer; (ii) any insurance company,
trust company or bank purchasing shares for its own account; and (iii) any
endowment, investment company or foundation. In addition, Class Z shares may be
purchased directly or by exchange by any clients of investment advisory
affiliates of the distributor provided that the clients meet certain criteria
established by the distributor and its affiliates.
The Fund reserves the right to change the criteria for eligible investors. The
Fund also reserves the right to refuse a purchase order for any reason,
including if it believes that doing so would be in the best interest of the
Fund and its shareholders.
YOUR ACCOUNT
HOW TO BUY SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated price. "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 THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
------ ------------
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. Your financial advisor
may charge you fees for executing the purchase for you.
--------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Liberty
Funds Services, Inc., P.O. Box 1722, Boston, MA 02105-
1722.
--------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or
send a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
--------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by
exchanging shares you own in one fund for shares of the
same class or Class A of the Fund at no additional cost.
There may be an additional charge if exchanging from a
money market fund. To exchange by telephone, call
1-800-422-3737.
--------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your
bank account to your fund account. To wire funds to your
fund account, call 1-800-422-3737 to obtain a control
number and the wiring instructions.
--------------------------------------------------------------------------------
By electronic funds You may purchase shares by electronically transferring
transfer money from your bank account to your fund account by
calling 1-800-422-3737. Electronic funds transfers may
take up to two business days to settle and be considered
in "good form." You must set up this feature prior to your
telephone request. Be sure to complete the appropriate
section of the application.
--------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments
investment plan automatically from your bank account to your fund account.
You can select a pre-authorized amount to be sent via
electronic funds transfer. Be sure to complete the
appropriate section of the application for this feature.
--------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one
diversification fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in
another fund, call 1-800-345-6611.
----
6
YOUR ACCOUNT
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- CLASS Z.
The Fund also offers three additional classes of shares -- Class A, B and C
shares are available through a separate prospectus. 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. Based on your personal situation, your
investment advisor can help you decide which class of shares makes the most
sense for you. In general, anyone who is eligible to purchase Class Z shares,
which do not incur Rule 12b-1 fees or sales charges, should do so in preference
over other classes.
SALES CHARGES
--------------------------------------------------------------------------------
Your purchases of Class Z shares generally are at net asset value, which is the
value of a Fund share excluding any sales charge. Class Z shares are not subject
to an initial sales charge when purchased, or a contingent deferred sales charge
when sold.
HOW TO EXCHANGE SHARES
--------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
or Class A shares of another fund distributed by Liberty Funds Distributor, Inc.
at net asset value. Unless your account is part of a tax-deferred retirement
plan, an exchange is a taxable event. Therefore, you may realize a gain or a
loss for tax purposes. The Fund may terminate your exchange privilege if the
advisor determines that your exchange activity is likely to adversely impact its
ability to manage the Fund. To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" also means (i) your letter has complete instructions, the proper
signatures and signature guarantees, and (ii) any other required documents are
attached. For additional documents required for sales by corporations, agents,
fiduciaries and surviving joint owners, please call 1-800-345-6611. Retirement
plan accounts have special requirements; please call 1-800-799-7526 for more
information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, the Fund may delay
sending the proceeds from the sale of your shares for up to 15 days after your
purchase to protect against checks that are returned. No interest will be paid
on uncashed redemption checks. Redemption proceeds may be paid in securities,
rather than in cash, if the investment advisor determines that it is in the best
interest of the Fund.
----
7
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
------ ------------
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor firm must receive your request prior to
the close of the NYSE, usually 4:00 p.m. Eastern time.
--------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by
exchanging from the Fund into Class Z shares or Class A
shares of another fund at no additional cost. To exchange
by telephone, call 1-800-422-3737.
--------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737, unless you have notified the
Fund of an address change within the previous 30 days.
The dollar limit for telephone sales is $100,000 in a
30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-345-6611.
--------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock
power form to the address below. In your letter of
instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you
wish to sell. All account owners must sign the letter,
and signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another
eligible guarantor institution. Additional documentation
is required for sales by corporations, agents,
fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-
6611.
Mail your letter of instruction to Liberty Funds
Services, Inc., P.O. Box 1722, Boston, MA 02105-1722.
--------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be
wired to your bank. You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
--------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be
sure to complete the appropriate section of the account
application for this feature.
FUND POLICY ON TRADING OF FUND SHARES
--------------------------------------------------------------------------------
The Fund does not permit short-term or excessive trading. Excessive purchases,
redemptions, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern of short-term or excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
----
8
YOUR ACCOUNT
OTHER INFORMATION ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's Class Z shares
is based on its net asset value. The net asset value is determined at the close
of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each business
day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value next
determined after your request is received in "good form" by the distributor. In
most cases, in order to receive that day's price, the distributor must receive
your order before that day's transactions are processed. If you request a
transaction through your financial advisor firm, the firm must receive your
order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total
net assets attributable to Class Z shares by the number of Class Z outstanding
shares. In determining the net asset value, the Fund must determine the price of
each security in its portfolio at the close of each trading day. Because the
Fund holds securities that are traded on foreign exchanges, the value of the
Fund's securities may change on days when shareholders will not be able to buy
or sell Fund shares. This will affect the Fund's net asset value on the day it
is next determined. Securities for which market quotations are available are
valued each day at the current market value. However, where market quotations
are unavailable, or when the advisor believes that subsequent events have made
them unreliable, the Fund may use other data to determine the fair value of the
securities. Because the Fund holds securities that are traded on foreign
exchanges, the value of the Fund's securities may change on days when
shareholders will not be able to buy or sell Fund shares. This will affect the
Fund's net asset value on the day it is next determined.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value) you may be subject to an annual account fee of $10.
This fee is deducted from the account in June each year. Approximately 60 days
prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
----
9
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may realize
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
TYPES OF DISTRIBUTIONS
Dividend Represents interest and dividends earned from securities
held by the Fund.
--------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
DISTRIBUTION OPTIONS The Fund distributes dividends and any capital gains
(including short-term capital gains) at least annually. You can choose one of
the options listed in the table below for these distributions when you open your
account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund
--------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
--------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains
--------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
Distributions of $10 or less will automatically be reinvested in additional Fund
shares. If you elect to receive distributions by check and the check is returned
as undeliverable, or if you do not cash a distribution check within six months
of the check date, the distribution will be reinvested in additional shares of
the Fund.
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital
gains are taxable as ordinary income. Distributions of long-term capital gains
are generally taxable as such, regardless of how long you have held your Fund
shares. You will be provided with information each year regarding the amount of
ordinary income and capital gains distributed to you for the previous year and
any portion of your distribution which is exempt from state and local taxes.
Your investment in the Fund may have additional personal tax implications.
Please consult your tax advisor on foreign, federal, state, local or other
applicable tax laws.
----
10
YOUR ACCOUNT
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state and local income tax.
.
----
11
MANAGING THE FUND
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Chicago, Illinois 60606, is the Fund's investment advisor. In its duties as
investment advisor, Stein Roe runs the Fund's day-to-day business, including
placing all orders for the purchase and sale of the Fund's portfolio securities.
Stein Roe has been an investment advisor since 1932.
Stein Roe's mutual funds and institutional investment advisory businesses are
part of a larger business unit that includes several separate legal entities
known as Liberty Funds Group LLC (LFG). LFG includes certain affiliates of Stein
Roe, principally Colonial Management Associates, Inc. (Colonial). Stein Roe and
the LFG business unit are managed by a single management team. Stein Roe,
Colonial and the other LFG entities also share personnel, facilities and systems
that may be used in providing administrative or operational services to the
Fund. Colonial is a registered investment advisor. Stein Roe, Colonial and the
other entities that make up LFG are subsidiaries of Liberty Financial Companies,
Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Fund's portfolio, pursuant to
procedures adopted by the Board of Trustees.
PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
STEVE D. HAYWARD, a senior vice president of Stein Roe, co-manages the Fund. Mr.
Hayward also is the portfolio manager of Stein Roe Midcap Growth Fund and a
co-portfolio manager of Stein Roe Capital Opportunities Fund. Prior to joining
Stein Roe in November 1999, he served as vice president, investments, for M&I
Investment Management from 1993 to 1999, where he managed the Marshall Mid-Cap
Fund and Marshall Small-Cap Growth Fund. Mr. Hayward earned a B.A. from North
Park College and an M.B.A. in finance from Loyola University.
WILLIAM M. GARRISON, a vice president of Stein Roe, co-manages the Fund. Mr.
Garrison joined Stein Roe in 1989 as an economic research assistant. From 1993
to 1999 he was an equity research analyst. He has been the portfolio manager of
the Stein Roe Small Company Growth Fund and Stein Roe Small Company Growth Fund,
Variable Series since 1998. Mr. Garrison earned a B.A. in economics from
Princeton University and an M.B.A. from the University of Chicago.
----
12
OTHER INVESTMENT STRATEGIES AND RISKS
UNDERSTANDING THE FUND'S OTHER INVESTMENTS AND RISKS
The Fund's principal investments and risks are described under "The Fund --
Principal Investment Strategies" and "The Fund -- Principal Investment Risks."
In seeking to meet its investment goals, the Fund may also invest in other
securities and use certain other investment techniques. These securities and
investment techniques offer opportunities and carry various risks.
The investment advisor may elect not to buy any of these securities or use any
of these techniques unless it believes that doing so will help the Fund achieve
its investment goals. The Fund may not always achieve its investment goals.
Additional information about the Fund's securities and investment techniques,
as well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
The Fund's principal investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its investment goals, the
Fund may invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goals or investment strategies.
TAX SWITCH
--------------------------------------------------------------------------------
A tax switch involves selling the stock of one issuer at a loss and
simultaneously purchasing the stock of another issuer that the advisor believes
has similar or better long-term growth potential. The Fund may use tax switches
to build inventories of losses, which can be used to offset further gains for up
to eight years, helping to increase the potential for tax efficiency.
DIVIDEND ROLLS
--------------------------------------------------------------------------------
A dividend roll program seeks to invest in high-dividend stocks shortly before
the dividend is paid and selling these stocks, at a loss, immediately after
collecting the dividend. The Fund's advisor may use various dividend roll
techniques to increase the potential for tax efficiency.
SELL AND REINVEST STRATEGIES
--------------------------------------------------------------------------------
The Fund generally has a long-term perspective when investing in stocks.
However, the advisor may sell a stock at a loss and repurchase that same stock
at a later date. The resulting loss can be used to offset future gains in the
portfolio while the Fund continues to maintain its position in that company's
long-term growth potential.
TEMPORARY DEFENSIVE STRATEGIES
--------------------------------------------------------------------------------
At times, the advisor may determine that adverse market conditions make it
desirable to temporarily suspend the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or
high-quality, short-term debt securities, without limit. Taking a temporary
defensive position may prevent the Fund from achieving its investment goals.
