Registration Nos.: 2-15184
811-881
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | X |
Pre-Effective Amendment No. | |
Post-Effective Amendment No. 110 | X |
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |
Amendment No. 51 | X |
LIBERTY FUNDS TRUST III
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02lll
(Address of Principal Executive Offices)
617-426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address
of Agent for Service Copy to
- -------------------- -------------------
Nancy L. Conlin, Esq. John M. Loder, Esq.
Colonial Management Ropes & Gray
Associates, Inc. One International Place
One Financial Center Boston, Massachusetts 02110-2624
Boston, Massachusetts 02111
It is proposed that the filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ X ] on August 16, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
LIBERTY FUNDS TRUST III
Cross Reference Sheet Pursuant to Rule 481(a)
(The Crabbe Huson Special Fund, Classes A, B, C)
(Crabbe Huson Small Cap Fund, Classes A, B, C)
(Crabbe Huson Equity Fund, Classes A, B, C)
(Crabbe Huson Managed Income and Equity Fund, Classes A, B, C)
(Crabbe Huson Contrarian Income Fund, Classes A, B, C)
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Front Cover Page; Back Cover Page
2. The Funds
3. The Funds
4. The Funds
5. Not Applicable
6. Front Cover; Managing the Funds;
Your Account
7. Your Account
8. The Funds, Your Account
9. Financial Highlights
<PAGE>
CRABBE HUSON SMALL CAP FUND
THE CRABBE HUSON SPECIAL FUND
CRABBE HUSON OREGON TAX-FREE FUND
CRABBE HUSON CONTRARIAN INCOME FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON MANAGED INCOME & EQUITY FUND
Supplement to Prospectuses
(Replacing Supplement dated August 6, 1999)
1. Until further notice, Class B and Class C shares of Crabbe Huson Small Cap
Fund and The Crabbe Huson Special Fund are not available for purchases or
exchanges.
2. Until further notice, Class C shares of Crabbe Huson Oregon Tax-Free Fund
are not available for purchases or exchanges.
3. Peter P. Belton is no longer a co-manager of The Crabbe Huson Special Fund
and the Crabbe Huson Small Cap Fund.
4. John Maack is no longer a co-manager of the Crabbe Huson Equity Fund and
the Crabbe Huson Managed Income & Equity Fund.
5. Effective immediately, Class B and Class C shares will be available for
purchases or exchanges in Crabbe Huson Contrarian Income Fund. In
connection with the offering of these classes, the following information is
added to the Prospectus:
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)
Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00 0.00
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the offering price) 5.00 1.00
- --------------------------------------------------------------------------------
Redemption fee(1) (as a percentage of amount
redeemed, if applicable) None None
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class B Class C
Management fee(2) (%) 0.80 0.80
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 1.00 1.00(2)
- --------------------------------------------------------------------------------
Other expenses(2)(3) (%) 0.71 0.71
- --------------------------------------------------------------------------------
Total annual fund operating expenses(2) (%) 2.51 2.51
<PAGE>
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Class B: did not sell your shares $ 255 $ 783 $1,337 $2,666
sold all your shares at
the end of the period $ 755 $1,083 $1,537 $2,666
- --------------------------------------------------------------------------------
Class C: did not sell your shares $ 255 $ 783 $1,337 $2,850
sold all your shares at
the end of the period $ 355 $ 783 $1,337 $2,850
(1) There is a $7.50 charge for wiring sale proceeds to your bank.
(2) Expenses shown are restated to reflect current fees and expenses. The
Fund's advisor or distributor have agreed to voluntarily waive, until
further notice, a portion of its advisory fee and Class C distribution and
service (12b-1) fees and to reimburse the fund for certain expenses. As a
result, the management fee would be 0.00%, for each share class, the Class
C share 12b-1 fee would be 0.85%, other expenses would be 0.55% for each
share class and total annual operating expenses would be 1.55% for Class B
shares and 1.40% for Class C shares.
(3) Estimated based on Class A expenses.
6. The following information relating to Class B and Class C shares under the
caption Sales Charges in the Prospectus is restated in its entirety, as
follows:
Class B shares Your purchases of Class B shares are at the Fund's net asset
value (NAV). Class B shares have no front-end sales charge, but carry a
contingent deferred sales charge (CDSC), or back-end charge, that is
imposed only on shares sold prior to the completion of the periods shown in
the chart below. The CDSC generally declines each year and eventually
disappears over time. Class B shares automatically convert to Class A
shares after eight years. Liberty Funds Distributor, Inc. (LFD) pays the
financial advisor firm an up-front commission of 4.00% on sales of Class B
shares.
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
- --------------------------------------------------------------------------------
Through second year 4.00
- --------------------------------------------------------------------------------
Through third year 3.00
- --------------------------------------------------------------------------------
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
- --------------------------------------------------------------------------------
Longer than six years 0.00
Class C shares Similar to Class B shares, your purchases of Class C shares
are at the Fund's NAV. Although Class C shares have no front-end sales
charge, they carry a CDSC of 1% that is applied to shares sold within the
first year after they are purchased. After holding shares for one year, you
may sell them at any time without paying a CDSC. LFD pays the financial
advisor firm an upfront commission of 1.00% on sales of Class C shares.
Years after purchase % deducted when shares are sold
Through first year 1.00
- --------------------------------------------------------------------------------
Longer than one years 0.00
xx-xxxx-xxxx (x/xx) , 1999
<PAGE>
- --------------------------------------------------------------------------------
CRABBE HUSON FUNDS Prospectus, March 1, 1999
- --------------------------------------------------------------------------------
o CRABBE HUSON SMALL CAP FUND
o THE CRABBE HUSON SPECIAL FUND
o CRABBE HUSON EQUITY FUND
o CRABBE HUSON MANAGED INCOME & EQUITY FUND
o CRABBE HUSON CONTRARIAN INCOME FUND
Advised by Crabbe Huson Group, Inc.
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved any shares offered in this
prospectus or determined whether this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
- -------------------------------------------
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
- -------------------------------------------
- ---------------------------------------------------
T A B L E O F C O N T E N T S
<TABLE>
<S> <C>
THE FUNDS 2
- ---------------------------------------------------
Each of these sections discusses
the following topics: Investment
Goals, Primary Investment
Strategies, Primary Investment
Risks, Performance History and
Your Expenses.
Crabbbe Huson Small Cap Fund ................. 2
The Crabbe Huson Special Fund ................ 5
Crabbe Huson Equity Fund ..................... 9
Crabbe Huson Managed Income & Equity Fund .... 12
Crabbe Huson Contrarian Income Fund .......... 16
YOUR ACCOUNT 20
- ----------------------------------------------------
How to Buy Shares ............................ 20
Sales Charges ................................ 21
How to Exchange Shares ....................... 23
How to Sell Shares ........................... 23
Distribution and Service Fees ................ 24
Other Information About Your Account ......... 25
MANAGING THE FUNDS 27
- ----------------------------------------------------
Investment Advisor ........................... 27
Portfolio Managers ........................... 27
Year 2000 Compliance ......................... 28
FINANCIAL HIGHLIGHTS 29
- ----------------------------------------------------
Crabbe Huson Small Cap Fund .................. 29
The Crabbe Huson Special Fund ................ 30
Crabbe Huson Equity Fund ..................... 31
Crabbe Huson Managed Income & Equity Fund .... 32
Crabbe Huson Contrarian Income Fund .......... 33
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
The Funds Crabbe Huson Small Cap Fund
- --------------------------------------------------------------------------------
UNDERSTANDING CONTRARIAN INVESTING
The contrarian approach puts primary emphasis on security price, balance sheet
and the relationship between the market price of a security and its estimated
intrinsic value as a share of an ongoing business. The basic value contrarian
approach is based on the advisor's belief that the securities of many companies
often sell at a discount from the securities' estimated intrinsic value. The
Fund attempts to identify and invest in such undervalued securities in the hope
that their market price will rise to their estimated intrinsic value.
- --------------------------------------------------------------------------------
INVESTMENT GOAL
- -------------------------------------------------------------------------------
The Fund seeks to provide long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
- -------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of its assets in
smaller companies. Smaller companies are companies with a market capitalization
of under $1 billion. In selecting investments for the Fund, the advisor invests
in a diversified portfolio consisting primarily of stocks and follows a basic
value, contrarian approach in selecting such stocks for its portfolio.
At times the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit. Taking a temporary defensive
position may prevent the Fund from achieving its investment goal.
In seeking to achieve its goal, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principle focus of the Fund and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's Statement of Additional Information (SAI), which you may obtain by
contacting Liberty Funds Distributor, Inc. (see back cover for address and phone
number). Approval by the Fund's shareholders is not required to modify or change
the Fund's goal or investment strategies.
PRIMARY INVESTMENT RISKS
- -------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or prevent the Fund from achieving its goal.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.
Value stocks are securities of companies that are generally not expected to
experience significant earnings growth but are stocks that the advisor believes
are undervalued. These companies may have experienced adverse business or
industry developments or may be subject to special risks that have caused the
stocks to be out of favor. If the advisor's assessment of a company's prospects
is wrong, the price of its stock may fall or may not approach the value the
advisor has placed on it.
Smaller companies are more likely than larger companies to have limited product
lines, markets or financial resources, or to depend on a small, inexperienced
management team. Stocks of smaller companies may trade less frequently and in
limited volume and their prices may fluctuate more than stocks of other
companies. Stocks of smaller companies, therefore, may be more vulnerable to
adverse developments than those of larger companies.
----
2
<PAGE>
THE FUNDS Crabbe Huson Small Cap Fund
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
complete calendar year since it commenced operations. It includes the effects of
Fund expenses, but not the effects of sales charges. If sales charges were
included, these returns would be lower.
Average annual total return is a measure of the Fund's performance over the past
one-year and life of fund periods. It includes the effects of Fund expenses. The
table shows Class A returns with sales charges.
The Fund's return is compared to the Russell 2000 Index and the Lipper Small
Cap Funds Average. Unlike the Fund, the index does not incur fees or charges.
It is not possible to invest in the index. The Lipper Average is the average
return of the funds included in Lipper Inc.'s Small Cap Funds category.
- --------------------------------------------------------------------------------
PERFORMANCE HISTORY
- -------------------------------------------------------------------------------
The bar chart below shows the Fund's performance from year to year by
illustrating the Fund's total calendar-year returns for its Class A shares. The
performance table following the bar chart shows how the Fund's Class A average
annual returns compare with those of a broad measure of market performance for 1
year and the life of the Fund. As of December 31, 1998 no Class B or Class C
shares had been issued, however they would have had substantially similar
returns to those of Class A. The chart and table are intended to illustrate some
of the risks of investing in the Fund by showing the changes in the Fund's
performance. All returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance does not predict the
Fund's future performance. Performance results include the effect of any expense
reduction arrangements. If these arrangements were not in place, then the
performance results would have been lower. Any reduction arrangements may be
discontinued at any time.
- --------------------------------------------------------------------------------
Calendar-Year Total Returns (Class A)
- --------------------------------------------------------------------------------
[Begin Bar Chart]
1997 = 26.14%
1998 = -32.11%
[End Bar Chart]
Best quarter: Third quarter 1997, +17.82%
Worst quarter: Third quarter 1998, -32.05%
- --------------------------------------------------------------------------------
Average Annual Total Returns -- for periods ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of Fund
1 Year (February 20, 1996)
- ---------------------------------------------------------------------
<S> <C> <C>
Class A (%) -36.02 -1.34
- ---------------------------------------------------------------------
Russell 2000 Index (%) -2.55 N/A
- ---------------------------------------------------------------------
Lipper Small Cap Funds Average (%) -0.33 N/A
- ---------------------------------------------------------------------
</TABLE>
----
3
<PAGE>
THE FUNDS Crabbe Huson Small Cap Fund
UNDERSTANDING EXPENSES
Shareholder Fees are paid directly by shareholders to the Fund's distributor.
Annual Fund Operating Expenses are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
Example Expenses helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same
o No expense reductions in effect
- --------------------------------------------------------------------------------
YOUR EXPENSES
- -------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
- -------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions
(%) (as a percentage of the offering price) 1.00(1) 5.00 1.00
- -------------------------------------------------------------------------------------
Redemption fee(2) (as a percentage of amount
redeemed, if applicable) None None None
</TABLE>
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fee(3) (%) 1.05 1.05 1.05
- -------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
- --------------------------------------------------------------------------------------
Other expenses(3) (%) 0.36 0.36(4) 0.36(4)
- --------------------------------------------------------------------------------------
Total annual fund operating expenses(3) (%) 1.66 2.41 2.41
</TABLE>
Example Expenses (your actual costs may be higher or lower)
<TABLE>
<CAPTION>
Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A $734 $1,068 $1,425 $2,427
- --------------------------------------------------------------------------------------
Class B: did not sell your shares $244 $751 $1,285 $2,560
sold all your shares at $744 $1,051 $1,485 $2,560
the end of the period
- --------------------------------------------------------------------------------------
Class C: did not sell your shares $244 $751 $1,285 $2,746
sold all your shares at
the end of the period $344 $751 $1,285 $2,746
</TABLE>
(1) This charge applies only to purchases of $1 million to $5 million if
shares, obtained through these purchases, are redeemed within 18 months
after purchase.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) Expenses shown are restated to reflect current fees and expenses. The
Fund's advisor voluntarily waived a portion of its advisory fee. As a
result, the management fee would have been 0.87% for each share class and
total annual operating expenses would have been 1.48% for Class A and
2.23% for Classes B and C.
(4) Estimated based on Class A expenses.
----
4
<PAGE>
- --------------------------------------------------------------------------------
The Funds The Crabbe Huson Special Fund
- --------------------------------------------------------------------------------
UNDERSTANDING CONTRARIAN INVESTING
The contrarian approach puts primary emphasis on security price, balance sheet
and the relationship between the market price of a security and its estimated
intrinsic value as a share of an ongoing business. The basic value contrarian
approach is based on the advisor's belief that the securities of many companies
often sell at a discount from the securities' estimated intrinsic value. The
Fund attempts to identify and invest in such undervalued securities in the hope
that their market price will rise to their estimated intrinsic value.
- --------------------------------------------------------------------------------
INVESTMENT GOAL
- --------------------------------------------------------------------------------
The Fund seeks significant long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 75% of its assets in
securities of companies that have small (under $1 billion) to medium (from $1
billion to $3 billion) market capitalizations. The Fund may engage in short
sales if the advisor believes that a stock may decline in price. In managing the
Fund, the advisor follows a basic value, contrarian approach in selecting stocks
for its portfolio.
In selecting investments for the Fund, the advisor purchases primarily U.S.
stocks that represent more aggressive investments than the U.S. equity market as
a whole. The Fund may sell securities short when the advisor believes that the
price of a particular security that the Fund does not own will decline in price.
At times the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit. Taking a temporary defensive
position may prevent the Fund from achieving its investment goal.
In seeking to achieve its goal, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principle focus of the Fund and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's SAI, which you may obtain by contacting Liberty Funds Distributor,
Inc. (see back cover for address and phone number). Approval by the Fund's
shareholders is not required to modify or change the Fund's goal or investment
strategies.
PRIMARY INVESTMENT RISKS
- --------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or could prevent the Fund from achieving its goal.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.
Value stocks are securities of companies that are generally not expected to
experience significant earnings growth but are stocks that the advisor believes
are undervalued. These companies may have experienced adverse business or
industry developments or may be subject to special risks that have caused the
stocks to be out of favor. If the advisor's assessment of a company's prospects
is wrong, the price of its stock may fall or may not approach the value the
advisor has placed on it.
----
5
<PAGE>
THE FUNDS The Crabbe Huson Special Fund
Smaller companies are more likely than larger companies to have limited product
lines, markets or financial resources, or to depend on a small, inexperienced
management team. Stocks of smaller companies may trade less frequently and in
limited volume and their prices may fluctuate more than stocks of other
companies. Stocks of smaller companies, therefore, may be more vulnerable to
adverse developments than those of larger companies.
The Fund's short sales are subject to special risks. A short sale involves the
sale by the Fund of a security that it does not own with the hope of purchasing
the same security at a later date at a lower price. In order to deliver the
security to the buyer, the Fund borrows the security from a third party. The
Fund is then obligated to return the security to the third party, so the Fund
must purchase the security at the market price at that point in time. If the
price of the security has increased during this time then the Fund will incur a
loss equal to the increase in price of the security from the time that the short
sale was entered into and any premiums and interest paid to the third party.
Therefore, short sales involve the risk that losses may be exaggerated,
potentially losing more money than the actual cost of the security. Also, there
is the risk that the third party to the short sale may fail to honor its
contract terms, causing a loss to the Fund.
----
6
<PAGE>
THE FUNDS The Crabbe Huson Special Fund
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
of the last ten calendar years. It includes the effects of Fund expenses, but
not the effects of sales charges. If sales charges were included, these returns
would be lower.
Average annual total return is a measure of the Fund's performance over the past
one-, five- and ten-year periods. It includes the effects of Fund expenses. The
table shows Class A returns with sales charges.
The Fund's return is compared to the Russell 2000 Index and the Lipper Mid-Cap
Funds Average. Unlike the Fund, the index does not incur fees or charges. It is
not possible to invest in the index. The Lipper Mid-Cap Funds Average is the
average return of the funds included in Lipper Inc.'s Mid-Cap Funds category.
- --------------------------------------------------------------------------------
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
The bar chart below shows the Fund's performance from year to year by
illustrating the Fund's total calendar-year returns for its Class A shares. The
performance table following the bar chart shows how the Fund's Class A average
annual returns compare with those of a broad measure of market performance for 1
year, 5 years and 10 years. As of December 31, 1998 no Class B or Class C shares
had been issued, however they would have had substantially similar returns to
those of Class A. The chart and table are intended to illustrate some of the
risks of investing in the Fund by showing the changes in the Fund's performance.
All returns include the reinvestment of dividends and distributions. As with all
mutual funds, past performance does not predict the Fund's future performance.
Performance results include the effect of any expense reduction arrangements. If
these arrangements were not in place, then the performance results would have
been lower. Any reduction arrangements may be discontinued at any time.
- --------------------------------------------------------------------------------
Calendar-Year Total Returns (Class A)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1989 17.29%
1990 3.82%
1991 17.08%
1992 33.38%
1993 34.54%
1994 11.72%
1995 10.79%
1996 5.92%
1997 11.28%
1998 -42.84%
</TABLE>
Best quarter: First quarter 1991, +19.79%
Worst quarter: Third quarter 1998, -33.61%
- --------------------------------------------------------------------------------
Average Annual Total Returns -- for periods ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (%) -46.13 -4.71 7.23
- --------------------------------------------------------------------------------
Russell 2000 Index (%) -2.55 11.87 12.92
- --------------------------------------------------------------------------------
Lipper Mid-Cap Funds Average (%) 12.16 14.87 15.44
</TABLE>
----
7
<PAGE>
THE FUNDS The Crabbe Huson Special Fund
UNDERSTANDING EXPENSES
Shareholder Fees are paid directly by shareholders to the Fund's distributor.
Annual Fund Operating Expenses are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
Example Expenses helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same
o No expense reductions in effect
- --------------------------------------------------------------------------------
YOUR EXPENSES
- -------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The table below describes the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
- ----------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions
(%) (as a percentage of the offering price) 1.00(1) 5.00 1.00
- ----------------------------------------------------------------------------------
Redemption fee(2) (as a percentage of amount
redeemed, if applicable) None None None
</TABLE>
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fee(3) (%) 1.05 1.05 1.05
- -----------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
- -----------------------------------------------------------------------------------
Other expenses (%) 0.36 0.36(4) 0.36(4)
- -----------------------------------------------------------------------------------
Total annual fund operating expenses(3) (%) 1.66 2.41 2.41
</TABLE>
- --------------------------------------------------------------------------------
Example Expenses (your actual costs may be higher or lower)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A $734 $1,068 $1,425 $2,427
- --------------------------------------------------------------------------------
Class B: did not sell your shares $244 $751 $1,285 $2,560
sold all your shares at $744 $1,051 $1,485 $2,560
the end of the period
- --------------------------------------------------------------------------------
Class C: did not sell your shares $244 $751 $1,285 $2,746
sold all your shares at
the end of the period $344 $751 $1,285 $2,746
</TABLE>
(1) This charge applies only to purchases of $1 million to $5 million if
shares, obtained through these purchases, are redeemed within 18 months
after purchase.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) Expenses shown are restated to reflect current fees and expenses. The
Fund's advisor voluntarily waived a portion of its advisory fee. As a
result, the management fee would have been 0.89% for each share class and
total annual operating expenses would have been 1.50% for Class A and
2.25% for Classes B and C.
(4) Estimated based on Class A expenses.
----
8
<PAGE>
- --------------------------------------------------------------------------------
The Funds Crabbe Huson Equity Fund
- --------------------------------------------------------------------------------
UNDERSTANDING CONTRARIAN INVESTING
The contrarian approach puts primary emphasis on security price, balance sheet
and the relationship between the market price of a security and its estimated
intrinsic value as a share of an ongoing business. The basic value contrarian
approach is based on the advisor's belief that the securities of many companies
often sell at a discount from the securities' estimated intrinsic value. The
Fund attempts to identify and invest in such undervalued securities in the hope
that their market price will rise to their estimated intrinsic value.
- --------------------------------------------------------------------------------
INVESTMENT GOAL
- -------------------------------------------------------------------------------
The Fund seeks long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
- -------------------------------------------------------------------------------
Under normal market conditions, the Fund will invest at least 65% of its total
assets in common stocks. In selecting investments for the Fund, the advisor
purchases primarily U.S. stocks of companies with medium (from $1 billion to $3
billion) and large (in excess of $3 billion) market capitalizations. In managing
the Fund, the advisor follows a basic value, contrarian approach in selecting
stocks for its portfolio.
At times the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit. Taking a temporary defensive
position may prevent the Fund from achieving its investment goal.
In seeking to achieve its goal, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principle focus of the Fund and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's SAI, which you may obtain by contacting Liberty Funds Distributor,
Inc. (see back cover for address and phone number). Approval by the Fund's
shareholders is not required to modify or change the Fund's goal or investment
strategies.
PRIMARY INVESTMENT RISKS
- -------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or prevent the Fund from achieving its goal.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.
Value stocks are securities of companies that are generally not expected to
experience significant earnings growth but are stocks that the advisor believes
are undervalued. These companies may have experienced adverse business or
industry developments or may be subject to special risks that have caused the
stocks to be out of favor. If the advisor's assessment of a company's prospects
is wrong, the price of its stock may fall or may not approach the value the
advisor has placed on it.
----
9
<PAGE>
THE FUNDS Crabbe Huson Equity Fund
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
complete calendar year since it commenced operations. It includes the effects of
Fund expenses, but not the effects of sales charges. If sales charges were
included, these returns would be lower.
Average annual total return is a measure of the Fund's performance over the past
one-, five- and life of fund periods. It includes the effects of Fund expenses.
The table shows Class A returns with sales charges.
The Fund's return is compared to the S&P 500 Index and the Lipper Growth Funds
Average. Unlike the Fund, the index does not incur fees or charges. It is not
possible to invest in the index. The Lipper Growth Funds Average is the average
return of the funds included in Lipper's Growth Funds category.
- --------------------------------------------------------------------------------
PERFORMANCE HISTORY
- -------------------------------------------------------------------------------
The bar chart below shows the Fund's performance from year to year by
illustrating the Fund's total calendar-year returns for its Class A shares. The
performance table following the bar chart shows how the Fund's Class A average
annual returns compare with those of a broad measure of market performance for 1
year, 5 years and life of Fund periods. As of December 31, 1998 no Class B or
Class C shares had been issued, however they would have had substantially
similar returns to those of Class A. The chart and table are intended to
illustrate some of the risks of investing in the Fund by showing the changes in
the Fund's performance. All returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance does not predict the
Fund's future performance. Performance results include the effect of any expense
reduction arrangements. If these arrangements were not in place, then the
performance results would have been lower. Any reduction arrangements may be
discontinued at any time.
- --------------------------------------------------------------------------------
Calendar-Year Total Returns (Class A)
- --------------------------------------------------------------------------------
[Bar Chart]
<TABLE>
<S> <C>
1989
1990 -1.56%
1991 35.06%
1992 16.39%
1993 25.97%
1994 1.60%
1995 23.78%
1996 11.74%
1997 25.72%
1998 -8.83%
</TABLE>
Best quarter: First quarter 1991, +18.98%
Worst quarter: Third quarter 1998, -19.93%
- --------------------------------------------------------------------------------
Average Annual Total Returns -- for periods ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of Fund
1 Year 5 Years (January 31, 1989)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (%) -14.07 8.71 12.21
- ----------------------------------------------------------------------------------
S&P 500 Index (%) 28.60 24.05 N/A
- ----------------------------------------------------------------------------------
Lipper Growth Funds Average (%) 22.86 18.63 N/A
- ----------------------------------------------------------------------------------
</TABLE>
----
10
<PAGE>
THE FUNDS Crabbe Huson Equity Fund
UNDERSTANDING EXPENSES
Shareholder Fees are paid directly by shareholders to the Fund's distributor.
Annual Fund Operating Expenses are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
Example Expenses helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same
o No expense reductions in effect
- --------------------------------------------------------------------------------
YOUR EXPENSES
- --------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The table below describes the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
- -------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions
(%) (as a percentage of the offering price) 1.00(1) 5.00 1.00
- -------------------------------------------------------------------------------------
Redemption fee(2) (as a percentage of the amount
redeemed, if applicable) None None None
</TABLE>
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fee(3) (%) 0.96 0.96 0.96
- -------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
- -------------------------------------------------------------------------------------
Other expenses(3) (%) 0.33 0.33(4) 0.33(4)
- -------------------------------------------------------------------------------------
Total annual fund operating expenses(3) (%) 1.54 2.29 2.29
</TABLE>
- --------------------------------------------------------------------------------
Example Expenses (your actual costs may be higher or lower
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A $723 $1,035 $1,368 $2,309
- --------------------------------------------------------------------------------
Class B: did not sell your shares $233 $717 $1,227 $2,442
sold all your shares at
the end of the period $733 $1,017 $1,427 $2,442
- --------------------------------------------------------------------------------
Class C: did not sell your shares $233 $717 $1,227 $2,630
sold all your shares at
the end of the period $333 $717 $1,227 $2,630
</TABLE>
(1) This charge applies only to purchases of $1 million to $5 million if
shares, obtained through these purchases, are redeemed within 18 months
after purchase.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) Expenses shown are restated to reflect current fees and expenses. The
Fund's advisor voluntarily waived a portion of its advisory fee and
reimbursed the Fund for certain expenses. As a result, the management fee
would have been 0.90%, for each share class, other expenses would have
been 0.27% for each share class and total annual operating expenses would
have been 1.42% for Class A and 2.17% for Classes B and C.
(4) Estimated based on Class A expenses.
----
11
<PAGE>
- --------------------------------------------------------------------------------
The Funds Crabbe Huson Managed Income & Equity Fund
- --------------------------------------------------------------------------------
UNDERSTANDING CONTRARIAN INVESTING
The contrarian approach puts primary emphasis on security price, balance sheet
and the relationship between the market price of a security and its estimated
intrinsic value as a share of an ongoing business. The basic value contrarian
approach is based on the advisor's belief that the securities of many companies
often sell at a discount from the securities' estimated intrinsic value. The
Fund attempts to identify and invest in such undervalued securities in the hope
that their market price will rise to their estimated intrinsic value.
- --------------------------------------------------------------------------------
INVESTMENT GOALS
- -------------------------------------------------------------------------------
The Fund seeks preservation of capital, capital appreciation and income.
PRIMARY INVESTMENT STRATEGIES
- -------------------------------------------------------------------------------
The Fund invests in a combination of stocks, bonds and cash. The advisor will
constantly adjust the Fund's allocation of stocks, bonds and cash to adapt to
changing market and economic conditions. Under normal market conditions, the
Fund expects to invest its assets as follows: 25% to 60% in stocks; 30% to 55%
in bonds; and 5% to 30% in cash or cash equivalents. In managing the Fund, the
advisor follows a basic value, contrarian approach in selecting securities for
its portfolio.
The Fund's stock investments will consist primarily of U.S. stocks of companies
with medium (from $1 billion to $3 billion) to large (in excess of $3 billion)
market capitalizations. The Fund's bond investments will consist primarily of
U.S. government securities and investment grade bonds. The U.S. government
securities may consist of U.S. Treasuries and mortgage-backed securities issued
or guaranteed by the U.S. government, its agents or instrumentalities. The
advisor may purchase bonds of any maturity.
At times the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit. Taking a temporary defensive
position may prevent the Fund from achieving its investment goals.
In seeking to achieve its goals, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principle focus of the Fund and therefore not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's SAI, which you may obtain by contacting Liberty Funds Distributor,
Inc. (see back cover for address and phone number). Approval by the Fund's
shareholders is not required to modify or change the Fund's goals or investment
strategies.
PRIMARY INVESTMENT RISKS
- --------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or prevent the Fund from achieving its goals.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.
Value stocks are securities of companies that are generally not expected to
experience significant earnings growth but are stocks that the advisor believes
are undervalued. These companies may have experienced adverse business or
industry developments or may be subject to special risks that have caused the
stocks to be out of favor. If the advisor's
----
12
<PAGE>
THE FUNDS Crabbe Huson Managed Income & Equity Fund
assessment of a company's prospects is wrong, the price of its stock may fall or
may not approach the value the advisor has placed on it.
Interest rate risk is the risk of a change in the price of a bond when interest
rates increase or decline. In general, if interest rates rise, bond prices fall,
and if interest rates fall, bond prices rise. Interest rate risk is generally
greater for bonds with longer durations.
Structure risk is the risk that an event will occur (such as a security being
prepaid or called) that alters the security's cashflows. Prepayment risk is a
particular type of structure risk that is present in the Fund because of its
investments in mortgage-backed securities. Prepayment risk is the possibility
that, as interest rates fall, homeowners are more likely to refinance their home
mortgages. When mortgages are refinanced, the principal on mortgage-backed
securities is paid earlier than expected. In an environment of declining
interest rates, mortgage-backed securities may offer less potential for gain
than other debt securities. In addition, the potential impact of prepayment on
the price of a mortgage-backed security may be difficult to predict and result
in greater volatility.
Because the Fund may invest in securities issued by private entities, including
certain types of mortgage-backed securities and corporate bonds, the Fund is
subject to issuer risk. Issuer risk is the possibility that changes in the
financial condition of the issuer of a security, changes in general economic
conditions, or changes in economic conditions that affect the issuer's industry
may impact the issuer's ability to make timely payment of interest or principal.
This could result in decreases in the price of the security.
----
13
<PAGE>
THE FUNDS Crabbe Huson Managed Income & Equity Fund
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
complete calendar year since it commenced operations. It includes the effects of
Fund expenses, but not the effects of sales charges. If sales charges were
included, these returns would be lower.
Average annual total return is a measure of the Fund's performance over the past
one-, five- and life of fund periods. It includes the effects of Fund expenses.
The table shows Class A returns with sales charges.
The Fund's return is compared to the Lehman Government/Corporate Bond Index, the
S&P 500 Index and the Lipper Flexible Portfolio Funds Average. Unlike the Fund,
the indices do not incur fees or charges. It is not possible to invest in the
indices. The Lipper Flexible Portfolio Funds Average is the average return of
the funds included in Lipper Inc.'s Flexible Portfolio Funds category.
- --------------------------------------------------------------------------------
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
The bar chart below shows the Fund's performance from year to year by
illustrating the Fund's total calendar-year returns for its Class A shares. The
performance table following the bar chart shows how the Fund's Class A average
annual returns compare with those of a broad measure of market performance for 1
year, 5 years and the life of the Fund. As of December 31, 1998, no Class B or
Class C shares had been issued, however they would have had substantially
similar returns to those of Class A. The chart and table are intended to
illustrate some of the risks of investing in the Fund by showing the changes in
the Fund's performance. All returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance does not predict the
Fund's future performance. Performance results include the effect of any expense
reduction arrangements. If these arrangements were not in place, then the
performance results would have been lower. Any reduction arrangements may be
discontinued at any time.
- --------------------------------------------------------------------------------
Calendar-Year Total Returns (Class A)
- --------------------------------------------------------------------------------
[Bar Chart]
<TABLE>
<S> <C>
1989
1990 -0.76%
1991 21.24%
1992 12.18%
1993 18.19%
1994 -0.85%
1995 20.16%
1996 6.84%
1997 19.19%
1998 -0.18%
</TABLE>
Best quarter: Second quarter 1997, +11.85%
Worst quarter: Third quarter 1998, -10.21%
- --------------------------------------------------------------------------------
Average Annual Total Returns -- for periods ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of Fund
1 Year 5 Years (January 31, 1989)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (%) -4.93 7.60 9.56
- ----------------------------------------------------------------------------------
Lehman Gov't./Corporate
Bond Index (%) 9.47 7.30 N/A
- ----------------------------------------------------------------------------------
S&P 500 28.60 24.05 N/A
- ----------------------------------------------------------------------------------
Lipper Flexible
Portolio Funds Average(%) 14.28 14.30 N/A
- ----------------------------------------------------------------------------------
</TABLE>
----
14
<PAGE>
THE FUNDS Crabbe Huson Managed Income & Equity Fund
UNDERSTANDING EXPENSES
Shareholder Fees are paid directly by shareholders to the Fund's distributor.
Annual Fund Operating Expenses are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
Example Expenses helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same
o No expense reductions in effect
- --------------------------------------------------------------------------------
YOUR EXPENSES
- --------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The table below describes the fees and expenses you may pay when you buy,
hold and sell shares of a Fund.
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
- ---------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions
(%) (as a percentage of the offering price) 1.00(1) 5.00 1.00
- ---------------------------------------------------------------------------------
Redemption fee(2) (as a percentage of amount
redeemed, if applicable) None None None
</TABLE>
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Management fee(3) (%) 1.05 1.05 1.05
- -----------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
- -----------------------------------------------------------------------------------
Other expenses(3) (%) 0.36 0.36(4) 0.36(4)
- -----------------------------------------------------------------------------------
Total annual fund operating expenses(3) (%) 1.66 2.41 2.41
</TABLE>
- --------------------------------------------------------------------------------
Example Expenses (your actual costs may be higher or lower
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A $636 $973 $1,334 $2,346
- -------------------------------------------------------------------------------------
Class B: did not sell your shares $244 $751 $1,285 $2,560
sold all your shares at
the end of the period $744 $1,051 $1,485 $2,560
- -------------------------------------------------------------------------------------
Class C: did not sell your shares $244 $751 $1,285 $2,746
sold all your shares at
the end of the period $344 $751 $1,285 $2,746
- -------------------------------------------------------------------------------------
</TABLE>
(1) This charge applies only to purchases of $1 million to $5 million if
shares are redeemed within 18 months after purchase.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) Expenses shown are restated to reflect current fees and expenses. The
Fund's advisor voluntarily waived a portion of its advisory fee and
reimbursed the Fund for certain expenses. As a result, the management fee
would have been 0.87% for each share class, other expenses would have
been 0.30% for each share class and total annual operating expenses would
have been 1.42% for Class A and 2.17% for Classes B and C.
(4) Estimated based on Class A expenses.
----
15
<PAGE>
- --------------------------------------------------------------------------------
The Funds Crabbe Huson Contrarian Income Fund
- --------------------------------------------------------------------------------
UNDERSTANDING CONTRARIAN INVESTING
The contrarian approach puts primary emphasis on security price, balance sheet
and the relationship between the market price of a security and its estimated
intrinsic value as a share of an ongoing business. The basic value contrarian
approach is based on the advisor's belief that the securities of many companies
often sell at a discount from the securities' estimated intrinsic value. The
Fund attempts to identify and invest in such undervalued securities in the hope
that their market price will rise to their estimated intrinsic value.
- --------------------------------------------------------------------------------
INVESTMENT GOAL
- --------------------------------------------------------------------------------
The Fund seeks the highest level of current income that is consistent with
preservation of capital.
PRIMARY INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of its total
assets in a combination of (i) U.S. government debt securities (such as U.S.
Treasury bonds and mortgage-backed securities), (ii) "investment grade"
corporate bonds ranked in the four highest grades by Moody's or Standard and
Poor's, and (iii) cash and cash equivalents.
In managing the Fund, the advisor follows a basic value, contrarian approach in
selecting securities for its portfolio. The advisor is not subject to any
limitations on the average maturity of the Fund's holdings. The advisor may
adjust the maturity from time to time in response to changes in interest rates.
At times the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit. Taking a temporary defensive
position may prevent the Fund from achieving its investment goal.
In seeking to achieve its goal, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principle focus of the Fund and therefore are not described in the prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's SAI, which you may obtain by contacting Liberty Funds Distributor,
Inc. (see back cover for address and phone number). Approval by the Fund's
shareholders is not required to modify or change the Fund's goal or investment
strategies.
PRIMARY INVESTMENT RISKS
- --------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or could prevent the Fund from achieving its goal.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.
Interest rate risk is the risk of a change in the price of a bond when interest
rates increase or decline. In general, if interest rates rise, bond prices fall,
and if interest rates fall, bond prices rise. Interest rate risk is generally
greater for bonds with longer durations.
---
16
<PAGE>
THE FUNDS Crabbe Huson Contrarian Income Fund
Structure risk is the risk that an event will occur (such as a security being
prepaid or called) that alters the security's cashflows. Prepayment risk is a
particular type of structure risk that is present in the Fund because of its
investments in mortgage-backed securities. Prepayment risk is the possibility
that, as interest rates fall, homeowners are more likely to refinance their home
mortgages. When mortgages are refinanced, the principal on mortgage-backed
securities is paid earlier than expected. In an environment of declining
interest rates, mortgage-backed securities may offer less potential for gain
than other debt securities. In addition, the potential impact of prepayment on
the price of a mortgage-backed security may be difficult to predict and result
in greater volatility.
Because the Fund may invest in securities issued by private entities, including
certain types of mortgage-backed securities and corporate bonds, the Fund is
subject to issuer risk. Issuer risk is the possibility that changes in the
financial condition of the issuer of a security, changes in general economic
conditions, or changes in economic conditions that affect the issuer's industry
may impact the issuer's ability to make timely payment of interest or principal.
This could result in decreases in the price of the security.
----
17
<PAGE>
THE FUNDS Crabbe Huson Contrarian Income Fund
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
complete calendar year since it commenced operations. It includes the effects of
Fund expenses, but not the effects of sales charges. If sales charges were
included, these returns would be lower.
Average annual total return is a measure of the Fund's performance over the past
one-, five- and life of fund periods. It includes the effects of Fund expenses.
The table shows Class A returns with sales charges.
The Fund's return is compared to the Lehman Government/Corporate Bond Index and
the Lipper Corporate Debt A-Rated Funds Average. Unlike the Fund, the index does
not incur fees or charges. It is not possible to invest in the index. The Lipper
Corporate Debt A-Rated Funds Average is the average return of the funds included
in Lipper Inc.'s Corporate Debt A-Rated Funds category.
- --------------------------------------------------------------------------------
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
The bar chart below shows the Fund's performance from year to year by
illustrating the Fund's total calendar-year returns for its Class A shares. The
performance table following the bar chart shows how the Fund's Class A average
annual returns compare with those of a broad measure of market performance for 1
year, 5 years and the life of the Fund. The chart and table are intended to
illustrate some of the risks of investing in the Fund by showing the changes in
the Fund's performance. All returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance does not predict the
Fund's future performance. Performance results include the effect of any expense
reduction arrangements. If these arrangements were not in place, then the
performance results would have been lower. Any reduction arrangements may be
discontinued at any time.
- --------------------------------------------------------------------------------
Calendar-Year Total Returns (Class A)
- --------------------------------------------------------------------------------
[Bar Chart]
<TABLE>
<S> <C>
1989
1990 5.87%
1991 16.22%
1992 6.23%
1993 6.26%
1994 -3.60%
1995 16.98%
1996 1.99%
1997 11.58%
1998 9.75%
</TABLE>
Best quarter: Fourth quarter 1991, +6.10%
Worst quarter: First quarter 1996, -2.73%
- --------------------------------------------------------------------------------
Average Annual Total Returns -- for periods ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life of Fund
1 Year 5 Years (January 31, 1989)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (%) 4.54 6.05 7.38
- ----------------------------------------------------------------------------------
Lehman Gov't/Corporate Bond Index (%) 9.47 7.30 N/A
- ----------------------------------------------------------------------------------
Lipper Corporate
Debt A-Rated Average (%) 7.46 6.53 N/A
- ----------------------------------------------------------------------------------
</TABLE>
----
18
<PAGE>
THE FUNDS Crabbe Huson Contrarian Income Fund
UNDERSTANDING EXPENSES
Shareholder Fees are paid directly by shareholders to the Fund's distributor.
Annual Fund Operating Expenses are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
Example Expenses helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. The table does not take into account any
expense reduction arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following hypothetical conditions:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same
o No expense reductions in effect
- --------------------------------------------------------------------------------
YOUR EXPENSES
- --------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The table below describes the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
<S> <C>
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75
- --------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the offering
price) 1.00(1)
- --------------------------------------------------------------
Redemption fee(2) (as a percentage of amount
redeemed, if applicable) None
</TABLE>
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted directly from Fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
<S> <C>
Management fee(3) (%) 0.80
- --------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25
- --------------------------------------------------------------
Other expenses(3) (%) 0.71
- --------------------------------------------------------------
Total annual fund operating expenses(3) (%) 1.76
</TABLE>
- --------------------------------------------------------------------------------
Example Expenses (your actual costs may be higher or lower)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A $646 $1,004 $1,386 $2,454
- --------------------------------------------------------------------------------
</TABLE>
(1) This charge applies only to purchases of $1 million to 5% million if shares
are redeemed within 18 months after purchase.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) Expenses shown are restated to reflect current fees and expenses. The Fund's
advisor voluntarily waived its advisory fee and reimbursed the Fund for
certain expenses. As a result, the management fee would have been 0.00%,
other expenses would have been 0.55% and total annual operating expenses
would have been 0.80%.
----
19
<PAGE>
- --------------------------------------------------------------------------------
Your Account
- --------------------------------------------------------------------------------
INVESTMENT MINIMUMS(1)
<TABLE>
<S> <C>
Initial Investments ......................... $1,000
Subsequent Investments ......................... $50
Automatic Purchaes Plans ....................... $50
Retirement Plans ............................... $25
</TABLE>
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When a Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. In "good form" means that you placed your
order with your brokerage firm or your payment has been received and your
application is complete, including all necessary signatures.
- --------------------------------------------------------------------------------
Outlined below are various ways you can purchase shares:
- --------------------------------------------------------------------------------
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf.
- --------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Liberty
Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
- --------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or
send a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
- --------------------------------------------------------------------------------
By exchange You may acquire shares by exchanging shares you own in one
fund for shares of the same class of the Fund at no
additional cost. To exchange by telephone, call
1-800-422-3737.
- --------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank
account to your fund account. To wire funds to your fund
account, call 1-800-422-3737 to obtain a control number
and the wiring instructions.
- --------------------------------------------------------------------------------
By electronic funds You may purchase shares by electronically transferring
transfer (EFT) money from your bank account to your fund account by
calling 1-800-422-3737. Your money may take up to two
business days to be invested. You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
- --------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments
investment plan automatically from your bank account to your fund account.
You can select a pre-authorized amount to be sent via EFT.
Be sure to complete the appropriate section of the
application for this feature.
- --------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one
diversification fund into the same class of shares of another fund at no
additional sales charge. To invest your dividends in
another fund, call 1-800-345-6611.
(1) Each Fund reserves the right to change the investment minimums. Each 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.
----
20
<PAGE>
Your Account
CHOOSING A SHARE CLASS
The Funds generally offer three classes of shares in this prospectus -- Class A,
B and C. Each share class has its own sales charge and expense structure.
Determining which share class is best for you depends on the dollar amount you
are investing and the number of years for which you are willing to invest.
Purchases of more than $250,000 but less than $1 million can be made only in
Class A or Class C shares. Purchases of $1 million or more are automatically
invested in Class A shares. Based on your personal situation, your investment
advisor can help you decide which class of shares makes the most sense for you.
The Small Cap, Equity, Managed Income & Equity and Contrarian Income Funds also
offer an additional class of shares, Class I shares, exclusively to certain
institutional and high net worth investors. Class I shares are made available
through a separate prospectus provided to eligible investors.
- --------------------------------------------------------------------------------
SALES CHARGES
- --------------------------------------------------------------------------------
You may be subject to an initial sales charge when you purchase, or a contingent
deferred sales charge (CDSC) when you sell, shares of a Fund. These sales
charges are described below. In certain circumstances these sales charges are
waived, as described below and in the SAI.
Class A shares Your purchases of Class A shares generally are at the Public
Offering Price (POP). This price includes a sales charge that is based on the
amount of your initial investment when you open your account. The sales charge
you pay on additional investments is based on the total amount of your purchase
and the current value of your account. The amount of the sales charge differs
depending on the amount you invest as shown in the tables below. The tables
below also show the commission paid to the financial advisor firm on sales of
Class A shares.
- --------------------------------------------------------------------------------
Crabbe Huson Small Cap, Special and Equity Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of
offering
As a % of price
the Public As a % retained by
Offering of your financial
Amount of Purchase Price (POP) investment advisor firm
<S> <C> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
- ----------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
- ----------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
- ----------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
- ----------------------------------------------------------------------------------
$500,000 to less than 1,000,000 2.00 2.04 1.75
- ----------------------------------------------------------------------------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Crabbe Huson Managed Income & Equity and Contrarian Income Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of
offering
As a % of price
the Public As a % retained by
Offering of your financial
Amount of Purchase Price (POP) investment advisor firm
<S> <C> <C> <C> <C>
Less than $50,000 4.75 4.99 4.25
- ----------------------------------------------------------------------------------
$ 50,000 to less than $100,000 4.50 4.71 4.00
- ----------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 3.00
- ----------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
- ----------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
- ----------------------------------------------------------------------------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
(1) Redemptions from Class A share accounts with shares valued between $1
million and $5 million may be subject to a CDSC. Class A share purchases
that bring your account value above $1 million are subject to a 1% CDSC if
redeemed within 18 months of their purchase date. The 18-month period begins
on the first day of the month following each purchase.
----
21
<PAGE>
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES (CDSC)
Certain investments in Class A, B and C shares are subject to a CDSC. You will
pay the CDSC only on shares you sell within a certain amount of time after
purchase. The CDSC generally declines each year until there is no charge for
selling shares. The CDSC is applied to the NAV at the time of purchase or sale,
whichever is lower. For purposes of calculating 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.
- --------------------------------------------------------------------------------
For Class A share purchases of $1 million or more, financial advisors receive a
commission from the Funds' distributor, Liberty Funds Distributor, Inc. (LFD),
as follows:
- --------------------------------------------------------------------------------
Purchases Over $1 Million
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Purchased Commission %
<S> <C>
First $3 million 1.00
- ----------------------------------------------------------
Next $2 million 0.50
- ----------------------------------------------------------
Over $5 million 0.25(1)
- ----------------------------------------------------------
</TABLE>
(1) Paid over twelve months but only to the extent the shares remain
outstanding.
Reduced Sales Charges for Larger Investments There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge. In addition, certain investors may
purchase shares at a reduced sales charge or at net asset value (NAV), which is
the value of a Fund share excluding any sales charge. See the SAI for a
description of these situations.
Class B shares Your purchases of Class B shares are at the Fund's NAV. Class B
shares have no front-end sales charge, but carry a CDSC, or back-end charge,
that is imposed only on shares sold prior to the completion of the periods shown
in the chart below. The CDSC generally declines each year and eventually
disappears over time. Class B shares automatically convert to Class A shares
after eight years. LFD pays the financial advisor firm an upfront commission of
4.00% on sales of Class B shares.
- --------------------------------------------------------------------------------
All Funds except Crabbe Huson Contrarian Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Holding period after purchase % deducted when
shares are sold
<S> <C>
Through first year 5.00
- ---------------------------------------------------------------
Through second year 4.00
- ---------------------------------------------------------------
Through third year 3.00
- ---------------------------------------------------------------
Through fourth year 3.00
- ---------------------------------------------------------------
Through fifth year 2.00
- ---------------------------------------------------------------
Through sixth year 1.00
- ---------------------------------------------------------------
Longer than six years 0.00
</TABLE>
----
22
<PAGE>
Your Account
Class C shares Similar to Class B shares, your purchases of Class C shares are
at the Fund's NAV. Although Class C shares have no front-end sales charge, they
carry a CDSC of 1% that is applied to shares sold within the first year after
they are purchased. After holding shares for one year, you may sell them at any
time without paying a CDSC. LFD pays the financial advisor firm an upfront
commission of 1.00% on sales of Class C shares.
- --------------------------------------------------------------------------------
All Funds in this Prospectus except Crabbe Huson Contrarian Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years after purchase % deducted when shares are sold
<S> <C>
Through first year 1.00
- ---------------------------------------------------------------------------
Longer than one year 0.00
</TABLE>
HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
distributed by LFD at NAV. 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. A Fund may terminate your exchange privilege if
the advisor determines that your exchange activity is likely to adversely impact
the advisor's ability to manage the Fund. To exchange by telephone, call
1-800-422-3737.
HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, (ii) the proper
signatures and signature guarantees, (iii) you have included any certificates
for shares to be sold and (iv) 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.
----
23
<PAGE>
Your Account
The Fund will generally send proceeds from the sale to you within seven days.
However, if you purchased your shares by check, the Fund may delay sending the
proceeds for up to 15 days after your initial purchase to protect against checks
that are returned.
- --------------------------------------------------------------------------------
Outlined below are the various options for selling shares:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Method Instructions
<S> <C>
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor firm must receive your request prior to
the close of the NYSE, usually 4:00 p.m. Eastern time.
- --------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by
exchanging from the Fund into the same share class of
another fund at no additional cost. To exchange by
telephone, call 1-800-422-3737.
- --------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by
telephone and request that a check be sent to your
address of record by calling 1-800-422-3737. The dollar
limit for telephone sales is $100,000 in a 30-day period.
You do not need to set up this feature in advance of your
call.
- --------------------------------------------------------------------------------
By mail You may send a signed letter of instruction (LOI) or
stock power form along with any certificates to be sold
to the address below. In your LOI, note your fund's name,
share class, account number, and the dollar value or
number of shares you wish to sell. All account owners
must sign the letter, and signatures must be guaranteed
by either a bank, a member firm of a national stock
exchange or another eligible guarantor institution.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account (IRA) owners. For
details, call 1-800-345-6611.
Mail your LOI to Liberty Funds Services, Inc., P.O. Box
1722, Boston, MA 02105-1722
- --------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be
wired to your bank. You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
- --------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be
sure to complete the appropriate section of the account
application for this feature.
</TABLE>
DISTRIBUTION AND SERVICE FEES
- --------------------------------------------------------------------------------
Each Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A, B and C shares
and the services provided to you by your financial advisor. These annual
distribution and service fees may equal up to 0.25% for Class A shares and 1.00%
for each of Class B and Class C shares and are paid out of the assets of these
classes. Over time, these fees will increase the cost of your shares and may
cost you more than paying other types of sales charges.
----
24
<PAGE>
Your Account
OTHER INFORMATION ABOUT YOUR ACCOUNT
- --------------------------------------------------------------------------------
How a Fund's Share Price is Determined The price of each class of a Fund's
shares is based on its NAV. The NAV is determined at the close of the NYSE,
usually 4:00 p.m. Eastern time on each business day that the NYSE is open
(typically Monday through Friday).
When you request a transaction, it will be processed at the NAV (plus any
applicable sales charges) next determined after your request is received in
"good form" by LFD. In most cases, in order to receive that day's price, LFD
must receive your order before that day's transactions are processed. If you
request a transaction through your financial advisor's firm, the firm must
receive your order by the close of trading on the NYSE to receive that day's
price.
Each Fund determines its NAV for each share class by dividing its total net
assets by the number of shares outstanding. In determining the NAV, each Fund
must determine the price of each security in its portfolio at the close of each
trading day. Securities for which market quotations are available are valued
each day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily prices of many share classes for each Fund in most major
daily newspapers. You can find daily prices for all share classes by visiting
the Funds' 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 Funds' 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 LFD.
----
25
<PAGE>
Your Account
UNDERSTANDING FUND DISTRIBUTIONS
Each Fund earns income from the securities it holds. Each Fund also may
experience capital gains and losses on sales of its securities. Each 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 Each Fund has the potential to make the
following distributions:
- --------------------------------------------------------------------------------
Types of Distributions
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Dividend/ordinary income Represents interest and dividends earned from
securities held by the portfolio.
- --------------------------------------------------------------------------------
Capital gains Represents capital gains on sales of securities.
</TABLE>
Distribution Options The Small Cap, Special and Equity Funds declare and
distribute dividend distributions and any capital gains annually. The Managed
Income & Equity Fund declares and distributes dividend distributions quarterly
and any capital gains annually. The Contrarian Income Fund declares and
distributes dividend distributions monthly and any capital gains annually. You
can choose one of the following options for these distributions when you open
your account.(1) To change your distribution option call 1-800-345-6611.
- --------------------------------------------------------------------------------
Distribution Options
- --------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
- --------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
- --------------------------------------------------------------------------------
Receive dividends in cash and reinvest capital gains(2)
- --------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options)(2)
o send the check to your address of record
o send the check to a third party address
o transfer the money to your bank via electronic funds transfer (EFT)
Tax Consequences Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
In general, any dividends and short-term capital gains distributions are taxable
as ordinary income. Distributions of long-term capital gains are generally
taxable as capital gains. You will be provided with information each year
regarding the amount of ordinary income and capital gains distributed to you for
the previous year and any portion of your distributions which is exempt from
state and local taxes. Your investment in a Fund may have additional personal
tax implications. Please consult your tax advisor on state, local or other
applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal income tax.
(1) If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund.
(2) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check is
returned as undeliverable, or if you do not cash a distribution check within
six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
----
26
<PAGE>
- --------------------------------------------------------------------------------
Managing the Funds
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Crabbe Huson Group, Inc. (Crabbe Huson), located at 121 S.W. Morrison, Suite
1400, Portland, OR 97204, is the Funds' investment advisor. In its duties as
investment advisor, Crabbe Huson runs the Funds' day-to-day business, including
placing all orders for the purchase and sale of each Fund's portfolio
securities. Crabbe Huson has been an investment advisor since 1980. As of
December 31, 1998, Crabbe Huson managed over $3 billion in assets.
For the 1998 fiscal year, aggregate advisory fees paid to Crabbe Huson by the
Crabbe Huson Small Cap Fund, The Crabbe Huson Special Fund, Crabbe Huson Equity
Fund, Crabbe Huson Managed Income & Equity Fund and Crabbe Huson Contrarian
Income Fund amounted to 0.75%, 0.57%, 0.85%, 0.79% and 0.00% of average daily
net assets of each Fund, respectively.
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
Management of the Small Cap and Special Fund portfolios is handled on a
day-to-day basis by a team consisting of James E. Crabbe, John W. Johnson and
Peter P. Belton. Mr. Crabbe is coordinator of the team. Mr. Crabbe has served in
various management positions with Crabbe Huson since 1980 and has managed the
predecessor to the Special Fund since January 1, 1990. Prior to joining Crabbe
Huson, Mr. Johnson was a private investment banker from November, 1991 to May,
1995. Prior to joining Crabbe Huson, Mr. Belton was an analyst at Arnhold & S.
Bleichroeder from August, 1992 to September, 1993 and Vice President/Analyst at
Capital Management Associates from February, 1994 to September, 1997.
Management of the Equity and Managed Income & Equity portfolios is handled on a
day-to-day basis by a team consisting of John E. Maack, Jr., Marian L. Kessler,
Robert E. Anton and Garth R. Nisbet. Mr. Anton is the coordinator of the team.
Mr. Maack has been employed as a portfolio manager and securities analyst by
Crabbe Huson since 1988. Ms. Kessler joined Crabbe Huson in August, 1995. From
September, 1993 until July, 1995, Ms. Kessler was a portfolio manager with
Safeco Asset Management. Mr. Anton joined Crabbe Huson in June, 1995. Prior to
joining Crabbe Huson, Mr. Anton served for 17 years as Chief Investment Officer
and as a portfolio manager at Financial Aims Corporation. Mr. Nisbet joined
Crabbe Huson in April, 1995. Between February, 1993 and March, 1995, Mr. Nisbet
was employed at Capital Consultants, Inc. as a portfolio manager of its fixed
income portfolio.
Management of the Income portfolio is handled on a day-to-day basis by a team
consisting of Mr. Nisbet and Paul C. Rocheleau. Mr. Rocheleau joined Crabbe
Huson in December, 1992.
----
27
<PAGE>
YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------
Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the advisor and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Funds' advisor,
administrator, distributor, and transfer agent ("Liberty Companies") are taking
steps that they believe are reasonably designed to address the Year 2000
Problem, including communicating with vendors who furnish services, software and
systems to the Funds, to provide that date-related information and data can be
properly processed after January 1, 2000. Many Fund service providers and
vendors, including the Liberty Companies, are in the process of making Year 2000
modifications to their software and systems and believe that such modifications
will be completed on a timely basis prior to January 1, 2000. However, no
assurances can be given that all modifications required to ensure proper data
processing and calculation on and after January 1, 2000 will be timely made or
that services to the Funds will not be adversely affected.
----
28
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the Funds'
financial performance. Information is shown for the Funds' last five fiscal
years, which run from November 1 to October 31. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that you would have earned (or lost) on an investment in the
Fund, assuming reinvestment of all dividends and distributions. This information
has been audited by KPMG LLP, independent auditors, whose report along with the
Funds' financial statements is included in their annual report. You can request
a free annual report by calling 1-800-426-3750.
- --------------------------------------------------------------------------------
Crabbe Huson Small Cap Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period ended
Year ended October 31 October 31 (a)
1998 1997 1996
Class A Class A Class A
------- ------- -------
<S> <C> <C> <C>
Net asset value --
Beginning of period ($) 15.48 11.02 10.00
- ---------------------------------------------------------------------------------------------------------
Income from Investment Operations ($)
Net investment income (loss) (0.03) 0.00 0.03
- ---------------------------------------------------------------------------------------------------------
Net realized & unrealized gain (loss) on investments (5.56) 4.62 0.99
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (5.59) 4.62 1.02
- ---------------------------------------------------------------------------------------------------------
Less Distributions ($)
Distributions from net investment income 0.00 0.02 0.00
- ---------------------------------------------------------------------------------------------------------
Distributions from capital gains 1.24 0.14 0.00
- ---------------------------------------------------------------------------------------------------------
Total distributions 1.24 0.16 0.00
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 8.65 15.48 11.02
- ---------------------------------------------------------------------------------------------------------
Total return (%) (38.64) 42.38 10.20(b)
- ---------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (000's)($) 14,462 42,563 19,156
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (e) 1.37 1.50(c) 1.51(c)(d)
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (e) (0.65) 0.03 0.70(d)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 30.00 65.11 39.34
- ---------------------------------------------------------------------------------------------------------
Ratios if Fees Had Not Been Waived and/or Reimbursed (%)
Ratio of expenses to average net assets (e) 1.62 1.73(c) 2.32(c)(d)
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (e) (0.90) (0.20) (0.11)(d)
- ---------------------------------------------------------------------------------------------------------
Ratios Net of Fees Paid Indirectly (%)
Ratios of expenses to average net assets (e) 1.37 1.50 1.50(d)
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (e) (0.65) 0.03 0.71(d)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations -- 2/20/96.
(b) Not annualized.
(c) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangement.
(d) Annualized.
(e) 1998 expense and net investment income ratio information is net of benefits
derived from custody credits which had no impact.
----
29
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The Crabbe Huson Special Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996 1995 1994
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 16.80 13.71 13.80 14.08 11.82
- -----------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($)
Net investment income 0.07 0.15 0.14 0.27 0.05
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (6.92) 3.41 0.55 (0.29) 2.30
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (6.85) 3.56 0.69 (0.02) 2.35
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions ($)
Distributions from net investment income 0.14 0.14 0.21 0.02 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Return of capital 0.02 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income 0.00 0.00 0.00 0.00 0.09
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from capital gains 1.69 0.33 0.57 0.24 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions 1.85 0.47 0.78 0.26 0.09
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period ($) 8.10 16.80 13.71 13.80 14.08
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (44.94) 26.62 5.03 1.78 22.40
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's)($) 104,504 396,335 481,039 878,560 319,811
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) (b) 1.50 1.50 1.37(a) 1.40 1.44
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) (b) 0.40 0.86 0.72 1.95 0.39
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 22.00 32.76 32.88 122.97 146.44
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios if Fees Had Not Been Waived and/or Reimbursed (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (b) 1.84 1.58 1.37 1.40 1.54
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (b) 0.06 0.78 0.72 1.95 0.29
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Net of Fees Paid Indirectly (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios of expenses to average net assets (b) 1.50 1.50 1.37 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (b) 0.40 0.86 0.72 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
(b) 1998 expense and net investment income ratio information is net of benefits
derived from custody credits which had no impact.
----
30
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Crabbe Huson Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996 1995 1994
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 23.32 19.50 18.17 16.44 16.08
- -----------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($)
Net investment income 0.07 0.07 0.11 0.22 0.19
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (2.00) 5.36 2.33 1.75 0.57
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.93) 5.43 2.44 1.97 0.76
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions ($)
Distributions from net investment income 0.05 0.07 0.17 0.09 0.04
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from capital gains 4.74 1.54 0.94 0.15 0.36
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions 4.79 1.61 1.11 0.24 0.40
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period ($) 16.60 23.32 19.50 18.17 16.44
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (10.08) 29.87 13.78 13.37 7.89
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's)($) 226,628 380,047 436,578 387,184 153,105
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.39(a) 1.42(a) 1.38(a) 1.40 1.45
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(b) 0.38 0.29 0.56 1.30 1.18
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 1.27 128.65 117.00 92.43 106.49
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios if Fees Had Not Been Waived and/or Reimbursed (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.42(a) 1.44(a) 1.38(a) 1.30 1.56
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.35 0.27 0.56 1.28 1.06
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Net of Fees Paid Indirectly (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios of expenses to average net assets 1.38 1.42 1.37 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.39 0.29 0.57 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
----
31
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Crabbe Huson Managed Income & Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996 1995 1994
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 14.94 13.39 13.64 12.87 13.52
- -----------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($)
Net investment income 0.29 0.32 0.30 0.34 0.30
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.37) 2.29 0.88 1.21 (0.08)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.08) 2.61 1.18 1.55 0.22
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions ($)
Distributions from net investment income 0.24 0.32 0.30 0.33 0.29
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from capital gains 1.81 0.74 1.13 0.45 0.58
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions 2.05 1.06 1.43 0.78 0.87
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period ($) 12.81 14.94 13.39 13.64 12.87
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (0.69) 20.60 8.96 13.00 2.66
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's)($) 67,681 95,960 125,018 136,530 110,152
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.32(a) 1.42(a) 1.47(a) 1.48 1.44
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.27 2.25 2.22 2.57 2.30
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 115.00 118.65 252.29 225.70 149.19
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios if Fees Had Not Been Waived and/or Reimbursed (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.48(a) 1.55(a) 1.47(a) 1.49 1.52
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.11 2.12 2.22 2.56 2.22
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Net of Fees Paid Indirectly (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios of expenses to average net assets 1.31 1.42 1.46 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.28 2.25 2.22 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Ratios include expenses paid indirectly through directed brokerage and
certain expense offset arrangements.
----
32
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
Crabbe Huson Contrarian Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996 1995 1994
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 10.58 10.20 10.26 9.71 10.75
- -----------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($)
Net investment income 0.50 0.62 0.54 0.53 0.50
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized & unrealized gain (loss) on investments 0.59 0.38 (0.05) 0.58 (0.76)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.09 1.00 0.49 1.11 (0.26)
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions ($)
Distributions from net investment income 0.79 0.62 0.55 0.53 0.50
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income 0.00 0.00 0.00 0.03 0.01
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from capital gains 0.00 0.00 0.00 0.00 0.27
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) 0.79 0.62 0.55 0.56 0.78
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.88 10.58 10.20 10.26 9.71
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) 11.21 10.25 4.94 11.92 (2.71)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's)($) 8,799 3,248 4,694 7,190 5,273
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (a)(%) 0.80 0.80 0.80 0.80 0.80
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (a)(%) 5.36 5.96 5.31 5.47 4.92
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 158.00 56.37 468.75 543.15 306.79
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios if Fees Had Not Been Waived and/or Reimbursed (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (a) 2.36 2.78 2.29 1.95 2.16
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (a) 3.80 3.98 3.82 4.32 3.56
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios Net of Fees Paid Indirectly (%)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios of expenses to average net assets (a) 0.80 0.80 0.80 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (a) 5.36 5.96 5.31 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1998 expenses and net investment income ratio information is net of benefits
derived from custody credits which had no impact.
----
33
<PAGE>
- --------------------------------------------------------------------------------
Notes
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----
34
<PAGE>
Notes
- --------------------------------------------------------------------------------
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----
35
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
You can get more information about the Funds' investments in the Funds'
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected each Fund's performance over its last fiscal year.
You may wish to read the SAI for more information on the Funds and the
securities in which they invest. The SAI is incorporated into this prospectus by
reference, which means that it is considered to be part of this prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Funds by writing or calling the Funds'
Distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Funds by visiting the following
location, and you can obtain copies upon payment of a duplicating fee, by
writing or calling the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Investment Company Act file numbers:
Colonial Trust III: 811-00881
o Crabbe Huson Small Cap Fund
o The Crabbe Huson Special Fund
o Crabbe Huson Equity Fund
o Crabbe Huson Managed Income & Equity Fund
o Crabbe Huson Contrarian Income Fund
[LIBERTY LOGO]
Liberty Funds Distributor, Inc. (c) 1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
CH-01/641G-0299 (3/99)
<PAGE>
LIBERTY FUNDS TRUST III
Cross Reference Sheet Pursuant to Rule 481(a)
(Crabbe Huson Contrarian Income Fund, Class Z)
Item Number of Form N-1A Prospectus Location or Caption
Part A
1. Front Cover Page; Back Cover Page
2. The Fund
3. The Fund
4. The Fund
5. Not Applicable
6. Front Cover; Managing the Fund;
Your Account
7. Your Account
8. The Fund; Your Account
9. Not Applicable
<PAGE>
================================================================================
CRABBE HUSON CONTRARIAN INCOME FUND Prospectus, , 1999
================================================================================
Class Z Shares
Advised by Crabbe Huson Group, Inc.
The following eligible institutional investors may purchase Class Z shares: (i)
any retirement plan with aggregate assets of at least $5 million at the time of
purchase of Class Z shares and which purchases shares directly from 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. Although these securities
have been registered with the Securities and Exchange Commission, the Commission
has not approved any shares offered in this prospectus or determined whether
this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
THE FUND ................................................................... 2
- --------------------------------------------------------------------------------
Investment Goal ............................................................ 2
Primary Investment Strategies .............................................. 2
Primary Investment Risks ................................................... 2
Performance History ........................................................ 4
Your Expenses .............................................................. 5
YOUR ACCOUNT ............................................................... 6
- --------------------------------------------------------------------------------
How to Buy Shares .......................................................... 6
How to Exchange Shares ..................................................... 7
How to Sell Shares ......................................................... 7
Other Information About Your Account ....................................... 9
MANAGING THE FUND ......................................................... 12
- --------------------------------------------------------------------------------
Investment Advisor ........................................................ 12
Portfolio Managers ........................................................ 12
- -------- ------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
- -------- ------------------
<PAGE>
================================================================================
The Fund
================================================================================
- --------------------------------------------------------------------------------
UNDERSTANDING CONTRARIAN INVESTING
The contrarian approach puts primary emphasis on security price, balance sheet
and the relationship between the market price of a security and its estimated
intrinsic value as a share of an ongoing business. The basic value, contrarian
approach is based on the advisor's belief that the securities of many companies
often sell at a discount from the securities' estimated intrinsic value. The
Fund attempts to identify and invest in such undervalued securities in the hope
that their market price will rise to their estimated intrinsic value.
================================================================================
INVESTMENT GOAL
- --------------------------------------------------------------------------------
The Fund seeks the highest level of current income that is consistent with
preservation of capital.
PRIMARY INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of its total
assets in a combination of (i) U.S. government debt securities (such as U.S.
Treasury bonds and mortgage-backed securities), (ii) "investment grade"
corporate bonds ranked in the four highest grades by Moody's Investor Service or
Standard and Poor's Corporation, and (iii) cash and cash equivalents.
In managing the Fund, the advisor follows a basic value, contrarian approach in
selecting securities for its portfolio. The advisor is not subject to any
limitations on the average maturity of the Fund's holdings. The advisor may
adjust the maturity from time to time in response to changes in interest rates.
At times, the advisor may determine that adverse market conditions make it
desirable to suspend temporarily the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or high
quality, short-term debt securities, without limit. Taking a temporary defensive
position may prevent the Fund from achieving its investment goal.
In seeking to achieve its goal, the Fund may invest in various types of
securities and engage in various investment techniques which are not the
principle focus of the Fund and therefore are not described in the prospectus.
These types of securities and investment practices are identified and discussed
in the Fund's Statement of Additional Information (SAI), which you may obtain by
contacting Liberty Funds Distributor, Inc. (LFD)(see back cover for address and
phone number). Approval by the Fund's shareholders is not required to modify or
change the Fund's goal or investment strategies.
PRIMARY INVESTMENT RISKS
- --------------------------------------------------------------------------------
The primary risks of investing in the Fund are described below. There are many
circumstances (that are not described here) which could cause you to lose money
by investing in the Fund or prevent the Fund from achieving its goal.
Market risk is the risk that the price of a security held by the Fund will fall
due to changing economic, political or market conditions, or due to the
financial condition of the company which issued the security.
Credit risk is the risk that the price of a security will fall due to
unfavorable changes in the financial condition of the company which issued the
security.
Interest rate risk is the risk of a change in the price of a bond when interest
rates increase or decline. In general, if interest rates rise, bond prices fall,
and if interest rates fall, bond prices rise. Interest rate risk is generally
greater for bonds with longer durations.
Structure risk is the risk that an event will occur (such as a security being
prepaid or called) that alters the security's cashflows. Prepayment risk is a
particular type of
2
<PAGE>
The Fund
structure risk that is present in the Fund because of its investments in
mortgage-backed securities. Prepayment risk is the possibility that, as interest
rates fall, homeowners are more likely to refinance their home mortgages. When
mortgages are refinanced, the principal on mortgage-backed securities may offer
less potential for gain than other debt securities. In addition, the potential
impact of prepayment on the price of a mortgage-backed security may be difficult
to predict and may result in greater volatility.
Because the Fund may invest in securities issued by private entities, including
certain types of mortgage-backed securities and corporate bonds, the Fund is
subject to issuer risk. Issuer risk is the possibility that changes in the
financial condition of the issuer of a security, changes in general economic
conditions, or changes in economic conditions that affect the issuer's industry
may impact the issuer's ability to make timely payment of interest or principal.
This could result in decreases in the price of the security.
3
<PAGE>
The Fund
- --------------------------------------------------------------------------------
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
complete calendar year since it commenced operations. It includes the effects of
Fund expenses, but not the effects of sales charges. If sales charges were
included, these returns would be lower.
Average annual total return is a measure of the Fund's performance over the past
one-year, five-year and life of the Fund periods. It includes the effects of
Fund expenses. The table shows Class A returns with sales charges.
The Fund's return is compared to the Lehman Government/Corporate Bond Index.
Unlike the Fund, the index is not an investment, does not incur fees or expenses
and is not professionally managed. It is not possible to invest directly in an
index. The Fund's return is also compared to the average return of the funds
included in the Lipper Corporate Debt A-Rated Fund category (Lipper Average).
This Lipper Average, which is calculated by Lipper, Inc., is composed of funds
with similar investment objectives to the Fund. Sales charges are not reflected
in the Lipper Average.
================================================================================
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class A shares which
are offered in a separate prospectus. Class A share information is presented
because the Fund's Class Z shares have been offered for less than 1 year. Class
Z performance would have been substantially similar to the performance of the
Fund's Class A shares. The performance table following the bar chart shows how
the Fund's Class A average annual returns compare with those of a broad measure
of market performance for 1 year, 5 years and the life of the Fund. The chart
and table are intended to illustrate some of the risks of investing in the Fund
by showing the changes in the Fund's performance. All returns include the
reinvestment of dividends and distributions. As with all mutual funds, past
performance does not predict the Fund's future performance. Performance results
include the effect of expense reduction arrangements, if any. If these
arrangements were not in place, then the performance results would have been
lower. Any expense reduction arrangements may be discontinued at any time.
================================================================================
Calendar-Year Total Returns (Class A)
================================================================================
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
1990 5.33%
1991 16.22%
1992 6.23%
1993 6.26%
1994 -3.60%
1995 16.98%
1996 1.99%
1997 11.58%
1998 9.75%
The Fund's year-to-date total return through June 30, 1999 was -5.41%.
Best quarter: Fourth quarter 1991, +6.10%
Worst quarter: First quarter 1996, -2.73%
================================================================================
Average Annual Total Returns -- for periods ended December 31, 1998
================================================================================
Life of the Fund
1 Year 5 Years (January 31,1989)
Class A (%) 4.54 6.05 7.38
- --------------------------------------------------------------------------------
Lehman Government/Corporate
Bond Index (%) 9.47 7.30 N/A
- --------------------------------------------------------------------------------
Lipper Average (%) 7.46 6.53 N/A
4
<PAGE>
The Fund
- --------------------------------------------------------------------------------
UNDERSTANDING EXPENSES
Shareholder Fees are paid directly by shareholders to LFD, the Fund's
distributor.
Annual Fund Operating Expenses are deducted from the Fund. They include
management fees, 12b-1 fees, brokerage costs, and administrative costs including
pricing and custody services.
Example Expenses helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds.
It uses the following hypothetical conditions:
o $10,000 initial investment
o 5% total return for each year
o Fund operating expenses remain the same
o No expense reductions in effect
================================================================================
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)
================================================================================
Class Z
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) None
- --------------------------------------------------------------------------------
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) None
- --------------------------------------------------------------------------------
Redemption fee(1) (as a percentage of amount
redeemed, if applicable) None
================================================================================
Annual Fund Operating Expenses (deducted directly from Fund assets)
================================================================================
Class Z
Management fee(2) (%) 0.80
- --------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00
- --------------------------------------------------------------------------------
Other expenses(2)(3)(%) 0.71
- --------------------------------------------------------------------------------
Total annual fund operating expenses(2) (%) 1.51
- --------------------------------------------------------------------------------
================================================================================
Example Expenses (your actual costs may be higher or lower)
================================================================================
Class 1 Year 3 Years 5 Years 10 Years
Class Z $154 $478 $826 $1,806
- --------------------------------------------------------------------------------
(1) There is a $7.50 charge for wiring sale proceeds to your bank.
(2) The Fund's advisor has voluntarily agreed, until further notice, to waive
advisory fees and reimburse the Fund for certain expenses. As a result, the
actual management fee would be 0.00%, other expenses would be 0.55% and
total annual operating expenses would be 0.55%.
(3) Estimated based on Class A shares.
5
<PAGE>
================================================================================
Your Account
================================================================================
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price which is also the net asset value (NAV). In
"good form" means that you placed your order with your brokerage firm or your
payment has been received and your application is complete, including all
necessary signatures.
================================================================================
Outlined below are the various options for buying shares:
================================================================================
Method Instructions
Through your Your financial advisor can help you establish your
financial advisor account and buy Fund shares on your behalf.
- --------------------------------------------------------------------------------
By check For new accounts, send a completed application and
(new account) check 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
(existing account) additional 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 of the Fund at no
additional cost. To exchange by telephone, call
1-800-422-3737.
- --------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your
bank account to your fund account. To wire funds
to your fund account, call 1-800-422-3737 to
obtain a control number and the wiring
instructions.
- --------------------------------------------------------------------------------
By electronic You may purchase shares by electronically
funds transfer transferring money from your bank account to your
fund account by calling 1-800-422-3737. Your money
may take up to two business days to be invested.
You must set up this feature prior to your
telephone request. Be sure to complete the
appropriate section of the application.
- --------------------------------------------------------------------------------
Automatic You 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
diversification by one 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
<PAGE>
Your Account
HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
distributed by LFD at NAV. Unless your account is part of a tax-deferred
retirement plan, an exchange is a taxable event. Therefore, you may realize a
gain or a loss for tax purposes. The Fund may terminate your exchange privilege
if the advisor determines that your exchange activity is likely to adversely
impact the advisor's ability to manage the Fund. To exchange by telephone, call
1-800-422-3737.
HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documents required for sales by corporations, agents, fiduciaries and surviving
joint owners, please call 1-800-345-6611. Retirement Plan accounts have special
requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days.
However, if you purchased your shares by check, the Fund may delay the sale of
your shares for up to 15 days after your initial purchase to protect against
checks that are returned.
7
<PAGE>
Your Account
================================================================================
Outlined below are the various options for selling shares:
================================================================================
Method Instructions
Through your You may call your financial advisor to place your
financial advisor sell order. To receive the current trading day's
price, your financial advisor firm must receive
your request prior to the close of the NYSE,
usually 4:00 p.m. Eastern time.
- --------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by
exchanging from the Fund into the same share class
of another fund at no additional cost. To exchange
by telephone, call 1-800-422-3737.
- --------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by
telephone and request that a check be sent to your
address of record by calling 1-800-422-3737,
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.
- --------------------------------------------------------------------------------
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 your fund's name, share class,
account number, and the dollar value or number of
shares you wish to sell. All account owners must
sign the letter, and signatures must be guaranteed
by either a bank, a member firm of a national
stock exchange or another eligible guarantor
institution. Additional documentation is required
for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement
account (IRA) owners. For details, call
1-800-345-6611. Mail your 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
funds transfer be 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.
8
<PAGE>
Your Account
OTHER INFORMATION ABOUT YOUR ACCOUNT
- --------------------------------------------------------------------------------
How the Fund's Share Price is Determined The price of each class of the Fund's
shares is based on its NAV. The NAV is determined at the close of the NYSE,
usually 4:00 p.m. Eastern time on each business day that the NYSE is open
(typically Monday through Friday).
When you request a transaction, it will be processed at the NAV next determined
after your request is received in good form by LFD. In most cases, in order to
receive that day's price, LFD must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor's firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its NAV for each share class by dividing its total net
assets by the number of shares outstanding. In determining the NAV, the Fund
must determine the price of each security in its portfolio at the close of each
trading day. Securities for which market quotations are available are valued
each day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily 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
<PAGE>
Your Account
- --------------------------------------------------------------------------------
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may experience
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
================================================================================
Dividends, Distributions, and Taxes The Fund has the potential to make the
following distributions:
================================================================================
Types of Distributions
================================================================================
Dividend/ordinary Represents interest and dividends earned from
income securities held by the Fund; also includes
short-term capital gains, which are gains on sales
of securities the Fund buys and then sells within
a 12-month period.
- --------------------------------------------------------------------------------
Capital gains Represents capital gains on sales of securities
held for more than 12 months.
- --------------------------------------------------------------------------------
Distribution Options The Fund distributes dividends monthly and any capital
gains (including short-term capital gains) at least annually. You can choose one
of following options for these distributions when you open your account.(4) To
change your distribution option call 1-800-345-6611.
================================================================================
Distribution Options
================================================================================
Reinvest all distributions in additional shares of your current fund
- --------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
- --------------------------------------------------------------------------------
Receive dividends in cash and reinvest capital gains(5)
- --------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options)(5):
o send the check to your address of record
o send the check to a third party address
o transfer the money to your bank via electronic funds transfer
(4) 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.
(5) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check
is returned as undeliverable, or if you do not cash a distribution check
within six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
10
<PAGE>
Your Account
Tax Consequences Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
In general, any dividends and short-term capital gains distributions are taxable
as ordinary income. Distributions of long-term capital gains are generally
taxable as 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.
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, local and foreign
income tax.
11
<PAGE>
================================================================================
Managing the Fund
================================================================================
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Crabbe Huson Group, Inc. (Crabbe Huson), located at 121 S. W. Morrison, Suite
1400, Portland, OR 97204, is the Fund's investment advisor. In its duties as
investment advisor, Crabbe Huson runs the Fund's day-to-day business, including
placing all orders for the purchase and sale of the Fund's portfolio securities.
Crabbe Huson has been an investment advisor since 1980. As of December 31, 1998,
Crabbe Huson managed over $3 billion in assets.
For the 1998 fiscal year, aggregate advisory fees paid to Crabbe Huson by the
Crabbe Huson Contrarian Income Fund amounted to 0.00% of the Fund's average
daily net assets.
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
Management of the Fund is handled on a day-to-day basis by a team consisting of
Garth R. Nisbet and Paul C. Rocheleau. Mr. Nisbet joined Crabbe Huson in April
1995. Between February, 1993 and March, 1995, Mr. Nisbet was employed at Capital
Consultants, Inc. as a portfolio manager of its fixed income portfolio. Mr.
Rocheleau joined Crabbe Huson in December, 1992 and also manages other Crabbe
Huson fixed-income mutual funds.
YEAR 2000 COMPLIANCE
- --------------------------------------------------------------------------------
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the advisor, other service providers and the companies
in which the Fund invests do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Fund's service providers are taking steps that they
believe are reasonably designed to address the Year 2000 Problem, including
communicating with vendors who furnish services, software and systems to the
Fund, to provide that date-related information and data can be properly
processed after January 1, 2000. Many mutual fund service providers and vendors,
including the Fund's service providers, are in the process of making Year 2000
modifications to their software and systems and believe that such modifications
will be completed on a timely basis prior to January 1, 2000. In addition, Year
2000 readiness is one of the factors considered by the advisor in its assessment
of companies in which the Fund invests to the extent that information is readily
available. However, no assurances can be given that the Fund will not be
adversely affected by these matters.
12
<PAGE>
================================================================================
Notes
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13
<PAGE>
Notes
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the SAI for more information on the Fund and the securities
in which it invests. The SAI is incorporated into this prospectus by reference,
which means that it is considered to be part of this prospectus.