----
13
NOTES
DERIVATIVE STRATEGIES
--------------------------------------------------------------------------------
The Fund may enter into a number of hedging strategies, including those that
employ futures and options, to gain or reduce exposure to particular securities
or markets. These strategies, commonly referred to as derivatives, involve the
use of financial instruments whose values depend on, or are derived from, the
value of an underlying security, index or currency. The Fund may use these
strategies to adjust the Fund's sensitivity to changes in interest rates, for
hedging purposes (i.e., attempting to offset a potential loss in one position by
establishing an interest in an opposite position), and for tax management and
other purposes. Derivative strategies involve the risk that they may exaggerate
a loss, potentially losing more money than the actual cost of the underlying
security, or limit a potential gain. Also, with some derivative strategies there
is the risk that the other party to the transaction may fail to honor its
contract terms, causing a loss to the Fund.
PURCHASE AND SALE DECISIONS
--------------------------------------------------------------------------------
The advisor may sell a security if it believes that the current stock price is
not supported by the advisor's expectations regarding the company's future
growth potential. The advisor may purchase and sell securities in order to
reduce shareholder exposure to taxes as part of the Fund's active tax-management
strategy. The advisor will consider the tax effects of portfolio turnover in
deciding whether to purchase and sell individual securities.
----
14
NOTES
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NOTES
FOR MORE INFORMATION
--------------------------------------------------------------------------------
More information about the Fund's investments will be published in the Fund's
semi-annual and annual reports to shareholders. The annual report will contain a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the Edgar database on the Securities and Exchange Commission internet site at
WWW.SEC.GOV.
You can review and copy information about the Fund by visiting the following
location, and you can obtain copies, upon payment of a duplicating fee by
electronic request at the E-mail address [email protected] or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty Funds Trust I: 811-2214
- Liberty Tax-Managed Aggressive Growth Fund
--------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)2000
One Financial Center
Boston, MA 02111-2621, 1-800-426-3750
714-01/283C-0700 www.libertyfunds.com
<PAGE>
LIBERTY TAX-MANAGED AGGRESSIVE GROWTH FUND
A SERIES OF LIBERTY FUNDS TRUST I
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2000
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus of Liberty
Tax-Managed Aggressive Growth Fund (Fund). This SAI is not a prospectus and is
authorized for distribution only when accompanied or preceded by a Prospectus of
the Fund dated August 1, 2000. This SAI should be read together with a
Prospectus of the Fund. Investors may obtain a free copy of a Prospectus from
Liberty Funds Distributor, Inc. (LFD), One Financial Center, Boston, MA
02111-2621.
This SAI contains additional information about the Fund and funds distributed by
LFD generally, as well as additional information about certain securities and
investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
PAGE
----
Definitions 2
Organization and History 2
Investment Policies 2
Portfolio Turnover 3
Additional Information Concerning Investment Practices 3
Taxes - General 10
Management of the Fund 12
Fund Charges and Expenses 16
Custodian 18
Independent Auditors 19
Determination of Net Asset Value 19
How to Buy Shares 19
Special Purchase Programs/Investor Services 20
Programs for Reducing or Eliminating Sales Charges 20
How to Sell Shares 22
How to Exchange Shares 23
Suspension of Redemptions 24
Shareholder Liability 24
Shareholder Meetings 24
Performance Measures and Information 25
Appendix 27
714-16/286C-0700
LIBERTY TAX-MANAGED AGGRESSIVE GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2000
DEFINITIONS
"Trust" Liberty Funds Trust I
"Fund" Liberty Tax-Managed Aggressive Growth Fund
"Advisor" Stein Roe & Farnham Incorporated, the Fund's investment
advisor
"Administrator" Colonial Management Associates, Inc., the Fund's
administrator
"LFD" Liberty Funds Distributor, Inc., the Fund's distributor
"LFS" Liberty Funds Services, Inc., the Fund's investor services
and transfer agent
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1985. The Fund, a
diversified series of the Trust, commenced operations on August 1, 2000 and
represents the entire interest in a separate series of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Fund and any other series of the Trust that may
be in existence from time to time generally vote together except when required
by law to vote separately by fund or by class. Shareholders owning in the
aggregate ten percent of Trust shares may call meetings to consider removal of
Trustees. Under certain circumstances, the Trust will provide information to
assist shareholders in calling such a meeting.
The Trust changed its name from "Colonial Trust I" to its current name on April
1, 1999.
INVESTMENT POLICIES
The Fund is subject to the following fundamental investment policies, which may
not be changed without the affirmative vote of a majority of the Fund's
outstanding voting securities. The Investment Company Act of 1940 (Act) provides
that a "vote of a majority of the outstanding voting securities" means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
the Fund or the Fund, or (2) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy.
As fundamental investment policies, the Fund may not:
1. Borrow, except from banks, other affiliated funds and other entities to the
extent permitted by applicable law, provided that the Fund's borrowings
shall not exceed 33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law;
2. Own real estate except real estate having a value no more than 5% of the
Fund's total assets acquired as the result of owning securities (nothing in
this restriction shall limit the Fund's ability to purchase and sell (i)
securities which are secured by real estate and (ii) securities of
companies which invest or deal in real estate);
3. Invest in commodities, except that the Fund may purchase and sell futures
contracts and related options to the extent that total initial margin and
premiums on the contracts do not exceed 5% of its total assets;
4. Not issue senior securities except as provided in paragraph 1 above and to
the extent permitted by the 1940 Act;
5. Underwrite securities issued by others except to the extent the Fund could
be deemed an underwriter when disposing of portfolio securities;
6. Make loans except (a) through lending of securities, (b) through the
purchase of debt instruments or similar evidences of indebtedness typically
sold privately to financial institutions, (c) through an interfund lending
program with other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3% of the
value of its total assets (taken at market value at the time of such loans)
and (d) through repurchase agreements; and
7. 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 voting securities of an issuer
if, as a result of such purchase the Fund would own more than 10% of
2
the outstanding voting shares of such issuer.
As non-fundamental investment policies which may be changed without a
shareholder vote, the Fund 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;
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Notwithstanding the investment policies and restrictions of the Fund, the Fund
may invest all or a portion of its investable assets in investment companies
with substantially the same investment objective, policies and restrictions as
the Fund.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act
diversification requirement, an issuer is the entity whose revenues support the
security.
PORTFOLIO TURNOVER
High portfolio turnover may cause the Fund to realize capital gains which, if
realized and distributed by the Fund, may be taxable to shareholders as ordinary
income. High portfolio turnover may result in correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund.
ADDITIONAL INFORMATION CONCERNING CERTAIN INVESTMENT PRACTICES Additional
information concerning certain of the Fund's investments and investment
practices is set forth below.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the Fund, will be held by the Fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. This "excess
distribution" will be allocated over the Fund's holding period for such
investment and the PFIC tax is the highest ordinary income rate in effect for
any period multiplied by the portion of the "excess distribution" allocated to
such period, and it could be increased by an interest charge on the deemed tax
deferral.
The Fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the Fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxes-General" below.
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
3
including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are
bonds and notes (with one year or less to maturity at the time of purchase)
issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include
the underlying securities and any related guaranty, letter of credit, or
collateralization arrangement which the Fund would be allowed to invest in
directly.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in the Prospectus,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the Fund
an amount equal to any dividends or interest received on securities lent. The
Fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the Fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the Fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund may also call such loans in order
to sell the securities involved.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the Fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities subject to
repurchase. The Advisor will monitor such transactions to determine that the
value of the underlying securities is at least equal at all times to the total
amount of the repurchase obligation, including the interest factor. If the
seller defaults, the Fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the Fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the Fund is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put
options on securities held in its portfolio. Call options written by the Fund
give the purchaser the right to buy the underlying securities from the Fund at a
stated exercise price; put options give the purchaser the right to sell the
underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the
4
value of the underlying security. By writing a put option, the Fund assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then-current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The Fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the Fund writes a call option but does not own the underlying security, and
when it writes a put option, the Fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the Fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
Fund, as holder of the put option, is able to sell the underlying security at
the put exercise price regardless of any decline in the underlying security's
market price. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the Fund
will reduce any profit it might otherwise have realized from appreciation of the
underlying security by the premium paid for the put option and by transaction
costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the Fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Fund might
have realized had it bought the underlying security at the time it purchased the
call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment
Management of the SEC has taken the position that OTC options purchased by the
Fund and assets held to cover OTC options written by the Fund are illiquid
securities. Although the Staff has indicated that it is continuing to evaluate
this issue, pending further developments, the Fund intends to enter into OTC
options transactions only with primary dealers in U.S. government securities
and, in the case of OTC options written by the Fund, only pursuant to agreements
that will assure that the Fund will at all times have the right to repurchase
the option written by it from the dealer at a specified formula price. The Fund
will treat the amount by which such formula price exceeds the amount, if any, by
which the option may be "in-the-money" as an illiquid investment. It is the
present policy of the Fund not to enter into any OTC option transaction if, as a
result, more than 15% of the Fund's net assets would be invested in (i) illiquid
investments (determined under the foregoing formula) relating to OTC options
written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities
which are not readily marketable, and (iv) repurchase agreements maturing in
more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options
strategies depends on the ability of the Advisor to forecast interest rate and
market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the Fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the Fund
will lose part or all of its investment in the option. This contrasts with an
investment by the Fund in the
5
underlying securities, since the Fund may continue to hold its investment in
those securities notwithstanding the lack of a change in price of those
securities.
The effective use of options also depends on the Fund's ability to terminate
option positions at times when the Advisor deems it desirable to do so. Although
the Fund will take an option position only if the Advisor believes there is a
liquid secondary market for the option, there is no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of option transactions, which may limit the Fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash or liquid securities equal in value to the amount of the Fund's obligation
under the contract (less any applicable margin deposits and any assets that
constitute "cover" for such obligation) will be segregated with the Fund's
custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures
6
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract, although the Fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. Government Securities. This
amount is known as "initial margin". The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the Fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the Fund. The Fund may
close its positions by taking opposite positions which will operate to terminate
the Fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account of the Fund's
custodian. The Fund may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. The Fund may use such options on
futures contracts in lieu of writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the Fund is subject to the Advisor's ability to predict
correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund when
the purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be
7
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 Fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The Fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the Fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Advisor will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject
to the Advisor's ability to predict correctly movements in the direction of the
market. It is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Fund's portfolio may
decline. If this occurs, the Fund would lose money on the futures and also
experience a decline in the value in its portfolio securities. However, while
this could occur to a certain degree, the Advisor believes that over time the
value of the Fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the Fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
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
8
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
level of the index on which the future is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on
index futures, the Fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap
agreement to exchange components of return on one equity investment (e.g., a
basket of equity securities or an index) for a component of return on another
non-equity or equity investment, including an exchange of differential rates of
return. Equity swaps may be used to invest in a market without owning or taking
physical custody of securities in circumstances where direct investment may be
restricted for legal reasons or is otherwise impractical. Equity swaps also may
be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative
instruments and their values can be very volatile. To the extent that the
portfolio managers do not accurately analyze and predict the potential relative
fluctuation on the components swapped with the other party, the Fund may suffer
a loss. The value of some components of an equity swap (such as the dividend on
a common stock) may also be sensitive to changes in interest rates. Furthermore,
during the period a swap is outstanding, the Fund may suffer a loss if the
counterparty defaults. See "Taxes - General; Hedging Transactions" for
information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When
it engages in transaction hedging, the Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the Fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the Fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
Fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an
9
increase in the value of currency for securities which the Fund expects to
purchase, when the Fund holds cash or short-term investments). In connection
with position hedging, the Fund may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Fund may also purchase or
sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the Fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities equal in value
to the amount of the Fund's obligation under the contract (less any applicable
margin deposits and any assets that constitute "cover" for such obligation),
will be segregated with the Fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
Fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no
10
assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit (ECU).