You can get free copies of reports and the SAI, request other information and
discuss your questions about the Fund by writing or calling the Fund's
distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Investment Company Act file number:
Liberty Funds Trust III: 811-881
o Crabbe Huson Contrarian Income Fund
- --------------------------------------------------------------------------------
[LOGO] LIBERTY
COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
xx-xxxx-xxxx (x/xx)
<PAGE>
LIBERTY FUNDS TRUST III
Cross Reference Sheet Pursuant to 481(a)
(Crabbe Huson Managed Income & Equity Fund)
(The Crabbe Huson Special Fund)
(Crabbe Huson Equity Fund)
(Crabbe Huson Small Cap Fund)
(Crabbe Huson ContrarianIncome Fund)
(Crabbe Huson Real Estate Investment Fund)
(Crabbe Huson Oregon Tax-Free Fund)
Item Number of Form N-1A Statement of Additional Information
Location or Caption
Part B
10. Cover Page; Table of Contents
11. Organization and History
12. Investment Objective and Policies;
Fundamental Investment Policies;
Other Investment Policies; Portfolio
Turnover; Miscellaneous Investment
Practices
13. Fund Charges and Expenses
14. Fund Charges and Expenses
15. Fund Charges and Expenses
16. Fund Charges and Expenses; Management of
the Funds
17. Organization and History; Fund Charges and
Expenses; Shareholder Meetings; Shareholder
Liability
18. How to Buy Shares; Determination
of Net Asset Value; Suspension
of Redemptions; Special Purchase
Programs/Investor Services; Programs for
Reducing or Eliminating Sales Charge;
How to Sell Shares; How to Exchange Shares
19. Taxes
20. Fund Charges and Expenses; Management of
the Fund
21. Fund Charges and Expenses Investment
Performance; Performance Measures
22. Independent Accountants
<PAGE>
CRABBE HUSON SMALL CAP FUND
THE CRABBE HUSON SPECIAL FUND
CRABBE HUSON REAL ESTATE INVESTMENT FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON MANAGED INCOME & EQUITY FUND
CRABBE HUSON OREGON TAX-FREE FUND
CRABBE HUSON CONTRARIAN INCOME FUND
(collectively, the Funds)
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectuses of the Funds.
This SAI is not a prospectus and is authorized for distribution only when
accompanied or preceded by the Prospectuses of the Funds dated March 1, 1999 and
the Funds' most recent Annual Report dated October 31, 1998. This SAI should be
read together with the Prospectuses. Investors may obtain a free copy of a
Prospectus and Annual Report from Liberty Funds Distributor, Inc. (LFD), One
Financial Center, Boston, MA 02111-2621. The financial statements and
Independent Auditors' Report appearing in the Funds' October 31, 1998 Annual
Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2
includes information about the funds distributed by LFD generally and additional
information about certain securities and investment techniques described in the
Funds' Prospectuses.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part 1 Page
<S> <C>
Definitions b
Organization and History b
Investment Objective and Policies b
Fundamental Investment Policies c
Other Investment Policies c
Tax Considerations of the Oregon Tax-Free Fund c
Portfolio Turnover d
Fund Charges and Expenses d
Investment Performance m
Custodian n
Independent Auditors n
Part 2
Miscellaneous Investment Practices 1
Taxes 11
Management of the Funds 13
Determination of Net Asset Value 18
How to Buy Shares 18
Special Purchase Programs/Investor Services 19
Programs for Reducing or Eliminating Sales Charges 20
How to Sell Shares 21
Distributions 23
How to Exchange Shares 23
Suspension of Redemptions 24
Shareholder Liability 24
Shareholder Meetings 24
Performance Measures 24
Appendix I 26
Appendix II 31
</TABLE>
CH-16/786G-0299 (3/99)
<PAGE>
Part 1
CRABBE HUSON SMALL CAP FUND
THE CRABBE HUSON SPECIAL FUND
CRABBE HUSON REAL ESTATE INVESTMENT FUND
CRABBE HUSON EQUITY FUND
CRABBE HUSON MANAGED INCOME & EQUITY FUND
CRABBE HUSON OREGON TAX-FREE FUND
CRABBE HUSON CONTRARIAN INCOME FUND
Statement of Additional Information
March 1, 1999
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
"Trust" Colonial Trust III
"Small Cap Fund" Crabbe Huson Small Cap Fund
"Special Fund" The Crabbe Huson Special Fund
"Real Estate Fund" Crabbe Huson Real Estate Investment Fund
"Equity Fund" Crabbe Huson Equity Fund
"Managed Fund" Crabbe Huson Managed Income & Equity Fund
"Oregon Tax-Free Fund" Crabbe Huson Oregon Tax-Free Fund
"Income Fund" Crabbe Huson Contrarian Income Fund
"Advisor" Crabbe Huson Group, Inc., the Funds' investment advisor
"Administrator" Colonial Management Associates, Inc., the Funds' administrator
"LFD" Liberty Funds Distributor, Inc., the Funds' distributor
"LFSI" Liberty Funds Services, Inc., the Funds' shareholder services and transfer agent
</TABLE>
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. Each Fund
represents the entire interest in a separate portfolio of the Trust.
The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for certain purposes. Shareholders receive one vote for
each Fund share. Shares of the Funds and any other series of the Trust that may
be in existence from time to time generally vote together except when required
by law to vote separately by fund or by class. Shareholders owning in the
aggregate ten percent of Trust shares may call meetings to consider removal of
Trustees. Under certain circumstances, the Trust will provide information to
assist shareholders in calling such a meeting. See Part 2 of this SAI for more
information.
Each Fund, other than the Special Fund, is the successor to the corresponding
series of the former Crabbe Huson Funds, a Delaware business trust organized in
1995. The Special Fund is a successor series to an Oregon corporation organized
in 1987. On September 30, 1998, the shareholders of each Fund's predecessor
series, other than the Special Fund's predecessor whose shareholders met on
December 21, 1998, approved an Agreement and Plan of Reorganization pursuant to
which such predecessor series was reorganized as a separate series of the Trust.
At the closing of each reorganization, shareholders of the corresponding
predecessor series received Class A shares for their shares or those designated
as "Primary Class", or Class I shares for those designated as "Institutional
Class," of the successor series equal in net asset value to the shares of the
predecessor series they held. See Part 2 of this SAI for more information.
INVESTMENT OBJECTIVE AND POLICIES
The Funds' Prospectuses describe their investment objectives and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the fundamental investment policies of the Funds. Part 2 contains
additional information about the following securities and investment techniques
that are utilized by the Funds:
<TABLE>
<CAPTION>
<S> <C>
Foreign Securities Money Market Instruments
Repurchase Agreements Securities Loans
Participation Interests Forward Commitments
Futures Contracts and Related Options Options on Securities
Small Companies Rule 144A Securities
Lower Rated Debt Securities Foreign Currency Transactions
</TABLE>
b
<PAGE>
Except as indicated under "Fundamental Investment Policies," the Funds'
investment policies are not fundamental and the Trustees may change the policies
without shareholder approval.
Effective October 19, 1998, Crabbe Huson Income Fund's name was changed to
Crabbe Huson Contrarian Income Fund and Crabbe Huson Asset Allocation Fund's
name was changed to Crabbe Huson Managed Income and Equity Fund.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies cannot be changed without such a vote.
Each Fund may:
1. Borrow from banks, other affiliated funds and other persons to the extent
permitted by applicable law, provided that a 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. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets; provided that the Real Estate Fund may invest
in securities that are secured by real estate or interests therein and may
purchase and sell mortgage-related securities and may hold and sell real
estate acquired by the Fund as a result of the ownership of securities;
3. Purchase and sell futures contracts and related options as long as the
total initial margin and premiums do not exceed 5% of total assets;
4. Underwrite securities issued by others only when disposing of portfolio
securities;
5. Make loans (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
6. Not concentrate more than 25% (not applicable to the Real Estate Fund) of
its total assets in any one industry or with respect to 75% of the Fund's
assets (not applicable to the Oregon Tax-Free Fund), purchase the
securities of any issuer (other than obligations issued or guaranteed as to
principal and interest by the government of the United States or any agency
or instrumentality thereof) if, as a result of such purchase, more than 5%
of the Fund's total assets would be invested in the securities of such
issuer.
Notwithstanding the investment policies and restrictions of the Funds, each Fund
may invest all or a portion of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as such Fund.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:
1. Have a short sales position (except for the Special Fund), unless the Fund
owns, or owns rights (exercisable without payment) to acquire, an equal
amount of securities; and
2. Invest more than 15% of its net assets in illiquid securities.
TAX CONSIDERATIONS OF THE OREGON TAX-FREE FUND
If the Oregon Tax-Free Fund does not qualify as a regulated investment company
under the Internal Revenue Code (Code), it will be treated for tax purposes as
an ordinary corporation and will receive no tax deduction for payments made to
shareholders and will be unable to pay "exempt interest dividends," as discussed
in the Prospectus.
From time to time, proposals have been introduced before Congress and the
Internal Revenue Service for the purpose of restricting or eliminating the
federal income tax exemption for interest on municipal securities, including
private activity bonds. It is likely that similar proposals will be introduced
in the future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund and the value of the Fund's portfolio
could be adversely affected. In such event, the Fund would re-evaluate its
investment objectives and policies and consider recommending to its shareholders
changes in the structure of the Fund.
Section 147 of the Code prohibits exemption from taxation of interest on certain
governmental obligations paid to persons who are "substantial users" (or persons
related thereto) of facilities financed by such obligations. "Substantial user"
is generally defined to include a "nonexempt person" who is entitled to use more
than 5% of a facility financed from the proceeds of industrial development
bonds.
c
<PAGE>
No investigation as to the substantial users of the facilities financed by bonds
in the Fund's portfolio will be made by the Fund. Potential investors who may
be, or may be related to, substantial users of such facilities should consult
their tax advisors before purchasing shares of the Fund.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The Fund provides each shareholder with an annual
statement of the federal income tax status of all distributions, including a
statement of percentage of the prior year's distributions designated by the Fund
to be treated as tax-exempt interest or long-term capital gain. The dollar
amounts of tax-exempt and taxable dividends and distributions paid by the Fund
that are reported annually to shareholders will vary for each shareholder,
depending upon the size and duration of the shareholder's investment in the
Fund. To the extent that the Fund derives investment income from taxable
interest, it intends to designate as the actual taxable income the same
percentage of each day's dividend as the actual taxable income bears to the
total investment income earned on that day. The percentage of the dividend
designated as taxable (if any), therefore, may vary from day to day.
Individuals, trusts, and estates who or which are residents of the state of
Oregon will not be subject to the Oregon personal income tax on distributions
from the Fund representing tax-exempt interest paid on municipal securities
issued by the State of Oregon and its political subdivisions. Distributions to
Oregon residents representing earnings of the Fund from sources other than such
tax-exempt interest will be subject to the Oregon personal income tax. In
addition, the Fund anticipates that all distributions from the Fund, from any
source, to corporations subject to the Oregon corporation excise tax will be
subject to that tax. For purposes of the Oregon personal income tax and the
Oregon corporate excise tax, income from Fund distributions of interest paid on
municipal securities issued by a state, other than Oregon, and its political
subdivisions will be reduced by interest on indebtedness incurred to carry such
securities and expenses incurred to produce such income.
The Oregon Corporate Excise Tax Act generally taxes corporations on income
received from municipal securities, including those issued by the state of
Oregon and its political subdivisions. Since this Fund is a trust, it would
generally be subject to such a tax. However, Oregon Revised Statutes Section
317.309(2) provides that a registered investment company may deduct from its
income an amount equal to the exempt interest dividends paid to its
shareholders. The Fund expects to distribute substantially all of its interest
income as dividends to its shareholders and, therefore, does not expect to be
liable for Oregon Corporate Excise tax.
Under the Code, interest on indebtedness incurred or continued to purchase or
carry shares of an investment company paying "exempt interest dividends," such
as the Fund, is not deductible by the investor. Under rules used by the Internal
Revenue Service, the purchase of shares may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to the
purchase of shares. In addition, under Sections 265 and 291 of the Code, certain
financial institutions acquiring shares may be subject to a reduction in the
amount of interest expense that would otherwise be allowable as a deduction for
federal income tax purposes.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights."
High portfolio turnover may cause a Fund to realize capital gains which, if
realized and distributed by a Fund, may be taxable to shareholders as ordinary
income. High portfolio turnover may result in correspondingly greater brokerage
commission and other transaction costs, which will be borne directly by a Fund.
FUND CHARGES AND EXPENSES
Under the Funds' management agreements, each Fund pays the Advisor a fee for its
services that accrues daily and is payable monthly. Fees are based on a
percentage of the average daily net assets of each Fund, as set forth below
(subject to reductions that the Advisor may agree to periodically):
<TABLE>
<CAPTION>
Small Cap Fund
Special Fund
Real Estate Fund
Equity Fund
Managed Fund Income Fund Oregon Tax-Free Fund
Net Asset Value Annual Rate Annual Rate Annual Rate
- --------------- ----------- ----------- -----------
<S> <C> <C> <C>
First $100 million 1.05% 0.80% 0.55%
Next $400 million 0.90% 0.65% 0.50%
Amounts over $500 million 0.65% 0.55% 0.45%
</TABLE>
d
<PAGE>
The Funds each pay the Administrator a monthly pricing and bookkeeping fee of
$2,250 per Fund plus the following percentages of each Fund's average daily net
assets over $50 million (subject to reductions that the Administrator may agree
to periodically):
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 each Fund's transfer agency and shareholder servicing agreement, the
Special, Small Cap, Real Estate, Equity and Managed Funds each pay LFSI a
monthly fee at the annual rate of 0.236% of the average daily net assets
attributable to such Fund's Class A, B and C shares, plus certain out-of-pocket
expenses, the Income Fund pays a monthly fee at the annual rate of 0.17% of the
average daily net assets attributable to such Fund's Class A, B and C shares,
plus certain out-of-pocket expenses and the Oregon Tax-Free Fund pays a monthly
fee at the annual rate of 0.13% of the average daily net assets attributable to
each class of shares, plus certain out-of-pocket expenses. Each Fund which
offers Class I shares pays LFSI a monthly fee at the annual rate of 0.0025% of
the average daily net assets attributable to such Fund's Class I shares, plus
certain out-of-pocket expenses.
The following information relates to expenses of each Fund's predecessor under
agreements in effect generally prior to October 19, 1998, and under the Funds'
current arrangements with the Advisor, Administrator, LFSI and LFD through
October 31, 1998. (dollars in thousands)
Special Fund
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $2,241 $3,610 $5,876
Fees waived by the Advisor/Administrator (834) (315) N/A
Bookkeeping fee 40 N/A N/A
Administration fee 114 174 298
Shareholder servicing and transfer agent fee 593 729 1,114
12b-1 fees - Class A 608 637 1,532
</TABLE>
Small Cap Fund
<TABLE>
<CAPTION>
Year ended October 31(b)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $1,160 $628 $66
Fees waived by the Advisor/Administrator (269) (124) (55)
Bookkeeping fee 14 N/A N/A
Administration fee 64 28 2
Shareholder servicing and transfer 21
agent fee - Class A 63 47
Shareholder servicing and transfer 1
agent fee - Class I 28 14
12b-1 fees - Class A 77 61 16
</TABLE>
Real Estate Fund
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $267 $312 $165
Fees waived by the Advisor/Administrator (114) (82) (63)
Bookkeeping fee 5 N/A N/A
Administration fee 11 13 6
Shareholder servicing and transfer agent fee 50 35 29
12b-1 fees - Class A 69 78 41
</TABLE>
The Real Estate Fund entered into a subadvisory agreement with Aldrich Eastman
Waltch, L.P. and the Advisor on September 6, 1995. The Advisor paid to Adlrich
Eastman Waltch, L.P. a portion of its fee. In the years ending October 31, 1996
and 1997, the Advisor paid advisory fees of $62,591 and $121,986, respectively,
to Aldrich Eastman Waltch, L.P. This Subadvisory Agreement has been terminated.
e
<PAGE>
Equity Fund
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $3,301 $3,617 $4,035
Fees waived by the Advisor/Administrator (136) (78) (2)
Bookkeeping fee 41 N/A N/A
Administration fee 172 178 168
Shareholder servicing and transfer
agent fee - Class A 357 349 400
Shareholder servicing and transfer
agent fee - Class I 19 12 1
12b-1 fees - Class A 849 965 1,142
</TABLE>
Managed Fund
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $1,185 $1,180 $1,355
Fees waived by the Advisor/Administrator (224) (162) (a)
Bookkeeping fee 16 N/A N/A
Administration fee 61 57 53
Shareholder servicing and transfer
agent fee - Class A 81 88 114
Shareholder servicing and transfer
agent fee - Class A 21 14 (a)
12b-1 fees 176 265 354
</TABLE>
Oregon Tax-Free Fund
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $132 $131 $139
Fees waived by the Advisor/Administrator (2) (31) (15)
Bookkeeping fee N/A N/A
Administration fee 11 11 11
Shareholder servicing and transfer agent fee 31 34 30
12b-1 fees 45 44 60
</TABLE>
Income Fund
<TABLE>
<CAPTION>
Year ended October 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Management fee $41 $28 $45
Fees waived by the Advisor/Administrator (86) (28) (45)
Bookkeeping fee 3 N/A N/A
Administration fee 2 2 2
Shareholder servicing and transfer
agent fee - Class A 22 24 25
Shareholder servicing and transfer
agent fee - Class A (a) N/A N/A
12b-1 fees 13 7 15
</TABLE>
(a) Rounds to less than $1.
(b) The Small Cap Fund commenced investment operations on February 20, 1996.
Additionally, the Advisor received a fee for certain shareholder liaison
services it provided to the Funds, including responding to shareholder
inquiries, providing information on shareholder investments and performing
certain clerical tasks. In each of the last three years, for such services, the
Advisor has been paid by the Funds an aggregate of $100,000 per year. The Funds
paid their pro rata share of such fee based upon their net asset value.
f
<PAGE>
Brokerage Commissions
In addition to placing the Funds' brokerage business with firms that provide
research and market and statistical services to the Advisor, the Funds'
brokerage business may also be placed with firms that agree to pay a portion of
certain Fund expenses, consistent with achieving the best price and execution.
On November 29, 1995, the Special, Equity, Managed and Real Estate Funds entered
into an arrangement with State Street Brokerage Services, Inc. ("SSBSI"), in
which these Funds will receive credits to offset transfer agency, administration
and accounting fees by using SSBSI to execute their portfolio transactions. For
the fiscal year ending October 31, 1998, the Equity Fund and Managed Fund
received total credits of $31,664.
For the fiscal year ended October 31, 1996, the Special Fund paid $1,973,393,
the Small Cap Fund paid $49,126, the Equity Fund paid $1,891,778, the Managed
Fund paid $356,194 and the Real Estate Fund paid $101,225 in brokerage
commissions. The Oregon Tax-Free Fund and the Income Fund did not pay any
brokerage commissions in the fiscal year ended October 31, 1996. Of the
commissions paid in the fiscal year ended October 31, 1996, the Special Fund
paid $653,329, the Equity Fund paid $1,325,587, the Managed Fund paid $252,090,
the Small Cap Fund paid $12,592 and the Real Estate Fund paid $83,773 in
commissions as a result of research provided by the brokers.
For the fiscal year ended October 31, 1997, the Special Fund paid $1,277,614,
the Small Cap Fund paid $275,266, the Equity Fund paid $1,968,522, the Managed
Fund paid $366,934 and the Real Estate Fund paid $115,913 in brokerage
commissions. The Oregon Tax-Free Fund and the Income Fund did not pay any
brokerage commissions in the fiscal year ended October 31, 1997. Of the
commissions paid in the fiscal year ended October 31, 1997, the Special Fund
paid $658,128, the Small Cap Fund paid $1,503,609, the Equity Fund paid
$275,112, the Managed Fund paid $170,543 and the Real Estate Investment Fund
paid $113,258 in commissions to brokers that provided both research and
execution services or third party research products.
For the fiscal year ended October 31, 1998, the Special Fund paid $486,983, the
Small Cap Fund paid $3,308,657, the Equity Fund paid $2,293,918, the Managed
Fund paid $447,992 and the Real Estate Fund paid $104,957 in brokerage
commissions. Neither the Oregon Fund nor the Income Fund paid brokerage
commissions during the period. Of the commissions paid during the fiscal year
ended October 31, 1998, the Equity Fund paid $51,138 and the Managed Fund paid
$3,906 in commissions to brokers that provided both research and execution
services or third party research products.
Directors, Trustees and Fees
The following Trustees, Directors and officers of the Funds, who generally
served until October 19, 1998 (December 22, 1998 for the Special Fund), are
listed below, together with information about their principal business
occupations during the last five years. Information about the Trust's current
Trustees and officers appears in Part 2 of this SAI.
RICHARD S. HUSON,* 58, was a Trustee or Director and President of each of the
Funds. Mr. Huson is a chartered financial analyst. Mr. Huson was a Director and
Secretary of the Advisor. Mr. Huson has, since 1980, served in various positions
with the Advisor including roles such as Vice President/Secretary and portfolio
manager. His business address is 121 S.W. Morrison, Suite 1400, Portland, Oregon
97204.
JAMES E. CRABBE,* 52, was a Trustee or Director and Vice President of each of
the Funds. He is a Director and President of the Advisor. Mr. Crabbe has, since
1980, served in various positions with the Advisor, and is currently its
President, Chief Investment Officer and a portfolio manager. His business
address is 121 S.W. Morrison, Suite 1400, Portland, Oregon 97204.
GARY L. CAPPS, 61, was a Trustee or Director of each of the Funds. Mr. Capps was
the owner and Chief Executive Officer of ten radio stations in Oregon, Idaho and
Washington from 1964 until 1986. He has been a director of Bank of the Cascades
in Bend, Oregon since 1980, and has served as Chairman since 1983. His business
address is 63085 N. Hwy 97, Bend, Oregon 97701.
CHERYL BURGERMEISTER,* 46, was Treasurer of the Funds. Ms. Burgermeister has
been employed by the Advisor for the past nine years, and has been the Chief
Financial Officer of the Advisor since 1989. Ms. Burgermeister's business
address is 121 S.W. Morrison, Suite 1400, Portland, Oregon 97204. Ms.
Burgermeister is Treasurer of Crabbe Huson Securities, Inc. (CHSI).
LOUIS SCHERZER, 77, was a Trustee or Director of each of the Funds. Mr. Scherzer
is an officer of Scherzer Partners, Inc., a real estate development and
management firm located at 5440 S.W. Westgate Drive, Suite 222, Portland, Oregon
97221. Mr. Scherzer has been an independent real estate developer and manager
for more than 10 years.
g
<PAGE>
BOB L. SMITH, 60, was a Trustee or Director of each of the Funds. Mr. Smith has
been President of VIP's Industries since 1968, and has been a Director of
Western Security Bank since 1980, a Director of KeyCorp since 1988 and a
Director of Blue Cross/Blue Shield of Oregon since 1984. His business address is
280 Liberty Street S.E., Salem, Oregon 97301.
CRAIG P. STUVLAND,* 42, was a Trustee or Director and Secretary of each of the
Funds. Mr. Stuvland has been employed by the Advisor since June, 1987 where he
is currently an Executive Vice President and a Director. Mr. Stuvland's business
address is 121 S.W. Morrison, Suite 1400, Portland, Oregon 97204. Mr. Stuvland
is President and a Director of CHSI.
RICHARD P. WOLLENBERG, 82, was a Trustee or Director of each of the Funds. Mr.
Wollenberg has been Chairman and Chief Executive Officer of Longview Fibre
Company since 1978, and a Trustee of Reed College since 1962. His business
address is Longview Fibre Company, P.O. Box 606, Longview, Washington 98632.
WILLIAM WENDELL WYATT, JR., 47, was a Trustee or Director of each of the Funds.
Mr. Wyatt has been Chief of Staff, Office of the Governor, State of Oregon,
since April, 1995. From 1987 to 1995, he was President of the Oregon Business
Council. His business address is 254 State Capitol, Salem, Oregon 97310-0370.
*The persons indicated were "interested persons" of the Fund, as defined in the
Investment Company Act of 1940 (the "1940 Act") as amended. They received no
trustees' or directors' fees or salaries from any of the Funds.
The following table sets forth compensation received by the former disinterested
directors of the Funds during the fiscal year ended October 31, 1998. No officer
of any of the Funds received compensation in excess of $60,000 from an
individual Fund.
<TABLE>
<CAPTION>
Total Compensation From
Aggregate Compensation Fund Complex Paid To Each
Name of Person, Position From Fund, Per Director Trustee/Director (c)
- ------------------------ ----------------------- -------------------------
<S> <C> <C>
Capps, Smith, Scherzer,
Wollenberg, Wyatt, Directors
Special Fund $4,776 $17,456
Real Estate Fund 493
Equity Fund 6,748
Managed Fund 2,158
Oregon Tax-Free Fund 463
Income Fund 77
U.S. Government Income Fund 73
U.S. Government Money Market Fund 504
Small Cap Fund (d) 2,164
</TABLE>
(c) Prior to October 19, 1998, there were nine Funds in the Fund Complex,
including Crabbe Huson U.S. Government Income Fund and Crabbe Huson U.S.
Government Money Market Fund, each of which were merged into existing
series of Colonial Trust II on October 19, 1998.
The Funds also reimbursed trustees'/directors' expenses for attending
shareholder and director meetings for directors who are not officers, directors,
or employees of the Advisor or CHSI.
h
<PAGE>
The following individuals serve as Trustees for the Funds. Compensation amounts
reflect only the period from October 19 through October 31, 1998 (d):
<TABLE>
<CAPTION>
Aggregate Compensation From Fund:
Trustee Real Estate Equity Managed Oregon Tax-Free Income Small Cap
- ------- ----------- ------ ------- --------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Birnbaum (e) $11 $23 $16 $12 $11 $14
Tom Bleasdale (e) 11 23 16 12 11 14
John E. Carberry (f)(g) -0- -0- -0- -0- -0- -0-
Lora S. Collins (e) 11 23 16 12 11 14
James E. Grinnell (e) 11 23 16 12 11 14
Richard W. Lowry (e) 11 23 16 12 11 14
Salvatore Macera (h) -0- -0- -0- -0- -0- -0-
William E. Mayer (e) 11 23 16 12 11 14
James L. Moody, Jr. (e) 11 23 16 12 11 14
John J. Neuhauser (e) 11 23 16 12 11 14
Thomas E. Stitzel (h) -0- -0- -0- -0- -0- -0-
Robert L. Sullivan (e) 13 25 17 13 12 16
Anne-Lee Verville (e)(f) -0- -0- -0- -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
Total Compensation From The Fund
Complex Paid To The Trustees For The
Trustee Calendar Year Ended December 31, 1998 (i)
- ------- -----------------------------------------
<S> <C>
Robert J. Birnbaum $ 99,429
Tom Bleasdale 115,000(j)
John E. Carberry -0-
Lora S. Collins 97,429
James E. Grinnell 103,071
Richard W. Lowry 98,214
Salvatore Macera 25,250
William E. Mayer 99,286
James L. Moody, Jr. 105,857(k)
John J. Neuhauser 105,323
Thomas E. Stitzel 25,250
Robert L. Sullivan 104,100
Anne-Lee Verville 23,445(l)
</TABLE>
(d) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(e) Elected by the shareholders of LVIT on October 30, 1998.
(f) Elected by the Trustees of the closed-end Colonial Funds on June 18, 1998
and by the shareholders of the open-end Colonial Funds on October 30, 1998.
(g) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial Companies, Inc. (Liberty Financial).
(h) Elected by the shareholders of the open-end Colonial Funds on October 30,
1998, and by the trustees of the closed-end Colonial Funds on December 17,
1998.
(i) On December 31, 1998, the complex consisted of 47 open-end management
investment portfolios in the Colonial Funds and 9 open-end management
investment portfolios in the Liberty Variable Investment Trust (LVIT)
(together, the Fund Complex).
(j) Includes $52,000 payable in later years as deferred compensation.
(k) Total compensation of $105,857 for the calendar year ended December 31,
1998 will be payable in later years as deferred compensation.
(l) Total compensation of $23,445 for the calendar year ended December 31, 1998
will be payable in later years as deferred compensation.
i
<PAGE>
For the fiscal year ended December 31, 1998, the Trustees received the following
compensation in their capacities as Trustees or Directors of the Liberty
All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc. (together,
Liberty All-Star Funds): (d)
<TABLE>
<CAPTION>
Total Compensation From
Liberty All-Star Funds For The Calendar
Trustee Year Ended December 31, 1998 (m)
- ------- --------------------------------
<S> <C>
Robert J. Birnbaum $25,000
John E. Carberry (n) N/A
James E. Grinnell 25,000
Richard W. Lowry 25,000
William E. Mayer (o) 14,000
John J. Neuhauser (p) 25,000
</TABLE>
(m) The Liberty All-Star Funds are advised by Liberty Asset Management Company
(LAMCO). LAMCO is a indirect wholly-owned subsidiary of Liberty Financial
(an intermediate parent of the Advisor).
(n) Elected by the trustees of the Liberty All-Star Funds on June 30, 1998.
(o) Elected by the shareholders of the Liberty All-Star Equity Fund on April
22, 1998 and by the trustees of the Liberty All-Star Growth Fund, Inc. on
December 17, 1998.
(p) Elected by the shareholders of the Liberty All-Star Funds on April 22,
1998.
Ownership of the Funds
The following information is as of January 31, 1999 and references the ownership
of 5% or more of the indicated class of shares of the Funds:
Special Fund, Class A:
- ----------------------
Charles Schwab & Co., Inc., Special Custody A/C for the Benefit of its
Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA
94104-4122 -- 2,579,401 shares (25.46%)
Small Cap Fund, Class A:
- ------------------------
Charles Schwab & Co., Inc., Special Custody A/C for the Benefit of its
Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA
94104-4122 -- 275,805 shares (20.75%)
Small Cap Fund, Class I:
- ------------------------
Fleet National Bank Trustee, Eastern Maine Medical Pension Plan Dated 7-30-97,
Attn: 0003745930, P.O. Box 92800, Rochester, NY 14692-8900 - 370,948 shares
(5.56%)
AAAA Retirement Fund for Member Agencies, Wendy E. Jones, Trustee, Donald S.
Lewis, Trustee, 201 McCullough Drive, Suite 100, Charlotte, NC 28262-4345 -
1,317,431 shares (19.74%)
M&I Trust Co. Trustee, Neese/Crabbe Huson, 1000 N. Water Street, 14th Floor,
Milwaukee, WI 53202-6648 - 606,514 shares (9.09%)
Union Colony Bank, Trustee, Weld County Pension Trust, P.O. Box 1647, Greeley,
CO 80632-1647 - 552,353 shares (8.27%)
Owensboro Mercy Health System, Inc., A/C# 3402814000, Greg Carlson & William O.
Price Trustees, P.O. Box 160, Westerville, OH 43086-0160 - 502,625 shares
(7.53%)
Union Bank of California Custodian, FBO AGC-IUOE Local 701 DP, A/C#
610001275-07, P.O. Box 120109, San Diego, CA 92112-0109 - 1,164,846 shares
(17.45%)
Real Estate Fund, Class A:
- --------------------------
Enele & Co., Dividend Reinvest, 1211 S.W. 5th Ave, Suite 1900, Portland OR,
97204-3719 - 338,890 shares (23.24%)
Charles Schwab & Co., Inc., Special Custody A/C for the Benefit of its
Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA
94104-4122 -- 466,217 shares (31.98%)
Real Estate Fund, Class C:
- --------------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 95 shares (100.00%)
j
<PAGE>
Real Estate Fund, Class Z:
- --------------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 96 shares (86.90%)
Colonial Counselor Select Income Portfolio, C/O Christie McCullough, 245 Summer
Street, Boston, MA 02111 - 14.437 shares (13.10%)
Equity Fund, Class A:
- ---------------------
Boston Safe Deposit & Trust Co., Agent for Dreyfus Trust Co., James Peluso,
Trustee, 1 Cabot Road, Medford, MA 02155-5141 - 1,439,546 shares (13.53%)
Equity Fund, Class B:
- ---------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 61 shares (100.00%)
Equity Fund, Class C:
- ---------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 61 shares (100.00%)
Equity Fund, Class I:
- ---------------------
J. Donald Dixon, 9730 E. Gamble Lane, Scottsdale, AZ 85262-3610 - 75,553 shares
(5.52%)
Northern Trust Company as Trustee FBO Brazos Electric Power Pension Plan, P.O.
Box 92956, Chicago, IL 60675-2956 - 183,180 shares (13.39%)
Rainer Trust Company, 1201 3rd Avenue, Suite 2010, Seattle, WA 98101-3026 -
874,410 shares (63.89%)
Enele & Co., Dividend Reinvest, 1211 S.W. 5th Ave, Suite 1900, Portland, OR
97204-3719 - 154,465 shares (11.28%)
Managed Fund, Class A:
- ----------------------
Charles Schwab & Co., Inc., Special Custody A/C for the Benefit of its
Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA
94104-4122 - 275,246 shares (5.90%)
Managed Fund, Class B:
- ----------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 78 shares (100.00%)
Managed Fund, Class C:
- ----------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 78 shares (100.00%)
Managed Fund, Class I:
- ----------------------
Klamath Medical Clinic PC Profit Sharing Plan, Randal A. Machado, MD Trustee,
James F Novak, MD Trustee, 1905 Main Street, Klamath Falls, OR 97601-2649 -
336,816 shares (15.18%)
Northwestern Trust Company Custodian FBO IBEW Local 76, Supplemental Income
Fund, 1201 3rd Avenue, Suite 2010, Seattle, WA 98101 -- 947,863 shares (42.71%)
Income Fund, Class A:
- ---------------------
Investors Bank & Trust Co., Custodian for the IRA of James T. Reed, 813 Elm
Street, Birmingham, AL 35206-1629 - 23,101 shares (5.01%)
IBAK & Co., P.O. Box 1700, 102 South Clinton, Iowa City, IA 52244 - 107,664
shares (23.42%)
Enele & Co., Dividend Reinvest, 1211 S.W. 5th Ave, Suite 1900, Portland, OR
97204-3719 - 28,855 shares (6.27%)
Charles Schwab & Co., Inc., Special Custody A/C for the Benefit of its
Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA
94104-4122 - 52,610 shares (11.45%)
Income Fund, Class I:
- ---------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 9,417 shares (100.00%)
Oregon Tax-Free Fund, Class A:
- ------------------------------
Charles Schwab & Co., Inc., Special Custody A/C for the Benefit of its
Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA
94104-4122 - 116,473 shares (5.91%)
k
<PAGE>
Enele Co. 1211 S.W. 5th Ave., Suite 1900, Portland, OR 97204-3719 - 180,688
shares (9.17%)
Oregon Tax-Free Fund, Class B:
- ------------------------------
Colonial Management Associates, Inc., One Financial Center, Boston, MA
02111-2621 - 78 shares (100.00%)
Other than the ownership of shares by the Administrator of the Income Fund
referenced above, the trustees, directors and officers of each of the other
Funds owned in the aggregate less than 1% of such Fund's outstanding shares on
January 31, 1999. Certain officers and directors of the Administrator also serve
as officers of the Trust.
On January 31, 1999, there were the following number of shareholders of record:
<TABLE>
<CAPTION>
Class A Class I
------- -------
<S> <C> <C>
Small Cap Fund 1,077 28
Special Fund 10,022 N/A
Equity Fund 6,112 13
Managed Income & Equity 1,512 19
Real Estate Fund 538 N/A
Oregon Tax-Free Fund 511 N/A
Income Fund 172 1
</TABLE>
12b-1 Plan, CDSC and Conversion of Shares
The Funds offer multiple classes of shares, including Class A, Class B, Class C,
for certain Funds, Class I, and for the Real Estate Fund, Class Z; Income Fund
offers only Class A and Class I shares. The Funds may in the future offer other
classes of shares. The Trustees have approved 12b-1 plans (Plans) pursuant to
Rule 12b-1 under the Act for each of the Class A, Class B and Class C shares of
the Funds. Under the Plans, each Fund pays LFD monthly a service fee at an
annual rate of 0.25% of net assets attributed to the Class A, Class B and Class
C shares and a distribution fee at an annual rate of 0.75% of average daily net
assets attributed to Class B and Class C shares. LFD may use the entire amount
of such fees to defray the cost of commissions and service fees paid to
financial service firms (FSFs) and for certain other purposes. Since the
distribution and service fees are payable regardless of LFD's expenses, LFD may
realize a profit from the fees.
The Plans authorize any other payments by a Fund to LFD and its affiliates
(including the Advisor) to the extent that such payments might be construed to
be indirectly financing the distribution of Fund shares.
The Trustees believe the Plans could be a significant factor in the growth and
retention of assets, resulting in a more advantageous expense ratio and
increased investment flexibility which could benefit shareholders of each class
of the Funds. The Plans 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 Plans or
in any agreements related to the Plans (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plans. 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 Plans must be approved by the Trustees in the manner
provided in the foregoing sentence. The Plans 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 Plans will only be effective if the selection and nomination of the
Trustees who are non-interested Trustees is effected by such non-interested
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 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 I and Class Z shares are offered at net asset value and
are not subject to a CDSC. The CDSCs are described in the Prospectuses.
No CDSC will be imposed on distributions or on amounts which represent an
increase in the value of the shareholder's account resulting from capital
appreciation. In determining the applicability and rate of any CDSC, it will be
assumed that a redemption is made first of shares representing capital
appreciation, next of shares representing reinvestment of distributions and
finally of other shares held by the shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.
l
<PAGE>
During the fiscal year ended October 31, 1998, the Funds paid the following
amounts under the Funds' Plans to CHSI, each Fund's distributor through
September 30, 1998:
<TABLE>
<CAPTION>
Printing/Mailing Broker/Dealer Salesperson
Fund Total Advertising Prospectus Payments Payments Other
<S> <C> <C> <C> <C> <C> <C>
Special Fund $592,323 96,197 48,302 339,245 1,484 107,094
Small Cap Fund $78,836 15,352 9,045 41,356 336 12,747
Real Estate Fund $87,296 12,791 6,650 57,277 -0- 10,578
Equity Fund $842,447 106,611 51,947 545,953 8,673 129,262
Managed Fund $173,228 28,378 14,760 97,330 37 32,724
Oregon Tax-Free Fund $43,484 7,732 4,009 22,192 -0- 9,551
Income Fund $12,479 2,253 2,198 6,478 -0- 1,550
</TABLE>
During the fiscal year ended October 31, 1998, the Funds paid the following
amounts under the Funds' Plans to LFD (for the period October 1, 1998, the date
that LFD became each Fund's distributor, through October 31, 1998):
<TABLE>
<CAPTION>
Small Cap Special Real Estate Equity Managed Oregon Tax- Income
Fund Fund Fund Fund Fund Free Fund Fund
---- ---- ---- ---- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fees to FSFs $3,018 $21,091 $3,579 $45,703 $13,824 $4,213 $1,422
Cost of sales material
relating to the Fund
(including printing and
mailing expenses) 2 1,405 118 1,529 -0- -0- 18
Allocated travel,
entertainment and other
promotional expenses
(including advertising) 3 2,085 175 2,271 -0- -0- 27
</TABLE>
INVESTMENT PERFORMANCE
As of October 31, 1998, no Class B or Class C shares had been issued. Class A
shares were formerly generally designated as the "Primary Class" and Class I
shares were formerly designated as the "Institutional Class".
Certain Funds' Class A yields for the month ended October 31, 1998 are
referenced below. Yields reflect a voluntary fee waiver in effect. Had the
waiver not been in effect, the Funds' yields would have been lower:
<TABLE>
<CAPTION>
October 31, 1998
----------------
<S> <C>
Real Estate Fund 5.32%
Oregon Tax-Free Fund 3.63%
Income Fund 2.63%
</TABLE>
The Oregon Tax-Free Fund's Class A tax-equivalent yield, calculated using the
maximum effective combined federal and state tax rates, for the month ended
October 31, 1998 was 6.60%.
The average annual total returns for the Funds' shares for the year ending
October 31, 1998 are referenced below. Performance results reflect any voluntary
fee waiver or expense reimbursement by the Advisor or its affiliates of Fund
expenses. Absent these waivers and/or reimbursements, performance results would
have been lower:
Class A Shares
Special Fund
<TABLE>
<CAPTION>
10 years
1 year 5 years (or since inception)
------ ------- --------------------
<S> <C> <C> <C>
With sales charge of 5.75% -48.17% -3.00% 7.58%
Without sales charge -45.00% -1.85% 8.22%
</TABLE>
m
<PAGE>
Equity Fund
<TABLE>
<CAPTION>
10 years
1 year 5 years (or since inception)(q)
------ ------- -----------------------
<S> <C> <C> <C>
With sales charge of 5.75% -15.25% 8.90% 12.09%
Without sales charge -10.08% 10.20% 12.77%
</TABLE>
Managed Fund
<TABLE>
<CAPTION>
10 years
1 year 5 years (or since inception)(q)
------ ------- -----------------------
<S> <C> <C> <C>
With sales charge of 4.75% -5.41% 7.58% 9.46%
Without sales charge -0.69% 8.63% 10.01%
</TABLE>
Oregon Tax-Free Fund
<TABLE>
<CAPTION>
10 years
1 year 5 years (or since inception)
------ ------- --------------------
<S> <C> <C> <C>
With sales charge of 4.75% 1.34% 3.92% 5.89%
Without sales charge 6.39% 4.93% 6.41%
</TABLE>
Income Fund
<TABLE>
<CAPTION>
10 years
1 year 5 years (or since inception)(q)
------ ------- -----------------------
<S> <C> <C> <C>
With sales charge of 4.75% 5.92% 5.94% 7.44%
Without sales charge 11.21% 6.97% 7.98%
</TABLE>
Small Cap Fund
<TABLE>
<CAPTION>
10 years
1 year 5 years (or since inception)(r)
------ ------- -----------------------
<S> <C> <C> <C>
With sales charge of 5.75% -42.17% N/A -3.53%
Without sales charge -38.64% N/A -1.39%
</TABLE>
Real Estate Fund
<TABLE>
<CAPTION>
10 years
1 year 5 years (or since inception)(s)
------ ------- -----------------------
<S> <C> <C> <C>
With sales charge of 4.75% -17.50% N/A 7.93%
Without sales charge -13.39% N/A 9.08%
</TABLE>
(q) Commencement of Operations January 31, 1989.
(r) Commencement of Operations February 20, 1996.
(s) Commencement of Operations April 4, 1994.
The Class I shares average annual total returns for the Funds' for the year
ending October 31, 1998 were as follows:
Managed Fund
<TABLE>
<CAPTION>
1 year 5 years Since Fund Inception
------ ------- --------------------
<S> <C> <C>
-0.44% 8.79%* 10.09%*(t)
</TABLE>
Equity Fund
<TABLE>
<CAPTION>
1 year 5 years Since Fund Inception
------ ------- --------------------
<S> <C> <C>
-9.72% 10.37%* 12.86%*(u)
</TABLE>
Small Cap Fund
<TABLE>
<CAPTION>
1 year Since Fund Inception
------ --------------------
<S> <C>
-38.37% -1.06%*(v)
</TABLE>
n
<PAGE>
Income Fund
<TABLE>
<CAPTION>
1 year 5 years Since Fund Inception
------ ------- --------------------
<S> <C> <C>
11.42%* 7.01%* 8.00%*(w)
</TABLE>
(t) Commencement of Operations October 28, 1996.
(u) Commencement of Operations October 3, 1996.
(v) Commencement of Operations October 10, 1996.
(w) Commencement of Operations October 1, 1998.
(*) Class I (newer class of shares) performance includes returns of the Fund's
Class A shares (the oldest existing fund class) for periods prior to the
inception of the newer class of shares. The Class A share returns are not
restated to reflect any differences in expenses (like Rule 12b-1 fees)
between Class A shares and the newer class of shares.
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
State Street Bank & Trust Company, located at 225 Franklin Street, Boston, MA
02110, is the custodian for the Funds. The custodian is responsible for
safeguarding and controlling the Funds' cash and securities, receiving and
delivering securities and collecting the each Fund's interest and dividends.
INDEPENDENT AUDITORS
KPMG LLP, located at 99 High Street, Boston, MA 02110, acts as the Funds'
independent auditors. In such capacity, KPMG LLP performs the annual audit of
each Fund's financial statements and assists in the preparation of tax returns.
The October 31, 1998 financial statements incorporated by reference in this SAI
have been so incorporated, and the financial highlights for a share outstanding
through October 31, 1998 included in the Prospectuses have been so included, in
reliance upon the report of KPMG LLP given on the authority of said firm as
experts in accounting and auditing.
o
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to the funds advised by the Advisor
or the Administrator. "Fund" or "funds" include The Crabbe Huson Special Fund,
Crabbe Huson Small Cap Fund, Crabbe Huson Real Estate Investment Fund, Crabbe
Huson Equity Fund, Crabbe Huson Managed Income & Equity Fund, Crabbe Huson
Oregon Tax-Free Fund, Crabbe Huson Contrarian Income Fund, each a series of
Colonial Trust III and may include other funds advised by the Administrator. In
certain cases, the discussion applies to some but not all of the funds, and you
should refer to your Fund's Prospectus and to Part 1 of this SAI to determine
whether the matter is applicable to your Fund. You may also be referred to Part
1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this Statement lists on page b which of the following investment
practices are available to your Fund. If an investment practice is not listed in
Part 1 of this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Advisor will buy or sell
portfolio securities whenever it believes it is appropriate. The Advisor's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Advisor considers a change in the fund's
portfolio.
Lower Rated Debt Securities
Lower rated debt securities are those rated lower than Baa by Moody's, BBB by
S&P, or comparable unrated debt securities. Relative to debt securities of
higher quality,
1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for lower
rated debt securities;
2. the secondary market for lower rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower rated debt securities may have a
greater impact on the fund's achievement of its investment objective and
4. lower rated debt securities may be less sensitive to interest rate changes,
but are more sensitive to adverse economic developments.
In addition, certain lower rated debt securities may not pay interest in cash on
a current basis.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or
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economic developments, expropriation or nationalization of assets and imposition
of withholding taxes on dividend or interest payments. Foreign securities, like
other assets of the fund, will be held by the fund's custodian or by a
subcustodian or depository. See also "Foreign Currency Transactions" below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. This "excess
distribution" will be allocated over the fund's holding period for such
investment and the PFIC tax is the highest ordinary income rate in effect for
any period multiplied by the portion of the "excess distribution" allocated to
such period, and it could be increased by an interest charge on the deemed tax
deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxation" below.
Zero Coupon Securities (Zeros)
The fund may invest in zero coupon securities which are securities issued at a
significant discount from face value and pay interest only at maturity rather
than at intervals during the life of the security and in certificates
representing undivided interests in the interest or principal of mortgage-backed
securities (interest only/principal only), which tend to be more volatile than
other types of securities. The Fund will accrue and distribute income from
stripped securities and certificates on a current basis and may have to sell
securities to generate cash for distributions.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which pay interest at a series of
different rates (including 0%) in accordance with a stated schedule for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities may be subject to additional volatility risk than
fixed rate debt securities.
Tender Option Bonds
A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Advisor will consider on an ongoing basis the creditworthiness of the issuer of
the underlying municipal securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal securities and for other
reasons.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities. These securities are generally high yield securities and
in addition to the other risks associated with investing in high yield
securities, are subject to the risks that the interest payments which consist of
additional securities are also subject to the risks of high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory note issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
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Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where such purchases are made
through dealers, the fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the fund of an advantageous
yield or price. Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the Advisor deems it appropriate to do so. The
fund may realize short-term profits or losses (generally taxed at ordinary
income tax rates in the hands of the shareholders) upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Mortgage-Backed Securities
Mortgage-backed securities, including "collateralized mortgage obligations"
(CMOs) and "real estate mortgage investment conduits" (REMICs), evidence
ownership in a pool of mortgage loans made by certain financial institutions
that may be insured or guaranteed by the U.S. government or its agencies. CMOs
are obligations issued by special-purpose trusts, secured by mortgages. REMICs
are entities that own mortgages and elect REMIC status under the Internal
Revenue Code. Both CMOs and REMICs issue one or more classes of securities of
which one (the Residual) is in the nature of equity. The funds will not invest
in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs
may be prepaid if the underlying mortgages are prepaid. Prepayment rates for
mortgage-backed securities tend to increase as interest rates decline
(effectively shortening the security's life) and decrease as interest rates rise
(effectively lengthening the security's life). Because of the prepayment
feature, these securities may not increase in value as much as other debt
securities when interest rates fall. A fund may be able to invest prepaid
principal only at lower yields. The prepayment of such securities purchased at a
premium may result in losses equal to the premium.
Non-Agency Mortgage-Backed Securities
The fund may invest in non-investment grade mortgage-backed securities that are
not guaranteed by the U.S. Government or an Agency. Such securities are subject
to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed
Securities". In addition, although the underlying mortgages provide collateral
for the security, the Fund may experience losses, costs and delays in enforcing
its rights if the issuer defaults or enters bankruptcy and may incur a loss.
Repurchase Agreements
The fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the fund to resell such 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
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resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, the fund may
incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's estate.
Reverse Repurchase Agreements
In a reverse repurchase agreement, the fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. A reverse
repurchase agreement may also be viewed as the borrowing of money by the fund
and, therefore, as a form of leverage. The fund will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the fund will enter
into a reverse repurchase agreement only when the interest income expected to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. The fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. The fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each fund will establish and maintain with its custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. If interest
rates rise during the term of a reverse repurchase agreement, entering into the
reverse repurchase agreement may have a negative impact on a money market fund's
ability to maintain a net asset value of $1.00 per share.
Options on Securities
Writing covered options. The fund may write covered call options and covered put
options on securities held in its portfolio when, in the opinion of the Advisor,
such transactions are consistent with the fund's investment objective and
policies. Call options written by the fund give the purchaser the right to buy
the underlying securities from the fund at a stated exercise price; put options
give the purchaser the right to sell the underlying securities to the fund at a
stated price.
The fund may write only covered options, which means that, so long as the fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The fund may
write combinations of covered puts and calls on the same underlying security.
The fund will receive a premium from writing a put or call option, which
increases the fund's return on the underlying security if the option expires
unexercised or is closed out at a profit. The amount of the premium reflects,
among other things, the relationship between the exercise price and the current
market value of the underlying security, the volatility of the underlying
security, the amount of time remaining until expiration, current interest rates,
and the effect of supply and demand in the options market and in the market for
the underlying security. By writing a call option, the fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option but continues to bear the risk
of a decline in the value of the underlying security. By writing a put option,
the fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current market value,
resulting in a potential capital loss unless the security subsequently
appreciates in value.
The fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an offsetting
option. The fund realizes a profit or loss from a closing transaction if the
cost of the transaction (option premium plus transaction costs) is less or more
than the premium received from writing the option. Because increases in the
market price of a call option generally reflect increases in the market price of
the security underlying the option, any loss resulting from a closing purchase
transaction may be offset in whole or in part by unrealized appreciation of the
underlying security.
If the fund writes a call option but does not own the underlying security, and
when it writes a put option, the fund may be required to deposit cash or
securities with its broker as "margin" or collateral for its obligation to buy
or sell the underlying security. As the value of the underlying security varies,
the fund may have to deposit additional margin with the broker. Margin
requirements are complex and are fixed by individual brokers, subject to minimum
requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The fund may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
fund, as holder of the put option, is able to 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.
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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% (10% in some cases, refer to your fund's Prospectus) of
the fund's net assets would be invested in (i) illiquid investments (determined
under the foregoing formula) relating to OTC options written by the fund, (ii)
OTC options purchased by the fund, (iii) securities which are not readily
marketable, and (iv) repurchase agreements maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Advisor to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Advisor deems it desirable to do so. Although
the fund will take an option position only if the Advisor believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of option transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
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.
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A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the Securities and Exchange
Commission's requirements, cash or liquid securities equal in value to the
commodity value (less any applicable margin deposits) have been deposited in a
segregated account of the fund's custodian. The fund may purchase and write call
and put options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions. The
fund may use such options on futures contracts in lieu of writing options
directly on the underlying securities or purchasing and selling the underlying
futures contracts. Such options generally operate in the same manner as options
purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the fund is subject to the 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.
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There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contracts or options; (ii) restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange (or in the class or series of contracts or options) would cease to
exist, although outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Use by tax-exempt funds of interest rate and U.S. Treasury security futures
contracts and options. The funds investing in tax-exempt securities issued by a
governmental entity may purchase and sell futures contracts and related options
on interest rate and U.S. Treasury securities when, in the opinion of the
Advisor, price movements in these security futures and related options will
correlate closely with price movements in the tax-exempt securities which are
the subject of the hedge. Interest rate and U.S. Treasury securities futures
contracts require the seller to deliver, or the purchaser to take delivery of,
the type of security called for in the contract at a specified date and price.
Options on interest rate and U.S. Treasury security futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
futures contract at the specified option exercise price at any time during the
period of the option.
In addition to the risks generally involved in using futures contracts, there is
also a risk that price movements in interest rate and U.S. Treasury security
futures contracts and related options will not correlate closely with price
movements in markets for tax-exempt securities.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective(s). The fund may also purchase and sell options on index futures
contracts.
There are several risks in connection with the use by the fund of index futures
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the index futures and movements in the prices
of securities which are the subject of the hedge. The Advisor will attempt to
reduce this risk by selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the fund's portfolio securities sought to be hedged.
Successful use of index futures by the fund for hedging purposes is also subject
to the Advisor's ability to predict correctly movements in the direction of the
market. It is possible that, where the fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the fund's portfolio may
decline. If this occurs, the fund would lose money on the futures and also
experience a decline in the value of its portfolio securities. However, while
this could occur to a certain degree, the Advisor believes that over time the
value of the fund's portfolio will tend to move in the same direction as the
market indices which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if the fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the fund will lose part or all of the benefit of the increased values
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
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
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futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than the
securities market. Increased participation by speculators in the futures market
may also cause temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the imperfect correlation
between movements in the index and movements in the prices of index futures,
even a correct forecast of general market trends by the Advisor may still not
result in a successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the fund may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The fund may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The fund may engage in both "transaction hedging" and "position hedging." When
it engages in transaction hedging, the fund enters into foreign currency
transactions with respect to specific receivables or payables of the fund
generally arising in connection with the purchase or sale of its portfolio
securities. The fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging the fund attempts to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. Over-the-counter options are considered to be illiquid by
the SEC staff. A put option on a futures contract gives the fund the right to
assume a short position in the futures contract until expiration of the option.
A put option on currency gives the fund the right to sell a currency at an
exercise price until the expiration of the option. A call option on a futures
contract gives the fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
fund the right to purchase a currency at the exercise price until the expiration
of the option.
When it engages in position hedging, the fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the fund expects to purchase, when
the fund holds cash or short-term investments). In connection with position
hedging, the fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the 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.
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Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Advisor believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex
political and economic factors applicable to the issuing country. In addition,
the exchange rates of currencies (and therefore the values of currency options)
may be significantly affected, fixed, or supported directly or indirectly by
government actions. Government intervention may increase risks involved in
purchasing or selling currency options, since exchange rates may not be free to
fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an 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.
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There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the fund's investments
in foreign securities and to the fund's foreign currency exchange transactions
may be more complex than settlements with respect to investments in debt or
equity securities of U.S. issuers, and may involve certain risks not present in
the fund's domestic investments, including foreign currency risks and local
custom and usage. Foreign currency transactions may also involve the risk that
an entity involved in the settlement may not meet its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Foreign currency transactions may also involve the risk
that an entity involved in the settlement may not meet its obligation.
Municipal Lease Obligations
Although a municipal lease obligation does not constitute a general obligation
of the municipality for which the municipality's taxing power is pledged, a
municipal lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the municipal lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. In addition, the tax treatment of such
obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal
lease obligation, as with any other municipal security, are made based on all
relevant factors. These factors include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
Participation Interests
The fund may invest in municipal obligations either by purchasing them directly
or by purchasing certificates of accrual or similar instruments evidencing
direct ownership of interest payments or principal payments, or both, on
municipal obligations, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such
certificate or instrument that is purchased at a yield not greater than the
coupon rate of interest on the related municipal obligations will be exempt from
federal income tax to the same extent as interest on such municipal obligations.
The fund may also invest in tax-exempt obligations by purchasing from banks
participation interests in all or part of specific holdings of municipal
obligations. Such participations may be backed in whole or part by an
irrevocable letter of credit or guarantee of the selling bank. The selling bank
may receive a fee from the fund in connection with the arrangement. The fund
will not purchase such participation interests unless it receives an opinion of
counsel or a ruling of the Internal Revenue Service that interest earned by it
on municipal obligations in which it holds such participation interests is
exempt from federal income tax.
Stand-by Commitments
When the fund purchases municipal obligations it may also acquire stand-by
commitments from banks and broker-dealers with respect to such municipal
obligations. A stand-by commitment is the equivalent of a put option acquired by
the fund with respect to a particular municipal obligation held in its
portfolio. A stand-by commitment is a security independent of the municipal
obligation to which it relates. The amount payable by a bank or dealer during
the time a stand-by commitment is exercisable, absent unusual circumstances
relating to a change in market value, would be substantially the same as the
value of the underlying municipal obligation. A stand-by commitment might not be
transferable by the fund, although it could sell the underlying municipal
obligation to a third party at any time.
The fund expects that stand-by commitments generally will be available without
the payment of direct or indirect consideration. However, if necessary and
advisable, the fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities.) The total amount paid in either manner for outstanding
stand-by commitments held in the fund portfolio will not exceed 10% of the value
of the fund's total assets calculated immediately after each stand-by commitment
is acquired. The fund will enter into stand-by commitments only with banks and
broker-dealers that, in the judgment of the Trust's Board of Trustees, present
minimal credit risks.
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Inverse Floaters
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
Rule 144A Securities
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
(1933 Act). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Advisor, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Advisor will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined by the Advisor that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax advisor for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons.
Alternative Minimum Tax. Distributions derived from interest which is exempt
from regular federal income tax may subject corporate shareholders to or
increase their liability under the corporate alternative minimum tax (AMT). A
portion of such distributions may constitute a tax preference item for
individual shareholders and may subject them to or increase their liability
under the AMT.
Dividends Received Deductions. Distributions will qualify for the corporate
dividends received deduction only to the extent that dividends earned by the
fund qualify. Any such dividends are, however, includable in adjusted current
earnings for purposes of computing corporate AMT. The dividends received
deduction for eligible dividends is subject to a holding period requirement
modified pursuant to the Taxpayer Relief Act of 1997 (the "1997 Act").
Return of Capital Distributions. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital reduces the cost basis in the
shares to below zero.
Funds that invest in U.S. Government Securities. Many states grant tax-free
status to dividends paid to shareholders of mutual funds from interest income
earned by the fund from direct obligations of the U.S. government. Investments
in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and
repurchase agreements collateralized by U.S. government securities do not
qualify as direct federal obligations in most states. Shareholders should
consult with their own tax advisors about the applicability of state and local
intangible property, income or other taxes to their fund shares and
distributions and redemption proceeds received from the fund.
Fund Distributions. Distributions from the fund (other than exempt-interest
dividends, as discussed below) will be taxable to shareholders as ordinary
income to the extent derived from the fund's investment income and net
short-term gains. 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 not more than one year) will be taxable to shareholders
as such, regardless of how long a shareholder has held the shares in the fund..
Distributions will be taxed as described above whether received in cash or in
fund shares. Dividends and distributions on a fund's shares are generally
subject to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when a fund's net asset value reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when a fund's net asset value also reflects unrealized
losses.
Distributions from Tax-Exempt Funds. The Oregon Tax-Free Fund will have at least
50% of its total assets invested in tax-exempt bonds at the end of each quarter
so that dividends from net interest income on tax-exempt bonds will be exempt
from Federal income tax when received by a shareholder. The tax-exempt portion
of dividends paid will be designated within 60 days after year-end based upon
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the ratio of net tax-exempt income to total net investment income earned during
the year. That ratio may be substantially different from the ratio of net
tax-exempt income to total net investment income earned during any particular
portion of the year. Thus, a shareholder who holds shares for only a part of the
year may be allocated more or less tax-exempt dividends than would be the case
if the allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of net long-term capital gains will in
general be taxable to shareholders as long-term capital gains (generally subject
to a 20% tax rate) regardless of the length of time fund shares are held.
A tax-exempt fund may at times purchase tax-exempt securities at a discount and
some or all of this discount may be included in the fund's ordinary income which
will be taxable when distributed. Any market discount recognized on a tax-exempt
bond purchased after April 30, 1993 with a term at time of issue of one year or
more is taxable as ordinary income. A market discount bond is a bond acquired in
the secondary market at a price below its "stated redemption price" (in the case
of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income,
including tax-exempt dividends from the fund.
Special Tax Rules Applicable to Tax-Exempt Funds. Income distributions to
shareholders who are substantial users or related persons of substantial users
of facilities financed by industrial revenue bonds may not be excludable from
their gross income if such income is derived from such bonds. Income derived
from the fund's investments other than tax-exempt instruments may give rise to
taxable income. The fund's shares must be held for more than six months in order
to avoid the disallowance of a capital loss on the sale of fund shares to the
extent of tax-exempt dividends paid during that period. A shareholder who
borrows money to purchase the fund's shares will not be able to deduct the
interest paid with respect to such borrowed money.
Sales of Shares. The sale, exchange or redemption of fund shares may give rise
to a gain or loss. In general, any gain realized upon a taxable disposition of
shares generally will be treated as long-term capital gain if the shares have
been held for more than 12 months. Otherwise, the gain on the sale, exchange or
redemption of fund shares will be treated as short-term capital gain. In
general, any loss realized upon a taxable disposition of shares will be treated
as long-term loss if the shares have been held more than 12 months, and
otherwise as short-term loss. However, any loss realized upon a taxable
disposition of shares held for six months or less will be treated as long-term,
rather than short-term, capital loss to the extent of any long-term capital gain
distributions received by the shareholder with respect to those shares. All or a
portion of any loss realized upon a taxable disposition of shares will be
disallowed if other shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased shares will be
adjusted to reflect the disallowed loss.
Backup Withholding. Certain distributions and redemptions may be subject to a
31% backup withholding unless a taxpayer identification number and certification
that the shareholder is not subject to the withholding is provided to the fund.
This number and form may be provided by either a Form W-9 or the accompanying
application. In certain instances, LFSI may be notified by the Internal Revenue
Service that a shareholder is subject to backup withholding.
Excise Tax. To the extent that the fund does not annually distribute
substantially all taxable income and realized gains, it is subject to an excise
tax. The Advisor intends to avoid this tax except when the cost of processing
the distribution is greater than the tax.
Tax Accounting Principles. To qualify as a "regulated investment company," the
fund must (a) derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the value of its total assets consists
of cash, cash items, U.S. Government securities, and other securities limited
generally with respect to any one issuer to not more than 5% of the total assets
of the fund and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any issuer (other than U.S. Government securities).
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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 losses or convert short-term
capital losses into long-term capital losses. These rules could therefore affect
the amount, timing and character of distributions to shareholders. The fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interests of the fund.
Securities Issued at a Discount. The fund's investment in securities issued at a
discount and certain other obligations will (and investments in securities
purchased at a discount may) require the fund to accrue and distribute income
not yet received. In such cases, the fund may be required to sell assets
(including when it is not advantageous to do so) to generate the cash necessary
to distribute as dividends to its shareholders all of its income and gains and
therefore to eliminate any tax liability at the fund level.
Foreign Currency-Denominated Securities and Related Hedging Transactions. The
fund's transactions in foreign currencies, foreign currency-denominated debt
securities, certain foreign currency options, futures contracts and forward
contracts (and similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the value of the
foreign currency concerned.
If more than 50% of the fund's total assets at the end of its fiscal year are
invested in stock or securities of foreign corporate issuers, the fund may make
an election permitting its shareholders to take a deduction or credit for
federal tax purposes for their portion of certain qualified foreign taxes paid
by the fund. The 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 a fund to liquidate other investments
(including when it is not advantageous to do so) in order to meet its
distribution requirement, which also may accelerate the recognition of gain and
affect a fund's total return.
MANAGEMENT OF THE FUNDS
The Advisor is the investment advisor to each of The Crabbe Huson Special Fund,
Crabbe Huson Small Cap Fund, Crabbe Huson Real Estate Investment Fund, Crabbe
Huson Equity Fund, Crabbe Huson Managed Income & Equity Fund, Crabbe Huson
Oregon Tax-Free Fund, Crabbe Huson Contrarian Income Fund and Crabbe Huson
Contrarian Fund. The Advisor is a direct 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.
Trustees and Officers
<TABLE>
<CAPTION>
Name and Address Age Position with Fund Principal Occupation During Past Five Years
- ---------------- --- ------------------ --------------------------------------------
<S> <C> <C> <C>
Robert J. Birnbaum 71 Trustee Consultant (formerly Special Counsel, Dechert Price &
313 Bedford Road Rhoads from September, 1988 to December, 1993, President,
Ridgewood, NJ 07450 New York Stock Exchange from May, 1985 to June, 1988,
President, American Stock Exchange, Inc. from 1977 to
May, 1985).
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
Tom Bleasdale 68 Trustee Retired (formerly Chairman of the Board and Chief
11 Carriage Way Executive Officer, Shore Bank & Trust Company from
Danvers, MA 01923 1992-1993); Director of The Empire Company since June,
1995.
John E. Carberry * 51 Trustee Senior Vice President of Liberty Financial Companies,
56 Woodcliff Road Inc. (formerly Managing Director, Salomon Brothers
Wellesley Hills, MA 02481 (investment banking) from January, 1988 to January, 1998).
Lora S. Collins 63 Trustee Attorney (formerly Attorney, Kramer, Levin, Naftalis &
1175 Hill Road Frankel from September, 1986 to November, 1996).
Southold, NY 11971
James E. Grinnell 69 Trustee Private Investor since November, 1988.
22 Harbor Avenue
Marblehead, MA 01945
Richard W. Lowry 62 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963
Salvatore Macera 67 Trustee Private Investor (formerly Executive Vice President of
26 Little Neck Lane Itek Corp. and President of Itek Optical & Electronic
New Seabury, MA 02649 Industries, Inc. (electronics)).
William E. Mayer* 58 Trustee Partner, Development Capital, LLC (formerly Dean, College
500 Park Avenue, 5th Floor of Business and Management, University of Maryland from
New York, NY 10022 October, 1992 to November, 1996, Dean, Simon Graduate
School of Business, University of Rochester from October,
1991 to July, 1992).
James L. Moody, Jr. 67 Trustee Retired (formerly Chairman of the Board, Hannaford Bros.
16 Running Tide Road Co. from May, 1984 to May, 1997, and Chief Executive
Cape Elizabeth, ME 04107 Officer, Hannaford Bros. Co. from May, 1973 to May, 1992).
John J. Neuhauser 55 Trustee Dean, Boston College School of Management since
140 Commonwealth Avenue September, 1977.
Chestnut Hill, MA 02167
Thomas E. Stitzel 58 Trustee Professor of Finance, College of Business, Boise State
2208 Tawny Woods Place University (higher education); Business consultant and
Boise, ID 83706 author.
Robert L. Sullivan 70 Trustee Retired Partner, KPMG LLP
7121 Natelli Woods Lane
Bethesda, MD 20817
Anne-Lee Verville 53 Trustee Consultant (formerly General Manager, Global Education
359 Stickney Hill Road Industry from 1994 to 1997, and President, Applications
Hopkinton, NH 03229 Solutions Division from 1991 to 1994, IBM Corporation
(global education and global applications)).
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C>
Stephen E. Gibson 45 President President of the Funds since June, 1998, Chairman of
the Board since July, 1998, Chief Executive Officer and
President since December 1996 and Director, since July
1996 of the Advisor (formerly Executive Vice President
from July, 1996 to December, 1996); Director, Chief
Executive Officer and President of COGRA, LLC (COGRA)
since December, 1998 (formerly Director, Chief
Executive Officer and President of The Colonial Group,
Inc. (TCG) from December, 1996 to December, 1998);
Assistant Chairman of Stein Roe & Farnham Incorporated
(SR&F) since August, 1998 (formerly Managing Director
of Marketing of Putnam Investments, June, 1992 to July,
1996.).
J. Kevin Connaughton 34 Controller and Controller and Chief Accounting Officer of the Funds
Chief Accounting since February, 1998; Vice President of the Advisor
Officer since February, 1998 (formerly Senior Tax Manager,
Coopers & Lybrand, LLP from April, 1996 to January,
1998; Vice President, 440 Financial Group/First Data
Investor Services Group from March,1994 to April, 1996;
Vice President, The Boston Company (subsidiary of
Mellon Bank) from December, 1993 to March, 1994;
Assistant Vice President and Tax Manager, The Boston
Company from March, 1992 to December, 1993).
Timothy J. Jacoby 45 Treasurer and Treasurer and Chief Financial Officer of the Funds
Chief Financial since October, 1996 (formerly Controller and Chief
Officer Accounting Officer from October, 1997 to February,
1998); Senior Vice President of the Advisor since
September, 1996; Vice President, Chief Financial
Officer and Treasurer since December, 1998 of COGRA
(formerly Vice President, Chief Financial Officer and
Treasurer from July, 1997 to December, 1998 of TCG);
Senior Vice President of SR&F since August, 1998
(formerly Senior Vice President, Fidelity Accounting
and Custody Services from September, 1993 to September,
1996 and Assistant Treasurer to the Fidelity Group of
Funds from August, 1990 to September, 1993).
Nancy L. Conlin 45 Secretary Secretary of the Funds since April, 1998 (formerly
Assistant Secretary from July, 1994 to April, 1998);
Director, Senior Vice President, General Counsel, Clerk
and Secretary of the Advisor since April, 1998
(formerly Vice President, Counsel, Assistant Secretary
and Assistant Clerk from July, 1994 to April, 1998);
Vice President, General Counsel and Secretary of COGRA
since December, 1998 (formerly Vice President-, General
Counsel and Clerk of TCG from April, 1998 to December,
1998; (formerly Assistant Clerk from July, 1994 to
April, 1998); (formerly Partner, Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo from June, 1990 to June,
1994).
Davey S. Scoon 51 Vice President Vice President of the Funds since June, 1993; Executive
Vice President since July, 1993 and Director since
March, 1985 of the Advisor (formerly Senior Vice
President and Treasurer of the Advisor from March, 1985
to July, 1993); Executive Vice President and Chief
Operating Officer of COGRA since December, 1998
(formerly Executive Vice President and Chief Operating
Officer, TCG from March, 1995 to December, 1998; Vice
President - Finance and Administration from November,
1985 to March, 1995); Executive Vice President of SR&F
since August, 1998.
</TABLE>
15
<PAGE>
* A Trustee who is an "interested person" (as defined in the Investment Company
Act of 1940) of the fund or the Advisor.
The business address of the officers of each Fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all funds for which each Trustee (except Mr.
Carberry) will receive an annual retainer of $45,000 and attendance fees of
$8,000 for each regular joint meeting and $1,000 for each special joint meeting.
Committee chairs receive an annual retainer of $5,000. Committee members receive
an annual retainer of $1,000 and $1,000 for each special meeting attended.
Two-thirds of the Trustee fees are allocated among the funds based on each
fund's relative net assets and one-third of the fees are divided equally among
the funds.
The Advisor has rendered investment advisory services to investment company,
institutional or other clients since 1980. The Advisor currently serves as
investment advisor for 7 open-end management investment company portfolios.
Trustees and officers of the Trust, who are also officers of the Administrator
or its affiliates, will benefit from the advisory fees, sales commissions and
agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Management Agreement
Under a Management Agreement (Agreement), the Advisor has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each fund pays a monthly fee based on the average of the daily closing value of
the total net assets of each fund for such month. Under the Agreement, any
liability of the Advisor to the Trust, a fund and/or its shareholders is limited
to situations involving the Advisor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Administrator pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Advisor or the Administrator including, but not
limited to, auditing, legal, custodial, investor servicing and shareholder
reporting expenses. The Trust pays the cost of printing and mailing any
Prospectuses sent to shareholders. LFDI pays the cost of printing and
distributing all other Prospectuses.
The Advisor may delegate certain or its administrative duties to the
Administrator.
The Pricing and Bookkeeping Agreement
The Administrator provides pricing and bookkeeping services to each fund
pursuant to a Pricing and Bookkeeping Agreement. The Administrator paid monthly
a fee of $2,250 by each fund, plus a monthly percentage fee based on net assets
of the fund equal to the following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion
Portfolio Transactions
Investment decisions. The Advisor acts as investment advisor to each of the The
Crabbe Huson Special Fund, Crabbe Huson Small Cap Fund, Crabbe Huson Real Estate
Investment Fund, Crabbe Huson Equity Fund, Crabbe Huson Asset Allocation Fund,
Crabbe Huson Oregon Tax-Free Fund and Crabbe Huson Income Fund and to other
institutional, corporate, fiduciary and individual clients. Various officers and
Trustees of the Trust also serve as officers or Trustees of other funds and the
other corporate or fiduciary clients of the Advisor or the Administrator. The
funds and clients advised by the Advisor or the funds administered by the
Administrator sometimes
16
<PAGE>
invest in securities in which a Fund also invests and sometimes engage in
covered option writing programs and enter into transactions utilizing stock
index options and stock index and financial futures and related options ("other
instruments"). If a Fund, such other funds and such other clients desire to buy
or sell the same portfolio securities, options or other instruments at about the
same time, the purchases and sales are normally made as nearly as practicable on
a pro rata basis in proportion to the amounts desired to be purchased or sold by
each. Although in some cases these practices could have a detrimental effect on
the price or volume of the securities, options or other instruments as far as a
Fund is concerned, in most cases it is believed that these practices should
produce better executions. It is the opinion of the Trustees that the
desirability of retaining the Advisor as investment advisor to the Funds
outweighs the disadvantages, if any, which might result from these practices.
Brokerage and research services. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Advisor may consider sales of shares of the funds as a factor in
the selection of broker-dealers to execute securities transactions for a fund.
The Advisor places the transactions of the funds with broker-dealers selected by
the Advisor and, if applicable, negotiates commissions. Broker-dealers may
receive brokerage commissions on portfolio transactions, including the purchase
and writing of options, the effecting of closing purchase and sale transactions,
and the purchase and sale of underlying securities upon the exercise of options
and the purchase or sale of other instruments. The funds from time to time also
execute portfolio transactions with such broker-dealers acting as principals.
The funds do not intend to deal exclusively with any particular broker-dealer or
group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place
the funds' transactions where the funds can obtain the most favorable
combination of price and execution services in particular transactions or
provided on a continuing basis by a broker-dealer, and to deal directly with a
principal market maker in connection with over-the-counter transactions, except
when it is believed that best execution is obtainable elsewhere. In evaluating
the execution services of, including the overall reasonableness of brokerage
commissions paid to, a broker-dealer, consideration is given to, among other
things, the firm's general execution and operational capabilities, and to its
reliability, integrity and financial condition.
Securities transactions of the funds may be executed by broker-dealers who also
provide research services (as defined below) to the Advisor and the funds. The
Advisor may use all, some or none of such research services in providing
investment advisory services to each of its investment company and other
clients, including the fund. To the extent that such services are used by the
Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion,
it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the funds to pay a
broker-dealer which provides brokerage and research services to the Advisor an
amount of commission for effecting a securities transaction, including the sale
of an option or a closing purchase transaction, for the funds in excess of the
amount of commission which another broker-dealer would have charged for
effecting that transaction. As provided in Section 28(e) of the Securities
Exchange Act of 1934, "brokerage and research services" include advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends and portfolio strategy and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The Advisor must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Advisor's
overall responsibilities to the funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing
agent with respect to all call options written by funds that write options and
to pay such clearing agent commissions of a fixed amount per share (currently
1.25 cents) on the sale of the underlying security upon the exercise of an
option written by a fund.
Principal Underwriter
LFDI is the principal underwriter of the Trust's shares. LFDI has no obligation
to buy the funds' shares, and purchases the funds' shares only upon receipt of
orders from authorized FSFs or investors.
Investor Servicing and Transfer Agent
LFSI is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to LFSI is based on the average daily net assets of each
fund plus reimbursement for certain out-of-pocket expenses. See "Fund Charges
and Expenses" in Part 1 of this SAI for information on fees received by LFSI.
The agreement continues indefinitely but may be terminated by 90 days' notice by
the Fund to LFSI or generally by 6 months' notice by LFSI to the Fund. The
agreement limits the liability of LFSI to the Fund for loss or damage incurred
by the Fund to situations involving a failure of LFSI to use reasonable care or
to act in good faith in performing its duties under the agreement. It also
provides that the Fund will indemnify LFSI against, among other things, loss or
damage incurred by LFSI on account of any claim, demand, action or suit made on
or against LFSI not resulting from LFSI's bad faith or negligence and arising
out of, or in connection with, its duties under the agreement.
17
<PAGE>
DETERMINATION OF NET ASSET VALUE
Each fund determines net asset value (NAV) per share for each Class as of the
close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern
time, 3:00 p.m. Central time) each day the Exchange is open. Currently, the
Exchange is closed Saturdays, Sundays and the following observed holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with
portfolio securities which are primarily listed on foreign exchanges may
experience trading and changes in NAV on days on which such Fund does not
determine NAV due to differences in closing policies among exchanges. This may
significantly affect the NAV of the Fund's redeemable securities on days when an
investor cannot redeem such securities. Debt securities generally are valued by
a pricing service which determines valuations based upon market transactions for
normal, institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where the Advisor deems it
appropriate to do so, an over-the-counter or exchange bid quotation is used.
Securities listed on an exchange or on NASDAQ are valued at the last sale price.
Listed securities for which there were no sales during the day and unlisted
securities are valued at the last quoted bid price. Options are valued at the
last sale price or in the absence of a sale, the mean between the last quoted
bid and offering prices. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost pursuant to procedures adopted by the
Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Portfolio
positions for which there are no such valuations and other assets are valued at
fair value as determined by the Advisor in good faith under the direction of the
Trust's Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
Fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Trustees.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the Fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the Fund before the Fund
processes that day's transactions. If the FSF fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the Fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to LFSI,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the Fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The Fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFDI's commission is the sales charge shown in the Fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFDI retains the entire sales charge on any sales made to
a shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFDI generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFDI for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
LFSI acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable sales commission. Shareholders may change FSFs at
any time by written notice to LFSI, provided the new FSF has a sales agreement
with LFDI.
18
<PAGE>
Shares credited to an account are transferable upon written instructions in good
order to LFSI and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, I, T
or Z shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
LFSI for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
Fundamatic Program. As a convenience to investors, shares of most funds advised
by Colonial, Crabbe Huson Group, Inc., Newport Fund Management, Inc. and Stein
Roe & Farnham Incorporated may be purchased through the Fundamatic Program.
Preauthorized monthly bank drafts or electronic funds transfers for a fixed
amount of at least $50 are used to purchase a fund's shares at the public
offering price next determined after LFDI receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the next business day
thereafter). If your Fundamatic purchase is by electronic funds transfer, you
may request the Fundamatic purchase for any day. Further information and
application forms are available from FSFs or from LFDI.
Automated Dollar Cost Averaging (Classes A, B and C). The Automated Dollar Cost
Averaging program allows you to exchange $100 or more on a monthly basis from
any mutual fund advised by Colonial, The Crabbe Huson Group, Inc., Newport Fund
Management, Inc. and Stein Roe & Farnham Incorporated in which you have a
current balance of at least $5,000 into the same class of shares of up to four
other funds. Complete the Automated Dollar Cost Averaging section of the
Application. The designated amount will be exchanged on the third Tuesday of
each month. There is no charge for exchanges made pursuant to the Automated
Dollar Cost Averaging program. Exchanges will continue so long as your fund
balance is sufficient to complete the transfers. Your normal rights and
privileges as a shareholder remain in full force and effect. Thus you can buy
any fund, exchange between the same Class of shares of funds by written
instruction or by telephone exchange if you have so elected and withdraw amounts
from any fund, subject to the imposition of any applicable CDSC.
Any additional payments or exchanges into your fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax
purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Liberty Funds Services,
Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment advisor to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
LFDI offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges. These plans may be altered or discontinued
at any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
Tax-Sheltered Retirement Plans. LFDI offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. Investors Bank & Trust
Company. is the Trustee of LFDI prototype plans and charges a $10 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from LFDI.
Participants in non-LFDI prototype Retirement Plans (other than IRAs) also are
charged a $10 annual fee unless the plan maintains an omnibus account with LFSI.
Participants in LFDI prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to LFSI. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFDI IRA Rollover account
in any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling LFSI, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
Cash Connection. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
19
<PAGE>
Automatic Dividend Diversification. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another fund. An ADD account must be in the same name as the shareholder's
existing open account with the particular fund. Call LFSI for more information
at 1-800-422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
Right of Accumulation and Statement of Intent (Class A shares only). Reduced
sales charges on Class A shares can be effected by combining a current purchase
with prior purchases of Class A, B, C, I and Z shares of the funds advised by
Colonial Management Associates, Inc., Crabbe Huson Group, Inc., Newport Fund
Management, Inc. and Stein Roe & Farnham Incorporated. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the
previous day of all funds' Class A shares held by the shareholder (except
shares of any money market fund, unless such shares were acquired by
exchange from Class A shares of another fund other than a money market fund
and Class B, C, I, and Z shares).
LFDI must be promptly notified of each purchase which entitles a shareholder to
a reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by LFSI. A fund may terminate or
amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, I, and Z shares
held by the shareholder on the date of the Statement in funds (except shares of
any money market fund, unless such shares were acquired by exchange from Class A
shares of another non-money market fund). The value is determined at the public
offering price on the date of the Statement. Purchases made through reinvestment
of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, LFSI will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFDI the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFDI an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, LFSI will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from LFSI at 1-800-345-6611.