The ECU is composed of amounts of a number of currencies, and is the official
medium of exchange of the European Economic Community's European Monetary
System.
The Fund will only purchase or write currency options when the Advisor believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies. There is no systematic reporting of
last sale information for currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be firm or revised
on a timely basis. Available quotation information is generally representative
of very large round-lot transactions in the interbank market and thus may not
reflect exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable. The interbank market in currencies is a
global, around-the-clock market. To the extent that options markets are closed
while the markets for the underlying currencies remain open, significant price
and rate movements may take place in the underlying markets that cannot be
reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments
in foreign securities and to the Fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the Fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the Fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Advisor, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's investment restriction on illiquid
11
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Advisor will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Fund's holdings of
illiquid securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not exceed its investment limit on
illiquid securities. Investing in Rule 144A securities could have the effect of
increasing the amount of the Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
TAXES - GENERAL
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax advisor for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.
FEDERAL TAXES. The Fund is treated as a separate entity for federal income tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The
Fund has elected to be, and intends to qualify to be treated each year as, a
"regulated investment company" under Subchapter M of the Code by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of its distributions (as a percentage of
both its overall income and any tax-exempt income), and the composition of its
portfolio assets. As a regulated investment company, the Fund will not be
subject to any federal income or excise taxes on its net investment income and
net realized capital gains that it distributes to shareholders in accordance
with the timing requirements imposed by the Code. The Fund's foreign-source
income, if any, may be subject to foreign withholding taxes. If the Fund were to
fail to qualify as a "regulated investment company" in any year, it would incur
a regular federal corporate income tax on all of its taxable income, whether or
not distributed, and Fund distributions would generally be taxable as ordinary
dividend income to the shareholders.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
Fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate alternative minimum tax. The
dividends received deduction for eligible dividends is subject to a holding
period requirement.
FUND DISTRIBUTIONS. Distributions from the Fund (other than exempt-interest
dividends, as discussed below) will be taxable to shareholders as ordinary
income to the extent derived from the Fund's investment income and net
short-term gains. Distributions of net capital gains (that is, the excess of net
gains from capital assets held for more than one year over net losses from
capital assets held for one year or less) will be taxable to shareholders as
such, regardless of how long a shareholder has held shares in the Fund. In
general, any distributions of net capital gains will be taxed to shareholders
who are individuals at a maximum rate of 20%.
Distributions will be taxed as described above whether received in cash or in
fund shares. Dividends and distributions on the Fund's shares are generally
subject to federal income tax as described herein to the extent they do not
exceed the Fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when the Fund's net asset value reflects gains that are
either unrealized, or realized but not distributed. Such realized gains may be
required to be distributed even when the Fund's net asset value also reflects
unrealized losses.
RETURN OF CAPITAL DISTRIBUTIONS. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital exceeds the cost basis in the
shares.
U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid
to shareholders of mutual funds from interest income earned by the Fund from
direct obligations of the U.S. government. Investments in
12
mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisors about the applicability of state and local
intangible property, income or other taxes to their Fund shares and
distributions and redemption proceeds received from the Fund.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares generally will be treated as long-term capital gain if the shares have
been held for more than 12 months. Otherwise the gain on the sale, exchange or
redemption of Fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares will be treated
as long-term loss if the shares have been held more than 12 months, and
otherwise as short-term loss. However, any loss realized upon a taxable
disposition of shares held for six months or less will be treated as long-term,
rather than short-term, capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to those shares. All or a
portion of any loss realized upon a taxable disposition of shares will be
disallowed if other shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased shares will be
adjusted to reflect the disallowed loss.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the Fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, LFS may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
EXCISE TAX. To the extent that the Fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Advisor intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
TAX ACCOUNTING PRINCIPLES. To qualify as a "regulated investment company," the
Fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the close of each quarter of
its taxable year, (i) at least 50% of the value of its total assets consists of
cash, cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the Fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. Government securities) and (c)
must distribute at least 90% of its ordinary income (inclusive of net short-term
capital gains) earned each year.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including
hedging transactions in options, futures contracts, and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
long-term capital gains into short-term capital gains or convert short-term
capital losses into long-term capital losses. These rules could therefore affect
the amount, timing and character of distributions to shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued
at a discount and certain other obligations will (and investments in securities
purchased at a discount may) require the Fund to accrue and distribute income
not yet received. In such cases, the Fund may be required to sell assets
(including when it is not advantageous to do so) to generate the cash necessary
to distribute as dividends to its shareholders all of its income and gains and
therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The
Fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures
13
contracts and forward contracts (and similar instruments) may give rise to
ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
If more than 50% of the Fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the Fund may make
an election permitting its shareholders to take a deduction or credit for
federal tax purposes for their portion of certain qualified foreign taxes paid
by the Fund. The Advisor will consider the value of the benefit to a typical
shareholder, the cost to the Fund of compliance with the election, and
incidental costs to shareholders in deciding whether to make the election. A
shareholder's ability to claim such a foreign tax credit will be subject to
certain limitations imposed by the Code, including a holding period requirement,
as a result of which a shareholder may not get a full credit for the amount of
foreign taxes so paid by the Fund. Shareholders who do not itemize on their
federal income tax returns may claim a credit (but not a deduction) for such
foreign taxes.
Investment by the Fund in certain "passive foreign investment companies" could
subject the Fund to a U.S. federal income tax (including interest charges) on
distributions received from the company or on proceeds received from the
disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. However, the Fund may be able to elect to
treat a passive foreign investment company as a "qualified electing fund," in
which case the Fund will be required to include its share of the company's
income and net capital gain annually, regardless of whether it receives any
distribution from the company. Alternatively, the Fund may make an election to
mark the gains (and, to a limited extent, losses) in such holdings "to the
market" as though it had sold and repurchased its holdings in those passive
foreign investment companies on the last day of the Fund's taxable year. Such
gains and losses are treated as ordinary income and loss. The qualified electing
fund and mark-to-market elections may have the effect of accelerating the
recognition of income (without the receipt of cash) and increase the amount
required to be distributed for the Fund to avoid taxation. Making either of
these elections therefore may require the Fund to liquidate other investments
(including when it is not advantageous to do so) in order to meet its
distribution requirement, which also may accelerate the recognition of gain and
affect the Fund's total return.
MANAGEMENT OF THE FUND
Each of the Advisor, the Administrator, LFS and LFD is an indirect wholly-owned
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial), which in
turn is a direct majority-owned subsidiary of Liberty Corporate Holdings, Inc.,
which in turn is a direct wholly-owned subsidiary of LFC Management Corporation,
which in turn is a direct wholly-owned subsidiary of LFC Holdings, Inc., which
in turn is a direct wholly-owned subsidiary of Liberty Mutual Equity
Corporation, which in turn is a direct wholly-owned subsidiary of Liberty Mutual
Insurance Company (Liberty Mutual). Liberty Mutual is an underwriter of workers'
compensation insurance and a property and casualty insurer in the U.S. Liberty
Financial's address is 600 Atlantic Avenue, Boston, MA 02210. Liberty Mutual's
address is 175 Berkeley Street, Boston, MA 02117.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS POSITION WITH
NAME AND ADDRESS AGE FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
--------------------- --- ------------- -------------------------------------------
<S> <C> <C> <C>
Tom Bleasdale 69 Trustee Retired (formerly Chairman of the Board and Chief
102 Clubhouse Drive #275 Executive Officer, Shore Bank & Trust Company from 1992
Naples, FL 34105 to 1993); Director of Empire Co.
John V. Carberry* 52 Trustee Senior Vice President of Liberty Financial Companies,
56 Woodcliff Road Inc. (formerly Managing Director, Salomon Brothers
Wellesley Hills, MA 02481 (investment banking) from January, 1988 to January, 1998).
</TABLE>
14
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS POSITION WITH
NAME AND ADDRESS AGE FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
--------------------- --- ------------- -------------------------------------------
<S> <C> <C> <C>
Lora S. Collins 64 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis
P.O. Box 1025 & Frankel from September, 1986 to November, 1996).
1175 Hill Road
Southold, NY 11971
James E. Grinnell 70 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
Richard W. Lowry 63 Trustee Private Investor since August, 1987.
Seven Winter Street
Nantucket, MA 02554
Salvatore Macera 68 Trustee Private Investor (formerly Executive Vice President and
26 Little Neck Lane Director of Itek Corporation (electronics) from 1975 to
New Seabury, MA 02649 1981).
William E. Mayer* 59 Trustee Partner, Development Capital, LLC (venture capital)
500 Park Avenue, 5th Floor (formerly Dean, College of Business and Management,
New York, NY 10022 University of Maryland from October, 1992 to November,
1996); Director, Johns Manville; Director, Lee
Enterprises, Director, WR Hambrecht & Co.
James L. Moody, Jr. 68 Trustee Retired (formerly Chairman of the Board, Hannaford Bros.
16 Running Tide Road Co. (food retailer) from May, 1984 to May, 1997, and
Cape Elizabeth, ME 04107 Chief Executive Officer, Hannaford Bros. Co. from May,
1973 to May, 1992).
John J. Neuhauser 56 Trustee Academic Vice President and Dean of Faculties since
84 College Road August, 1999, Boston College (formerly Dean, Boston
Chestnut Hill, MA 02467 College School of Management from September, 1977 to
September, 1999).
Thomas E. Stitzel 64 Trustee Business Consultant (formerly Professor of Finance from
2208 Tawny Woods Place 1975 to 1999 and Dean from 1977 to 1991, College of
Boise, ID 83706 Business, Boise State University (higher education));
Chartered Financial Analyst.
Anne-Lee Verville 54 Trustee Consultant (formerly General Manager, Global Education
359 Stickney Hill Road Industry from 1994 to 1997, and President, Applications
Hopkinton, NH 03229 Solutions Division from 1991 to 1994, IBM Corporation
(global education and global applications)).
Stephen E. Gibson 46 President Chairman of the Board of the Administrator since July,
1998, Chief Executive Officer and President of the
Administrator since December, 1996, Director of the
Administrator since July, 1996 and President of Liberty
Funds since June, 1998; (formerly Executive Vice
President of Administrator from July, 1996 to December,
1996); Director, Chief Executive Officer and President of
Liberty Funds Group LLC (LFG) since December, 1998
(formerly Director, Chief Executive Officer and President
of The Colonial Group, Inc. (TCG) from December, 1996 to
December
</TABLE>
15
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS POSITION WITH
NAME AND ADDRESS AGE FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
--------------------- --- ------------- -------------------------------------------
<S> <C> <C> <C>
1998); Assistant Chairman of the Advisor since
August, 1998 (formerly Managing Director of Marketing,
Putnam Investments from June, 1992 to July, 1996).