Reinstatement Privilege. An investor who has redeemed Class A, B, C or I shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any fund at the NAV next determined
after LFSI receives a written reinstatement request and payment. Any CDSC paid
at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or LFSI. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax advisor.
Privileges of Employees or Financial Service Firms. Class A shares of certain
funds may be sold at NAV to the following individuals whether currently employed
or retired: Trustees of funds advised or administered by the Advisor or the
Administrator; directors, officers and employees of the Advisor, Administrator,
LFDI and other companies affiliated with the Advisor and the Administrator;
registered representatives and employees of FSFs (including their affiliates)
that are parties to dealer agreements or other sales arrangements with LFDI; and
such persons' families and their beneficial accounts.
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Sponsored Arrangements. Class A shares of certain funds may be purchased at
reduced or no sales charge pursuant to sponsored arrangements, which include
programs under which an organization makes recommendations to, or permits group
solicitation of, its employees, members or participants in connection with the
purchase of shares of the fund on an individual basis. The amount of the sales
charge reduction will reflect the anticipated reduction in sales expense
associated with sponsored arrangements. The reduction in sales expense, and
therefore the reduction in sales charge, will vary depending on factors such as
the size and stability of the organization's group, the term of the
organization's existence and certain characteristics of the members of its
group. The funds reserve the right to revise the terms of or to suspend or
discontinue sales pursuant to sponsored plans at any time.
Class A shares of certain funds may also be purchased at reduced or no sales
charge by clients of dealers, brokers or registered investment advisors that
have entered into agreements with LFDI pursuant to which the funds are included
as investment options in programs involving fee-based compensation arrangements,
and by participants in certain retirement plans.
Waiver of Contingent Deferred Sales Charges (CDSCs) (Classes A, B and C) CDSCs
may be waived on redemptions in the following situations with the proper
documentation:
1. Death. CDSCs may be waived on redemptions within one year following the
death of (i) the sole shareholder on an individual account, (ii) a joint
tenant where the surviving joint tenant is the deceased's spouse, or (iii)
the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers
to Minors Act (UTMA) or other custodial account. If, upon the occurrence of
one of the foregoing, the account is transferred to an account registered
in the name of the deceased's estate, the CDSC will be waived on any
redemption from the estate account occurring within one year after the
death. If the Class B shares are not redeemed within one year of the death,
they will remain subject to the applicable CDSC, when redeemed from the
transferee's account. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions
occurring pursuant to a monthly, quarterly or semi-annual SWP established
with LFSI, to the extent the redemptions do not exceed, on an annual basis,
12% of the account's value, so long as at the time of the first SWP
redemption the account had had distributions reinvested for a period at
least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption). Otherwise CDSCs will be charged on SWP
redemptions until this requirement is met; this requirement does not apply
if the SWP is set up at the time the account is established, and
distributions are being reinvested. See below under "Investor Services -
Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year
after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i)
the disability must arise after the purchase of shares and (ii) the
disabled shareholder must have been under age 65 at the time of the initial
determination of disability. If the account is transferred to a new
registration and then a redemption is requested, the applicable CDSC will
be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase and
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions
required to return excess contributions made to retirement plans or
individual retirement accounts, so long as the FSF agrees to return the
applicable portion of any commission paid by Colonial.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to
make distributions from qualified retirement plans following normal
retirement (as stated in the Plan document). CDSCs also will be waived on
SWP redemptions made to make required minimum distributions from qualified
retirement plans that have invested in funds distributed by LFDI 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
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recently purchased by check, the Fund will delay sending proceeds for up to 15
days in order to protect the Fund against financial losses and dilution in net
asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to LFSI, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, LFSI and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call LSI for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to LFSI and may charge for this service.
Systematic Withdrawal Plan
If a shareholder's account balance is at least $5,000, the shareholder may
establish a SWP. A specified dollar amount or percentage of the then current net
asset value of the shareholder's investment in any fund designated by the
shareholder will be paid monthly, quarterly or semi-annually to a designated
payee. The amount or percentage the shareholder specifies generally may not, on
an annualized basis, exceed 12% of the value, as of the time the shareholder
makes the election, of the shareholder's investment. Withdrawals from Class B
and Class C shares of the fund under a SWP will be treated as redemptions of
shares purchased through the reinvestment of fund distributions, or, to the
extent such shares in the shareholder's account are insufficient to cover Plan
payments, as redemptions from the earliest purchased shares of such fund in the
shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Service regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B and Class C
share account may do so but will be subject to a CDSC ranging from 1% to 5% of
the amount withdrawn in excess of 12% annually. If a shareholder wishes to
participate in a SWP, the shareholder must elect to have all of the
shareholder's income dividends and other fund distributions payable in shares of
the fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by
telephone on a recorded line. However, SWP checks will be payable only to the
shareholder and sent to the address of record. SWPs from retirement accounts
cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in
certificate form. Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or
loss for tax purposes, may involve the use of principal and may eventually use
up all of the shares in a shareholder's account.
A fund may terminate a shareholder's SWP if the shareholder's account balance
falls below $5,000 due to any transfer or liquidation of shares other than
pursuant to the SWP. SWP payments will be terminated on receiving satisfactory
evidence of the death or incapacity of a shareholder. Until this evidence is
received, LFSI will not be liable for any payment made in accordance with the
provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate
in them is borne by the fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not
be able to participate in a SWP. If a shareholder's Fund shares are held in
"street name," the shareholder should consult his or her FSF to determine
whether he or she may participate in a SWP.
Telephone Redemptions. All fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions are limited to a total of $100,000 in a 30-day period. Redemptions
that exceed $100,000 may be accomplished by placing a wire order trade through a
broker or furnishing a signature guarantee request. Telephone redemption
privileges for larger amounts may be elected on the Application. LFSI will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Telephone redemptions are not available on accounts with
an address change in the preceding 30 days and proceeds and confirmations will
only be mailed or sent to the address of record unless the redemption proceeds
are being sent to a pre-designated
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bank account. Shareholders and/or their FSFs will be required to provide their
name, address and account number. FSFs will also be required to provide their
broker number. All telephone transactions are recorded. A loss to a shareholder
may result from an unauthorized transaction reasonably believed to have been
authorized. No shareholder is obligated to execute the telephone authorization
form or to use the telephone to execute transactions.
Checkwriting (Available only on the Class A shares of certain funds)
Shares may be redeemed by check if a shareholder has previously completed an
Application and Signature Card. LFSI will provide checks to be drawn on
BankBoston (the "Bank"). These checks may be made payable to the order of any
person in the amount of not less than $500 nor more than $100,000. The
shareholder will continue to earn dividends on shares until a check is presented
to the Bank for payment. At such time a sufficient number of full and fractional
shares will be redeemed at the next determined net asset value to cover the
amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules
governing checking accounts. There is currently no charge to the shareholder for
the use of checks. The shareholder should make sure that there are sufficient
shares in his or her open account to cover the amount of any check drawn since
the net asset value of shares will fluctuate. If insufficient shares are in the
shareholder's open account, the check will be returned marked "insufficient
funds" and no shares will be redeemed; the shareholder will be charged a $15
service fee for each check returned. It is not possible to determine in advance
the total value of an open account because prior redemptions and possible
changes in net asset value may cause the value of an open account to change.
Accordingly, a check redemption should not be used to close an open account. In
addition, a check redemption, like any other redemption, may give rise to
taxable capital gains.
Non Cash Redemptions. For redemptions of any single shareholder within any
90-day period exceeding the lesser of $250,000 or 1% of a fund's net asset
value, a fund may make the payment or a portion of the payment with portfolio
securities held by that fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the fund at
net asset value unless the shareholder elects to receive cash. Regardless of the
shareholder's election, distributions of $10 or less will not be paid in cash,
but will be invested in additional shares of the same Class of the Fund at net
asset value. Undelivered distribution checks returned by the post office will be
reinvested in your account. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service selected by the Transfer Agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed distribution or redemption checks. Shareholders may reinvest all or
a portion of a recent cash distribution without a sales charge. A shareholder
request must be received within 30 calendar days of the distribution. A
shareholder may exercise this privilege only once. No charge is currently made
for reinvestment.
Shares of most funds that pay daily dividends will normally earn dividends
starting with the date the fund receives payment for the shares and will
continue through the day before the shares are redeemed, transferred or
exchanged. The daily dividends for Colonial Money Market Fund and Colonial
Municipal Money Market Fund will be earned starting with the day after that fund
receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered funds (with certain exceptions) on the basis of the NAVs
per share at the time of exchange. Class Z shares may be exchanged for Class A
shares of the other funds. The prospectus of each fund describes its investment
objective and policies, and shareholders should obtain a prospectus and consider
these objectives and policies carefully before requesting an exchange. Shares of
certain funds are not available to residents of all states. Consult LFSI before
requesting an exchange.
By calling LFSI, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting LFSI by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. LFSI
will also make exchanges upon receipt of a written exchange request and share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, LFSI will require customary additional documentation.
Prospectuses of the other funds are available from the LFDI 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.
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You need to hold your Class A shares for five months before exchanging to
certain funds having a higher maximum sales charge. Consult your FSF or LFSI. In
all cases, the shares to be exchanged must be registered on the records of the
fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the fund.
An exchange is generally a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
SUSPENSION OF REDEMPTIONS
A fund may not suspend shareholders' right of redemption or postpone payment for
more than seven days unless the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is restricted or during any emergency which makes
it impracticable for the fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration disclaims shareholder liability for acts or obligations of the fund
and the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the fund or the
Trust's Trustees. The Declaration provides for indemnification out of fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances (which are
considered remote) in which the fund would be unable to meet its obligations and
the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another
fund of the Trust is also believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the other fund was
unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History" in the Prospectus of
each fund, the fund will not hold annual shareholders' meetings. The Trustees
may fill any vacancies in the Board of Trustees except that the Trustees may not
fill a vacancy if, immediately after filling such vacancy, less than two-thirds
of the Trustees then in office would have been elected to such office by the
shareholders. In addition, at such times as less than a majority of the Trustees
then in office have been elected to such office by the shareholders, the
Trustees must call a meeting of shareholders. Trustees may be removed from
office by a written consent signed by a majority of the outstanding shares of
the Trust or by a vote of the holders of a majority of the outstanding shares at
a meeting duly called for the purpose, which meeting shall be held upon written
request of the holders of not less than 10% of the outstanding shares of the
Trust. Upon written request by the holders of 1% of the outstanding shares of
the Trust stating that such shareholders of the Trust, for the purpose of
obtaining the signatures necessary to demand a shareholders' meeting to consider
removal of a Trustee, request information regarding the Trust's shareholders,
the Trust will provide appropriate materials (at the expense of the requesting
shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the
Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would
vote together, irrespective of series, on the election of Trustees or the
selection of independent accountants, but each series would vote separately from
the others on other matters, such as changes in the investment policies of that
series or the approval of the management agreement for that series.
PERFORMANCE MEASURES
Total Return
Standardized average annual total return. Average annual total return is the
actual return on a $1,000 investment in a particular class of shares of the
fund, made at the beginning of a stated period, adjusted for the maximum sales
charge or applicable CDSC for the class of shares of the fund and assuming that
all distributions were reinvested at NAV, converted to an average annual return
assuming annual compounding.
Nonstandardized total return. Nonstandardized total returns may differ from
standardized average annual total returns in that they may relate to
nonstandardized periods, represent aggregate rather than average annual total
returns or may not reflect the sales charge or CDSC.
Appended return. The total return for Class B, C, I and Z shares (newer class)
includes performance of the newer class of shares since it was offered for sale
and the performance for the oldest existing class of shares (Class A). The
performance of the oldest existing class used in the computation of the newer
class is not restated to reflect any expense differential between the oldest
existing class and the
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newer class. Had the expense differential been reflected, the returns for the
periods prior to inception of Class B and C shares, would have been lower and
for Class I and Z shares, returns would have been higher.
Yield
Money market. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
Non-money market. The yield for each class of shares of a fund is determined by
(i) calculating the income (as defined by the SEC for purposes of advertising
yield) during the base period and subtracting actual expenses for the period
(net of any reimbursements), and (ii) dividing the result by the product of the
average daily number of shares of the fund that were entitled to dividends
during the period and the maximum offering price of the fund on the last day of
the period, (iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and state tax rate, and
adding to that the portion of the yield which is fully taxable. Adjusted yield
is calculated in the same manner as yield except that expenses voluntarily borne
or waived by Colonial have been added back to actual expenses.
Distribution rate. The distribution rate for each class of shares of a fund is
usually calculated by dividing annual or annualized distributions by the maximum
offering price of that class on the last day of the period. Generally, the
fund's distribution rate reflects total amounts actually paid to shareholders,
while yield reflects the current earning power of the fund's portfolio
securities (net of the fund's expenses). The fund's yield for any period may be
more or less than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as are listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Advisor to be reputable, and publications in
the press pertaining to a fund's performance or to the Advisor or its
affiliates, including comparisons with competitors and matters of national and
global economic and financial interest. Examples include Forbes, Business Week,
Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe,
Barron's National Business & Financial Weekly, Financial Planning, Changing
Times, Reuters Information Services, Wiesenberger Mutual Funds Investment
Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia
Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index and Disclosure Incorporated.
All data are based on past performance and do not predict future results.
General. From time to time, the Fund may discuss, or quote its current portfolio
manager as well as other investment personnel, including such persons' views on:
the economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund, including the New
Value(TM) investment strategy that expands upon the principles of traditional
value investing; the Fund's portfolio holdings; the investment research and
analysis process; the formulation and evaluation of investment recommendations;
and the assessment and evaluation of credit, interest rate, market and economic
risks and similar or related matters.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts, and use charts and graphs to illustrate the past performance of
various indices such as those mentioned in Appendix II and illustrations using
hypothetical rates of return to illustrate the effects of compounding and
tax-deferral. The Fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low.
From time to time, the Fund may also discuss or quote the views of its
distributor, its investment advisor and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; general investment techniques (e.g.,
asset allocation and disciplined saving and investing); business succession;
issues with respect to insurance (e.g., disability and life insurance and
Medicare supplemental insurance); issues regarding financial and health care
management for elderly family members; and similar or related matters.
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APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S CORPORATION (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and
they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for bonds in the A
category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC bonds have a currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, the bonds are not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned
an actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comments on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
26
<PAGE>
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities:
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity, and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with commercial
paper symbols (for example, SP-1+/A-1+).
Commercial Paper:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are designed A-1+.
Corporate Bonds:
The description of the applicable rating symbols and their meanings is
substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to
meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The
obligor's capacity to meet its financial commitment on the obligation is very
strong.
A bonds are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues.
However, they face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on the obligation are being
continued.
D bonds are in payment default. The D rating category is used when payments on
an obligation are not made on the date due even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation are
jeopardized.
27
<PAGE>
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
r This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair a fundamentally
strong position of such issues.
Aa bonds are judged to be of high quality by all standards. Together with Aaa
bonds they comprise what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may not be as large in
Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa bonds are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact, have speculative
characteristics as well.
Ba bonds are judged to have speculative elements: their future cannot be
considered as well secured. Often, the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B bonds generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
conditions attach. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Municipal Notes:
MIG 1. This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities:
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
28
<PAGE>
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICES
Investment Grade Bond Ratings
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds rated in the
'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
securities and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
securities with higher ratings.
Conditional
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
Speculative-Grade Bond Ratings
BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
29
<PAGE>
C bonds are in imminent default in payment of interest or principal.
DDD, DD, and D bonds are in default on interest and/or principal payments. Such
securities are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these securities, and `D'
represents the lowest potential for recovery.
DUFF & PHELPS CREDIT RATING CO.
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA - High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A - Protection factors are average but adequate. However, risk factors
are more available and greater in periods of economic stress.
BBB+, BBB, BBB - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.
CCC - Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
30
<PAGE>
APPENDIX II
1998
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
CREDIT SUISSE FIRST BOSTON:
- ---------------------------
<S> <C> <C>
First Boston High Yield 0.58
LIPPER, INC.:
- -------------
AMEX Composite Index P 0.64
AMEX Computer Tech IX P 81.46
AMEX Institutional IX P 37.59
AMEX Major Market IX P 18.32
Aust Crdtstlt:Osh IX P N/A
Bse Sensex Index -16.50
CAC 40:FFR IX P 31.47
CD Rate 1 Month Index Tr 5.61
CD Rate 3 Month Index Tr 5.59
CD Rate 6 Month Index Tr 5.58
Consumer Price Index 1.61
Copnhgn SE:Dkr IX P N/A
DAX:Dm IX Tr 17.71
Dow Jones 65 Comp Av P 10.10
Dow Jones Ind Average P 16.10
Dow Jones Ind Dly Reinv 18.13
Dow Jones Ind Mth Reinv 18.15
Dow Jones Trans Av P -3.29
Dow Jones Trans Av Tr 0.02
Dow Jones Util Av P 14.37
Dow Jones Util Av Tr 18.88
FT-SE 100:Pd IX P 14.55
Hang Seng:Hng Kng $ IX -6.29
Jakarta Composite Index N/A
Jasdaq Index:Yen P N/A
Klse Composite Index -1.40
Kospi Index N/A
Lear High Growth Rate IX 1.53
Lear Low Priced Value IX -1.52
Lehman 1-3 Govt/Corp Tr 6.96
Lehman Aggregate Bd P 2.03
Lehman Aggregate Bd Tr 8.69
Lehman Cp Bd Int Tr 8.29
Lehman Govt Bd Int P 1.99
Lehman Govt Bd Int Tr 8.49
Lehman Govt Bd Long P 6.59
Lehman Govt Bd Long Tr 13.41
Lehman Govt Bd P 3.27
Lehman Govt Bd Tr 9.85
Lehman Govt/Cp Bd P 2.70
Lehman Govt/Cp Bd Tr 9.47
Lehman Govt/Cp Int P 1.78
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
Lehman Govt/Cp Int Tr 8.44
Lehman High Yield P -6.46
Lehman High Yield Tr 1.60
Lehman Muni 10 Yr IX Tr 6.76
Lehman Muni 3 Yr IX Tr 5.21
Lehman Muni Bond IX Tr 6.48
Lehman 7-Year Muni Bond 6.23
ML 0-3 Yr Muni IX P 0.02
ML 0-3 Yr Muni IX Tr 5.01
ML 1-3 Yr Treasury IX P 0.60
ML 1-3 Yr Treasury IX Tr 7.00
ML 1-5 Yr Gv/Cp Bd IX P 1.12
ML 1-5 Yr Gv/Cp Bd IX Tr 7.68
ML 1-5 Yr Treasury IX P 1.32
ML 1-5 Yr Treasury IX Tr 7.74
ML 10+ Yr Treasury IX Tr 13.55
ML 15 Yr Mortgage IX P 0.85
ML 15 Yr Mortgage IX Tr 7.30
ML 3-5 Yr Govt IX P 2.40
ML 3-5 Yr Govt IX Tr 8.87
ML Corp Master Index P 1.47
ML Corp Master Index Tr 8.72
ML Glbl Govt Bond Inx P 7.71
ML Glbl Govt Bond Inx Tr 14.12
ML Glbl Gv Bond IX II P 8.32
ML Glbl Gv Bond IX II Tr 14.97
ML Global Bond Index P 6.07
ML Global Bond Index Tr 12.78
ML Gov Corp Master IX P 2.69
ML Gov Corp Master IX Tr 9.53
ML Govt Master Index P 3.17
ML Govt Master Index Tr 9.85
ML High Yld Master IX P -5.59
ML High Yld Master IX Tr 3.66
ML Mortgage Master IX P 0.68
ML Mortgage Master IX Tr 7.19
ML Treasury Master IX P 3.35
ML Treasury Master IX Tr 10.03
MSCI AC Americas Free GD 25.77
MSCI AC Americas Free ID 23.77
MSCI AC Asia Fr-Ja IX GD -7.79
MSCI AC Asia Fr-Ja IX ID -10.27
MSCI AC Asia Pac - Ja GD -4.77
MSCI AC Asia Pac - Ja ID -7.30
MSCI AC Asia Pac Fr-J GD -4.42
MSCI AC Asia Pac Fr-J ID -7.12
MSCI AC Asia Pac IX GD 2.03
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
MSCI AC Asia Pac IX ID 0.53
MSCI AC Europe IX GD 27.18
MSCI AC Europe IX ID 24.84
MSCI AC Fe - Ja IX GD -4.83
MSCI AC Fe - Ja IX ID -7.16
MSCI AC Fe Fr-Ja IX GD -4.82
MSCI AC Fe Fr-Ja IX ID -7.39
MSCI AC Fe Free IX GD 3.38
MSCI AC Fe Free IX ID 2.07
MSCI AC Pac Fr-Jpn IX GD -2.07
MSCI AC Pac Fr-Jpn IX ID -4.86
MSCI AC World Fr-USA GD 14.46
MSCI AC World Fr-USA ID 12.36
MSCI AC World Free IX GD 21.97
MSCI AC World IX GD 21.72
MSCI AC World IX ID 19.69
MSCI AC World-USA IX GD 14.09
MSCI AC Wrld Fr-Ja IX GD 24.09
MSCI AC Wrld Fr-Ja IX ID 21.93
MSCI AC Wrld-Ja IX GD 23.80
MSCI AC Wrld-Ja IX ID 21.64
MSCI Argentina IX GD -24.30
MSCI Argentina IX ID -27.30
MSCI Australia IX GD 7.06
MSCI Australia IX ID 3.80
MSCI Australia IX ND 6.07
MSCI Austria IX GD 0.77
MSCI Austria IX ID -0.91
MSCI Austria IX ND 0.35
MSCI Belgium IX GD 68.73
MSCI Belgium IX ID 64.84
MSCI Belgium IX ND 67.75
MSCI Brazil IX GD -39.62
MSCI Brazil IX ID -44.07
MSCI Canada IX GD -5.70
MSCI Canada IX ID -7.44
MSCI Canada IX ND -6.14
MSCI Chile IX GD -28.50
MSCI Chile IX ID -30.65
MSCI China Dom Fr IX ID -51.52
MSCI China Free IX ID -43.83
MSCI China Non Dom IX ID -42.06
MSCI Colombia IX GD -42.17
MSCI Colombia IX ID -45.32
MSCI Czech Rep IX GD 0.54
MSCI Czech Rep IX ID -0.66
MSCI Denmark IX GD 9.38
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
MSCI Denmark IX ID 7.82
MSCI Denmark IX ND 8.99
MSCI EAFE + Canada IX GD 19.11
MSCI EAFE + Canada IX ID 17.02
MSCI EAFE + Canada IX ND 18.76
MSCI EAFE + EMF IX GD 15.25
MSCI EAFE + EMF IX ID 13.13
MSCI EAFE + Em IX GD 14.94
MSCI EAFE + Em IX ID 12.84
MSCI EAFE - UK IX GD 21.02
MSCI EAFE - UK IX ID 19.17
MSCI EAFE - UK IX ND 20.59
MSCI EAFE Fr IX ID 18.32
MSCI EAFE GDP Wt IX GD 27.12
MSCI EAFE GDP Wt IX ID 25.12
MSCI EAFE GDP Wt IX ND 26.71
MSCI EAFE IX GD 20.33
MSCI EAFE IX ID 18.23
MSCI EAFE IX ND 20.00
MSCI EASEA IX GD 25.42
MSCI EASEA IX ID 22.94
MSCI EASEA IX ND 25.03
MSCI EMF Asia IX GD -11.00
MSCI EMF Asia IX ID -12.36
MSCI EMF Far East IX GD -6.23
MSCI EMF Far East IX ID -7.33
MSCI EMF IX GD -25.34
MSCI EMF IX ID -27.52
MSCI EMF Latin Am IX GD -35.11
MSCI EMF Latin Am IX ID -38.04
MSCI Em Asia IX GD -8.57
MSCI Em Asia IX ID -9.90
MSCI Em Eur/Mid East GD -26.01
MSCI Em Eur/Mid East ID -27.37
MSCI Em Europe IX GD -30.11
MSCI Em Europe IX ID -31.17
MSCI Em Far East IX GD -4.12
MSCI Em Far East IX ID -5.28
MSCI Em IX GD -23.21
MSCI Em IX ID -25.30
MSCI Em Latin Am IX GD -35.29
MSCI Em Latin Am IX ID -38.19
MSCI Europe - UK IX GD 33.95
MSCI Europe - UK IX ID 31.86
MSCI Europe - UK IX ND 33.38
MSCI Europe GDP Wt IX ID 31.74
MSCI Europe IX GD 28.91
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
MSCI Europe IX ND 28.53
MSCI European Union GD 30.44
MSCI European Union ID 27.93
MSCI Far East Free IX ID 1.52
MSCI Far East IX GD 2.56
MSCI Far East IX ID 1.22
MSCI Far East IX ND 2.39
MSCI Finland IX GD 122.63
MSCI Finland IX ID 119.10
MSCI Finland IX ND 121.64
MSCI France IX GD 42.06
MSCI France IX ID 40.00
MSCI France IX ND 41.54
MSCI Germany IX GD 29.88
MSCI Germany IX ID 28.17
MSCI Germany IX ND 29.43
MSCI Greece IX GD 78.11
MSCI Greece IX ID 75.01
MSCI Hongkong IX GD -2.92
MSCI Hongkong IX ID -7.60
MSCI Hongkong IX ND -2.92
MSCI Hungary IX GD -8.16
MSCI Hungary IX ID -8.70
MSCI India IX GD -21.24
MSCI India IX ID -22.89
MSCI Indonesia IX GD -31.53
MSCI Indonesia IX ID -32.40
MSCI Ireland IX ID 32.99
MSCI Israel Dom IX ID -16.20
MSCI Israel IX ID -7.91
MSCI Israel Non Dom Ixid 42.21
MSCI Italy IX GD 53.20
MSCI Italy IX ID 50.99
MSCI Italy IX ND 52.52
MSCI Japan IX GD 5.25
MSCI Japan IX ID 4.27
MSCI Japan IX ND 5.05
MSCI Jordan IX GD -11.01
MSCI Jordan IX ID -14.26
MSCI Kokusai IX GD 27.46
MSCI Kokusai IX ID 25.30
MSCI Kokusai IX ND 26.96
MSCI Korea IX GD 141.15
MSCI Korea IX ID 137.54
MSCI Luxembourg IX ID 8.63
MSCI Malaysia IX GD -29.49
MSCI Malaysia IX ID -31.04
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
MSCI Mexico Free IX GD -33.53
MSCI Mexico Free IX ID -34.50
MSCI Mexico IX GD -34.18
MSCI Mexico IX ID -35.12
MSCI Netherland IX GD 23.93
MSCI Netherland IX ID 21.13
MSCI Netherland IX ND 23.23
MSCI New Zealand IX GD -21.48
MSCI New Zealand IX ID -25.23
MSCI New Zealand IX ND -22.62
MSCI Nordic IX GD 23.83
MSCI Nordic IX ID 21.78
MSCI Nordic IX ND 23.25
MSCI Norway IX GD -29.67
MSCI Norway IX ID -31.21
MSCI Norway IX ND -30.06
MSCI Nth Amer IX GD 29.04
MSCI Nth Amer IX ID 27.11
MSCI Nth Amer IX ND 28.46
MSCI Pac - Japan IX GD -6.22
MSCI Pac - Japan IX ID -9.55
MSCI Pac - Japan IX ND -6.64
MSCI Pacific Fr-Jpn ID -8.40
MSCI Pacific Free IX ID 1.43
MSCI Pacific IX GD 2.69
MSCI Pacific IX ID 1.16
MSCI Pacific IX ND 2.44
MSCI Pakistan IX GD -56.61
MSCI Pakistan IX ID -60.56
MSCI Peru IX GD -40.22
MSCI Peru IX ID -42.11
MSCI Philippines Fr Ixgd 13.45
MSCI Philippines Fr Ixid 12.60
MSCI Philippines IX GD 16.10
MSCI Philippines IX ID 14.89
MSCI Portugal IX GD 27.90
MSCI Portugal IX ID 25.42
MSCI Russia IX GD -82.99
MSCI Russia IX ID -83.16
MSCI Sing/Mlysia IX GD -12.88
MSCI Sing/Mlysia IX ID -14.62
MSCI Sing/Mlysia IX ND -12.88
MSCI Singapore Fr IX GD -3.59
MSCI Singapore Fr IX ID -5.31
MSCI South Africa IX GD -27.56
MSCI South Africa IX ID -29.84
MSCI Spain IX GD 50.58
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
MSCI Spain IX ID 47.87
MSCI Spain IX ND 49.90
MSCI Sri Lanka IX GD -25.57
MSCI Sri Lanka IX ID -27.30
MSCI Sweden IX GD 14.54
MSCI Sweden IX ID 12.62
MSCI Sweden IX ND 13.96
MSCI Swtzrlnd IX GD 24.05
MSCI Swtzrlnd IX ID 22.57
MSCI Swtzrlnd IX ND 23.53
MSCI Taiwan IX GD -20.64
MSCI Taiwan IX ID -21.45
MSCI Thailand IX GD 19.09
MSCI Thailand IX ID 18.74
MSCI Turkey IX GD -52.51
MSCI Turkey IX ID -53.53
MSCI UK IX GD 17.80
MSCI UK IX ID 14.84
MSCI UK IX ND 17.80
MSCI USA IX GD 30.72
MSCI USA IX ID 28.79
MSCI USA IX ND 30.14
MSCI Venezuela IX GD -49.16
MSCI Venezuela IX ID -52.69
MSCI World - UK IX GD 25.63
MSCI World - UK IX ID 23.73
MSCI World - UK IX ND 25.11
MSCI World - USA IX GD 19.11
MSCI World - USA IX ID 17.02
MSCI World - USA IX ND 18.76
MSCI World GDP Wt IX ID 25.61
MSCI World IX Free ID 22.82
MSCI World IX GD 24.80
MSCI World IX ID 22.78
MSCI World IX ND 24.34
MSCI Wrld - Austrl IX GD 25.03
MSCI Wrld - Austrl IX ID 23.03
MSCI Wrld - Austrl IX ND 24.58
Madrid SE:Pst IX P 37.19
NASDAQ 100 IX P 85.31
NASDAQ Bank IX P -11.77
NASDAQ Composite IX P 39.63
NASDAQ Industrial IX P 6.82
NASDAQ Insurance IX P -0.06
NASDAQ Natl Mkt Cmp IX 40.23
NASDAQ Natl Mkt Ind IX 6.27
NASDAQ Transport IX P -7.85
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
NYSE Composite P 16.55
NYSE Finance IX P 5.13
NYSE Industrials IX P 17.97
NYSE Transportation IX 3.46
NYSE Utilities IX P 33.04
Nikkei 225 Avg:Yen P -9.28
Oslo SE Tot:Fmk IX P N/A
PSE Technology IX P 54.60
Philippines Composite IX N/A
Russell 1000(R)Grow IX Tr 38.71
Russell 1000(R)IX P 25.12
Russell 1000(R)IX Tr 27.02
Russell 1000(R)Value IX Tr 15.63
Russell 2000(R)Grow IX Tr 1.23
Russell 2000(R)IX P -3.45
Russell 2000(R)IX Tr -2.55
Russell 2000(R)Value IX Tr -6.45
Russell 3000(R)IX P 22.32
Russell 3000(R)IX Tr 24.14
Russell Midcap(TM)Grow IX 17.86
Russell Midcap(TM)Inx Tr 10.09
Russell Midcap(TM)Value IX 5.09
S & P 100 Index P 31.33
S & P 500 Daily Reinv 28.58
S & P 500 Index P 26.67
S & P 500 Mnthly Reinv 28.60
S & P 600 Index P -2.10
S & P 600 Index Tr -1.31
S & P Financial IX Tr 11.43
S & P Financial Idx P 9.58
S & P Industrial IX Tr 33.71
S & P Industrials P 31.91
S & P Midcap 400 IX P 17.68
S & P Midcap 400 IX Tr 19.11
S & P Transport IX Tr -1.94
S & P Transport Index P -3.03
S & P Utility Index P 10.10
S & P Utility Index Tr 14.77
S & P/Barra Growth IX Tr 42.15
S & P/Barra Value IX Tr 14.68
S Afr All Mng:Rnd IX P 3.72
SB Cr-Hdg Nn-US Wd IX Tr 11.53
SB Cr-Hdg Wd Gv Bd IX Tr 11.03
SB Non-US Wd Gv Bd IX Tr 17.79
SB USD 3month Dom CD IX 5.74
SB USD 3month Euro CD IX 6.19
SB USD 3month Eurodep IX 5.74
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
- ------ -------- ----------
LIPPER, INC.:
- -------------
<S> <C> <C>
SB USD 3month Tbill IX 5.11
SB Wd Gv Bd:Austrl IX Tr 3.88
SB Wd Gv Bd:Germny IX Tr 19.76
SB Wd Gv Bd:Japan IX Tr 15.85
SB Wd Gv Bd:UK IX Tr 20.88
SB Wd Gv Bd:US IX Tr 10.00
SB World Govt Bond IX Tr 15.31
SB World Money Mkt IX Tr 9.11
Straits Times Index -7.62
Swiss Perf:Sfr IX Tr 15.37
T-Bill 1 Year Index Tr 4.93
T-Bill 3 Month Index Tr 4.88
T-Bill 6 Month Index Tr 4.94
Taiwan SE:T$ IX P -15.56
Thailand Set Index -4.53
Tokyo 2nd Sct:Yen IX P N/A
Tokyo Se(Topix):Yen IX N/A
Toronto 300:C$ IX P -3.19
Toronto SE 35:C$ IX P -2.05
Value Line Cmp IX-Arth 5.82
Value Line Cmp IX-Geom -3.79
Value Line Industrl IX -7.27
Value Line Railroad IX -9.93
Value Line Utilties IX 7.61
Wilshire 4500 Index Tr 8.63
Wilshire 5000 (Cap Wt)Tr 23.43
Wilshire 5000 Index P 21.71
Wilshire Lg Cp Gro IX Tr N/A
Wilshire Lg Cp Val IX Tr N/A
Wilshire MD Cp Gro IX Tr N/A
Wilshire MD Cp Val IX Tr N/A
Wilshire Sm Cp Gro IX Tr -2.46
Wilshire Sm Cp Val IX Tr -4.87
THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST:
- ---------------------------------------------------------
Real Estate Investment Trust Index -7.60
BLOOMBERG:
- ----------
Morgan Stanley REIT Index -16.90
SALOMON SMITH BARNEY:
- ---------------------
10 Year U.S. Government (Sovereign) 10.00
10 Year United Kingdom (Sovereign) 19.55
10 Year France (Sovereign) 12.59
10 Year Germany (Sovereign) 10.94
10 Year Japan (Sovereign) 0.50
10 Year Canada (Sovereign) 9.41
</TABLE>
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
39
<PAGE>
PART C OTHER INFORMATION
The Crabbe Huson Special Fund (TCHSF)
Crabbe Huson Small Cap Fund (CHSCF)
Crabbe Huson Equity Fund (CHEF)
Crabbe Huson Managed Income & Equity Fund (CHMIEF)
Crabbe Huson Contrarian Income Fund (CHCIF)
Item 23. Exhibits:
(a)(1) Amendment No. 3 to the Agreement and Declaration of Trust (3)
(a)(2) Amendment No. 4 to the Agreement and Declaration of Trust (5)
(a)(3) Amendment No. 5 to the Agreement and Declaration of Trust
(b) Amended By-Laws
(c) Form of Specimen of share certificate (incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 25 to
the Registration Statement of Colonial Trust II, Registration
Nos. 2-66976 and 811-3009, filed with the Commission on March
20, 1996.)
(d)(1) Form of Management Agreement (TCHSF)(6)
(d)(2) Form of Management Agreement (CHMIEF)(6)
(d)(3) Form of Management Agreement (CHCIF)(6)
(d)(4) Form of Management Agreement (CHEF)(6)
(d)(5) Form of Management Agreement (CHSCF)(6)
(e)(1) Distribution Agreement (incorporated herein by reference to
Exhibit 6.(a) to Post-Effective Amendment No. 17 to the
Registration Statement of Colonial Trust VI, Registration
Nos. 33-45117 and 811-6529 filed with the Commission on May
24, 1999)
(e)(2) 12b-1 Plan Implementing Agreement (incorporated herein by
reference to Exhibit 6.(b) to Post-Effective Amendment No. 17
to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529 filed with the
Commission on May 24, 1999)
(e)(3) Form of Selling Agreement with Liberty Funds Distributor,
Inc. (incorporated herein by reference to Exhibit 6.(b) to
Post-Effective Amendment No. 49 to the Registration Statement
of Colonial Trust I, Registration Nos. 2-41251 and 811-2214
filed with the Commission on November 20, 1998)
(e)(4) Form of Asset Retention Agreement (incorporated herein by
reference to Exhibit 6(d) to Post-Effective Amendment No. 10
to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529, filed with the
Commission on September 27, 1996)
(f) Not Applicable
(g) Form of Custody Agreement with State Street Bank and Trust
Company(6)
(h)(1) Amended and Restated Shareholders' Servicing and Transfer
Agent Agreement as amended with Liberty Funds Services, Inc.
(incorporated herein by reference to Exhibit 9.(a) to Post-
Effective Amendment No. 10 to the Registration Statement of
Colonial Trust VI, Registration Nos. 33-45117 and 811-6529,
filed with the Commission on September 27, 1996)
(h)(2) Amendment No. 12 to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement (10)
(h)(3) Amendment No. 18 to Appendix I of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement (10)
(h)(4) Pricing and Bookkeeping Agreement with Colonial Management
Associates, Inc. (incorporated herein by reference to Exhibit
9(b) to Post-Effective Amendment No. 10 to the Registration
Statement of Colonial Trust VI, Registration Nos. 33-45117
and 811-6529, filed with the Commission on September 27,
1996)
(h)(5) Amendment to Appendix I of Pricing and Bookkeeping Agreement
(10)
(h)(8) Amended and Restated Credit Agreement
(h)(9) Agreement and Plan of Reorganization (TCHSF)(7)
(h)(10) Agreement and Plan of Reorganization (CHSCF) (7)
(h)(11) Agreement and Plan of Reorganization (CHEF) (7)
(h)(12) Agreement and Plan of Reorganization (CHMIEF) (7)
(h)(14) Agreement and Plan of Reorganization (CHCIF) (7)
(i) Opinion and Consent of Counsel (3)
(j) Consent of Independent Auditors
(k) Not Applicable
(l) Not Applicable
(m) Distribution Plan adopted pursuant to Section 12b-1 of the
Investment Company Act of 1940 (incorporated herein by
reference to Exhibit 15. to Post-Effective Amendment No. 17
to the Registration Statement of Colonial Trust VI,
Registration Nos. 33-45117 and 811-6529 filed with the
Commission on May 24, 1999)
(n) Not Applicable
(o) Plan pursuant to Rule 18f-3(d) under the Investment Company
Act of 1940 (9)
- ---------------
A copy of the Power of Attorney for each of Robert J. Birnbaum, Tom Bleasdale,
John Carberry, Lora S. Collins, James E. Grinnell, Richard W. Lowry, Salvatore
Macera, William E. Mayer, James L. Moody, Jr., John J. Neuhauser, Robert L.
Sullivan and Anne-Lee Verville is incorporated herein by reference to
Post-Effective Amendment No. 50 to the Registration Statement of Colonial Trust
VI, Registration Nos. 2-62492 and 811-2865, filed with the Commission on or
about November 6, 1998.
(1) Incorporated by reference to Post-Effective Amendment No. 94 to Form N-1A
filed on or about July 28, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 96 to Form N-1A
filed on or about February 28, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 97 to Form N-1A
filed on or about February 13, 1997.
(4) Incorporated by reference to Post-Effective Amendment No. 99 to Form N-1A
filed on or about December 19, 1997.
(5) Incorporated by reference to Post-Effective Amendment No. 104 to Form N-1A
filed on or about October 30, 1998.
(6) Incorporated by reference to Post-Effective Amendment No. 101 to Form N-1A
filed on or about July 24, 1998.
(7) Incorporated by reference to Post-Effective Amendment No. 103 to Form N-1A
filed on or about October 19, 1998
(8) Incorporated by reference to Post-Effective Amendment No. 100 to Form N-1A
filed on or about February 27, 1998
(9) Incorporated by reference to Post-Effective Amendment No. 107 to Form N-1A
filed on or about December 31, 1998.
(10) Incorporated by reference to Post-Effective Amendment No. 109 to Form N-1A
filed on or about March 1, 1999.
<PAGE>
Item 24. Persons Controlled by or under Common Group Control with
Registrant
None
Item 25. Indemnification
See Article VIII of Amendment No. 3 to the Agreement and
Declaration of Trust filed as Exhibit 1 hereto.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
The business and other connections of the officers,
directors of the Registrant's investment advisor, Crabbe
Huson Group, Inc., are listed on the Form ADV of Crabbe
Huson Group, Inc. as currently on file with the Commission
(File No. 801-15154), the text of which is incorporated
herein by reference: (a) Items 1 and 2 of Part 2, and (b)
Section 6, Business Background of each Schedule D.
<PAGE>
Item 27 Principal Underwriter
- ------- ---------------------
(a) Liberty Funds Distributor, Inc. (LFDI), a subsidiary of Colonial
Management Associates, Inc., is the Registrant's principal
underwriter. LFDI acts in such capacity for each series of Liberty Funds
Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty Funds
Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX,Liberty Variable Investment Trust
Liberty-Stein Roe Advisor Trust, Stein Roe Income Trust, Stein Roe
Municipal Trust, Stein Roe Investment Trust, Stein Roe Floating Rate
Income Fund, Stein Roe Institutional Floating Rate Income Fund, SteinRoe
Variable Investment Trust and Stein Roe Trust.
(b) The table below lists each director or officer of the principal
underwriter named in the answer to Item 21.
(1) (2) (3)
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- ------------------ ------------------- --------------
Anderson, Judith V.P. None
Anetsberger, Gary Sr. V.P. None
Babbitt, Debra V.P. and None
Comp. Officer
Bartlett, John Managing Director None
Blakeslee, James Sr. V.P. None
Blumenfeld, Alex V.P. None
Bozek, James Sr. V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Butch, Tom Sr. V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Dir; Clerk Secretary
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. Asst. Sec
Devaney, James Sr. V.P. None
Downey, Christopher V.P. None
Dupree, Robert V.P. None
Emerson, Kim P. Sr. V.P. None
Erickson, Cynthia G. Sr. V.P. None
Evans, C. Frazier Managing Director None
Feldman, David Managing Director None
Fifield, Robert V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
Gupta, Neeti V.P. None
Guenard, Brian V.P. None
Harrington, Tom Sr. V.P. None
Harris, Carla V.P. None
Hodgkins, Joseph Sr. V.P. None
Huennekens, James V.P. None
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Lichtenberg, Susyn V.P. None
Martin, John Sr. V.P. None
Martin, Peter V.P. None
McCombs, Gregory Sr. V.P. None
McKenzie, Mary V.P. None
Menchin, Catherine Sr. V.P. None
Miller, Anthony V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
Nickodemus, Paul V.P. None
O'Shea, Kevin Managing Director None
Palombo, Joseph R. Director Vice President
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Powell, Douglas V.P. None
Quirk, Frank V.P. None
Raftery-Arpino, Linda Sr. V.P. None
Ratto, Gregory V.P. None
Reed, Christopher B. Sr. V.P. None
Riegel, Joyce V.P. None
Robb, Douglas V.P. None
Santosuosso, Louise Sr. V.P. None
Schulman, David Sr. V.P. None
Scully-Power, Adam V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou V.P. None
Sinatra, Peter V.P. None
Smith, Darren V.P. None
Soester, Trisha V.P. None
Studer, Eric V.P. None
Sweeney, Maureen V.P. None
Tambone, James CEO None
Tasiopoulos, Lou President None
Torrisi, Susan V.P. None
VanEtten, Keith H. Sr. V.P. None
Walter, Heidi V.P. None
Wess, Valerie Sr. V.P. None
Young, Deborah V.P. None
- --------------------------
* The address for each individual is One Financial Center, Boston, MA
02111.
<PAGE>
Item 28. Location of Accounts and Records
Person maintaining physical possession of accounts, books
and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules
thereunder include Registrant's Secretary; Registrant's
administrator, Colonial Management Associates, Inc.;
Registrant's principal underwriter, Liberty Funds
Distributor, Inc.; Registrant's transfer and dividend
disbursing agent, Liberty Funds Services, Inc.; and the
Registrant's custodian, State Street Bank (State Street).
The address for each person except the Registrant's
custodians is One Financial Center, Boston, MA 02111. The
address for State Street is 225 Franklin Street, Boston, MA
02110.
Item 29. Management Services
See Item 5, Part B
Item 30. Undertakings
Not Applicable
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of Liberty Funds
Trust III is on file with the Secretary of The Commonwealth of
Massachusetts and notice is hereby given that the instrument has been
executed on behalf of the Trust by an officer of the Trust as an officer
and by the Trust's Trustees as trustees and not individually and the
obligations of or arising out of the instrument are not binding upon any of
the Trustees, officers or shareholders individually but are binding only upon
the assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) and has duly caused this Post-Effective Amendment No. 110 to its
Registration Statement under the Securities Act of 1933 and the Post-Effective
Amendment No. 51 under the Investment Company Act of 1940, to be signed in this
City of Boston, and The Commonwealth of Massachusetts on this 12th day of
August, 1999.
LIBERTY FUNDS TRUST III
By: STEPHEN E. GIBSON
--------------------
Stephen E. Gibson
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to its Registration Statement has been signed below by the following
persons in their capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
STEPHEN E. GIBSON President (chief August 12, 1999
Stephen E. Gibson executive officer)
J. KEVIN CONNAUGHTON Controller and Chief August 12, 1999
J. Kevin Connaughton Accounting Officer
TIMOTHY J. JACOBY Treasurer and Chief August 12, 1999
Timothy J. Jacoby Financial Officer
</TABLE>
<PAGE>
ROBERT J. BIRNBAUM* Trustee
Robert J. Birnbaum
TOM BLEASDALE* Trustee
Tom Bleasdale
JOHN CARBERRY* Trustee
John Carberry
LORA S. COLLINS* Trustee
Lora S. Collins
JAMES E. GRINNELL* Trustee
James E. Grinnell
RICHARD W. LOWRY* Trustee */s/ WILLIAM J. BALLOU
Richard W. Lowry William J. Ballou
Attorney-in-fact
For each Trustee
SALVATORE MACERA* Trustee August 12, 1999
Salvatore Macera
WILLIAM E. MAYER* Trustee
William E. Mayer
JAMES L. MOODY, JR. * Trustee
James L. Moody, Jr.
JOHN J. NEUHAUSER* Trustee
John J. Neuhauser
THOMAS E. STITZEL* Trustee
Thomas E. Stitzel
ROBERT L. SULLIVAN* Trustee
Robert L. Sullivan
ANNE-LEE VERVILLE* Trustee
Anne-Lee Verville
<PAGE>
EXHIBIT INDEX
Exhibit
(a)(3) Amendment No. 5 to the Agreement and Declaration of Trust
(b) Amended By-Laws
(h)(8) Amended and Restated Credit Agreement
(j) Consent of Independent Auditors
AMENDMENT NO. 5
TO THE
AGREEMENT AND DECLARATION OF TRUST
OF
COLONIAL TRUST III
WHEREAS, Section 1 of Article I of the Agreement and Declaration of
Trust (Declaration of Trust) dated November 15, 1991, as amended, of Colonial
Trust III (Trust), a copy of which is on file in the Office of the Secretary of
The Commonwealth of Massachusetts authorizes the Trustees of the Trust to amend
the Declaration of Trust to change the name of the Trust without authorization
by vote of Shareholders of the Trust.
WE, THE UNDERSIGNED, being a majority of the Trustees of Colonial Trust
III, do hereby certify that the undersigned have determined to conduct the
business of the Trust under the name "Liberty Funds Trust III" and have
authorized the following amendment to said Declaration of Trust:
Section 1 of Article I is hereby amended to read in its entirety as
follows:
Section 1. This Trust shall be known as "Liberty Funds Trust
III" and the Trustees shall conduct the business of the Trust under
that name or any other name as they may from time to time determine.
The foregoing Amendment shall become effective as of April 1, 1999.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands in
the City of Boston, Massachusetts, for themselves and their assigns, as of this
April 1, 1999.
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------- -------------------------------------------------------
Robert J. Birnbaum William E. Mayer
- ---------------------------------------------------------- -------------------------------------------------------
Tom Bleasdale James L. Moody, Jr.
- ---------------------------------------------------------- -------------------------------------------------------
John V. Carberry John J. Neuhauser
- ---------------------------------------------------------- -------------------------------------------------------
Lora S. Collins Thomas E. Stitzel
- ---------------------------------------------------------- -------------------------------------------------------
James E. Grinnell Robert L. Sullivan
- ---------------------------------------------------------- -------------------------------------------------------
Richard W. Lowry Anne-Lee Verville
- ----------------------------------------------------------
Salvatore Macera
</TABLE>
Commonwealth of Massachusetts )
)ss.
County of Suffolk )
Then personally appeared the above-named Trustees and executed
Amendment No. 6 to the Agreement and Declaration of Trust of Colonial Trust III
as their free act and deed, before me, this March 18, 1999.
Mary P. Mahoney
Notary Public
My Commission Expires: 2/22/2002
Amended 10/9/92 - Section 11
Amended 2/16/96 - Section 3.1, Paragraph 2
Amended 4/1/99 - Name,Sec. 1.1
BY-LAWS
OF
LIBERTY FUNDS TRUST III
Section 1. Agreement and Declaration of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to
the Agreement and Declaration of Trust, as from time to time in effect
(the "Declaration of Trust"), of Liberty Funds Trust III, a
Massachusetts business trust established by the Declaration of Trust
(the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall
be located in Boston, Massachusetts.
Section 2. Shareholders
2.1 Shareholder Meetings. A meeting of the shareholders of the Trust or of
any one or more series or classes of shares may be called at any time
by the Trustees, by the president or, if the Trustees and the president
shall fail to call any meeting of shareholders for a period of 30 days
after written application of one or more shareholders who hold at least
10% of all outstanding shares of the Trust, if shareholders of all
series are required under the Declaration of Trust to vote in the
aggregate and not by individual series at such meeting, or of any
series or class, if shareholders of such series or class are entitled
under the Declaration of Trust to vote by individual series or class at
such meeting, then such shareholders may call such meeting. If the
meeting is a meeting of the shareholders of one or more series or
classes of shares, but not a meeting of all shareholders of the Trust,
then only the shareholders of such one or more series or classes shall
be entitled to notice of and to vote at the meeting. Each call of a
meeting shall state the place, date, hour and purpose of the meeting.
2.2 Place of Meetings. All meetings of the shareholders shall be held at
the principal office of the Trust, or, to the extent permitted by the
Declaration of Trust, at such other place within the United States as
shall be designated by the Trustees or the president of the Trust.
2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall
be given at least seven days before the meeting to each shareholder
entitled to vote thereat by leaving such notice with him or her or at
his or her residence or usual place of business or by mailing it,
postage prepaid, and addressed to such shareholder at his or her
address as it appears in the records of the Trust. Such notice shall be
given by the secretary or an assistant secretary or by an officer
designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed
before or after the meeting by such shareholder or his or her attorney
thereunto duly authorized, is filed with the records of the meeting.
2.4 Ballots. No ballot shall be required for any election unless requested
by a shareholder present or represented at the meeting and entitled to
vote in the election.
2.5 Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting
named therein, which proxies shall be filed with the secretary or other
person responsible to record the proceedings of the meeting before
being voted. Unless otherwise specifically limited by their terms, such
proxies shall entitle the holders thereof to vote at any adjournment of
such meeting but shall not be valid after the final adjournment of such
meeting. The placing of a shareholder's name on a proxy pursuant to
telephonic or electronically transmitted instructions obtained pursuant
to procedures reasonably designed to verify that such instructions have
been authorized by such shareholder shall constitute execution of such
proxy by or on behalf of such shareholder.
Section 3. Trustees
3.1 Committees and Advisory Board. The Trustees may appoint from their
number an executive committee and other committees. Except as the
Trustees may otherwise determine, any such committee may make rules for
conduct of its business. The Trustees may appoint an advisory board to
consist of not less than two nor more than five members. The members of
the advisory board shall be compensated in such manner as the Trustees
may determine and shall confer with and advise the Trustees regarding
the investments and other affairs of the Trust. Each member of the
advisory board shall hold office until the first meeting of the
Trustees following the next meeting of the shareholders and until his
or her successor is elected and qualified, or until he or she sooner
dies, resigns, is removed or becomes disqualified, or until the
advisory board is sooner abolished by the Trustees.
In addition, the Trustees may appoint a Dividend Committee of not less
than three persons, who may (but need not) be Trustees.
No special compensation shall be payable to members of the Dividend
Committee. Each member of the Dividend Committee will hold office until
the successors are elected and qualified or until the member dies,
resigns, is removed, becomes disqualified or until the Committee is
abolished by the Trustees.
3.2 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may
from time to time determine, provided that notice of the first regular
meeting following any such determination shall be given to absent
Trustees.
3.3 Special Meetings. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting, when
called by the president or the treasurer or by two or more Trustees,
sufficient notice thereof being given to each Trustee by the secretary
or an assistant secretary or by the officer or one of the Trustees
calling the meeting.
3.4 Notice. It shall be sufficient notice to a Trustee to send notice by
mail at least forty-eight hours or by telegram at least twenty-four
hours before the meeting addressed to the Trustee at his or her usual
or last known business or residence address or to give notice to him or
her in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the
meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. Neither notice of a
meeting nor a waiver of a notice need specify the purposes of the
meeting.
3.5 Quorum. At any meeting of the Trustees one-third of the Trustees then
in office shall constitute a quorum; provided, however, a quorum shall
not be less than two. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further
notice.
Section 4. Officers and Agents
4.1 Enumeration; Qualification. The officers of the Trust shall be a
president, a treasurer, a secretary and such other officers, if any, as
the Trustees from time to time may in their discretion elect or
appoint. The Trust may also have such agents, if any, as the Trustees
from time to time may in their discretion appoint. Any officer may be
but none need be a Trustee or shareholder. Any two or more offices may
be held by the same person.
4.2 Powers. Subject to the other provisions of these By-Laws, each officer
shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly
incident to his or her office as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as
the Trustees may from time to time designate, including without
limitation the power to make purchases and sales of portfolio
securities of the Trust pursuant to recommendations of the Trust's
investment adviser in accordance with the policies and objectives of
that series of shares set forth in its prospectus and with such general
or specific instructions as the Trustees may from time to time have
issued.
4.3 Election. The president, the treasurer and the secretary shall be
elected annually by the Trustees. Other elected officers are elected by
the Trustees. Assistant officers are appointed by the elected officers.
4.4 Tenure. The president, the treasurer and the secretary shall hold
office until their respective successors are chosen and qualified, or
in each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office at the
pleasure of the Trustees. Each agent shall retain his or her authority
at the pleasure of the Trustees.
4.5 President and Vice Presidents. The president shall be the chief
executive officer of the Trust. The president shall preside at all
meetings of the shareholders and of the Trustees at which he or she is
present, except as otherwise voted by the Trustees. Any vice president
shall have such duties and powers as shall be designated from time to
time by the Trustees.
4.6 Treasurer and Controller. The treasurer shall be the chief financial
officer of the Trust and subject to any arrangement made by the
Trustees with a bank or trust company or other organization as
custodian or transfer or shareholder services agent, shall be in charge
of its valuable papers and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the
president. Any assistant treasurer shall have such duties and powers as
shall be designated from time to time by the Trustees.
The controller shall be the chief accounting officer of the Trust and
shall be in charge of its books of account and accounting records. The
controller shall be responsible for preparation of financial statements
of the Trust and shall have such other duties and powers as may be
designated from time to time by the Trustees or the president.
4.7 Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept
therefor, which books shall be kept at the principal office of the
Trust. In the absence of the secretary from any meeting of shareholders
or Trustees, an assistant secretary, or if there be none or he or she
is absent, a temporary clerk chosen at the meeting shall record the
proceedings thereof in the aforesaid books.
Section 5. Resignations and Removals
Any Trustee, officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the president, the treasurer or
the secretary or to a meeting of the Trustees. The Trustees may remove any
officer elected by them with or without cause by the vote of a majority of the
Trustees then in office. Except to the extent expressly provided in a written
agreement with the Trust, no Trustee, officer, or advisory board member
resigning, and no officer or advisory board member removed shall have any right
to any compensation for any period following his or her resignation or removal,
or any right to damages on account of such removal.
Section 6. Vacancies
A vacancy in any office may be filled at any time. Each successor shall hold
office for the unexpired term, and in the case of the presidents, the treasurer
and the secretary, until his or her successor is chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified.
Section 7. Shares of Beneficial Interest
7.1 Share Certificates. No certificates certifying the ownership of shares
shall be issued except as the Trustees may otherwise authorize. In the
event that the Trustees authorize the issuance of share certificates,
subject to the provisions of Section 7.3, each shareholder shall be
entitled to a certificate stating the number of shares owned by him or
her, in such form as shall be prescribed from time to time by the
Trustees. Such certificate shall be signed by the president or a vice
president and by the treasurer or an assistant treasurer. Such
signatures may be facsimiles if the certificate is signed by a transfer
agent or by a registrar, other than a Trustee, officer or employee of
the Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Trust with the same effect as if he or she were such officer at the
time of its issue.
In lieu of issuing certificates for shares, the Trustees or the
transfer agent may either issue receipts therefor or keep accounts upon
the books of the Trust for the record holders of such shares, who shall
in either case be deemed, for all purposes hereunder, to be the holders
of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to
the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be
issued in place thereof, upon such terms as the Trustees may prescribe.
7.3 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates
to the Trust for cancellation. Such surrender and cancellation shall
not affect the ownership of shares in the Trust.
Section 8. Record Date and Closing Transfer Books
The Trustees may fix in advance a time, which shall not be more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date; or without fixing such record date the
Trustees may for any of such purposes close the transfer books for all or any
part of such period.
Section 9. Seal
The seal of the Trust shall, subject to alteration by the Trustees, consist of a
flat-faced circular die with the word "Massachusetts" together with the name of
the Trust and the year of its organization, cut or engraved thereon; but, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on, and its absence shall not impair the validity of, any document, instrument
or other paper executed and delivered by or on behalf of the Trust.
Section 10. Execution of Papers
Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and all transfers of securities standing in the name
of the Trust shall be executed, by the president or by one of the vice
presidents or by the treasurer or by whomsoever else shall be designated for
that purpose by the vote of the Trustees and need not bear the seal of the
Trust.
Section 11. Fiscal Year
Except as from time to time otherwise provided by the Trustees, President,
Secretary, Controller or Treasurer, the fiscal year of the Trust shall end on
October 31.
Section 12. Amendments
These By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such a majority.
CREDIT AGREEMENT
Dated as of April 29, 1996
among
THE INVESTMENT COMPANIES PARTY HERETO,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent,
and
THE OTHER BANKS PARTY HERETO
Amendment and Restatement as of May 17, 1999
NATIONSBANC MONTGOMERY SECURITIES LLC,
AS SOLE LEAD ARRANGER AND SOLE BOOK MANAGER
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION 1
1.1. Defined Terms 1
1.2. Interpretation 1
1.3. Accounting Terms 2
1.4. Assumptions Regarding Structure 2
1.5. Authority of Adviser; Adviser Disclaimer 3
ARTICLE II THE CREDITS 3
2.1. Amounts and Terms of Commitments 3
2.2. Notes 4
2.3. Procedure for Borrowing 4
2.4. Conversion and Continuation Elections 5
2.5. Voluntary Termination or Reduction of Commitments 6
2.6. Prepayments 6
2.7. Repayment 6
2.8. Interest 6
2.9. Fees 7
2.10. Computation of Fees and Interest 7
2.11. Payments 8
2.12. Payments by the Banks to the Agent 8
2.13. Sharing of Payments, etc. 9
2.14. Source of Repayment 9
2.15. Swing Loans 10
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 11
3.1. Taxes 11
3.2. Illegality 12
3.3. Increased Costs and Reduction of Return 13
3.4. Funding Losses 13
3.5. Inability to Determine Rates 14
3.6. Certificates of Banks 14
3.7. Substitution of Banks 14
3.8. Survival 15
ARTICLE IV CONDITIONS TO BORROWING 15
4.1. Conditions Precedent to and Consequences
of Effectiveness of Amendments 15
4.2. All Borrowings 16
4.3. Consequences of Effectiveness 17
ARTICLE V REPRESENTATIONS AND WARRANTIES 18
5.1. Existence 18
5.2. Authorization 18
5.3. No Conflicts 18
5.4. Validity and Binding Effect 18
5.5. No Default 18
5.6. Financial Statements 19
5.7. Litigation 19
5.8. Liens 19
5.9. Partnerships 19
5.10. Purpose 19
5.11. Compliance and Government Approvals 20
5.12. Pension and Welfare Plans 20
5.13. Taxes 20
5.14. Subsidiaries; Investments 20
5.15. Full Disclosure 20
5.16. Investment Policies 20
5.17. Tax Status 20
5.18. Regulations T, U and X 20
5.19. Status of Loans 21
5.20. Computer Systems 21
ARTICLE VI COVENANTS 21
6.1. Financial Statements and Other Reports 21
6.2. Notices 22
6.3. Existence 23
6.4. Nature of Business 23
6.5. Books, Records and Access 23
6.6. Insurance 24
6.7. Investment Policies and Restrictions 24
6.8. Taxes 24
6.9. Compliance 24
6.10. Pension Plans 24
6.11. Merger, Purchase and Sale 24
6.12. Asset Coverage Ratio 25
6.13. Liens 25
6.14. Guaranties 26
6.15. Other Agreements 26
6.16. Transactions with Related Parties 26
6.17. Other Indebtedness 26
6.18. Changes to Organization Documents, etc. 27
6.19. Violation of Investment Restrictions, etc. 27
6.20. Proceeds of Loans 27
6.21. Adviser 27
6.22. Service Providers to Trust 27
ARTICLE VII EVENTS OF DEFAULT 27
7.1. Events of Default 27
7.2. Remedies 29
ARTICLE VIII THE AGENT 30
8.1. Appointment and Authorization 30
8.2. Delegation of Duties 30
8.3. Liability of Agent 30
8.4. Reliance by Agent 31
8.5. Notice of Default 31
8.6. Credit Decision 31
8.7. Indemnification of Agent 32
8.8. Agent in Individual Capacity 32
8.9. Successor Agent 32
8.10. Withholding Tax 33
ARTICLE IX MISCELLANEOUS PROVISIONS 34
9.1. Amendments and Waivers 34
9.2. Notices 35
9.3. No Waiver; Cumulative Remedies 36
9.4. Costs and Expenses 36
9.5. Funds Indemnification 36
9.6. Payments Set Aside 37
9.7. Successors and Assigns 37
9.8. Confidentiality 38
9.9. Set-off 39
9.10. Notification of Addresses, Lending Offices, etc. 39
9.11. Counterparts 39
9.12. Survival 39
9.13. Disclaimer 39
9.14. Severability 40
9.15. No Third Parties Benefited 40
9.16. Governing Law and Jurisdiction 40
9.17. Waiver of Jury Trial 40
9.18. Acknowledgments 41
9.19. Entire Agreement 41
SCHEDULE I Definitions
SCHEDULE II Commitments and Pro Rata Shares
SCHEDULE III Offshore and Domestic Lending Offices, Addresses for Notices
EXHIBIT 2.2 Form of Promissory Note
EXHIBIT 2.3 Form of Loan Request
EXHIBIT 2.4 Form of Continuation/Conversion Notice
EXHIBIT 2.14 Form of Allocation Notice
EXHIBIT 4.1(c) Form of Opinion of Counsel to the Funds
EXHIBIT 5.7-1 Schedule of Litigation
EXHIBIT 5.7-2 Schedule of Contingent Liabilities
EXHIBIT 6.1 Form of Borrowing Base Certificate
||
<PAGE>
CREDIT AGREEMENT
This document, dated as of May 17, 1999, amends and restates that
certain CREDIT AGREEMENT, dated as of April 29, 1996 and amended from time to
time thereafter and prior to the date hereof (the "Existing Agreement"), is made
by and among each of the investment companies (each, a "Trust") a party hereto
on behalf of the Funds listed on the signature pages hereto or hereafter added
hereto, the various banks (as defined in Section 2(a)(5) of the Act) as are or
may become party hereto (collectively, the "Banks") (none of which is affiliated
(as defined in the Act) with any of the Trusts or Colonial Management
Associates, Inc.), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
("BofA"), as agent (in such capacity, the "Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Trusts (either on their own behalf or on behalf of certain
specified Funds) identified on Annex I hereto listed under the heading Original
Borrower Parties (the "Original Borrower Parties") are parties to the Credit
Agreement;
WHEREAS, the Original Borrower Parties, the Banks presently party to
the Credit Agreement and the Agent desire to amend the Existing Agreement to add
as parties thereto the Trusts (either on their own behalf or on behalf of
certain specified Funds) identified on Annex I hereto listed under the heading
New Borrower Parties (the "New Borrower Parties"), to extend the Scheduled
Termination Date and to effect other changes to the Credit Agreement as
hereinafter provided;
WHEREAS, in order to facilitate the aforesaid amendments, it is
desirable to amend and restate the Existing Agreement on the terms and
conditions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1. Defined Terms. Unless a clear contrary intention appears, terms defined in
Schedule I have the same respective meanings when used in this Agreement.
1.2. Interpretation. In this Agreement, unless a clear contrary intention
appears:
a) the singular number includes the plural number and vice versa;
b) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually;
c) reference to any gender includes each other gender;
d) reference to any agreement (including this Agreement), document or
instrument means such agreement, document or instrument as amended or
modified and in effect from time to time in accordance with the terms
thereof and, if applicable, the terms hereof and the other Credit Documents
and reference to any promissory note includes any promissory note which is
an extension or renewal thereof or a substitute or replacement therefor;
e) reference to any applicable law means such applicable law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder, and reference to any section or other provision of
any applicable law means that provision of such applicable law from time to
time in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other
provision;
f) reference to any Article, Section, Annex, Schedule or Exhibit means
such Article or Section hereof or Annex, Schedule or Exhibit hereto;
g) "hereunder", "hereof", "hereto" and words of similar import shall
be deemed references to this Agreement as a whole and not to any particular
Article, Section or other provision hereof;
h) "including" (and with the correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
i) "or" is not exclusive; and
j) relative to the determination of any period of time, "from" means
from and including" and "to" and "through" mean "to but excluding".
1.3. Accounting Terms. In this Agreement, unless expressly otherwise provided,
accounting terms shall be construed and interpreted, and accounting
determinations and computations shall be made, in accordance with GAAP.
1.4. Assumptions Regarding Structure. The parties acknowledge and agree that the
Trusts are comprised of one or more separate Funds and that such Funds are not
separately existing legal entities entitled to enter into contractual agreements
or to execute instruments, and for these reasons, the relevant Trusts are
executing this Agreement and the relevant Notes on behalf of their specified
respective Funds.
1.5. Authority of Adviser; Adviser Disclaimer. Each of the Funds hereby confirms
that the Adviser has been duly authorized to act on behalf of such Fund for
purposes of this Agreement and the relevant Notes and to take all actions which
such Fund is entitled or required to take hereunder or thereunder, including,
without limitation, requesting the making, continuation or conversion of Loans
on behalf of a Fund pursuant to Article II, reducing or terminating the
Commitments as to one or more Funds, and executing and delivering Loan Requests,
Borrowing Base Certificates and any and all other certificates, reports,
financial information and notices required to be delivered to the Agent
hereunder. Notwithstanding the foregoing or anything to the contrary contained
in this Agreement, the parties hereto acknowledge and agree that (a) in taking
any such action hereunder or under a Note, the Adviser is acting solely in its
capacity as investment adviser for the Funds and not in its individual capacity,
(b) neither the Adviser nor any of its officers, employees or agents (with the
Adviser, collectively, "Adviser Persons") shall have any liability whatsoever
for any action taken or omitted to be taken by any of them in connection with
this Agreement or any Note nor shall any of them be bound by or liable for any
indebtedness, liability or obligation hereunder or under any Note and (c) no
Adviser Person shall be responsible in any manner to the Banks for the truth,
completeness or accuracy of any statement, representation, warranty or
certification contained in this Agreement or in any information, report,
certificate or other document furnished by the Adviser on behalf of any Trust or
Fund in connection with this Agreement, including, without limitation, any Loan
Request, any Borrowing Base Certificate, and any certificate or notice furnished
pursuant to Section 6.1 or 6.2 hereof; provided that, in the case of clauses (b)
and (c) above, the conduct of the Adviser Persons or any of them did not
constitute gross negligence or willful misconduct.
ARTICLE II
THE CREDITS
2.1. Amounts and Terms of Commitments. Each Bank severally agrees, on the terms
and conditions set forth herein, to make Loans to the Funds from time to time on
any Business Day during the period from the Closing Date to the Commitment
Termination Date equal to its Pro Rata Share of the aggregate amount of the
Borrowing requested by any Fund to be made on such day. The Commitment of each
Bank and the outstanding principal amount of Loans (including Swing Loans) made
by each Bank hereunder shall not exceed at any time the aggregate amount set
forth on Schedule II (such amount as the same may be reduced under Section 2.5
or as a result of one or more assignments as permitted herein, the Bank's
"Commitment"); provided, however, that, after giving effect to any Borrowing,
the aggregate principal amount of all outstanding Loans shall not at any time
exceed the Commitment Amount, and provided that the aggregate principal amount
of all Loans outstanding from time to time to any Fund shall not exceed the
Borrowing Base for such Fund. Within the limits of each Bank's Commitment, and
subject to the other terms and conditions hereof, a Fund may borrow under this
Section 2.1, repay under the terms hereof and reborrow under this Section 2.1.
Subject to the terms of Section 2.15, a Fund may request and BofA may make a
Swing Loan to a Fund.
2.2. Notes. The Loans made by each Bank under its Commitment to each Fund shall
be evidenced by a Note in the form of Exhibit 2.2. Each such Bank shall endorse
on the schedules annexed to its Note the date, amount and maturity of each Loan
made by it and the amount of each payment of principal made by the Fund with
respect thereto. Each such Bank is irrevocably authorized by each Fund to
endorse its Note, and each Bank's record shall be conclusive absent manifest
error; provided, however, that the failure of a Bank to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the Fund hereunder or under any such Note to such
Bank.
2.3. Procedure for Borrowing. Each Borrowing shall be made upon the borrowing
Fund's irrevocable written notice delivered to the Agent in the form of a loan
request ("Loan Request") substantially in the form of Exhibit 2.3 hereto (which
notice must be received on a Business Day by the Agent prior to 9:00 a.m. (San
Francisco time) (i) two (2) Business Day prior to the requested Borrowing Date,
in the case of Offshore Rate Loans, and (ii) on the Borrowing Date for which a
Loan is requested, in the case of Base Rate Loans or Federal Funds Rate Loans,
specifying:
(A) the amount of the Borrowing, which shall be in an aggregate minimum
amount of $1,000,000 or any multiple of $1,000,000 in excess thereof;
(B) the requested Borrowing Date, which shall be a Business Day;
(C) the Type of Loans comprising the Borrowing; and
(D) the duration of the Interest Period applicable to such
Loans included in such notice. If the Loan Request fails to specify the
duration of the Interest Period for any Borrowing comprised of Offshore
Rate Loans, such Interest Period shall be two weeks.
In the event that more than one Loan Request is delivered on any
Business Day, the Agent shall, for purposes of ensuring that the aggregate of
the then-outstanding Loans and the Loans which are the subject of the Loan
Requests will not exceed the Commitment Amount, process the Loan Requests in the
order of receipt.
b) The Agent will promptly notify each Bank of its receipt of any Loan
Request and of the amount of such Bank's Pro Rata Share of that
Borrowing.
c) Each Bank will make the amount of its Pro Rata Share of each Borrowing
available to the Agent for the account of the borrowing Fund at the
Agent's Payment Office by 11:00 a.m. (San Francisco time) on the
Borrowing Date requested by the borrowing Fund in funds immediately
available to the Agent for deposit to the account which the Agent
shall from time to time specify by notice to the Banks. The proceeds
of all such Loans will then be made available to the Fund by the Agent
in accordance with written instructions provided to the Agent by the
Fund in like funds as received by the Agent. No Bank's obligation to
make any Loan shall be affected by any other Bank's failure to make
any Loan.
d) After giving effect to any Borrowing, there may not be more than 10
different Interest Periods in effect as to all the Funds.
2.4. Conversion and Continuation Elections.(a) A Fund may, upon irrevocable
written notice to the Agent in accordance with Section 2.4(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans or Federal Funds Rate Loans, or as of the last day of
the applicable Interest Period, in the case of any other
Type of Loans, to convert any such Loans (or any part
thereof in an amount not less than $1,000,000 or that is in
an integral multiple of $1,000,000 in excess thereof) into
Loans of any other Type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Loans having Interest Periods
expiring on such day (or any part thereof in an amount not
less than $1,000,000 or that is in an integral multiple of
$1,000,000 in excess thereof);
provided that, if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced by payment, prepayment or conversion of part
thereof to be less than $1,000,000, such Offshore Rate Loans shall automatically
convert into Base Rate Loans, and on and after such date, the right of the Fund
to continue such Loans as, and convert such Loans into, Offshore Rate Loans
shall terminate.
Notwithstanding anything to the contrary, no Loan shall be outstanding
for a period of more than two weeks, and there shall be no more than two
Interest Periods in respect of an Offshore Rate Loan.
b) A Fund shall deliver a Conversion/Continuation Notice to be received by the
Agent not later than 9:00 a.m. (San Francisco time) at least (i) one Business
Day in advance of the Conversion/Continuation Date, if the Loans are to be
converted into or continued as Offshore Rate Loans, and (ii) on the
Conversion/Continuation Date, if the Loans are to be continued or converted into
Base Rate Loans or Federal Funds Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D)other than in the case of conversions into Base Rate
Loans or Federal Funds Rate Loans, the duration of the
requested Interest Period.
c) The Agent will promptly
notify each Bank of its receipt of a
Conversion/Continuation Notice. All conversions and
continuations shall be made ratably according to the
respective outstanding principal amounts of the Loans
with respect to which the notice was given held by each
Bank.
d) Unless the Majority Banks otherwise agree, during the existence of a
Default,a Fund may not elect to have a Loan converted into or continued as
an Offshore Rate Loan.
2.5. Voluntary Termination or Reduction of Commitments. The Funds may, upon not
less than five (5) Business Days' prior notice to the Agent, terminate the
Commitments, or permanently reduce the Commitments by an aggregate minimum
amount of $3,000,000 or any multiple of $1,000,000 in excess thereof; unless,
after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, the then-outstanding principal amount of the Loans would
exceed the amount of the Commitment Amount then in effect. Once reduced in
accordance with this Section, the Commitment Amount may not be increased. Any
reduction of the Commitment Amount shall be applied to each Bank according to
its Pro Rata Share. All accrued commitment fees to but not including the
effective date of any termination of Commitments shall be paid on the effective
date of such termination. All accrued commitment fees to but not including the
effective date of any reduction of Commitments shall be paid on the last
Business Day of the then-current calendar quarter.
2.6. Prepayments. If at any time the outstanding balance of a Fund's
Indebtedness shall exceed the then-current Borrowing Base of such Fund and at
such time there are Loans outstanding to such Fund, such Fund shall immediately
prepay the outstanding principal amount of such Loans in an amount equal to such
excess, together with interest accrued thereon and amounts required under
Section 3.4.
2.7. Repayment. Each Fund shall repay to the Agent for the benefit of the Banks
on the Commitment Termination Date the aggregate principal amount of its Loans
outstanding on such date without liability for any Loan(s) made to any other
Fund.
2.8. Interest.(a) Each Loan shall bear interest on the outstanding principal
amount thereof from the applicable Borrowing Date at a rate per annum equal to
the Federal Funds Rate, the Offshore Rate or the Base Rate, as the case may be,
(and subject to a Fund's right to convert to other Type(s) of Loans under
Section 2.4), plus the Applicable Margin.
b) Interest on each Loan shall be paid in arrears on each Interest Payment Date.
Interest shall also be paid on the date of any prepayment of Offshore Rate Loans
under Section 2.6 for the portion of the Loans so prepaid and upon payment
(including prepayment) in full thereof, and during the existence of any Event of
Default, interest shall be paid on demand of the Agent at the request or with
the consent of the Majority Banks.
Notwithstanding subsection (a) of this Section, if any amount of
principal of or interest on any Loan, or any other amount payable hereunder or
under any other Credit Document, is not paid in full when due (whether at stated
maturity or by acceleration, demand or otherwise), the Fund agrees to pay
interest on such unpaid principal or other amount from the date such amount
becomes due until the date such amount is paid in full, and after as well as
before any entry of judgment thereon to the extent permitted by law, payable on
demand at a fluctuating rate per annum equal to the Base Rate plus two percent
(2%).
c) Anything herein to the contrary notwithstanding, the obligations of any Fund
to any Bank hereunder shall be subject to the limitation that payments of
interest shall not be required for any period for which interest is computed
hereunder, to the extent (but only to the extent) that contracting for or
receiving such payment by such Bank would be contrary to the provisions of any
law applicable to such Bank limiting the highest rate of interest that may be
lawfully contracted for, charged or received by such Bank, and in such event the
Fund shall pay such Bank interest at the highest rate permitted by applicable
law.
2.9. Fees.(a) Arrangement, Agency Fees. Subject to the Allocation Notice
requirements of Section 2.14(a), each Fund shall pay an agency fee to the Agent
for the Agent's own account, as required by the letter agreement ("Fee Letter")
among the Adviser, the Arranger and the Agent dated March 29, 1999 .
b) Commitment Fees. Subject to the Allocation Notice requirements of Section
2.14(a), each Fund shall pay to the Agent for the account of each Bank a
commitment fee on the average daily unused portion of such Bank's Commitments,
computed on a quarterly basis in arrears on the last Business Day of each
calendar quarter based upon the daily utilization for that quarter as calculated
by the Agent, equal to eight one-hundredths of one percent (0.08%) per annum.
For purposes of calculation of the commitment fee under this Section 2.9(b),
outstanding Swing Loans shall not be deemed as Loan usage under the Banks'
Commitments. Such commitment fee shall accrue from the Refinancing Date to the
Commitment Termination Date and shall be due and payable quarterly in arrears on
the last Business Day of each March, June, September and December, with the
final payment to be made on the Commitment Termination Date. All accrued
commitment fees to but not including the effective date of any termination of
Commitments shall be paid on the effective date of such termination. All accrued
commitment fees to but not including the effective date of any reduction of
Commitments shall be paid on the last Business Day of the then-current calendar
quarter, with such quarterly payment being calculated on the basis of the period
from such reduction date to such quarterly payment date. The commitment fees
provided in this subsection shall accrue at all times after the above-mentioned
commencement date, including at any time during which one or more conditions in
Article IV are not met.
2.10.Computation of Fees and Interest.(a) All computations of interest for Base
Rate Loans when the Base Rate is determined by BofA's "reference rate" shall be
made on the basis of a year of 365 or 366 days, as the case may be, and actual
days elapsed. All other computations of fees and interest shall be made on the
basis of a 360-day year and actual days elapsed (which results in more interest
being paid than if computed on the basis of a 365- or 366-day year). Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
b) Each determination of an interest rate by the Agent shall be conclusive and
binding on the relevant Fund and the Banks in the absence of manifest error. The
Agent will, at the request of a relevant Fund or any Bank, deliver to such Fund
or Bank, as the case may be, a statement showing the quotations used by the
Agent in determining any interest rate and the resulting interest rate.
a) Payments. All payments to be made by a Fund shall be made without set-off,
recoupment or counterclaim. Except as otherwise expressly provided herein, all
such payments shall be made to the Agent for the account of the Banks at the
Agent's Payment Office and shall be made in Dollars and in immediately available
funds no later than 11:00 a.m. (San Francisco time) on the date specified
herein. The Agent will promptly distribute to each Bank its Pro Rata Share (or
other applicable share as expressly provided herein) of such payment in like
funds as received. Any payment received by the Agent later than 11:00 a.m. (San
Francisco time) shall be deemed to have been received on the following Business
Day, and any applicable interest or fee shall continue to accrue.
b) Subject to the provisions set forth in the definition of "Interest Period"
herein, whenever any payment is due on a day other than a Business Day, such
payment shall be made on the following Business Day, and such extension of time
shall in such case be included in the computation of interest or fees, as the
case may be.
c) Unless the Agent receives notice from a Fund prior to the date on which any
payment is due to the Banks that such Fund will not make such payment in full as
and when required, the Agent may assume that the Fund has made such payment in
full to the Agent on such date in immediately available funds, and the Agent may
(but shall not be so required), in reliance upon such assumption, distribute to
each Bank on such due date an amount equal to the amount then due such Bank. If
and to the extent the Fund has not made such payment in full to the Agent, each
Bank shall repay to the Agent on demand such amount distributed to such Bank,
together with interest thereon at the Federal Funds Rate for each day from the
date such amount is distributed to such Bank until the date repaid.