Pamela A. McGrath 46 Treasurer and Treasurer and Chief Financial Officer of LFG since
Chief Financial December, 1999; Chief Financial Officer, Treasurer and
Officer Senior Vice President of Colonial since December, 1999;
Director of Offshore Accounting for Putnam Investments
from May, 1998 to October, 1999; Managing Director
of Scudder Kemper Investments from October, 1984 to
December, 1997.
J. Kevin Connaughton 35 Controller and Controller and Chief Accounting Officer of the Liberty
Chief Accounting Funds since February, 1998; Vice President of the Advisor
Officer since February, 1998 (formerly Senior Tax Manager,
Coopers & Lybrand, LLP from April, 1996 to January,
1998; Vice President, 440 Financial Group/First Data
Investor Services Group from March, 1994 to April,
1996).
Joseph R. Palombo 46 Vice President Vice President of the Liberty Funds since April, 1999;
Executive Vice President and Director of the Advisor
since April, 1999; Executive Vice President and Chief
Administrative Officer of LFG since April, 1999 (formerly
Chief Operating Officer, Putnam Mutual Funds from 1994 to
1998).
Nancy L. Conlin 46 Secretary Secretary of the Liberty Funds since April, 1998
(formerly Assistant Secretary from July, 1994 to April,
1998); Director, Senior Vice President, General Counsel,
Clerk and Secretary of the Advisor since April, 1998
(formerly Vice President, Counsel, Assistant Secretary
and Assistant Clerk from July, 1994 to April, 1998); Vice
President, General Counsel and Secretary of LFG since
December, 1998 (formerly Vice President-, General Counsel
and Clerk of TCG from April, 1998 to December, 1998;
(formerly Assistant Clerk from July, 1994 to April, 1998).
</TABLE>
* A Trustee who is an "interested person" (as defined in the Act) of the
Fund, the Advisor or the Administrator.
The business address of the officers of the Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all Liberty funds for which each Trustee
(except Mr. Carberry) will receive an annual retainer of $45,000 and attendance
fees of $8,000 for each regular joint meeting and $1,000 for each special joint
meeting. Committee chairs receive an annual retainer of $5,000 and Committee
chairs receive $1,000 for each special meeting attended on a day other than a
regular joint meeting day. Committee members receive an annual retainer of
$1,000 and $1,000 for each special meeting attended on a day other than a
regular joint meeting day. Two-thirds of the Trustee fees are allocated among
the Liberty funds based on each fund's relative net assets and one-third of the
fees are divided equally among the Liberty funds.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
16
The Trustees have the authority to convert the Fund into a master fund/feeder
fund structure. Under this structure, the Fund may invest all or a portion of
its investable assets in investment companies with substantially the same
investment objectives, policies and restrictions as the Fund. The primary reason
to use the master fund/feeder fund structure is to provide a mechanism to pool,
in a single master fund, investments of different investor classes, resulting in
a larger portfolio, investment and administrative efficiencies and economies of
scale.
INVESTMENT ADVISOR
Under its Management Agreement with the Fund, the Advisor provides the Fund with
discretionary investment services. Specifically, the Advisor is responsible for
supervising and directing the investments of the Fund in accordance with the
Fund's investment objective, program, and restrictions as provided in the Fund's
prospectus and this SAI. The Advisor is also responsible for effecting all
security transactions on behalf of the Fund, including the allocation of
principal business and portfolio brokerage and the negotiation of commissions
(see "Portfolio Transactions" below). The Management Agreement provides for the
payment to the Advisor of the fee described in the Prospectus.
The Advisor and its predecessor have been providing investment advisory services
since 1932. The Advisor acts as investment advisor to wealthy individuals,
trustees, pension and profit sharing plans, charitable organizations and other
institutional investors.
The director of the Advisor is C. Allen Merritt, Jr. Mr. Merritt is Chief
Operating Officer of Liberty Financial; Stephen E. Gibson is President of the
Advisor's Mutual Funds division and William E. Rankin is President of the
Advisor's Private Capital Management division. The business address of Mr.
Merritt is 600 Atlantic Avenue, Federal Reserve Plaza , Boston, Massachusetts
02210; that of that of Mr. Rankin is One South Wacker Drive, Chicago, Illinois
60606 and that of Mr. Gibson is One Financial Center, Boston, Massachusetts
02111-2624.
Under the Management Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or the Fund in
connection with the matters to which such Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard of its obligations and
duties under the Agreement.
PORTFOLIO TRANSACTIONS
The Advisor places the orders for the purchase and sale of the Fund's portfolio
securities and options and futures contracts. The Advisor's overriding objective
in effecting portfolio transactions is to seek to obtain the best combination of
price and execution. The best net price, giving effect to brokerage commissions,
if any, and other transaction costs, normally is an important factor in this
decision, but a number of other judgmental factors may also enter into the
decision. These include: the Advisor's knowledge of negotiated commission rates
currently available and other current transaction costs; the nature of the
security being traded; the size of the transaction; the desired timing of the
trade; the activity existing and expected in the market for the particular
security; confidentiality; the execution, clearance and settlement capabilities
of the broker or dealer selected and others which are considered; the Advisor's
knowledge of the financial stability of the broker or dealer selected and such
other brokers or dealers; and the Advisor's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the value of these
factors, the Fund may pay a brokerage commission in excess of that which another
broker or dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of brokerage commissions, based on the
foregoing factors, are made on an ongoing basis by the Advisor's staff while
effecting portfolio transactions. The general level of brokerage commissions
paid is reviewed by the Advisor, and reports are made annually to the Board of
Trustees of the Fund.
With respect to issues of securities involving brokerage commissions, when more
than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Fund, the Advisor often selects a broker or dealer that has
furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other
17
consultants. Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers; however, the
Advisor uses an internal allocation procedure to identify those brokers or
dealers who provide it with research products or services and the amount of
research products or services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate, including the
Fund, to such brokers or dealers to ensure the continued receipt of research
products or services that the Advisor feels are useful. In certain instances,
the Advisor receives from brokers and dealers products or services which are
used both as investment research and for administrative, marketing, or other
non-research purposes. In such instances, the Advisor makes a good faith effort
to determine the relative proportions of such products or services which may be
considered as investment research. The portion of the costs of such products or
services attributable to research usage may be defrayed by the Advisor (without
prior agreement or understanding, as noted above) through transaction charges
generated by transactions by clients (including the Fund), while the portions of
the costs attributable to non-research usage of such products or services is
paid by the Advisor in cash. No person acting on behalf of the Fund is
authorized, in recognition of the value of research products or services, to pay
a commission in excess of that which another broker or dealer might have charged
for effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of the
Advisor and not all such research products or services are used in connection
with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, the Advisor may also consider
the part, if any, played by the broker or dealer in bringing the security
involved to the Advisor's attention, including investment research related to
the security and provided to the Fund. The Fund has arranged for its custodian
to act as a soliciting dealer to accept any fees available to the custodian as a
soliciting dealer in connection with any tender offer for the Fund's portfolio
securities held by the Fund. The custodian will credit any such fees received
against its custodial fees. In addition, the Board of Trustees has reviewed the
legal developments pertaining to and the practicability of attempting to
recapture underwriting discounts or selling concessions when portfolio
securities are purchased in underwritten offerings. However, the Board has been
advised by counsel that recapture by a mutual fund currently is not permitted
under the Rules of Fair Practice of the National Association of Securities
Dealers.
The Advisor may use the services of AlphaTrade, Inc. (ATI), a registered
broker-dealer subsidiary of the Administrator, when buying or selling equity
securities for the Fund's portfolio pursuant to procedures adopted by the
Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that
commissions the Fund pays ATI on portfolio transactions are reasonable and fair
compared to commissions received by other broker-dealers in connection with
comparable transactions involving similar securities being bought or sold at
about the same time. The Advisor will report quarterly to the Trustees on all
securities transactions placed through ATI so that the Trustees may consider
whether such trades complied with these procedures and the Rule. ATI employs
electronic trading methods by which it seeks to obtain best price and execution
for the Fund, and will use a clearing broker to settle trades.
The Trustees have the authority to convert the Fund to a master fund/feeder fund
structure. Under this structure, the Fund may invest all or a portion of its
investable assets in investment companies with substantially the same investment
objective, policies and restrictions as the Fund. The primary reason to use the
master fund/feeder fund structure is to provide a mechanism to pool, in a single
master fund, investments of different investor classes, resulting in a larger
portfolio, investment and administrative efficiencies and economies of scale.
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with the Fund, the Administrator
provides certain administrative services including: (i) providing office space,
equipment and clerical personnel necessary for maintaining the organization of
the Fund and for performing the administrative functions herein set forth; (ii)
arranging, if desired by the Trust, for Directors, officers and employees of the
Administrator to serve as Trustees, officers or agents of the Fund if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law; (iii) preparation of agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and shareholders; (iv) coordinating and overseeing the activities of
the Fund's other third-party service providers; (v) maintaining certain books
and records of the Fund; and (vi) monitoring the tax-efficiency of the Fund. The
Administration Agreement has a one year term. The
18
Administrator is paid a monthly fee at the annual rate of average daily net
assets set forth in the Prospectus. The Administrator and/or its affiliate,
Colonial Advisory Services, Inc. (CASI), has rendered investment advisory
services to investment company, institutional and other clients since 1931. The
Administrator currently serves as investment advisor, sub-advisor and/or
administrator for 63 open-end and 10 closed-end management investment company
portfolios (collectively, The Funds). Officers of the Trust who are also
officers of the Administrator or its affiliates will benefit from the
administration fees, sales commissions and other fees paid or allowed by the
Trust.
PRINCIPAL UNDERWRITER
LFD is the principal underwriter of the Fund's shares. LFD has no obligation to
buy shares, and purchases shares only upon receipt of orders from authorized
financial service firms (FSFs) or investors.
CODE OF ETHICS
The Fund, the Advisor and LFD have adopted Codes of Ethics pursuant to the
requirements of the Act. The Codes of Ethics permit personnel subject to the
Codes to invest in securities, including securities that may be purchased or
held by the Fund.
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Advisor a monthly fee
based on the average daily net assets of the Fund, at the annual rate of 0.80%.
Under the Fund's administration agreement, the Fund pays the Administrator a
monthly fee at the annual rate of 0.20% of the average daily net assets and,
under a separate pricing and bookkeeping contract, a monthly fee of $2,250 plus
the following percentages of the Fund's average daily net assets over $50
million:
0.035% on the next $950 million
0.025% on the next $1 billion
0.015% on the next $1 billion
0.001% on the excess over $3 billion
Under the Fund's transfer agency and shareholder servicing agreement, the Fund
pays LFS a monthly fee at the annual rate of 0.07% annually of average daily net
assets, plus charges based on the number of shareholder accounts and
transactions.
TRUSTEES AND TRUSTEES' FEES
For the fiscal period ending October 31, 2000, and the calendar year ended
December 31, 1999, the Trustees of the Trust received the following compensation
for serving as Trustees(a):
<TABLE>
<CAPTION>
AGGREGATE ESTIMATED COMPENSATION FROM TOTAL COMPENSATION FROM FUND
THE FUND FOR THE FISCAL YEAR ENDING COMPLEX PAID TO THE TRUSTEES FOR THE
TRUSTEE OCTOBER 31, 2000(b) CALENDAR YEAR ENDED DECEMBER 31, 1999(c)
------- ------------------------------------- ----------------------------------------
<S> <C> <C>
Tom Bleasdale $451(d) $103,000(e)
John V. Carberry(f) N/A N/A
Lora S. Collins 433 96,000
James E. Grinnell 451 100,000
Richard W. Lowry 433 97,000
Salvatore Macera 433 95,000
William E. Mayer 451 101,000
James L. Moody, Jr. 451(g) 91,000(h)
John J. Neuhauser 455 101,252
Thomas E. Stitzel 433 95,000
Anne-Lee Verville 451(i) 96,000(j)
</TABLE>
19
(a) The Funds do not currently offer pension or retirement plan benefits to
Trustees.
(b) Since the Fund has not completed its first full fiscal year, compensation
is estimated based upon future payments to be made and upon estimated
relative Fund net assets.
(c) At December 31, 1999, the complex consisted of 51 open-end and 8 closed-end
management investment company portfolios in the Liberty Funds (Liberty
Funds) and 12 open-end management investment portfolios in the Liberty
Variable Investment Trust (LVIT) (together, the Fund Complex).
(d) Includes $232 payable in later years as deferred compensation.
(e) Includes $52,000 payable in later years as deferred compensation.
(f) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial Companies, Inc. (Liberty Financial).
(g) Total estimated compensation of $451 for the fiscal year ending October 31,
2000, will be payable in later years as deferred compensation.
(h) Total compensation of $91,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
(i) Total estimated compensation of $451 for the fiscal year ending October 31,
2000, will be payable in later years as deferred compensation.
(j) Total compensation of $96,000 for the calendar year ended December 31, 1999
will be payable in later years as deferred compensation.
20
For the fiscal year ended December 31, 1999, some of the Trustees received the
following compensation in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund, the Liberty All-Star Growth Fund, Inc. and Liberty
Funds Trust IX (together, Liberty All-Star Funds):
TOTAL COMPENSATION FROM
LIBERTY ALL-STAR FUNDS FOR THE CALENDAR
TRUSTEE YEAR ENDED DECEMBER 31, 1999(k)
------- ----------------------------
John V. Carberry(l) N/A
James E. Grinnell $25,000
Richard W. Lowry 25,000
William E. Mayer 25,000
John J. Neuhauser 25,000
(k) The Liberty All-Star Funds are advised by Liberty Asset Management Company
(LAMCO). LAMCO is an indirect wholly-owned subsidiary of Liberty Financial
(an intermediate parent of the Advisor).
(l) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
OWNERSHIP OF THE FUND
At inception, the Administrator owned 100% of each Class of shares of the Fund
and, therefore, may be deemed to "control" the Fund.
12B-1 PLAN, CDSC AND CONVERSION OF SHARES
The Fund offers four classes of shares - Class A, Class B, Class C and Class Z.
The Fund may in the future offer other classes of shares. The Trustees have
approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act for each Class
except Class Z. Under the Plan, the Fund pays LFD service and distribution fees
at the annual rates described in the Prospectuses. LFD may use the entire amount
of such fees to defray the cost of commissions and service fees paid to FSFs and
for certain other purposes. Since the distribution and service fees are payable
regardless of LFD's expenses, LFD may realize a profit from the fees. The Plan
authorizes any other payments by the Fund to LFD and its affiliates (including
the Advisor and the Administrator) to the extent that such payments might be
construed to be indirect financing of the distribution of Fund shares.
The Trustees believe the Plan could be a significant factor in the growth and
retention of Fund assets resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit each class of Fund
shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
Trustees, including the Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan (Independent Trustees), cast in person at a
meeting called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by vote of a majority of
the outstanding voting securities of the relevant class of shares and all
material amendments of the Plan must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plan may be terminated at any time by
vote of a majority of the independent Trustees or by vote of a majority of the
outstanding voting securities of the relevant class of shares. The continuance
of the Plan will only be effective if the selection and nomination of the
Trustees who are not interested persons of the Trust is effected by such
disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after purchase. Class C shares
are offered at net asset value and are subject to a 1.00% CDSC on redemptions
within one year after purchase. Class Z shares are offered at net asset value
and are not subject to a CDSC. The CDSCs are described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or
amounts representing capital appreciation. In determining the applicability and
rate of any CDSC, it will be assumed that a redemption is
21
made first of shares representing capital appreciation, next of shares
representing reinvestment of distributions and finally of other shares held by
the shareholder for the longest period of time.
CUSTODIAN
The Chase Manhattan Bank, located at 270 Park Avenue, New York, NY 10017-2070,
is the Fund's custodian. The custodian is responsible for safeguarding the
Fund's cash and securities, receiving and delivering securities and collecting
the Fund's interest and dividends.
INDEPENDENT AUDITORS
Ernst & Young LLP, located at 200 Clarendon Street, Boston, MA 02116, are the
Fund's independent auditors providing audit services, tax return review, other
tax consulting services, and assistance and consultation in connection with the
review of various SEC filings.
DETERMINATION OF NET ASSET VALUE
The Fund determines net asset value (NAV) per share for each class as of the
close of the New York Stock Exchange (Exchange) (normally 4:00 p.m. Eastern
time), each day the Exchange is open, except that certain classes of assets,
such as index futures, for which the market close occurs shortly after the close
of regular trading on the Exchange will be priced at the closing time of the
markets on which they trade, but in no event later than 5:00 p.m. Currently, the
Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The Fund may invest in securities which are primarily listed on foreign
exchanges that are open and allow trading on days on which the Fund does not
determine NAV. This may significantly affect the NAV of the Fund's redeemable
securities on days when an investor cannot redeem such securities. Debt
securities generally are valued by a pricing service which determines valuations
based upon market transactions for normal, institutional-size trading units of
similar securities. However, in circumstances where such prices are not
available or where the Advisor deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on NASDAQ are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities generally are
valued at the last quoted bid price. Options are valued at the last sale price
or in the absence of a sale, the mean between the last quoted bid and offering
prices. Short-term obligations with a maturity of 60 days or less are valued at
amortized cost pursuant to procedures adopted by the Fund's Trustees. The values
of foreign securities quoted in foreign currencies are translated into U.S.
dollars at the exchange rate for that day. Fund positions for which market
quotations are not readily available and other assets are valued at fair value
as determined by the Advisor in good faith under the direction of the Fund's
Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of the Fund's NAV. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value following procedures approved by
the Fund's Trustees.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public
22
offering price will be determined on the day the order is placed in good order,
but only if the FSF receives the order prior to the time at which shares are
valued and transmits it to the Fund before the Fund processes that day's
transactions. If the FSF fails to transmit before the Fund processes that day's
transactions, the customer's entitlement to that day's closing price must be
settled between the customer and the FSF. If the FSF receives the order after
the time at which the Fund values its shares, the price will be based on the NAV
determined as of the close of the Exchange on the next day it is open. If funds
for the purchase of shares are sent directly to LFS, they will be invested at
the public offering price next determined after receipt in good order. Payment
for shares of the Fund must be in U.S. dollars; if made by check, the check must
be drawn on a U.S. bank. Checks presented for the purchase of shares of the Fund
which are returned by the purchaser's bank will subject the purchaser to a $15
service fee for each check returned.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFD's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFD retains the entire sales charge on any sales made to a
shareholder who does not specify a FSF on the Investment Account Application
("Application"), and except that LFD may from time to time reallow additional
amounts to all or certain FSFs. LFD generally retains some or all of any
asset-based sales charge (distribution fee) or contingent deferred sales
charges. Such charges generally reimburse LFD for any up-front and/or ongoing
commissions paid to FSFs.
LFS acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to LFS, provided the new FSF has a sales agreement
with LFD.
Shares credited to an account are transferable upon written instructions in good
order to LFS and may be redeemed as described under General Information
Regarding Buying and Selling Shares in the Prospectus. Certificates will not be
issued for Class A shares unless specifically requested and no certificates will
be issued for Class B, C or Z shares. Shareholders may send any certificates
which have been previously acquired to LFS for deposit to their account.
LFD may, at its expense, provide special sales incentives (such as cash payments
in addition to the commissions specified in the Fund's SAI) to FSF's that agree
to promote the sale of shares of the Fund or other funds that LFD distributes.
At its discretion, the Distributor may offer special sales incentives only to
selected FSFs or to FSFs who have previously sold or expect to sell significant
amounts of the Fund's shares.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
AUTOMATIC INVESTMENT PLAN. (CLASSES A, B AND C ONLY) As a convenience to
investors, Class A, B and C shares of the Fund may be purchased through the
Automatic Investment Plan. Pre-authorized monthly bank drafts or electronic
funds transfer for a fixed amount of at least $50 are used to purchase Fund
shares at the public offering price next determined after LFD receives the
proceeds from the draft (normally the 5th or the 20th of each month, or the next
business day thereafter). If your Automatic Investment Plan purchase is by
electronic funds transfer, you may request the Automatic Investment Plan
purchase for any day. Further information and application forms are available
from FSFs or from LFD.
TAX-SHELTERED RETIREMENT PLANS. (CLASSES A, B AND C ONLY) LFD offers prototype
tax-qualified plans, including IRAs, and Pension and Profit-Sharing Plans for
individuals, corporations, employees and the self-employed. The minimum initial
Retirement Plan investment is $25. Investors Bank & Trust Company is the Trustee
of LFD prototype plans and charges a $18 annual fee. Detailed information
concerning these Retirement Plans and copies of the Retirement Plans are
available from LFD.
Participants in non-LFD prototype Retirement Plans (other than IRAs) also are
charged a $15 annual fee unless the plan maintains an omnibus account with LFS.
Participants in LFD prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to LFS. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFD IRA Rollover account in
any fund, or if the Plan maintains an omnibus account.
23
Consultation with a competent financial and tax advisor regarding these Plans
and consideration of the suitability of Fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling LFS, shareholders, beneficiaries
or their FSFs of record may change an address on a recorded telephone line.
Confirmations of address change will be sent to both the old and the new
addresses. Telephone redemption privileges are suspended for 30 days after an
address change is effected.
CASH CONNECTION. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, on Class A, Class B or Class C shares may be
automatically deposited to a shareholder's bank account via electronic funds
transfer. Shareholders wishing to avail themselves of this electronic transfer
procedure should complete the appropriate sections of the Application.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Class B only). Reduced sales charges on Class B shares
can be effected by combining a current purchase with prior purchases of shares
of the Liberty funds. The applicable sales charge is based on the combined total
of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the
previous day of all Liberty fund shares held by the shareholder or donor
(except Class A shares of any Liberty money market fund, unless such shares
were acquired by exchange from Class A shares of another Liberty fund other
than a money market fund).