2.12.Payments by the Banks to the Agent. Unless the Agent receives notice from a
Bank on or prior to the Closing Date or, with respect to any Borrowing after the
Closing Date, at least one (1) Business Day prior to the date of such Borrowing,
that such Bank will not make available as and when required hereunder to the
Agent for the account of the relevant Fund the amount of that Bank's Pro Rata
Share of the Borrowing, the Agent may assume that each Bank has made such amount
available to the Agent in immediately available funds on the Borrowing Date and
the Agent may (but shall not be so required), in reliance upon such assumption,
make available to the Fund on such date a corresponding amount. If and to the
extent any Bank shall not have made its full amount available to the Agent in
immediately available funds and the Agent in such circumstances has made
available to the relevant Fund such amount, that Bank shall on the Business Day
following such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such period. A
notice of the Agent submitted to any Bank with respect to amounts owing under
this subsection (a) shall be conclusive, absent manifest error. If such amount
is so made available, such payment to the Agent shall constitute such Bank's
Loan on the date of Borrowing for all purposes of this Agreement. If such amount
is not made available to the Agent on the Business Day following the Borrowing
Date, the Agent will notify the Fund of such failure to fund, and upon demand by
the Agent, the relevant Fund shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans comprising such Borrowing.
b) The failure of any Bank to make any Loan on any Borrowing Date shall not
relieve any other Bank of any obligation hereunder to make a Loan on such
Borrowing Date, but no Bank shall be responsible for the failure of any other
Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.13.Sharing of Payments, etc. If, other than as expressly provided elsewhere
herein, any Bank shall obtain on account of the Loans made by it any payment
(whether voluntary, involuntary, through the exercise of any right of set-off or
otherwise) in excess of its Pro Rata Share, such Bank shall immediately (a)
notify the Agent of such fact and (b) purchase from the other Banks such
participations in the Loans made by them as shall be necessary to cause such
purchasing Bank to share the excess payment pro rata with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with an amount equal to such paying
Bank's ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to the purchasing Bank to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. Each
Fund agrees that any Bank so purchasing a participation from another Bank may,
to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off with respect to such participation) as fully as
if such Bank were the direct creditor of the relevant Fund in the amount of such
participation. The Agent will keep records (which shall be conclusive and
binding in the absence of manifest error) of participations purchased under this
Section and will in each case notify the Banks following any such purchases or
repayments.
2.14.Source of Repayment. (a) Notwithstanding any other provision of this
Agreement, the parties agree that the assets and liabilities of each series of a
Trust are separate and distinct from the assets and liabilities of each other
series of that Trust and that no series of a Trust shall be liable or shall be
charged for any debt, obligation, liability, fee or expense arising under this
Agreement, the Notes or out of or in connection with any transaction other than
one entered into by or on behalf of itself. The Funds shall (i) as provided in
Section 4.1(g), (ii) to the extent feasible, at least five (5) Business Days in
advance of a date on which a payment in respect of a debt, obligation,
liability, fee or expense arising hereunder (other than principal of or interest
on a Loan) shall be due and payable and (iii) upon request of the Agent, cause
to be provided to the Agent an Allocation Notice; provided, however, should the
Funds fail to deliver to the Agent an Allocation Notice with respect to such
amounts within five Business Days following a request for the same by the Agent,
the Funds shall be liable therefor to the Agent and/or the Banks in the
proportion set forth in the Allocation Notice most recently delivered to the
Agent.
(b) The parties hereto acknowledge that the Trust Agreement for each
Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts and the Clerk of the City of Boston. With respect to each Trust,
the parties hereby agree that this Agreement is not executed on behalf of the
trustees of such Trust as individuals; that the obligations of any Fund of such
Trust under this Agreement, its Notes and any claims, obligations or liabilities
arising hereunder are not binding on any of the trustees, officers or
shareholders of such Trust individually but are binding upon only the assets and
property of such Fund; and that no Fund or series of a Trust will be held liable
for the obligations or liabilities of any other Fund or series of that Trust.
(c) Nothing in this Section 2.14 shall affect the Banks' rights
against Adviser Persons as provided in Section 1.5.
2.15.Swing Loans. (a) BofA may elect in its sole discretion to make revolving
loans of a Base Rate Loan Type (the "Swing Loan(s)") to a Fund solely for BofA's
own account from time to time on or after the Closing Date and prior to the
Commitment Termination Date up to an aggregate principal amount at any one time
outstanding not to exceed the lesser of (i) $50,000,000 or (ii) the maximum
aggregate principal amount relating to BofA's Commitment available and permitted
under Section 2.1. BofA may make Swing Loans (subject to the conditions
precedent set forth in Section 4.2), provided that BofA has received notice no
later than 12:00 p.m. (San Francisco time) either (i) by facsimile transmission
of a Loan Request in writing or (ii) by telephone notice from an Authorized
Officer of the relevant Fund for funding of a Swing Loan on the Business Day on
which such Swing Loan is requested to be made. The relevant Fund shall
simultaneously also give telephonic notice to the Agent of such Loan Request for
a Swing Loan and the Agent shall promptly notify each Bank of its receipt of
such Loan Request for a Swing Loan. BofA shall not make any Swing Loan
immediately after BofA becomes aware that one or more of the conditions
precedent contained in Section 4.2 is not satisfied until such conditions have
been satisfied or waived.
(b) Each Fund requesting by telephone notice and obtaining a Swing Loan
shall deliver promptly by facsimile transmission to BofA and the Agent a Loan
Request signed by an Authorized Officer confirming such telephonic notice for a
Swing Loan. If the information contained in any such Loan Request differs in any
material respect from the action taken by BofA, the records of BofA shall
govern, absent manifest error.
(c) Each outstanding Swing Loan shall be payable on the Business Day
next following the day the Swing Loan was made, with interest at the Base Rate
accrued thereon, and shall be subject to all the terms and conditions applicable
to Loans, except that all interest thereon shall be payable to BofA solely for
its own account. On the due date for such Swing Loan, unless the borrowing Fund
delivers or has previously delivered to BofA and the Agent a notice of its
intention to repay and does repay the Swing Loan prior to 8:00 a.m. (San
Francisco time), such Swing Loan shall automatically convert to a Base Rate Loan
under this Agreement, and each Bank (other than BofA) shall irrevocably and
unconditionally purchase from BofA, without recourse or warranty to BofA, an
undivided interest and participation in such Swing Loan in an amount equal to
such Bank's Pro Rata Share and promptly pay such amount to the Agent for the
benefit of BofA in immediately available funds. Such payment shall be made by
the other Banks whether or not a Default is then continuing or any other
condition precedent set forth in Section 4.2 is then met and whether or not the
relevant Fund has then requested a Loan in such amount. If such amount is not in
fact paid to BofA by any Bank, BofA shall be entitled to recover such amount on
demand from such Bank, together with accrued interest thereon from the due date
therefor (if made prior to 12:00 noon, San Francisco time) on any Business Day
until the date such amount is paid to BofA by such Bank, at the Federal Funds
Rate (as determined by the Agent) for the first three Business Days after such
Bank receives notice of such required purchase and thereafter at the Base Rate.
The failure of any Bank to pay such amount to the Agent for the benefit of BofA
shall not relieve any other Bank of its obligation to BofA hereunder.
Notwithstanding the foregoing, upon repayment by the borrowing Fund of
a Swing Loan made by BofA hereunder, such Fund on that due date may otherwise
deliver a Loan Request to the Agent pursuant to Section 2.3 and borrow Loans
subject to the terms of this Agreement from all the Banks.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1. Taxes. (a) Any and all payments by a Fund to each Bank or the Agent
underthis Agreement and any other Credit Document shall be made free and clear
of, and without deduction or withholding for, any Taxes. In addition, each Fund
shall pay all Other Taxes.
b) Each Fund agrees to indemnify and hold harmless each Bank and the Agent for
the full amount of Taxes or Other Taxes in connection with a payment by it
(including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable by it under this Section) paid by the Bank or the Agent and any
liability (including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within thirty (30) days after the date the Bank or the Agent makes written
demand therefor.
c) If a Fund shall be required by law to deduct or withhold any Taxes or Other
Taxes from or in respect of any sum payable hereunder to any Bank or the Agent,
then:
(i) the sum payable shall be increased as necessary so that after making all
required deductions and withholdings (including deductions and withholdings
applicable to additional sums payable under this Section), such Bank or the
Agent, as the case may be, receives an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(ii) the Fund shall make such deductions and withholdings;
(iii)the Fund shall pay the full amount deducted or withheld to the relevant
taxing authority or other authority in accordance with applicable law; and
(iv)the Fund shall also pay to the Agent for the account of such Bank, at the
time interest is paid, all additional amounts which the respective Bank
specifies as necessary to preserve the after-tax yield the Bank would have
received if such Taxes or Other Taxes had not been imposed.
d) Within 30 days after the date of any payment by a Fund of Taxes or Other
Taxes, the Fund shall furnish the Agent the original or a certified copy of a
receipt evidencing payment thereof or other evidence of payment satisfactory to
the Agent.
e) If a Fund is required to pay additional amounts to any Bank or the Agent
pursuant to subsection (c) of this Section, then such Bank shall use reasonable
efforts (consistent with legal and regulatory restrictions) to change the
jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Fund which may thereafter accrue, if such change in the judgment
of such Bank is not otherwise disadvantageous to such Bank.
To the extent appropriate, payments by any Fund under this Section 3.1
shall be subject to the Allocation Notice requirements under Section 2.14(a).
3.2. Illegality.(a) If any Bank reasonably determines that the introduction of
any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Offshore Rate Loans, then, on notice thereof by the Bank to the Funds through
the Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank gives notice, and the Bank agrees promptly to give such
notice, to the Agent and the Funds when the circumstances giving rise to such
determination no longer exist.
b) If a Bank reasonably determines that it is unlawful to maintain any Offshore
Rate Loan, a Fund shall, upon its receipt of notice of such fact and demand from
such Bank (with a copy to the Agent), prepay in full such Offshore Rate Loans of
that Bank then outstanding, together with interest accrued thereon and amounts
required under Section 3.4, either on the last day of the Interest Period
thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans
to such day, or immediately, if the Bank may not lawfully continue to maintain
such Offshore Rate Loan, as provided in a notice from the Bank to the relevant
Fund(s). If a Fund is required to so prepay any Offshore Rate Loan, then
concurrently with such prepayment, the Fund may borrow from the affected Bank,
in the amount of such repayment, a Base Rate Loan or a Federal Funds Rate Loan,
as designated by such borrowing Fund pursuant to Section 2.3.
c) If the obligation of any Bank to make or maintain Offshore Rate Loans has
been so terminated or suspended, the relevant Fund(s) may elect, by giving
notice to the Bank through the Agent, that all Loans that would otherwise be
made by the Bank as Offshore Rate Loans shall be instead Base Rate Loans or
Federal Funds Rate Loans, as designated by the relevant Fund(s).
d) Before giving any notice to the Agent under this Section, the affected Bank
shall designate a different Lending Office with respect to its Offshore Rate
Loans if such designation will avoid the need for giving such notice or making
such demand and will not, in the judgment of the Bank, be illegal or otherwise
disadvantageous to the Bank.
3.3. Increased Costs and Reduction of Return.(a) If any Bank reasonably
determines that, due to the introduction of or any change in or in the
interpretation of any law or regulation or the compliance by that Bank with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Bank of agreeing to make or making, funding or maintaining any
Offshore Rate Loans, then the affected Fund shall be liable for, and shall from
time to time upon demand (with a copy of such demand to be sent to the Agent)
pay to the Agent, for the account of such Bank, additional amounts as are
sufficient to compensate such Bank for such increased costs.
b) If any Bank shall have determined that (i) the introduction of any Capital
Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii)
any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof or (iv) compliance by the Bank (or its
Lending Office) or any corporation controlling the Bank with any Capital
Adequacy Regulation affects or would affect the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the Bank
and (taking into consideration such Bank's or such corporation's policies with
respect to capital adequacy and such Bank's desired return on capital)
determines that the amount of such capital is increased as a consequence of its
Commitment, Loans, credits or other obligations under this Agreement, then, upon
demand of such Bank to the affected Fund through the Agent, the affected Fund
shall pay to the Bank, from time to time as specified by the Bank, additional
amounts sufficient to compensate the Bank for such increase.
3.4. Funding Losses. Each Fund shall reimburse each Bank and hold each Bank
harmless from any loss or expense that the Bank may reasonably sustain or incur
as a consequence of:
a) the failure of such Fund to make on a timely basis any payment of principal
of any Offshore Rate Loan;
b) the failure of such Fund to borrow, continue or convert a Loan after the
Fund has given (or is deemed to have given) a Loan Request or a
Conversion/Continuation Notice;
c) the failure of such Fund to make any prepayment in accordance with any
notice delivered under Section 2.6; or
d) the prepayment or other payment (including after acceleration thereof) of
an Offshore Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by a Fund to the Banks under this Section 3.4 and
under Section 3.3(b), each Offshore Rate Loan made by a Bank (and each related
reserve, special deposit or similar requirement) shall be conclusively deemed to
have been funded at the IBOR used in determining the Offshore Rate for such
Offshore Rate Loan by a matching deposit or other borrowing in the interbank
eurodollar market for a comparable amount and for a comparable period, whether
or not such Offshore Rate Loan is in fact so funded.
3.5. Inability to Determine Rates. If the Agent determines that for any reason
adequate and reasonable means do not exist for determining the Offshore Rate for
any requested Interest Period with respect to a proposed Offshore Rate Loan or
that the Offshore Rate applicable pursuant to Section 2.8(a) for any requested
Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to any Bank of funding such Loan, the
Agent will promptly so notify the affected Fund and each Bank. Thereafter, the
obligation of the Banks to make or maintain Offshore Rate Loans hereunder shall
be suspended until the Agent gives notice (and, if appropriate, the Agent shall
give such notice) to the Funds that adequate and reasonable means do exist for
determining such Offshore Rate or such Offshore Rate does adequately and fairly
reflect the costs to the Banks of funding such Loans. Upon receipt of such
notice, the affected Fund may revoke any Loan Request or Conversion/Continuation
Notice then submitted by it. If the affected Fund does not revoke such Notice,
the Banks shall make, convert or continue the Loans, as proposed by such Fund,
in the amount specified in the applicable notice submitted by the Fund, but such
Loans shall be made, converted or continued as Base Rate Loans or Federal Funds
Rate Loans instead of Offshore Rate Loans as the Fund so elects in its
revocation notice.
3.6. Certificates of Banks. Any Bank claiming reimbursement or compensation
under this Article III shall deliver to the affected Fund (with a copy to the
Agent) a certificate setting forth in reasonable detail the amount payable to
the Bank hereunder, and such certificate shall be conclusive and binding on such
Fund in the absence of manifest error.
3.7. Substitution of Banks. Upon the receipt by a Fund from any Bank (an
"Affected Bank") of a claim for compensation under Section 3.3, such Fund may:
(i) request the Affected Bank to use its best efforts to obtain a replacement
bank or financial institution satisfactory to such Fund to acquire and assume
all or a ratable part of all of such Affected Bank's Loans and Commitment (a
"Replacement Bank"); (ii) request one more of the other Banks to acquire and
assume all or part of such Affected Bank's Loans and Commitment (it being
understood that no such other Bank shall be in any way required to effect any
such acquisition and assumption); or (iii) designate a Replacement Bank. Any
such designation of a Replacement Bank under clause (i) or (iii) shall be
subject to the prior written consent of the Agent (which consent shall not be
unreasonably withheld) and payment in full of all amounts due and owing
hereunder to the Replacement Bank.
3.8. Survival. The agreements and obligations of the Funds in this Article III
shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS TO BORROWING
4.1. Conditions Precedent to and Consequences of Effectiveness of Amendments.
The amendment, restatement and replacement effected by this Agreement shall
become effective on the date (the "Refinancing Date") on which the conditions
precedent specified in this Section 4.1 shall have been satisfied or waived by
the Agent and all the Banks that are signatories to this document. The
occurrence of the Refinancing shall be subject to (i) the receipt by the Agent
of duly executed counterparts of this amended and restated Agreement signed by
all the parties hereto (or evidence satisfactory to the Agent that all the
parties hereto have executed counterparts of this Agreement and dispatched them
to the Agent) and (ii) satisfaction of the following:
(a) The Agent shall have received from each Trust a certificate, dated the
date hereof, of its Secretary or Assistant Secretary as to
(i) resolutions of its board of trustees then in full force and effect
authorizing the execution, delivery and performance of this Agreement,
the Notes and each other Credit Document to be executed by it;
(ii) the incumbency and signatures of those of its officers or agents
authorized to act with respect to this Agreement, the Notes and each
other Credit Document executed by it;
(iii) such Trust's valid existence as evidenced by a certificate
issued by the Secretary of State of The Commonwealth of Massachusetts
and appended to the relevant certificate of its Secretary or Assistant
Secretary; and
(iv) the fact that the agreements delivered by the Trusts pursuant to
Section 4.1(e) constitute all such agreements between the Trusts and
the Adviser;
upon which certificates the Agent and each Bank may conclusively rely until
they shall have received a further certificate from the relevant Trust
canceling or amending such prior certificate.
(b) The Agent shall have received for the account of each Bank a Note of
each Fund duly executed and delivered by the relevant Trust on behalf of
each such Fund and made payable to the order of such Bank.
(c) The Agent shall have received an opinion, dated the date hereof and
addressed to the Agent and all Banks, from Ropes & Gray, counsel to the
Funds, substantially in the form of Exhibit 4.1(c), which the Trusts hereby
expressly authorize and instruct such counsel to prepare and deliver.
(d) The Agent shall have received evidence of payment of all accrued and
unpaid fees, costs and expenses to the extent then due and payable on the
Refinancing Date, together with Attorney Costs of the Agent to the extent
invoiced prior to or on the Refinancing Date, plus such additional amounts
of Attorney Costs as shall constitute the Agent's reasonable estimate of
Attorney Costs incurred or to be incurred by it through the closing
proceedings (provided that such estimate shall not thereafter preclude
final settling of accounts between the Funds and the Agent), including any
such costs, fees and expenses arising under or referenced in Section 2.9(a)
and those then due and payable pursuant to Section 9.4.
(e) The Agent shall have received copies of each investment advisory
agreement between the Trust for each New Borrower Party and the Adviser,
together with all sub-advisory agreements, if any.
(f) The Agent shall have received a Borrowing Base Certificate for each
Fund.
(g) The Agent shall have received a revised Allocation Notice.
(h) The Agent shall have received copies of the most recent prospectus and
statement of additional information for each Fund.
(i) The Agent shall have received with respect to each New Borrower Party a
duly completed and executed FRB Form FR U-1 as required pursuant to FRB
Regulation U (12 C.F.R. ss. 221.1 et seq.).
4.2. All Borrowings. The obligation of each Bank to fund any Loan on the
occasion of any Borrowing (including the initial Borrowing) by a Fund or to
continue or convert a Loan to a Fund as contemplated in a
Continuation/Conversion Notice submitted to the Agent by such Fund shall be
subject to the satisfaction of each of the conditions precedent set forth in
this Section 4.2.
(a) No Default shall have occurred and be continuing with respect to the
borrowing Fund.
(b) The representations and warranties of the borrowing Fund contained in
Article V (except to the extent such representations and warranties relate
solely to an earlier date, in which case they shall be true and correct as
of such earlier date) shall be true and correct in all material respects on
and as of the date of such Borrowing, both immediately before and after
giving effect to such Borrowing, as if then made.
(c) Except as disclosed by the borrowing Fund to the Agent and the Banks
pursuant to Section 5.7, no labor controversy, litigation, arbitration, or
governmental investigation or proceeding shall be pending and no
development shall have occurred with respect to such matters or, to the
knowledge of such Fund, threatened against it that, in the reasonable
opinion of the Banks, might materially affect the Fund's consolidated
business, operations, assets, revenues, properties or prospects or that
purports to affect the legality, validity or enforceability of this
Agreement, the Notes or any other Credit Document.
(d) In the case of a Borrowing, the Agent shall have received a Loan
Request for such Borrowing and, in the case of a continuation or conversion
of a Borrowing, a Continuation/Conversion Notice for such Borrowing. Each
of the delivery of a Loan Request or Continuation/Conversion Notice and, in
the case of a Borrowing, the acceptance by the relevant Fund of the
proceeds of such Borrowing shall constitute a representation and warranty
by such Fund that on the date of such Borrowing (both immediately before
and after giving effect to such Borrowing and the application of the
proceeds thereof) or continuation or conversion, as the case may be, the
statements made in Sections 4.2(a), (b), (c), (f) and (g) and in the
document referred to in Section 4.2(e) are true and correct.
(e) The Net Asset Value of the borrowing Fund at the time of delivery of a
Loan Request shall be at least $10,000,000.
f) Both before and after the Loan in question, the borrowing Fund's Asset
Coverage Ratio shall be at least 3 to 1.
(g) With respect to such Fund, there shall not have been outstanding as of
the close of business (San Francisco time) on the day preceding the
proposed Borrowing Date for the requested Loan a Loan that had been
outstanding for at least two weeks.
Any instrument, agreement or other document to be received by the Agent
pursuant to this Article IV, and any other condition precedent required to be
met or satisfied under this Article IV, shall be in form and substance
reasonably satisfactory to the Agent and each Bank and in sufficient copies for
each Bank.
4.3. Consequences of Effectiveness. On the Refinancing Date, the Existing
Agreement shall be automatically amended and restated to read as set forth
herein. On and after the Refinancing Date, the rights and obligations of the
parties hereto shall be governed by this Agreement; provided that rights and
obligations of the parties hereto with respect to the period prior to the
Refinancing Date shall continue to be governed by the provisions of the Existing
Agreement. With effect from and including the Refinancing Date, each Person
listed on the signature pages hereof that is not a party to the Existing
Agreement shall become a party to this Agreement and the Commitments and Pro
Rata Shares shall be as set forth in Schedule II appended to this document.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks and the Agent to enter into the Agreement
as amended and restated by this document and to make Loans hereunder, each Fund
and, to the extent hereinafter set forth, each Trust represents and warrants
unto the Agent and each Bank with respect to itself as set forth in this Article
V. The representations and warranties contained in this Article V shall be
deemed to be repeated each time that a Fund requests that a Loan be made as
provided in Article IV.
5.1. Existence. Each Trust is an open-end management investment company within
the meaning of the Act and is duly organized, validly existing and in good
standing under the laws of the state of its organization. Such Trust is in good
standing and is duly qualified to do business in The Commonwealth of
Massachusetts. Each Fund is a series of shares of beneficial interest in the
Trust of which it comprises a series (which shares have been and will be duly
authorized, validly issued, fully paid and non-assessable by such Trust) and
legally constitutes a fund or portfolio permitted to be marketed to investors
pursuant to the provisions of the Act.
5.2. Authorization. Each Trust is duly authorized to execute and deliver this
Agreement and the Notes of each of its Funds and, so long as this Agreement
shall remain in effect with respect to it, each of its Funds will continue to be
duly authorized to borrow monies hereunder on its own behalf and to perform its
obligations under this Agreement and its Notes. The execution, delivery and
performance by each Trust and its Funds of this Agreement and the Notes and the
Borrowings of each Fund do not and will not require any consent or approval of
or registration with any governmental agency or authority.
5.3. No Conflicts. The execution, delivery and performance by each Trust and
each Fund of this Agreement and the Notes do not and, so long as this Agreement
shall remain in effect with respect to them, will not (i) conflict with any
provision of law, (ii) conflict with the Trust Agreement of the Trust of which
any Fund comprises a series, (iii) conflict with any agreement binding upon
them, (iv) conflict with the Fund's most recent prospectus or its most recent
statement of additional information, (v) conflict with any court or
administrative order or decree applicable to them or (vi) require or result in
the creation or imposition of any Lien on any of the Fund's assets.
5.4. Validity and Binding Effect. This Agreement is, and the Notes when duly
executed and delivered will be, the legal, valid and binding obligation of each
Fund, enforceable against it in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
receivership, fraudulent conveyance, fraudulent transfer, moratorium or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of equitable
remedies.
5.5. No Default. No Fund is in default under any agreement or instrument to
which it is a party or by which it or any of its respective properties or assets
is bound or affected, other than minor defaults that could not reasonably be
expected to result in a Material Adverse Change. To the best of each Fund's
knowledge, no Default with respect to it has occurred and is continuing.
5.6. Financial Statements. With respect to each Fund, its most recent audited
Statement of Assets and Liabilities and its most recent semi-annual asset
statement, copies of which have been or will be furnished to the Banks, have
been prepared in conformity with GAAP applied on a basis consistent with that of
the preceding Fiscal Year or period and present fairly its financial condition
as at such dates and the results of its operations for the periods then ended,
subject (in the case of the interim financial statement) to year-end audit
adjustments. Since the date of the most recent Statement of Assets and
Liabilities and semi-annual asset statement of the Fund received by the Banks,
there has been no Material Adverse Change.
5.7. Litigation. With respect to each Fund, no claims, litigation, arbitration
proceedings or governmental proceedings that could reasonably be expected to
result in a Material Adverse Change are pending or, to the best of its
knowledge, threatened against or are affecting it, except those referred to in
Exhibit 5.7-1. Other than any liability incident to such claims, litigation or
proceedings or provided for or disclosed in the financial statements referred to
in Section 5.6 or listed on Exhibit 5.7-2, to the best of such Fund's knowledge,
it has no contingent liabilities that are material to it other than those
incurred in the ordinary course of business.
5.8. Liens. With respect to each Fund, none of its property, revenues or assets
is subject to any Lien, except (i) Liens in favor of the Banks, if any, (ii)
Liens for current Taxes not delinquent or Taxes being contested in good faith
and by appropriate proceedings and as to which such reserves or other
appropriate provisions as may be required by GAAP are being maintained, (iii)
Liens as are necessary in connection with a secured letter of credit opened by
or for it in connection with the trustees' and officers' errors and omissions
liability insurance policy of the Trust of which it comprises a series, (iv)
Liens incurred in connection with Financial Contracts, (v) Liens arising under
any custodian agreement to which it or the Trust of which it is a series is a
party and (vi) Liens incurred in connection with Indebtedness owing to another
Fund as permitted hereunder.
5.9 Partnerships. With respect to each Fund, it is not a general partner or
joint venturer in any partnership or joint venture; provided, however, it may be
a "feeder" fund in a "master/feeder" fund arrangement.
5.10. Purpose. With respect to each Fund, the proceeds of the Loans will be used
by it for short-term liquidity and other temporary emergency purposes, which
purposes are permitted under the Act and by its prospectus and statement of
additional information. Neither the making of any Loan nor the use of the
proceeds thereof will violate or be inconsistent with the provisions of Federal
Reserve Board Regulations T, U or X. Each Fund acknowledges that Loans made to
it may be deemed by the Federal Reserve Board to be "purpose loans" under
Regulation U because of the status of the Trust of which it is a series as an
investment company (or the functional equivalent thereof).
5.11. Compliance and Government Approvals. Each Trust or Fund is in compliance
with all statutes and governmental rules and regulations applicable to it,
including, without limitation, the Act, other than immaterial incidents of
non-compliance that could not reasonably be expected to result in a Material
Adverse Change. No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or other person
is required for the due execution, delivery or performance by such Trust or Fund
of this Agreement, the Notes or any of the other Credit Documents.
5.12. Pension and Welfare Plans. No Trust or Fund has established or maintained,
nor is it liable under, any Plan.
5.13. Taxes. Each Trust and Fund has filed all tax returns that are required to
have been filed and has paid, or made adequate provisions for the payment of,
all of its Taxes that are due and payable, except such Taxes, if any, as are
being contested in good faith and by appropriate proceedings and as to which
such reserves or other appropriate provisions as may be required by GAAP have
been maintained. Such Trust or Fund is not aware of any proposed assessment
against it for additional Taxes (or any basis for any such assessment) that
might be material in amount to it. Such Trust or Fund has substantially complied
with all requirements of the Code applicable to regulated investment companies
so as to be relieved of federal income tax on net investment income and net
capital gains distributed to its shareholders.
5.14. Subsidiaries; Investments. No Trust or Fund has Subsidiaries or equity
investments or any interest in any other Person other than portfolio securities
(including investment company securities) that may have been acquired in the
ordinary course of business.
5.15. Full Disclosure. No representation or warranty contained in this Agreement
or in any other document or instrument furnished by a Trust or Fund to the Banks
in connection herewith contains any untrue statement of any material fact as of
the date when made or omits to state any material fact necessary to make the
statements herein or therein not misleading as of the date when made in light of
the circumstances in which the same were made.
5.16. Investment Policies. Each Fund's assets are being invested substantially
in accordance with the investment policies and restrictions set forth in each of
its most recent prospectus and its most recent statement of additional
information.
5.17. Tax Status. Each Fund has taken all steps reasonably necessary to maintain
its status as a regulated investment company under the Code with respect to net
investment income and net capital gains.
5.18. Regulations T, U and X. No Trust or Fund is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock, and no
proceeds of any Loans will be used for a purpose that violates or would be
inconsistent with FRB Regulations T, U and X.
5.19. Status of Loans. Each Fund's obligation in connection with the repayment
of any Loans made to it hereunder shall at all times constitute its
unconditional Indebtedness and will rank at least pari passu in priority of
payment with all of its other present and future unsecured and unsubordinated
Indebtedness.
5.20. Computer Systems. There has been developed and implemented for each Trust
a comprehensive, detailed program to address on a timely basis the "Year 2000
Problem" (that is, the risk that computer applications used by the Trusts may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), and each Trust
reasonably anticipates that it will on a timely basis successfully resolve the
Year 2000 Problem for all material computer applications used by it. Each Trust
believes, based upon inquiry made, that each supplier and vendor of the Trust
that is of material importance to the financial well-being of the Trust will
also successfully resolve on a timely basis the Year 2000 Problem for all of its
material computer applications.
ARTICLE VI
COVENANTS
From the date of this Agreement and thereafter until the expiration or
termination of the Commitments and until all Obligations have been paid or
performed in full, each Fund and each Trust shall perform the obligations made
applicable to it in this Article VI.
6.1 Financial Statements and Other Reports. Each Fund shall deliver to the
Agent, with sufficient copies for each Bank:
(a) As soon as available and in any event within sixty (60) days after each
of its Fiscal Years, a copy of its annual audited Statement of Assets and
Liabilities, including a statement of investments, prepared in conformity
with GAAP and certified by an independent certified public accountant who,
in the commercially reasonable judgment of the Majority Banks, shall be
satisfactory to the Majority Banks, together with a certificate from such
accountant (i) acknowledging to the Banks such accountant's understanding
that the Banks are relying on such Statement of Assets and Liabilities,
(ii) containing a computation of, and showing compliance with, the
financial ratio contained in Section 6.12 and (iii) stating to the effect
that, in making the examination necessary for the signing of such Statement
of Assets and Liabilities, such accountant has not become aware of any
Default that has occurred and is continuing, or if such accountant has
become aware of any such event, describing it and the steps, if any, being
taken to cure it;
(b) Within sixty (60) days after the end of the first six months of its
Fiscal Year, a copy of its published semi-annual asset statement, prepared
in conformity with GAAP;
(c) Within fifteen (15) days after the end of each calendar quarter, a
certificate substantially in the form of Exhibit 6.1 ("Borrowing Base
Certificate") setting forth (A) its borrowing base (as calculated in the
manner contemplated by the form of Borrowing Base Certificate) ("Borrowing
Base"), (B) its Asset Coverage Ratio as of the last day of such calendar
quarter and (C) a statement to the effect that, to the best of the
knowledge of the Authorized Officer signing the Borrowing Base Certificate,
no Default has occurred and is continuing or, if an Event of Default has
occurred and is continuing, the steps being taken to remedy the same;
(d) (i) Within fifteen (15) days following the filing thereof, any
preliminary proxy materials filed with the Securities and Exchange
Commission and (ii) within fifteen (15) days after the same become
available, copies of its current prospectus and statement of additional
information (marked to show changes from the prospectus and statement of
additional information most recently delivered to the Banks), except that
if its investment policies are changed materially (including any change in
its ability to borrow hereunder), copies of a revised prospectus (or a
prospectus supplement) and statement of additional information (marked to
show changes from the prospectus (or prospectus supplement) and statement
of additional information most recently delivered to the Banks) reflecting
any such changes shall be provided to the Agent within fifteen (15) days
after the same become available; and
(e) Promptly from time to time such other reports or information as any of
the Banks may reasonably request.
6.2. Notices. Each Fund shall notify the Banks in writing of any of the
following immediately upon learning of the occurrence thereof, describing the
same and, if applicable, stating the steps being taken by the Person(s) affected
with respect thereto:
(a) the occurrence of a Default;
(b) the institution of any litigation, arbitration proceeding or
governmental proceeding that is likely to result in a Material Adverse
Change;
(c) the entry of any judgment or decree against it if the aggregate amount
of all judgments and decrees then outstanding against it exceeds the lesser
of five percent (5%) of its Net Asset Value or $5,000,000 after deducting
(i) the amount with respect to which it is insured and with respect to
which the insurer has assumed responsibility in writing and (ii) the amount
for which it is otherwise indemnified if the terms of such indemnification
and the Person providing such indemnification are satisfactory to the
Majority Banks;
(d) the occurrence of a change of its name (whether of its legal name or a
"d/b/a" designation). The Trust of which such Fund is a series, on behalf
of each of the affected Fund(s), shall promptly execute and deliver to each
Bank a new Note for each such Fund executed in its new name, together with
such other documents in connection therewith as the Banks shall reasonably
request;
(e) the scheduling of consideration by the board of trustees of the Trust
of which it comprises a series of a change in such Fund's Adviser,
distributor, administrator, custodian (unless such custodian is a Bank) or
independent accountant, or the appointment of any sub-adviser or any Person
acting in a similar capacity to an Adviser; provided that a mailing to
shareholders with respect to any of the foregoing shall not be deemed to be
sufficient notice hereunder; and
(f) the occurrence of such other events as the Agent may from time to time
reasonably specify.
Notwithstanding anything to the contrary in the foregoing, in the case
of the matters described in subparagraph (e), the notice contemplated by this
Section 6.2 shall be given not later than thirty (30) days prior to the time (i)
the board of trustees of the affected Trust is to consider approval of such
change or appointment or otherwise determines to recommend such change or
appointment (if necessary) to the Fund's shareholders for their approval and
(ii) of any change of such Fund's custodian; provided, however, if, in the case
of the matters contemplated by subparagraph (e), the affected Fund could not in
good faith have provided the specified advance notice, such notice shall be
given by such Fund immediately following the earliest feasible time the notice
could have been provided.
6.3. Existence. Each Trust, except as specified in Section 6.11(a), shall
maintain and preserve its existence as a registered investment company and the
respective existence of each of its Funds as a "series," within the meaning of
the Act, and maintain and preserve all rights, privileges, licenses, copyrights,
trademarks, trade names, franchises and other authority to the extent material
and necessary for the conduct of its business in the ordinary course, unless
none of the Funds comprising such Trust has Loans outstanding and each such Fund
has irrevocably notified the Agent (which shall thereupon promptly notify the
Banks) that it shall not request any Loans hereunder.
6.4. Nature of Business. Each Trust shall continue in, and limit its operations
to, the business of an open-end management investment company, within the
meaning of the Act, and maintain in full force and effect at all times all
governmental licenses, registrations, permits and approvals necessary for the
continued conduct of its business, including, without limitation, its
registration with the Securities and Exchange Commission under the Act as an
open-end investment company.
6.5. Books, Records and Access. Each Trust and Fund shall maintain complete and
accurate books and records in which full and correct entries in conformity with
GAAP shall be made of all transactions in relation to its business and
activities; upon reasonable notice, the Trust or Fund shall permit access by the
Banks to its books and records during normal business hours and permit the Banks
to make copies of such books and records.
6.6. Insurance. Each Trust and Fund shall maintain in full force and effect
insurance to such extent and against such liabilities as is commonly maintained
by companies similarly situated, including, but not limited to (i) such fidelity
bond coverage as shall be required by Rule 17g-1 promulgated under the Act or
any similar or successor provision and (ii) errors and omissions, director and
officer liability and other insurance against such risks and in such amounts
(and with such co-insurance and deductibles) as is usually carried by other
companies of established reputation engaged in the same or similar businesses
and similarly situated and will, upon request of the Agent, furnish to the Banks
a certificate of an Authorized Officer setting forth the nature and extent of
all insurance maintained by such Trust or Fund in accordance with this Section
6.6.
6.7. Investment Policies and Restrictions.(a) No Fund, without prior written
notice to the Agent of at least thirty (30) days, shall rescind, amend or modify
any investment policy described as "fundamental" in any prospectus or any
registration statement(s) that may be on file with the Securities and Exchange
Commission with respect thereto (collectively herein, a "proposed change"). If,
in the reasonable judgment of the Majority Banks, such proposed change will
result in a change in the Banks' analysis of the creditworthiness of the
affected Fund, the Agent shall notify the relevant Fund of such decision;
thereafter, if such proposed change is implemented with respect to such Fund,
the Banks may terminate their Commitments to lend to such Fund, and all Loans
outstanding to such Fund shall become immediately due and payable.
(b) Each Fund's investment in any of its assets shall be made in accordance with
its investment policies and restrictions set forth in its most recent prospectus
and statement of additional information.
6.8. Taxes. Each Trust and Fund shall pay when due all of its Taxes, unless and
only to the extent that such Taxes are being contested in good faith and by
appropriate proceedings and it shall have set aside on its books such reserves
or other appropriate provisions therefor as may be required by GAAP. Such Trust
or Fund shall at all times comply with all requirements of the Code applicable
to regulated investment companies, to such effect as not to be subject to
federal income taxes on net investment income and net capital gains distributed
to its shareholders.
6.9. Compliance. Each Trust and Fund shall comply in all material respects with
all statutes and governmental rules and regulations applicable to it, including,
without limitation, the Act.
6.10. Pension Plans. No Fund will enter into, or incur any liability relating
to, any Plan.
6.11. Merger, Purchase and Sale. No Trust or Fund shall:
(a) be a party to any merger or consolidation; provided, however, that any
Trust or Fund can merge or consolidate with any other Person in accordance
with 17 C.F.R. ss. 270.17a-8 if (i) such merger or consolidation complies
in all material respects with the requirements of 17 C.F.R. ss. 270.17a-8
and all rules promulgated in connection therewith, (ii) the surviving
entity assumes all of the obligations to the Banks of the merging or
consolidating Trusts and/or Funds prior to such merger or consolidation and
(iii) in the good faith judgment of all the Banks, the financial condition
and investment policies and restrictions of the surviving entity are not
fundamentally different from those of the merging or consolidating Trusts
and/or Funds prior to such merger or consolidation;
(b) except as permitted by Section 6.11(a) and except for sales or other
dispositions of portfolio securities in the ordinary course of its business
or to meet shareholder redemption requests, sell, transfer, convey, lease
or otherwise dispose of all or any substantial part of its assets;
provided, however, that any Fund or Trust can sell substantially all of its
assets to another Person in accordance with 17 C.F.R. ss. 270.17a-8 if (i)
such sale complies in all material respects with the requirements of 17
C.F.R. ss. 270.17a-8 and all rules promulgated in connection therewith,
(ii) the purchasing entity assumes all obligations to the Banks of the
selling Fund prior to such sale and (iii) in the good faith judgment of all
the Banks, the financial condition and investment policies and restrictions
of the purchasing entity are not fundamentally different from those of the
selling Fund prior the to asset sale; or
(c) except as permitted by Section 6.11(a), purchase or otherwise acquire
all or substantially all the assets of any Person without the review and
consent thereto of all the Banks, which consent shall not be unreasonably
withheld.
For purposes of this Section 6.11 only, a sale, transfer, conveyance,
lease or other disposition of assets shall be deemed to be a "substantial part"
of the assets of any Trust or Fund only if the value of such assets, when added
to the value of all other assets sold, transferred, conveyed, leased or
otherwise disposed of by such Trust or Fund (other than in the normal course of
business or in a manner otherwise consistent with such Fund's investment
policies) during the same Fiscal Year, exceeds fifteen percent (15%) of such
Trust's or Fund's Total Assets determined as of the end of the immediately
preceding Fiscal Year.
6.12. Asset Coverage Ratio. Each Fund shall not at any time permit its Asset
Coverage Ratio to be less than 3 to 1 or such other more restrictive ratio as
may be set forth in any prospectus with respect to such Fund. In calculating the
ratio set forth in this Section 6.12, a Fund may not treat as an asset
Indebtedness owing to such Fund by any investment company advised by the Adviser
unless the Asset Coverage Ratio of such investment company is at least 3 to 1.
6.13. Liens. No Fund shall create or permit to exist any Lien with respect to
any property, revenues or assets now owned or hereafter acquired by it, except
(i) Liens in favor of the Banks, if any, (ii) Liens for current Taxes not
delinquent or Taxes being contested in good faith and by appropriate proceedings
and as to which such reserves or other appropriate provisions as may be required
by GAAP are being maintained, (iii) Liens as are necessary in connection with a
secured letter of credit opened by or on behalf of such Fund in connection with
the Fund's trustees' errors and omissions liability insurance policy, (iv) Liens
incurred in connection with Financial Contracts, (v) Liens arising under any
custodian agreement to which the Trust of which the Fund comprises a series is a
party and (vi) Liens incurred in connection with Indebtedness owing to another
Fund; provided, however, that prior to or simultaneously with incurring any such
Lien described in this clause (vi), such Fund shall have taken such actions as
the Banks may reasonably require in order to assure the Banks that any Loans to
such Fund that are or may be outstanding shall be equally and ratably secured
with the Indebtedness secured by such Lien; and provided that the value of any
of its assets subject to a Lien (other than the Liens contemplated by clause (i)
and clause (vi)) shall be excluded from calculation of its Borrowing Base.
6.14. Guaranties. No Fund shall become or be a guarantor or surety of, or
otherwise become or be responsible in any manner (whether by agreement to
purchase any obligations, stock, assets, goods or services, or to supply or
advance any funds, assets, goods or services, or otherwise) with respect to, any
undertaking of any other Person, except for the endorsement, in the ordinary
course of collection, of instruments payable to it or its order.