LFD must be promptly notified of each purchase which entitles a shareholder to a
reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's or donor's holdings by LFS. The Fund may
terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A only). Any person may qualify for reduced sales
charges on purchases of Class A shares made within a thirteen-month period
pursuant to a Statement of Intent ("Statement"). A shareholder may include, as
an accumulation credit toward the completion of such Statement, the value of all
Liberty fund shares held by the shareholder on the date of the Statement in
Liberty funds (except Class A shares of any Liberty money market fund, unless
such shares were acquired by exchange from Class A shares of another non-money
market Liberty fund). The value is determined at the public offering price on
the date of the Statement. Purchases made through reinvestment of distributions
do not count toward satisfaction of the Statement.
During the term of a Statement, LFS will hold shares in escrow to secure payment
of the higher sales charge applicable to Class A shares actually purchased.
Dividends and capital gains will be paid on all escrowed shares and these shares
will be released when the amount indicated has been purchased. A Statement does
not obligate the investor to buy or the Fund to sell the amount of the
Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFD the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFD an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, LFS will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from LFS at 1-800-345-6611.
24
REINSTATEMENT PRIVILEGE. An investor who has redeemed Fund shares may, upon
request, reinstate within one year a portion or all of the proceeds of such sale
in shares of the same Class of the Fund at the NAV next determined after LFS
receives a written reinstatement request and payment. Any CDSC paid at the time
of the redemption will be credited to the shareholder upon reinstatement. The
period between the redemption and the reinstatement will not be counted in aging
the reinstated shares for purposes of calculating any CDSC or conversion date.
Investors who desire to exercise this privilege should contact their FSF or LFS.
Shareholders may exercise this privilege an unlimited number of times. Exercise
of this privilege does not alter the Federal income tax treatment of any capital
gains realized on the prior sale of Fund shares, but to the extent any such
shares were sold at a loss, some or all of the loss may be disallowed for tax
purposes. Consult your tax advisor.
Shareholders may reinvest all or a portion of a recent cash distribution without
a sales charge. A shareholder request must be received within 30 calendar days
of the distribution. A shareholder may exercise this privilege only once. No
charge is currently made for reinvestment.
PRIVILEGES OF EMPLOYEES OR FINANCIAL SERVICE FIRMS. Class A shares of the Fund
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of funds advised or administered by the Advisor; directors,
officers and employees of the Administrator, LFD and other companies affiliated
with the Administrator; registered representatives and employees of FSFs
(including their affiliates) that are parties to dealer agreements or other
sales arrangements with LFD; and such persons' families and their beneficial
accounts.
SPONSORED ARRANGEMENTS. Class A shares of the Fund may be purchased at reduced
or no sales charge pursuant to sponsored arrangements, which include programs
under which an organization makes recommendations to, or permits group
solicitation of, its employees, members or participants in connection with the
purchase of shares of the Fund on an individual basis. The amount of the sales
charge reduction will reflect the anticipated reduction in sales expense
associated with sponsored arrangements. The reduction in sales expense, and
therefore the reduction in sales charge, will vary depending on factors such as
the size and stability of the organization's group, the term of the
organization's existence and certain characteristics of the members of its
group. The Fund reserves the right to revise the terms of or to suspend or
discontinue sales pursuant to sponsored plans at any time.
Class A shares of the Fund may also be purchased at reduced or no sales charge
by clients of dealers, brokers or registered investment advisors that have
entered into agreements with LFD pursuant to which the Fund is included as an
investment option in programs involving fee-based compensation arrangements and
by participants in certain retirement plans.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (CLASSES B AND C). CDSCs may
be waived on redemptions in the following situations with the proper
documentation:
1. DEATH. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii)
the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers
to Minors Act (UTMA) or other custodial account. If, upon the occurrence of
one of the foregoing, the account is transferred to an account registered
in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after the
death. If the shares are not redeemed within one year of the death, they
will remain subject to the applicable CDSC, when redeemed from the
transferee's account. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be charged.
2. SYSTEMATIC WITHDRAWAL PLAN (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP established
with LFS, to the extent the redemptions do not exceed, on an annual basis,
12% of the account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a period at
least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three-month period
prior to the first SWP redemption). Otherwise, CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement does not apply
to Class B accounts if the SWP is set up at the time the account is
established, and distributions are being reinvested. See below under "How
to Sell
25
Shares - Systematic Withdrawal Plan."
3. DISABILITY. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise AFTER the purchase of shares AND (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will
be charged.
4. DEATH OF A TRUSTEE. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. RETURNS OF EXCESS CONTRIBUTIONS. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or IRAs,
so long as the FSF agrees to return the applicable portion of any
commission paid by Colonial.
6. QUALIFIED RETIREMENT PLANS. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following normal
retirement (as stated in the Plan document). CDSCs also will be waived on
SWP redemptions made to make required minimum distributions from qualified
retirement plans that have invested in funds distributed by LFD for at
least two years.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund may delay
selling your shares for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to LFS, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, LFS, and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and IRA
holders. Call LFS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to LFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN
If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in the Fund designated by the
shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election of the shareholder's investment. Withdrawals from Class B
shares under a SWP will be treated as redemptions of shares purchased through
the reinvestment of Fund distributions, or, to the extent such shares in the
shareholder's account are insufficient to cover Plan payments, as redemptions
from the earliest purchased shares of the Fund in the shareholder's account. No
CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after
giving effect to the redemption, the shareholder's account balance is less than
the shareholder's base amount. Qualified plan participants who are required by
Internal Revenue Service regulation to withdraw more than 12%, on an annual
basis, of the value of their Class
26
B share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the excess over 12%. If a shareholder wishes to participate in a SWP, the
shareholder must elect to have all of the shareholder's income dividends and
other distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the Fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
The Fund may terminate a shareholder's SWP if the shareholder's Account Balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, LFS will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name", the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
TELEPHONE REDEMPTIONS. Telephone redemption privileges are described in the
Prospectus.
NON CASH REDEMPTIONS. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of the Fund's net asset
value, the Fund may make the payment or a portion of the payment with portfolio
securities held by the Fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
FAST CASH. As a convenience to investors, a shareholder is automatically
eligible to redeem up to $100,000 from the shareholder's account in a 30-day
period and have it mailed to the shareholder's address of record. This service
is not available within 30 days of an address change. Shareholders wishing to
avail themselves of this service should complete the appropriate section of the
Application.
HOW TO EXCHANGE SHARES
Exchanges at net asset value may be made at any time from any other continuously
offered fund distributed by LFD into shares of the same class of the Fund. The
Class A and B shares of the Fund may be exchanged for the same class of shares
of any other continuously offered funds distributed by LFD (with certain
exceptions) on the basis of the NAVs per share at the time of exchange and only
once per twelve-month period measured from the time the account was opened. The
Class C shares of the Fund may be exchanged for the same class of shares of any
other continuously offered funds distributed by LFD but only one "roundtrip"
exchange of such Class may be made per three-month period, measured from the
date of the initial purchase. The Class Z shares of the Fund may be exchanged
for the Class A or Class Z shares of any other fund distributed by LFD (with
certain exceptions). The prospectus of each fund distributed by LFD describes
its investment objective and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange. Shares of certain funds distributed by LFD are not
available to residents of all states. Consult LFS before requesting an exchange.
By calling LFS, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes and/or shareholder
27
activity, shareholders may experience delays in contacting LFS by telephone to
exercise the telephone exchange privilege. Because an exchange involves a
redemption and reinvestment in another Liberty fund, completion of an exchange
may be delayed under unusual circumstances, such as if the fund suspends
repurchases or postpones payment for the fund shares being exchanged in
accordance with federal securities law. LFS will also make exchanges upon
receipt of a written exchange request and, share certificates, if any. If the
shareholder is a corporation, partnership, agent, or surviving joint owner, LFS
will require customary additional documentation. Prospectuses of the other funds
are available from the LFD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
In all cases, the shares to be exchanged must be registered on the records of
the fund in the name of the shareholder desiring to exchange.
An exchange is generally a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
SUSPENSION OF REDEMPTIONS
The Fund may suspend shareholders' right of redemption or postpone payment for
more than seven days (i) if the Exchange is closed for other than customary
weekends or holidays, (ii) during certain periods when trading on the Exchange
is restricted, (iii) during any emergency which makes it impracticable for the
Fund to dispose of its securities or to determine fairly the value of its net
assets, or (v) during any other period permitted by order of the SEC for
protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the Fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Fund or the
Trust's Trustees. The Declaration provides for indemnification out of Fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the Fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History", the Fund will not
hold annual shareholders' meetings. The Trustees may fill any vacancies in the
Board of Trustees except that the Trustees may not fill a vacancy if,
immediately after filling such vacancy, less than two-thirds of the Trustees
then in office would have been elected to such office by the shareholders. In
addition, at such times as less than a majority of the Trustees then in office
have been elected to such office by the shareholders, the Trustees must call a
meeting of shareholders. Trustees may be removed from office by a written
consent signed by a majority of the outstanding shares of the Trust or by a vote
of the holders of a majority of the outstanding shares at a meeting duly called
for the purpose, which meeting shall be held upon written request of the holders
of not less than 10% of the outstanding shares of the Trust. Upon written
request by the holders of 1% of the outstanding shares of the Trust stating that
such shareholders of the Trust, for the purpose of obtaining the signatures
necessary to demand a shareholders' meeting to consider removal of a Trustee,
request information regarding the Trust's shareholders, the Trust will provide
appropriate materials (at the expense of the requesting shareholders). Except as
otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue
to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote
28
separately from the others on other matters, such as changes in the investment
policies of that series or the approval of the management agreement for that
series.
PERFORMANCE MEASURES AND INFORMATION
TOTAL RETURN
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
Fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the Fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
NONSTANDARDIZED TOTAL RETURN. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.
Total return for a newer class of shares for periods prior to inception includes
(a) the performance of the newer class of shares since inception and (b) the
performance of the oldest existing class of shares from the inception date up to
the date the newer class was offered for sale. The performance will not be
adjusted to take into account the fact that the newer class of shares bears
different class specific expenses than the oldest class of shares (e.g., Rule
12b-1 fees). Therefore, the total rate of return quoted for a newer class of
shares will differ from the return that would be quoted had the newer class of
shares been outstanding for the entire period over which the calculation is
based (i.e., the total rate of return quoted for the newer class will be higher
than the return that would have been quoted had the newer class of shares been
outstanding for the entire period over which the calculation is based if the
class specific expenses for the newer class are higher than the class specific
expenses of the oldest class, and the total rate of return quoted for the newer
class will be lower than the return that would be quoted had the newer class of
shares been outstanding for this entire period if the class specific expenses
for the newer class are lower than the class specific expenses of the oldest
class).
Performance results reflect any voluntary fee waivers or reimbursement of Fund
expenses by the Advisor or its affiliates. Absent these fee waivers or expense
reimbursements, performance results would have been lower.
PERFORMANCE DEPICTIONS AND COMPARISONS. The Fund may compare its performance to
various unmanaged indices published by such sources as listed in the Appendix.
The Fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Advisor, LFD or the Administrator to be
reputable, and publications in the press pertaining to the Fund's performance or
to the Advisor or its affiliates, including comparisons with competitors and
matters of national and global economic and financial interest. Examples include
Forbes, Business Week, Money Magazine, The Wall Street Journal, The New York
Times, The Boston Globe, Barron's National Business & Financial Weekly,
Financial Planning, Changing Times, Reuters Information Services, Wiesenberger
Mutual Funds Investment Report, Lipper, Inc., Morningstar, Inc., Sylvia Porter's
Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index, Disclosure Incorporated, Bloomberg and Ibbotson.
All data are based on past performance and do not predict future results.
TAX-RELATED ILLUSTRATIONS. The Fund also may present hypothetical illustrations
(i) comparing the Fund's and other mutual fund's pre-tax and after-tax total
returns, and (ii) showing the effects of income, capital gain and estate taxes
on performance.
GENERAL. From time to time, the Fund may discuss or quote its current portfolio
manager(s) as well as other investment personnel and members of the tax
management oversight team, including such person's views on: the economy;
securities markets; portfolio securities and their issuers; investment
philosophies, strategies, techniques and criteria used in the selection of
securities to be purchased or sold for the fund, including the New ValueTM
investment strategy that expands upon the principles of traditional value
investing; the Fund's portfolio holdings; the investment research and analysis
process; the formulation and evaluation of investment recommendations; and the
assessment and evaluation of credit, interest rate, market and economic risks
and similar or related matters.
29
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts, and use charts and graphs to illustrate the past performance of
various indices such as those mentioned in Appendix II and illustrations using
hypothetical rates of return to illustrate the effects of compounding and
tax-deferral. The Fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low.
From time to time, the Fund may also discuss or quote the views of LFD, the
Advisor, the Administrator and other financial planning, legal, tax, accounting,
insurance, estate planning and other professionals, or from surveys, regarding
individual and family financial planning. Such views may include information
regarding: retirement planning; general investment techniques (e.g., asset
allocation and disciplined saving and investing); business succession; issues
with respect to insurance (e.g., disability and life insurance and Medicare
supplemental insurance); issues regarding financial and health care management
for elderly family members; and similar or related matters.
30
APPENDIX
1999
SOURCE CATEGORY RETURN (%)
------ -------- ----------
CREDIT SUISSE FIRST BOSTON:
First Boston High Yield Index- 3.28
Global
LIPPER, INC.:
AMEX Composite Index P 27.28
AMEX Computer Tech IX P 75.02
AMEX Institutional IX P 24.46
AMEX Major Market IX P 17.76
Bse Sensex Index 63.83
CAC 40:FFR IX P 51.12
CD Rate 1 Month Index Tr 5.31
CD Rate 3 Month Index Tr 5.46
CD Rate 6 Month Index Tr 5.59
Consumer Price Index 2.99
Copnhgn SE:Dkr IX P 20.46
DAX:Dm IX Tr 39.10
Domini 400 Social Index 24.50
Dow Jones 65 Comp Av P 11.97
Dow Jones Ind Average P 25.22
Dow Jones Ind Dly Reinv 27.21
Dow Jones Ind Mth Reinv 27.29
Dow Jones Trans Av P -5.47
Dow Jones Trans Av Tr -4.52
Dow Jones Util Av P -9.27
Dow Jones Util Av Tr -6.02
Ft/S&P Act Wld Ex US IX N/A
Ft/S&P Actuaries Wld IX N/A
FT-SE 100:Pd IX P 17.81
FT-SE Gold Mines IX 0.20
Hang Seng:Hng Kng $ IX 68.80
Jakarta Composite Index 70.06
Jasdaq Index:Yen P 244.48
Klse Composite Index 38.59
Kospi Index 82.78
Lear High Growth Rate IX N/A
Lear Low Priced Value IX N/A
Lehman 1-3 Govt/Corp P -2.89
Lehman 1-3 Govt/Corp Tr 3.15
Lehman Aggregate Bd P -7.03
Lehman Aggregate Bd Tr -0.82
Lehman Cp Bd Int P -6.43
Lehman Cp Bd Int Tr 0.16
Lehman Govt Bd Int P -5.36
Lehman Govt Bd Int Tr 0.49
Lehman Govt Bd Long P -14.59
Lehman Govt Bd Long Tr -8.73
Lehman Govt Bd P -8.08
Lehman Govt Bd Tr -2.23
31
SOURCE CATEGORY RETURN (%)
------ -------- ----------
Lehman Govt/Cp Bd P -8.26
Lehman Govt/Cp Bd Tr -2.15
Lehman Govt/Cp Int P -5.70
Lehman Govt/Cp Int Tr 0.39
Lehman High Yield P -6.64
Lehman High Yield Tr 2.39
Lehman Muni 10 Yr IX P -6.08
Lehman Muni 10 Yr IX Tr -1.25
Lehman Muni 3 Yr IX P -3.36
Lehman Muni 3 Yr IX Tr 1.96
Lehman Muni Bond IX P -7.08
Lehman Muni Bond IX Tr -2.06
Lipper 1000 N/A
Lipper Mgmt Co Price IX 12.57
Madrid SE:Pst IX P 16.22
ML 10+ Yr Treasury IX Tr -8.61
ML 1-3 Yr Muni IX P -2.72
ML 1-3 Yr Muni IX Tr 2.51
ML 1-3 Yr Treasury IX P -2.85
ML 1-3 Yr Treasury IX Tr 3.06
ML 1-5 Yr Gv/Cp Bd IX P -3.84
ML 1-5 Yr Gv/Cp Bd IX Tr 2.19
ML 15 Yr Mortgage IX P -4.14
ML 15 Yr Mortgage IX Tr 2.17
ML 1-5 Yr Treasury IX P -3.83
ML 1-5 Yr Treasury IX Tr 2.04
ML 3 MO T-Bill IX Tr 4.85
ML 3-5 Yr Govt IX P -5.45
ML 3-5 Yr Govt IX Tr 0.32
ML 3-7 Yr Muni IX Tr 0.66
ML Corp Master Index P -8.53
ML Corp Master Index Tr -1.89
ML Glbl Govt Bond Inx P -6.83
ML Glbl Govt Bond Inx Tr -1.66
ML Glbl Gv Bond IX II P -9.65
ML Glbl Gv Bond IX II Tr -4.52
ML Global Bond Index P -9.04
ML Global Bond Index Tr -3.50
ML Gov Corp Master IX Tr -2.05
ML Govt Master Index P -8.02
ML Govt Master Index Tr -2.11
ML Govt/Corp Master IX P -8.19
ML High Yld Master IX P -7.86
ML High Yld Master IX Tr 1.57
ML Master Muni IX Tr -6.35
ML Mortgage Master IX P -4.86
ML Mortgage Master IX Tr 1.61
ML Treasury Master IX P -8.31
ML Treasury Master IX Tr -2.38
MSCI AC Americas Free ID 22.71
MSCI AC Asia Fr-Ja IX GD 64.67
MSCI AC Asia Fr-Ja IX ID 61.95
MSCI AC Asia Pac - Ja GD 55.23
MSCI AC Asia Pac - Ja ID 52.30
MSCI AC Asia Pac Fr-J GD 49.83
MSCI AC Asia Pac Fr-J ID 46.80
MSCI AC Asia Pac IX GD 59.66
32
SOURCE CATEGORY RETURN (%)
------ -------- ----------
MSCI AC Asia Pac IX ID 57.86
MSCI AC Europe IX GD 17.35
MSCI AC Europe IX ID 15.22
MSCI AC Fe - Ja IX GD 67.83
MSCI AC Fe - Ja IX ID 65.24
MSCI AC Fe Free IX GD 61.81
MSCI AC Fe Free IX ID 60.29
MSCI AC Fe Fr-Ja IX GD 62.11
MSCI AC Fe Fr-Ja IX ID 59.40
MSCI AC Pac Fr-Jpn IX GD 46.89
MSCI AC Pac Fr-Jpn IX ID 43.84
MSCI AC World Free IX GD 26.82
MSCI AC World Fr-USA GD 30.91
MSCI AC World Fr-USA ID 28.80
MSCI AC World IX GD 27.31
MSCI AC World IX ID 25.49
MSCI AC World-USA IX GD 31.79
MSCI AC Wrld Fr-Ja IX GD 23.07
MSCI AC Wrld Fr-Ja IX ID 21.20
MSCI AC Wrld-Ja IX GD 23.64
MSCI AC Wrld-Ja IX ID 21.77
MSCI Argentina IX GD 34.29
MSCI Argentina IX ID 30.05
MSCI Australia IX GD 18.67
MSCI Australia IX ID 15.19
MSCI Australia IX ND 17.62
MSCI Austria IX GD -8.66
MSCI Austria IX ID -10.47
MSCI Austria IX ND -9.11
MSCI Belgium IX GD -13.75
MSCI Belgium IX ID -15.77
MSCI Belgium IX ND -14.26
MSCI Brazil IX GD 67.23
MSCI Brazil IX ID 61.57
MSCI Canada IX GD 54.40
MSCI Canada IX ID 51.78
MSCI Canada IX ND 53.74
MSCI Chile IX GD 39.01
MSCI Chile IX ID 36.45
MSCI China Dom Fr IX ID 31.10
MSCI China Free IX ID 9.94
MSCI China Non Dom IX ID 5.82
MSCI Colombia IX GD -13.69
MSCI Colombia IX ID -19.14
MSCI Czech Rep IX GD 5.35
MSCI Czech Rep IX ID 3.97
MSCI Denmark IX GD 12.47
MSCI Denmark IX ID 10.85
MSCI Denmark IX ND 12.06
MSCI EAFE - UK IX GD 31.45
MSCI EAFE - UK IX ID 29.63
MSCI EAFE - UK IX ND 31.01
MSCI EAFE + Canada IX GD 28.27
MSCI EAFE + Canada IX ID 26.22
MSCI EAFE + Canada IX ND 27.93
MSCI EAFE + Em IX GD 31.03
33
SOURCE CATEGORY RETURN (%)
------ -------- ----------
MSCI EAFE + EM IX ID 28.93
MSCI EAFE + EMF IX GD 30.33
MSCI EAFE + EMF IX ID 28.24
MSCI EAFE Fr IX ID 25.03
MSCI EAFE GDP Wt IX GD 31.38
MSCI EAFE GDP Wt IX ID 29.49
MSCI EAFE GDP Wt IX ND 31.00
MSCI EAFE IX GD 27.30
MSCI EAFE IX ID 25.27
MSCI EAFE IX ND 26.96
MSCI EASEA IX GD 18.12
MSCI EASEA IX ID 15.90
MSCI EASEA IX ND 17.77
MSCI Em Asia IX GD 69.73
MSCI Em Asia IX ID 67.96
MSCI Em Eur/Mid East GD 79.61
MSCI Em Eur/Mid East ID 76.67
MSCI Em Europe IX GD 83.98
MSCI Em Europe IX ID 81.28
MSCI Em Far East IX GD 67.27
MSCI Em Far East IX ID 65.67
MSCI Em IX GD 68.82
MSCI Em IX ID 66.18
MSCI Em Latin Am IX GD 65.45
MSCI Em Latin Am IX ID 61.81
MSCI EMF Asia IX GD 69.41
MSCI EMF Asia IX ID 67.65
MSCI EMF Far East IX GD 65.50
MSCI EMF Far East IX ID 63.97
MSCI EMF IX GD 66.41
MSCI EMF IX ID 63.70
MSCI EMF Latin Am IX GD 58.89
MSCI EMF Latin Am IX ID 55.48
MSCI Europe - UK IX GD 17.84
MSCI Europe - UK IX ID 16.00
MSCI Europe - UK IX ND 17.35
MSCI Europe GDP Wt IX ID 14.08
MSCI Europe IX GD 16.23
MSCI Europe IX ID 14.12
MSCI Europe IX ND 15.89
MSCI European Union GD 19.22
MSCI European Union ID 16.99
MSCI Far East Free IX ID 59.99
MSCI Far East IX GD 62.63
MSCI Far East IX ID 61.10
MSCI Far East IX ND 62.41
MSCI Finland IX GD 153.33
MSCI Finland IX ID 150.71
MSCI Finland IX ND 152.60
MSCI France IX GD 29.69
MSCI France IX ID 28.00
MSCI France IX ND 29.27
MSCI Germany IX GD 20.53
MSCI Germany IX ID 18.70
MSCI Germany IX ND 20.04
MSCI Greece IX GD 49.64
MSCI Greece IX ID 47.58
34
SOURCE CATEGORY RETURN (%)
------ -------- ----------
MSCI Hongkong IX GD 59.52
MSCI Hongkong IX ID 54.85
MSCI Hongkong IX ND 59.52
MSCI Hungary IX GD 11.66
MSCI Hungary IX ID 10.81
MSCI India IX GD 87.35
MSCI India IX ID 84.67
MSCI Indonesia IX GD 93.46
MSCI Indonesia IX ID 92.04
MSCI Ireland IX ID -14.02
MSCI Israel Dom IX ID 51.10
MSCI Israel IX ID 56.29
MSCI Israel Non Dom Ixid 47.06
MSCI Italy IX GD 0.19
MSCI Italy IX ID -1.48
MSCI Italy IX ND -0.26
MSCI Japan IX GD 61.77
MSCI Japan IX ID 60.56
MSCI Japan IX ND 61.53
MSCI Jordan IX GD 6.26
MSCI Jordan IX ID 2.00
MSCI Kokusai IX GD 21.26
MSCI Kokusai IX ID 19.43
MSCI Kokusai IX ND 20.84
MSCI Korea IX GD 92.42
MSCI Korea IX ID 90.17
MSCI Luxembourg IX ID 50.50
MSCI Malaysia IX GD 109.92
MSCI Malaysia IX ID 107.23
MSCI Mexico Free IX GD 80.07
MSCI Mexico Free IX ID 78.50
MSCI Mexico IX GD 81.76
MSCI Mexico IX ID 80.19
MSCI Netherland IX GD 7.43
MSCI Netherland IX ID 5.25
MSCI Netherland IX ND 6.88
MSCI New Zealand IX GD 14.30
MSCI New Zealand IX ID 9.70
MSCI New Zealand IX ND 12.90
MSCI Nordic IX GD 87.75
MSCI Nordic IX ID 85.11
MSCI Nordic IX ND 87.00
MSCI Norway IX GD 32.43
MSCI Norway IX ID 29.52
MSCI Norway IX ND 31.70
MSCI Nth Amer IX GD 23.47
MSCI Nth Amer IX ID 21.91
MSCI Nth Amer IX ND 23.00
MSCI Pac - Japan IX GD 43.20
MSCI Pac - Japan IX ID 39.35
MSCI Pac - Japan IX ND 42.58
MSCI Pacific Free IX ID 55.19
MSCI Pacific Fr-Jpn ID 34.95
MSCI Pacific IX GD 57.96
MSCI Pacific IX ID 56.17
MSCI Pacific IX ND 57.63
MSCI Pakistan IX GD 49.62
35
SOURCE CATEGORY RETURN (%)
------ -------- ----------
MSCI Pakistan IX ID 42.24
MSCI Peru IX GD 18.86
MSCI Peru IX ID 16.34
MSCI Philippines Fr Ixgd 3.32
MSCI Philippines Fr Ixid 2.33
MSCI Philippines IX GD 8.90
MSCI Philippines IX ID 7.62
MSCI Portugal IX GD -8.45
MSCI Portugal IX ID -10.86
MSCI Russia IX GD 247.06
MSCI Russia IX ID 246.20
MSCI Sing/Mlysia IX GD 99.40
MSCI Sing/Mlysia IX ID 97.08
MSCI Sing/Mlysia IX ND 99.40
MSCI Singapore Fr IX GD 60.17
MSCI Singapore Fr IX ID 58.43
MSCI South Africa IX GD 57.20
MSCI South Africa IX ID 53.43
MSCI Spain IX GD 5.27
MSCI Spain IX ID 3.53
MSCI Spain IX ND 4.83
MSCI Sri Lanka IX GD -6.27
MSCI Sri Lanka IX ID -9.73
MSCI Sweden IX GD 80.60
MSCI Sweden IX ID 77.76
MSCI Sweden IX ND 79.74
MSCI Swtzrlnd IX GD -6.59
MSCI Swtzrlnd IX ID -7.81
MSCI Swtzrlnd IX ND -7.02
MSCI Taiwan IX GD 52.71
MSCI Taiwan IX ID 51.52
MSCI Thailand IX GD 40.92
MSCI Thailand IX ID 40.49
MSCI Turkey IX GD 252.41
MSCI Turkey IX ID 244.36
MSCI UK IX GD 12.45
MSCI UK IX ID 9.74
MSCI UK IX ND 12.45
MSCI USA IX GD 22.38
MSCI USA IX ID 20.86
MSCI USA IX ND 21.92
MSCI Venezuela IX GD 8.71
MSCI Venezuela IX ID 1.68
MSCI World - UK IX GD 26.83
MSCI World - UK IX ID 25.17
MSCI World - UK IX ND 26.38
MSCI World - USA IX GD 28.27
MSCI World - USA IX ID 26.22
MSCI World - USA IX ND 27.93
MSCI World GDP Wt IX ID 27.26
MSCI World IX Free ID 23.45
MSCI World IX GD 25.34
MSCI World IX ID 23.56
MSCI World IX ND 24.93
MSCI Wrld - Austrl IX GD 25.42
MSCI Wrld - Austrl IX ID 23.67
MSCI Wrld - Austrl IX ND 25.03
36
SOURCE CATEGORY RETURN (%)
------ -------- ----------
NASDAQ 100 IX P 101.95
NASDAQ Bank IX P -7.98
NASDAQ Composite IX P 85.59
NASDAQ Industrial IX P 71.67
NASDAQ Insurance IX P 5.54
NASDAQ Natl Mkt Cmp IX 85.87
NASDAQ Natl Mkt Ind IX 72.04
NASDAQ Transport IX P 1.82
Nikkei 225 Avg:Yen P 36.79
NYSE Composite P 9.15
NYSE Finance IX P -0.92
NYSE Industrials IX P 11.37
NYSE Transportation IX -3.25
NYSE Utilities IX P 14.62
Oslo SE Tot:Fmk IX P 45.54
Philippines Composite IX 8.85
PSE Technology IX P 116.40
Russell 1000 Grow IX Tr 33.16
Russell 1000 IX P 19.46
Russell 1000 IX Tr 20.91
Russell 1000 Value IX Tr 7.35
Russell 2000 Grow IX Tr 43.09
Russell 2000 IX P 19.62
Russell 2000 IX Tr 21.26
Russell 2000 Value IX Tr -1.49
Russell 3000 IX P 19.43
Russell 3000 IX Tr 20.90
Russell Midcap Grow IX 51.29
Russell Midcap IX Tr 18.23
Russell Midcap Value IX -0.11
S & P 100 Index P 31.26
S & P 500 Daily Reinv 21.04
S & P 500 Index P 19.53
S & P 500 Mnthly Reinv 21.03
S & P 600 Index P 11.52
S & P 600 Index Tr 12.41
S & P Financial IX P 2.19
S & P Financial IX Tr 3.97
S & P Industrial IX Tr 25.87
S & P Industrials P 24.52
S & P Midcap 400 IX P 13.35
S & P Midcap 400 IX Tr 14.72
S & P Transport Index P -10.69
S & P Transport IX Tr -9.32
S & P Utility Index P -12.48
S & P Utility Index Tr -8.88
S & P/Barra Growth IX Tr 27.98
S & P/Barra Value IX Tr 12.72
SB Cr-Hdg Nn-US Wd IX Tr 2.88
SB Cr-Hdg Wd Gv Bd IX Tr 1.31
SB Non-US Wd Gv Bd IX Tr -5.07
SB Wd Gv Bd:Austrl IX Tr 4.07
SB Wd Gv Bd:Germny IX Tr -16.42
SB Wd Gv Bd:Japan IX Tr 15.53
SB Wd Gv Bd:UK IX Tr -4.30
SB Wd Gv Bd:US IX Tr -2.45
SB World Govt Bond IX Tr -4.27
37
SOURCE CATEGORY RETURN (%)
------ -------- ----------
SB World Money Mkt IX Tr 0.39
Straits Times Index 77.54
Swiss Perf:Sfr IX Tr 11.69
Taiwan SE:T$ IX P 42.86
T-Bill 1 Year Index Tr 4.91
T-Bill 3 Month Index Tr 4.74
T-Bill 6 Month Index Tr 4.85
Thailand Set Index 35.44
Tokyo 2nd Sct:Yen IX P 121.27
Tokyo Se(Topix):Yen IX 58.44
Toronto 300:C$ IX P 29.72
Toronto SE 35:C$ IX P 36.42
Value Line Cmp IX-Arth 10.56
Value Line Cmp IX-Geom -1.40
Value Line Industrl IX -0.05
Value Line Railroad IX -9.93
Value Line Utilties IX -7.10
Lipper CE Pac Ex Jpn IX 73.32
Lipper Pac Ex-Jpn Fd IX 74.88
THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST::
Real Estate Investment Trust Index -4.62
SALOMON SMITH BARNEY WGBI MARKET SECTORS: LOCAL CURRENCY U.S. DOLLARS
----------------------------------------- -------------- ------------
U.S. Government (Sovereign) -2.45 -2.45
United Kingdom (Sovereign) -1.20 -4.3
France (Sovereign) -2.95 -17.16
Germany (Sovereign) -2.08 -16.42
Japan (Sovereign) 4.83 15.53
Canada (Sovereign) -1.46 4.29
Each Russell Index listed above is a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
*in U.S. currency
38