6.15. Other Agreements. No Trust or Fund shall enter into any agreement
containing any provision that would be violated or breached by performance of
its obligations hereunder or under any instrument or document delivered or to be
delivered by it hereunder or in connection herewith.
6.16. Transactions with Related Parties. No Fund shall enter into or be a party
to any transaction or arrangement, including, without limitation, the purchase,
sale, loan, lease or exchange of property or the rendering of any service, with
any Related Party, except in the ordinary course of and pursuant to the
reasonable requirements of its business and upon fair and reasonable terms no
less favorable to it than would be obtainable in a comparable arm's-length
transaction with a Person not a Related Party, provided that any such
transaction must be made in substantial compliance with Section 17 of the Act or
an exemption therefrom.
6.17. Other Indebtedness. No Fund shall incur or permit to exist any
Indebtedness, other than:
(i) the Loans;
(ii) unsecured Indebtedness owing to such Fund's custodian that does
not exceed an amount that, when aggregated with any other Indebtedness
owing by such Fund, will cause the Fund to exceed the limitations on
senior security indebtedness imposed by the Act;
(iii)Indebtedness owing to another Fund; provided that (a) any such
Indebtedness does not exceed an amount that, when aggregated with any
other Indebtedness owing by such Fund, will cause the Fund to exceed
the limitations on senior security indebtedness imposed by the Act;
(b) any such Indebtedness is on terms consistent with and otherwise
allowed by the Act and/or regulatory approval of the Securities and
Exchange Commission; (c) such Indebtedness is unsecured and no more
than pari passu in priority of payment with Indebtedness incurred or
to be incurred in the form of Loans or, prior to or simultaneously
with incurring any such Indebtedness that is to be secured by a Lien
on the Fund's assets, such Fund shall have taken such actions as the
Banks may reasonably require in order to assure the Banks that any
Loans to such Fund that are or may be outstanding are secured on a
basis that is equal and ratable to such Fund Indebtedness as to which
security is provided; and (d) such Indebtedness is subject to the
terms of an inter-creditor agreement in form and substance
satisfactory to the Agent and each Bank;
(iv) Indebtedness owing in respect of Financial Contracts incurred in
the ordinary course of business and in amounts not exceeding that
permitted by the Fund's investment policies; and
(v) Indebtedness owing in respect of payments due to trustees of the
Trusts under any deferred compensation plan; provided that such
payments shall not in the aggregate for all Funds exceed $750,000.
6.18.Changes to Organization Documents, etc. No Trust or Fund shall make or
permit to be made any material changes to its Organization Documents without the
prior written consent of the Majority Banks.
6.19. Violation of Investment Restrictions, etc. No Fund shall violate or take
any action that would result in a violation of any of the investment
restrictions or fundamental investment policies of such Fund as from time to
time in effect.
6.20. Proceeds of Loans. Each Fund shall utilize the proceeds of each Loan made
to it to provide temporary liquidity funding allowed under the Act. None of the
proceeds of any Loan shall be used directly for the purpose, whether immediate,
incidental or ultimate, of acquiring any "margin stock" within the meaning of
Regulation U.
6.21. Adviser. Each Fund shall maintain Colonial Management Associates, Inc. or
one of its Affiliates as Adviser to it.
6.22. Service Providers to Trust. No Fund shall change its distributor,
custodian, accountant or administrator unless the Majority Banks provide their
prior written consent to such change, which consent shall not be withheld by the
Majority Banks unless, based upon their reasonable judgment, the Majority Banks
in good faith conclude that such change will result in a change in the
creditworthiness of such Fund.
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default. Each of the following shall constitute an Event of
Default with respect to a Fund under this Agreement (it being understood that an
Event of Default with respect to a Fund shall not constitute an Event of Default
with respect to any other Fund):
(a) Default in payment by a Fund (i) when and as required to be paid herein
of any amount of principal of any Loan or (ii) within five (5) days after
the same becomes due of any interest, fee or any other amount payable
hereunder or under any other Credit Document.
(b) Default by a Fund in the payment when due, whether by acceleration or
otherwise (subject to any applicable grace period), of any Indebtedness of,
or guaranteed by, such Fund in excess of five percent (5%) of such Fund's
then-current Net Asset Value.
(c) Any event or condition shall occur that results in the acceleration of
the maturity of any Indebtedness of, or guaranteed by, a Fund or enables
the holder or holders of such other Indebtedness or any trustee or agent
for such holders (any required notice of default having been given and any
applicable grace period having expired) to accelerate the maturity of such
other Indebtedness in excess of five percent (5%) of such Fund's
then-current total Net Asset Value.
(d) Default by a Fund in the payment when due, whether by acceleration or
otherwise, or in the performance or observance (subject to applicable grace
periods, if any, having expired) of (i) any obligation or agreement of such
Fund to or with a Bank (other than any obligation or agreement of such Fund
hereunder or under such Fund's Notes) or (ii) any material obligation or
agreement of such Fund to or with any other Person, except only to the
extent that the existence of any such default is being contested by such
Fund in good faith and by appropriate proceedings and such Fund shall have
set aside on its books such reserves or other appropriate provisions
therefor as may be required by GAAP, provided that the amount of such
obligation arising from any default is in excess of five percent (5%) of
such Fund's then-current total Net Asset Value.
(e) A Fund (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due,
subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) voluntarily ceases to conduct its business in the ordinary
course; (iii) commences any Insolvency Proceeding with respect to itself;
or (iv) takes any action to effectuate or authorize any of the foregoing.
(f) (i) Any involuntary Insolvency Proceeding is commenced or filed against
a Fund, or any writ, judgment, warrant of attachment, execution or similar
process is issued or levied against a substantial part of its assets, and
any such proceeding or petition shall not be dismissed, or such writ,
judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within sixty (60) days after
commencement, filing or levy; (ii) a Fund admits the material allegations
of a petition against it in any Insolvency Proceeding, or an order for
relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) it acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or
agent therefor) or other similar Person for itself or a substantial portion
of its property or business.
(g) A Fund shall default in the performance of its agreement under Section
6.4, 6.7, 6.11 or 6.12.
(h) A Fund shall default in the performance of its other agreements herein
set forth (and not constituting an Event of Default under any of the other
subsections of this Section 7.1), and such default shall continue for
thirty (30) days (or three (3) Business Days in the case of the agreement
contained in the last sentence of the definition of "Total Assets") after
notice thereof to such Fund from the Agent.
(i) Any representation or warranty made by a Fund herein, or in any
schedule, statement, report, notice, certificate or other writing furnished
by it on or as of the date as of which the facts set forth therein are
stated or certified, is untrue or misleading in any material respect when
made or deemed made or any certification made or deemed made by it to the
Banks is untrue or misleading in any material respect on or as of the date
made or deemed made.
(j) There shall be entered against a Fund one or more judgments or decrees
that, when taken together, will exceed the lesser of five percent (5%) of
such Fund's Net Asset Value and $5,000,000, excluding those judgments or
decrees (i) that shall have been stayed or discharged less than thirty (30)
calendar days from the entry thereof and (ii) those judgments and decrees
for and to the extent that such Fund is insured and with respect to which
the insurer has assumed responsibility in writing or for and to the extent
that such Fund is otherwise indemnified if the terms of such
indemnification and the Person providing such indemnification are
satisfactory to the Majority Banks.
(k) The Majority Banks shall have reasonably determined in good faith that
a Material Adverse Change as to a Fund has occurred.
(l) A Fund shall no longer be in compliance with all material provisions of
the Act after giving effect to all notice, cure and contest periods
thereunder.
(m) Colonial Management Associates, Inc. or one of its Affiliates shall
cease to be the Adviser or administrator of a Fund or such Fund is in
breach of the covenant set forth in Section 6.22.
(n) A Fund shall violate or take any action that would result in a
violation of any of its investment restrictions or fundamental investment
policies as from time to time in effect, except for violations or the
taking of such actions that could not reasonably be expected to result in a
Material Adverse Change.
(o) There occurs a Change in Control of a Fund's Adviser.
7.2. Remedies. If any Event of Default described in Section 7.1 shall have
occurred and be continuing, the Agent, upon the direction of the Majority
Lenders, shall declare the Commitments to be terminated with respect to the
applicable Fund and such Fund's obligations under its Notes to be due and
payable, whereupon such Commitments shall immediately terminate with respect to
such Fund and such Fund's Notes shall become immediately due and payable, all
without advance notice of any kind (except that if an event described in Section
7.1(e) or Section 7.1(f) occurs, the Commitments shall immediately terminate
with respect to such Fund and the obligations under the Notes with respect to
such Fund shall become immediately due and payable without declaration or
advance notice of any kind). The Agent shall promptly advise such Fund of any
such declaration, but failure to do so shall not impair the effect of such
declaration. If an Event of Default shall have occurred, the Agent may exercise,
on behalf of itself and the Banks, all rights and remedies available to it and
the Banks against such Fund under the Credit Documents or applicable law.
ARTICLE VIII
THE AGENT
8.1. Appointment and Authorization. Each Bank hereby irrevocably appoints,
designates and authorizes the Agent (subject to Section 8.9) to take such action
on its behalf under the provisions of this Agreement and each other Credit
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Credit Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Credit Document, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein, nor shall the Agent have or be deemed
to have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against the
Agent.
8.2. Delegation of Duties. The Agent may execute any of its duties under this
Agreement or any other Credit Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
8.3. Liability of Agent. None of the Agent-Related Persons shall (i) be liable
for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Credit Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct)
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by a Trust or Fund or any officer or
agent thereof contained in this Agreement or in any other Credit Document, or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Agent under or in connection with, this Agreement or any
other Credit Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Credit Document, or
for any failure of a Trust or Fund or any other party to any Credit Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in or conditions of
this Agreement or any other Credit Document or to inspect the properties, books
or records of a Trust or Fund.
8.4. Reliance by Agent. (a) The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement, or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including counsel to the
Funds), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Credit Document unless it shall first receive such
advice or concurrence of the Majority Banks as it deems appropriate, and if it
so requests, it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Credit Document in accordance with a request or consent of the
Majority Banks and such request, and any action taken or failure to act pursuant
thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 4.1, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted, or be satisfied with each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to,
approved by, acceptable or satisfactory to the Bank.
8.5. Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default, except with respect to defaults in the
payment of principal, interest and fees required to be paid to the Agent for the
account of the Banks, unless the Agent shall have received written notice from a
Bank or a Fund referring to this Agreement, describing such Default and stating
that such notice is a "notice of default". The Agent will notify the Banks of
its receipt of any such notice. The Agent shall take such action with respect to
such Default as may be requested by the Majority Banks in accordance with
Article VII; provided, however, that unless and until the Agent has received any
such request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable or in the best interest of the Banks.
8.6. Credit Decision. Each Bank acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it and that no act by the
Agent hereinafter taken, including any review of the affairs of the Funds, shall
be deemed to constitute any representation or warranty by any Agent-Related
Person to any Bank. Each Bank represents to the Agent that it has, independently
and without reliance upon any Agent-Related Person and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition, and creditworthiness of the Funds, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Funds
hereunder. Each Bank also represents that it will, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Credit Documents and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition, and creditworthiness of the Funds.
Except for notices, reports and other documents expressly herein required to be
furnished to the Banks by the Agent, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition, or creditworthiness of the Funds which may come into the possession
of any of the Agent-Related Persons.
8.7. Indemnification of Agent. Whether or not the transactions contemplated
hereby are consummated, the Banks shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Funds and without
limiting the obligation of the Funds to do so), pro rata, from and against any
and all Indemnified Liabilities; provided, however, that no Bank shall be liable
for the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Bank shall reimburse the
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Credit Document, or any document contemplated by or referred to
herein, to the extent that the Agent is not reimbursed for such expenses by or
on behalf of the Funds. The undertaking in this Section shall survive the
payment of all Obligations hereunder and the resignation or replacement of the
Agent.
8.8. Agent in Individual Capacity. BofA and its Affiliates may make loans to,
issue letters of credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust, financial
advisory, underwriting or other business with the Funds and their Affiliates as
though BofA were not the Agent hereunder and without notice to or consent of the
Banks. The Banks acknowledge that, pursuant to such activities, BofA or its
Affiliates may receive information regarding the Funds or their Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Funds) and acknowledge that the Agent shall be under no obligation
to provide such information to them. With respect to its Loans, BofA shall have
the same rights and powers under this Agreement as any other Bank and may
exercise the same as though it were not the Agent, and the terms "Bank" and
"Banks" include BofA in its individual capacity.
8.9. Successor Agent. The Agent may, and at the request of the Majority Banks
shall, resign as Agent upon thirty (30) days' notice to the Banks. If the Agent
resigns under this Agreement, the Majority Banks shall appoint from among the
Banks a successor agent for the Banks, which successor agent shall be subject to
approval by the Funds. If no successor agent is appointed prior to the effective
date of the resignation of the Agent, the Agent may appoint, after consulting
with the Banks and the Funds, a successor agent from among the Banks. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent, and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article VIII and
Sections 9.4 and 9.5 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is thirty
(30) days following a retiring Agent's notice of resignation, the retiring
Agent's resignation shall nevertheless thereupon become effective, and the Banks
shall perform all of the duties of the Agent hereunder until such time, if any,
as the Majority Banks appoint a successor agent as provided for above.
8.10. Withholding Tax.(a) If any Bank is a "foreign corporation, partnership or
trust" within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Agent to deliver to the Agent:
(i) if such Bank claims an exemption from, or a reduction of, withholding
tax under a United States tax treaty, properly completed IRS Forms 1001 and
W-8 before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding calendar year
during which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement is exempt
from United States withholding tax because it is effectively connected with
a United States trade or business of such Bank, two properly completed and
executed copies of IRS Form 4224 before the payment of any interest is due
in the first taxable year of such Bank and in each succeeding taxable year
of such Bank during which interest may be paid under this Agreement, and
IRS Form W-9; and
(iii) such other form or forms as may be required under the Code or other
laws of the United States as a condition to exemption from, or reduction
of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
that would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from or reduction of withholding tax under a
United States tax treaty by providing IRS Form 1001 and such Bank sells,
assigns, grants a participation in or otherwise transfers all or part of the
Obligations of a Fund to such Bank, such Bank agrees to notify the Agent of the
percentage amount in which it is no longer the beneficial owner of Obligations
of such Fund to such Bank. To the extent of such percentage amount, the Agent
will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax by filing
IRS Form 4224 with the Agent sells, assigns, grants a participation in or
otherwise transfers all or part of the Obligations of a Fund to such Bank, such
Bank agrees to undertake sole responsibility for complying with the withholding
tax requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable withholding tax,
the Agent may withhold from any interest payment to such Bank an amount
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a) of
this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United States or other
jurisdiction asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Bank (because the appropriate form was
not delivered, was not properly executed, or because such Bank failed to notify
the Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason), such Bank
shall indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and including
any taxes imposed by any jurisdiction on the amounts payable to the Agent under
this Section, together with all costs and expenses (including Attorney Costs).
The obligation of the Banks under this subsection shall survive the payment of
all Obligations and the resignation or replacement of the Agent.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Credit Document, and no consent with respect to any
departure by any Trust or Fund therefrom, shall be effective unless the same
shall be in writing and signed by the Majority Banks (or by the Agent at the
written request of the Majority Banks) and the Funds and acknowledged by the
Agent, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing and
signed by all the Banks and the Funds and acknowledged by the Agent, do any of
the following:
(a) increase or extend the Commitments of any Bank (or reinstate any
Commitment(s) terminated pursuant to Section 7.1);
(b) postpone or delay any date fixed by this Agreement or any other Credit
Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Credit Document;
(c) reduce the principal of, or the rate of interest specified herein on,
any Loan, or (subject to clause (ii) below) any fees or other amounts
payable hereunder or under any other Credit Document;
(d) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder; or
(e) amend this Section 9.1, Section 2.13, Section 6.12 or any provision
herein providing for consent or other action by all Banks;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Credit Document and (ii) the Fee Letter may be amended,
or rights or privileges thereunder waived, in a writing executed by the parties
thereto.
9.2 Notices. (a) All notices, requests and other communications shall be in
writing (including, unless the context expressly otherwise provides, by
facsimile transmission; provided that any matter transmitted by any Fund by
facsimile (i) shall be immediately confirmed by a telephone call to the
recipient at the number specified on Schedule III and (ii) shall be followed
promptly by delivery of a hard copy original thereof) and mailed, faxed or
delivered to the address or facsimile number specified for notices on Schedule
III, or, as directed to the Funds or the Agent, to such other address as shall
be designated by such party in a written notice to the other parties, and as
directed to any other party, at such other address as shall be designated by
such party in a written notice to the Funds and the Agent.
(b) All such notices, requests and communications shall, when transmitted by
overnight delivery or faxed, be effective when delivered for overnight
(next-day) delivery or transmitted in legible form by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited
into the U.S. mail, or if delivered, upon delivery; provided that notices
pursuant to Article II or VIII shall not be effective until actually received by
the Agent.
(c) Any agreement of the Agent and the Banks herein to receive certain notices
by telephone or facsimile is solely for the convenience and at the request of
the Funds. The Agent and the Banks shall be entitled to rely on the authority of
any Person purporting to be a Person authorized by a Fund to give such notice,
and the Agent and the Banks shall not have any liability to such Fund or other
Person on account of any action taken or not taken by the Agent or the Banks in
reliance upon such telephonic or facsimile notice. The obligation of the Funds
to repay the Loans shall not be affected in any way or to any extent by any
failure by the Agent and the Banks to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Agent and the Banks of a
confirmation which is at variance with the terms understood by the Agent and the
Banks to be contained in the telephonic or facsimile notice.
9.3. No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
9.4. Costs and Expenses. Subject to the allocation provisions of Section 2.14,
the Funds shall:
(a) whether or not the transactions contemplated hereby are consummated, pay or
reimburse BofA (including in its capacity as Agent) within five (5) Business
Days after demand for all reasonable costs and expenses incurred by BofA
(including in its capacity as Agent) in connection with the development,
preparation, delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Credit Document and any other documents
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including reasonable Attorney
Costs incurred by BofA (including in its capacity as Agent) with respect
thereto; provided, however, notwithstanding anything to the contrary in the
foregoing, the responsibility of a Fund to reimburse BofA for Attorney Costs in
connection with the development, preparation, delivery and execution of this
Agreement and such other documents and the consummation of such transactions
shall be limited to the reasonable fees and disbursements of outside counsel to
BofA; and
(b) pay or reimburse the Agent, the Arranger and each Bank within five (5)
Business Days after demand for all costs and expenses (including Attorney Costs)
incurred by them in connection with the enforcement, attempted enforcement or
preservation of any rights or remedies under this Agreement or any other Credit
Document during the existence of an Event of Default or after acceleration of
the Loans (including in connection with any "workout" or restructuring regarding
the Loans and including in any Insolvency Proceeding or appellate proceeding).
9.5. Funds Indemnification. (a) Whether or not the transactions contemplated
hereby are consummated, the Funds shall indemnify and hold the Agent-Related
Persons, and each Bank and each of its respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified
Person"), harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
and disbursements (including Attorney Costs) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the Loans
and the termination, resignation or replacement of the Agent or replacement of
any Bank) be imposed on, incurred by or asserted against any such Person in any
way relating to or arising out of this Agreement or any document contemplated by
or referred to herein, or the transactions contemplated hereby, or any action
taken or omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or proceeding
(including any Insolvency Proceeding or appellate proceeding) related to or
arising out of this Agreement or the Loans or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided that no Fund shall have
an obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful misconduct of
such Indemnified Person. The agreements in this Section shall survive payment of
all other Obligations.
(b) Promptly after receipt by an Indemnified Person under subsection (a) above
of notice of the commencement of any action, such Indemnified Person shall, if a
claim in respect thereof is to be made against a Fund under such subsection,
notify such Fund in writing of the commencement thereof, but the omission so to
notify such Fund shall not relieve it from any liability which it may have to
any Indemnified Person otherwise than under such subsection. In case any such
action shall be brought against any Indemnified Person and it shall notify the
relevant Fund of the commencement thereof, the indemnifying Fund shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other Fund similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such Indemnified Person (who shall not,
except with the consent of the Indemnified Person, be counsel to the
indemnifying Fund(s)), and after notice from the indemnifying Fund(s) to such
Indemnified Person of its election so to assume the defense thereof; provided
that in no event shall any settlement or compromise of any such claims, actions
or demands be made without the consent of the Indemnified Person, the consent of
which shall not be unreasonably withheld.
(c) The agreements in this Section 9.5 shall survive payment of all other
Obligations.
9.6.Payments Set Aside. To the extent that a Fund makes a payment to the Agent
or the Banks, or the Agent or the Banks exercise their right of set-off, and
such payment or the proceeds of such set-off or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required (including pursuant to any settlement entered into by the Agent or
such Bank in its discretion) to be repaid to a trustee, receiver or any other
party, in connection with any Insolvency Proceeding or otherwise, then (a) to
the extent of such recovery, the obligation or part thereof originally intended
to be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such set-off had not occurred and (b) each
Bank severally agrees to pay to the Agent upon demand its pro rata share of any
amount so recovered from or repaid by the Agent.
9.7. Successors and Assigns. (a) The provisions of this Agreement shall be
binding upon and shall inure to the benefit of each Fund, the Agent and the
Banks and their respective successors and assigns, except that no Fund may
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of the Banks. One or more additional Funds may become
party hereto upon the written approval of all the Banks.
(b) The Loans are being made by the Banks in the ordinary course of
their business and not with a view toward distribution, it being understood that
each Bank may sell participations and assignments in its Commitments and the
Loans as provided herein. Any Bank may at any time assign, subject to the
relevant Fund's consent, which consent shall not be unreasonably withheld, to
one or more banks (as defined in Section 2(a)(5) of the Act) not an affiliate
(as defined in the Act) of any Trust or Fund or Colonial Management Associates,
Inc. (each an "Assignee") all, or a proportionate part of all, of its rights
under this Agreement and such Fund's Notes. Any Bank may at any time grant to
one or more banks (as defined in Section 2(a)(5) of the Act) not an affiliate
(as defined in the Act) of any Trust or Fund or Colonial Management Associates,
Inc. (each a "Participant") participating interests in its Commitments or any or
all of its Loans. In the event of any such grant by a Bank of a participating
interest to a Participant, whether or not upon notice to the relevant Fund, such
Bank shall remain responsible for the performance of its obligations hereunder,
and the relevant Fund shall continue to deal solely and directly with such Bank
in connection with the Bank's rights and obligations under this Agreement. Any
agreement pursuant to which such Bank may grant such a participating interest
shall provide that the Bank shall retain the sole right and responsibility to
enforce the obligations of the relevant Fund hereunder, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement (i) which increases or decreases the Commitments of the Bank,
(ii) reduces the principal of or rate of interest on any Loan or fees hereunder
or (iii) postpones the date fixed for any payment of principal of or interest on
any Loan or any fees hereunder without the consent of the Participant. The
relevant Fund agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article III hereof with
respect to its participating interest.
(c) Any Bank may at any time assign all or any portion of its rights
under this Agreement and the Notes to a Federal Reserve Bank. No such assignment
shall release such Bank from its obligations hereunder.
(d) No Assignee, Participant or other transferee of a Bank's rights
shall be entitled to receive any greater payment under Section 3.1 and Section
3.3 hereof than such Bank would have been entitled to receive with respect to
the rights transferred, unless such transfer is made with the relevant Trust's
or Fund's prior written consent or at a time when the circumstances giving rise
to such greater payment did not exist.
9.8. Confidentiality. Each Bank agrees to take and to cause its Affiliates to
take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all written information identified as "confidential" or
"secret" by a Fund and provided to it by or on behalf of the Fund, or by the
Agent on such Fund's behalf, under this Agreement or any other Credit Document,
and neither it nor any of its Affiliates shall use any such information other
than in connection with or in enforcement of this Agreement and the other Credit
Documents, except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Bank or (ii)
was or becomes available on a non-confidential basis from a source other than
the Fund, provided that such source is not bound by a confidentiality agreement
with the Fund known to the Bank; provided, however, that any Bank may disclose
such information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Credit Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent as required by the Banks hereunder; (H) as to
any Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which such Fund is party or
is deemed party with such Bank or such Affiliate; and (I) to its Affiliates.
9.9. Set-off. In addition to any rights and remedies of the Banks provided by
law, if, as to a Fund, an Event of Default exists and is continuing or the Loans
have been accelerated, each Bank is authorized at any time and from time to
time, without prior notice to the relevant Fund (any such notice being waived by
such Fund to the fullest extent permitted by law), to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, such Bank to or for
the credit or the account of the Fund against any and all Obligations owing to
such Bank, now or hereafter existing, irrespective of whether or not the Agent
or such Bank shall have made demand under this Agreement or any Credit Document
and although such Obligations may be contingent or unmatured provided that any
such appropriation and application shall be subject to the provisions of Section
2.13. Each Bank agrees promptly to notify the affected Fund and the Agent after
any such set-off and application made by such Bank; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application.
9.10. Notification of Addresses, Lending Offices, etc. Each Bank shall notify
the Agent in writing of any changes in the address to which notices to the Bank
should be directed, of addresses of any Lending Office, of payment instructions
in respect of all payments to be made to it hereunder and of such other
administrative information as the Agent shall reasonably request.
9.11. Counterparts. This Agreement may be executed in any number of separate
counterparts, each of which, when so executed, shall be deemed an original, and
all of said counterparts taken together shall be deemed to constitute but one
and the same instrument.
9.12. Survival. The obligations of the Funds under Sections 2.9, 9.4 and 9.5,
and the obligations of the Banks under Section 8.7, shall in each case survive
any termination of this Agreement, the payment in full of all Obligations and
the termination of all Commitments. The representations and warranties made by
the Trusts and Funds in this Agreement and in each other Credit Document shall
survive the execution and delivery of this Agreement and each such other Credit
Document.
9.13. Disclaimer. None of the shareholders, trustees, officers, employees and
other agents of any Trust or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Notes, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder. Nothing in this Section 9.13 shall affect the Bank's rights
against Adviser Persons as provided in Section 1.5.
9.14. Severability. The illegality or unenforceability of any provision of this
Agreement or any instrument or agreement required hereunder shall not in any way
affect or impair the legality or enforceability of the remaining provisions of
this Agreement or any instrument or agreement required hereunder.
9.15. No Third Parties Benefited. This Agreement is made and entered into for
the sole protection and legal benefit of the Trusts and Funds, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Credit Documents.
9.16. Governing Law and Jurisdiction.(a) THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS;
PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE
UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH TRUST AND EACH OF THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH TRUST AND EACH OF THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH TRUST, THE AGENT AND THE
BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.
9.17. Waiver of Jury Trial. THE TRUSTS, THE BANKS AND THE AGENT EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS, OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. THE TRUSTS, THE BANKS AND THE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER CREDIT DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
9.18. Acknowledgments. The Funds, the Banks and the Agent acknowledge that (i)
the name of Colonial Tax Managed Growth Fund has been changed to Stein Roe
Advisor Tax Managed Growth Fund; (ii) the name Colonial Newport Japan Fund has
been changed to Newport Japan Opportunities Fund; (iii) the name Colonial
Newport Tiger Fund has been changed to Newport Tiger Fund; (iv) the name
Colonial Newport Tiger Cub Fund has been changed to Newport Tiger Cub Fund; (v)
the name Colonial U.S. Stock Fund has been changed to Colonial U.S. Growth and
Income Fund; (vi) each Trust's name has been changed by replacing "Colonial"
with "Liberty Funds"; (vii) they have consented to the change from a fundamental
investment policy of Colonial High Yield Securities Fund, Colonial Income Fund,
Colonial Short Duration U.S. Government Fund, Colonial Select Value Fund, The
Colonial Fund, Colonial Global Equity Fund, Colonial International Horizons
Fund, Colonial Tax Exempt Fund, Colonial High Yield Municipal Fund, Newport
Tiger Fund and Colonial Utilities Fund to a nonfundamental investment policy of
such Funds the policy imposing a 15% ceiling on investments in illiquid
securities; (viii) they have consented to the reclassification of Colonial
California Tax Exempt Fund as a non-diversified investment company; (ix) they
have consented to the combination of LFC Utilities Trust with Colonial Global
Utilities Fund with Colonial Global Utilities Fund being the surviving
organization in connection with elimination of the "master feeder" arrangements
between Colonial Global Utilities Fund and LFC Utilities Trust; (x) they have
consented to the change of the Funds' custodian to The Chase Manhattan Bank;
(xi) they have consented to the merger of Colonial International Fund for Growth
into Colonial International Horizons Fund; and (xii) they consent to the merger
of Newport Tiger Cub Fund into Newport Asia Pacific Fund.
9.19. Entire Agreement. This Agreement, together with the other Credit
Documents, embodies the entire agreement and understanding among the Trusts, the
Banks and the Agent and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
LIBERTY FUNDS TRUST I, ON BEHALF OF COLONIAL INCOME FUND, COLONIAL HIGH
YIELD SECURITIES FUND, COLONIAL STRATEGIC INCOME FUND AND STEIN ROE ADVISOR
TAX MANAGED GROWTH FUND
By: /s/ Timothy Jacoby
Title: Treasurer & CFO
LIBERTY FUNDS TRUST II, ON BEHALF OF COLONIAL SHORT DURATION U.S.
GOVERNMENT FUND, NEWPORT GREATER CHINA FUND, NEWPORT JAPAN OPPORTUNITIES
FUND AND NEWPORT TIGER CUB FUND
By: /s/ Timothy Jacoby
Title: Treasurer & CFO
LIBERTY FUNDS TRUST III, ON BEHALF OF COLONIAL GLOBAL EQUITY FUND, COLONIAL
INTERNATIONAL HORIZONS FUND, COLONIAL SELECT VALUE FUND, THE COLONIAL FUND,
COLONIAL GLOBAL UTILITIES FUND, COLONIAL STRATEGIC BALANCED FUND, CRABBE
HUSON CONTRARIAN FUND, CRABBE HUSON CONTRARIAN INCOME FUND, CRABBE HUSON
SMALL CAP FUND, CRABBE HUSON MANAGED INCOME & EQUITY FUND, CRABBE HUSON
EQUITY FUND, CRABBE HUSON REAL ESTATE INVESTMENT FUND AND CRABBE HUSON
OREGON TAX-FREE FUND
By: /s/ Timothy Jacoby
Title: Treasurer & CFO
LIBERTY FUNDS TRUST IV, ON BEHALF OF COLONIAL INTERMEDIATE TAX EXEMPT FUND,
COLONIAL HIGH YIELD MUNICIPAL FUND, COLONIAL UTILITIES FUND, COLONIAL TAX
EXEMPT INSURED FUND AND COLONIAL TAX EXEMPT FUND
By: /s/ Timothy Jacoby
Title: Treasurer & CFO
LIBERTY FUNDS TRUST V, ON BEHALF OF COLONIAL CALIFORNIA TAX EXEMPT FUND,
COLONIAL CONNECTICUT TAX EXEMPT FUND, COLONIAL FLORIDA TAX EXEMPT FUND,
COLONIAL MASSACHUSETTS TAX EXEMPT FUND, COLONIAL MICHIGAN TAX EXEMPT FUND,
COLONIAL MINNESOTA TAX EXEMPT FUND, COLONIAL NEW YORK TAX EXEMPT FUND,
COLONIAL NORTH CAROLINA TAX EXEMPT FUND AND COLONIAL OHIO TAX EXEMPT FUND
By: /s/ Timothy Jacoby
Title: Treasurer & CFO
LIBERTY FUNDS TRUST VI, ON BEHALF OF COLONIAL SMALL CAP VALUE FUND,
COLONIAL U.S. GROWTH & INCOME FUND, COLONIAL VALUE FUND AND NEWPORT ASIA
PACIFIC FUND
By: /s/ Timothy Jacoby
Title: Treasurer & CFO
LIBERTY FUNDS TRUST VII, ON BEHALF OF NEWPORT TIGER FUND
By: /s/ Timothy Jacoby
Title: Treasurer & CFO
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ Elizabeth F. W. Bishop
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ Elizabeth F. W. Bishop
Title: Vice President
<PAGE>
FLEET NATIONAL BANK
By: /s/ Lisa A. Pile
Title: Assistant Vice President
<PAGE>
MELLON BANK, N.A.
By: /s/ John R. Cooper
Title: Vice President
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By: /s/ Edward A. Siegel
Title: Vice President
<PAGE>
SCHEDULE I
DEFINITIONS
"Act" means the Investment Company Act of 1940.
"Adviser" means Colonial Management Associates, Inc. or one of its
Affiliates, as investment adviser, sub-adviser or administrator to a
Fund, together with any successor thereto permitted by Section 6.2(e)
hereof.
"Adviser Persons" is defined in Section 1.5.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract or
otherwise.
"Agent" is defined in the preamble and includes each other Person as
shall have subsequently been appointed as the successor Agent pursuant to
Section 8.9.
"Agent-Related Persons" means BofA and any successor agent arising
under Section 8.9, together with their respective Affiliates (including, in the
case of BofA, the Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth in
Schedule III in relation to the Agent or such other address as the Agent may
from time to time specify.
"Agreement" means this Credit Agreement, as it may be amended, modified
or supplemented from time to time.
"Allocation Notice" means a notice, substantially in the form of
Exhibit 2.14, furnished to the Agent by or on behalf of each Fund, setting
forth, as of the date of such notice, the manner of allocation of liability for
amounts that shall become due and payable by the Funds under the Credit
Documents other than principal and interest in respect of Loans. The allocation
of liability among the Funds as set forth in an Allocation Notice shall be
effective from the date of receipt thereof by the Agent until a later-dated
Allocation Notice is delivered to the Agent.
"Applicable Margin" means,
(i) with respect to Base Rate Loans, zero percent (0.0%);
(ii) with respect to Federal Funds Rate Loans, five tenths of
one percent (0.5%); and
(iii) with respect to Offshore Rate Loans, five tenths of one
percent (0.5%).
"Arranger" means NationsBanc Montgomery Securities LLC, as sole lead
arranger and sole book manager.
"Asset Coverage Ratio" means, with respect to any Fund, the ratio that
the Net Asset Value of such Fund, less the value of assets subject to Liens,
bears to the aggregate amount of Indebtedness of such Fund.
"Assignee" is defined in Section 9.7(b).
"Attorney Costs" means and includes any and all fees and disbursements
of any law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
"Authorized Officer" means, relative to any Fund, those of its officers
or agents whose signatures and incumbency shall have been certified to the Agent
and the Banks pursuant to Section 4.1(a).
"Banks" is defined in the preamble.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978.
"Base Rate" means, for any day, the rate of interest in effect for such
day as publicly announced from time to time by BofA in San Francisco,
California, as its "reference rate." The "reference rate" is a rate set by BofA
based upon various factors, including BofA's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above or below such announced rate.
Any change in the reference rate announced by BofA shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate, including a Swing Loan.
"BofA" is defined in the preamble.
"Borrowing" means a borrowing hereunder, other than a Swing Loan,
consisting of Loans of the same Type made to a Fund on the same day by the Banks
under Article II and, other than in the case of Base Rate Loans or Federal Funds
Rate Loans, having the same Interest Period.
"Borrowing Base" has the meaning set forth in Section 6.1(c).
"Borrowing Base Certificate" means a Borrowing Base Certificate as
defined in Section 6.1(c) and substantially in the form of Exhibit 6.1 attached
hereto.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.3.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City or San Francisco are authorized or
required by law to close and, if the applicable Business Day relates to any
Offshore Rate Loan, means such a day on which dealings are carried on in the
applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
<PAGE>
"Change in Control" means any transaction or series of transactions
where (i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") as in effect on the date
hereof) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, as in effect on the date hereof), directly or indirectly, of
securities of another Person (the "Target") representing twenty percent (20%) or
more of the combined voting power of the Target's then-outstanding securities;
(ii) at any time less than a majority of the members of the Target's board of
directors shall be persons who were either nominated for election or were
elected by such board of directors; (iii) the Target's stockholders approve a
merger or consolidation of the Target with any other Person, other than a merger
or consolidation that would result in the voting securities of the Target
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least seventy-five percent (75%) of the combined voting
power of the voting securities of the Target or such surviving entity
outstanding immediately after such merger or consolidation; or (iv) the Target's
stockholders approve a plan of complete liquidation of the Target or an
agreement for the sale or disposition of all or substantially all of the
Target's assets.
"Closing Date" means April 29, 1996.
"Code" means the Internal Revenue Code of 1986.
"Commitment" means, relative to any Bank, such Bank's obligation to make
Loans pursuant to Section 2.1.
"Commitment Amount" means, on any date, $200,000,000, as such amount may
be reduced from time to time pursuant to Section 2.5.
"Commitment Termination Date" means, with respect to any Fund, the
earliest to occur of:
a)
<PAGE>
the Scheduled Commitment Termination Date;
(a) the date on which the Commitments terminate in accordance with the
provisions of this Agreement; and
(b) the date on which any Event of Default with respect to that Fund described
in Section 7.1(e) or Section 7.1(f) occurs.
Upon the occurrence of any event described in clause (b) or (c) above,
the Commitments shall terminate automatically and without further action.
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor, or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase any
materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services are ever
performed or tendered; or (d) in respect of any Swap Contract. The amount of any
Contingent Obligation shall, in the case of Guaranty Obligations, be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof,
and in the case of other Contingent Obligations, shall be equal to the maximum
reasonably anticipated liability in respect thereof.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
borrowing Fund, substantially in the form of Exhibit 2.4.
"Credit Documents" means this Agreement, any Notes, the Fee Letter and
all other documents delivered to the Agent or any Bank in connection herewith.
"Default" means any Event of Default or any condition, occurrence or
event that, with notice or lapse of time or both, would, unless cured or waived,
constitute an Event of Default.
"Dollar" and the symbol "$" mean the lawful money of the United States.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Eurodollar Reserve Percentage" has the meaning specified in the
definition of "Offshore Rate".
"Event of Default" means any of the events described in Section 7.1.
"Exchange Act" has the meaning specified in the definition of "Change
in Control".
"Existing Agreement" has the meaning assigned to such term in the
introductory paragraph of this Agreement.
"Federal Funds Rate" means, for any day, the rate as quoted by the
Federal Reserve Bank of New York and confirmed in the weekly statistical release
designated as H.15(519), or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, "H.15(519)") on the
preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such preceding
Business Day, the rate for such day will be the arithmetic mean as determined by
the Agent of the rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m. (New York City time) on that day by each of three
(3) leading brokers of Federal funds transactions in New York City selected by
the Agent.
"Federal Funds Rate Loan" means a Loan that bears interest based on the
Federal Funds Rate.
"Fee Letter" means the letter agreement referred to in Section 2.9.
"Financial Contracts" shall mean option contracts, futures contracts,
options on futures contracts, forward foreign currency exchange contracts,
options on foreign currencies, repurchase agreements, reverse repurchase
agreements, securities lending arrangements, short sale transactions, Swap
Contracts, when-issued securities and other permitted investments.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of twelve (12) consecutive calendar
months ending on the last day of such twelve-month period; references to a
Fiscal Year with a number corresponding to any calendar year (e.g., the "1995
Fiscal Year") refer to the Fiscal Year ending on or before December 31 during
such calendar year.
"FRB" means the Board of Governors of the Federal Reserve System and any
Governmental Authority succeeding to any of its principal functions.
"Fund" means each series or class of shares of a Trust that constitutes
a "series" under the Act, that is a signatory to this Agreement or that becomes
a signatory to this Agreement following the approval of all the Banks.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty Obligation" has the meaning specified in the definition of
"Contingent Obligation."
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including, without limitation, obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses;
(e) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases; (g) all net obligations with respect to Swap Contracts; (h) all
indebtedness referred to in clauses (a) through (g) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; (i) all Guaranty
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (a) through (g) above; (j) all Contingent Obligations;
and (k) all other items that, in accordance with GAAP, would be included as
liabilities on the liability side of the balance sheet of such Person as of the
date at which Indebtedness is to be determined.
"Indemnified Liabilities" is defined in Section 9.5.
"Indemnified Persons" is defined in Section 9.5.
"Insolvency Proceeding" means, with respect to any Person, (a) any case,
action or proceeding before any court or other Governmental Authority relating
to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors or (b) any general assignment for
the benefit of creditors, composition, marshaling of assets for creditors, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, undertaken under U.S.
federal, state or foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Base Rate
Loan or Federal Funds Rate Loan, the last day of each Interest Period applicable
to such Loan and, as to any Base Rate Loan or Federal Funds Rate Loan, the last
Business Day of each calendar quarter.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as an Offshore Rate Loan
and ending on the date one or two weeks thereafter as selected by a Fund in its
Loan Request or Conversion/Continuation Notice,
provided that:
(1) if any Interest Period would otherwise end on a day that is not a Business
Day, that Interest Period shall be extended to the following Business Day
unless, in the case of an Offshore Rate Loan, the result of such extension would
be to carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day; and
(1) no Interest Period for any Loan shall extend beyond the Commitment
Termination Date.
"IRS" means the Internal Revenue Service and any Governmental Authority
succeeding to any of its principal functions under the Code.
"Lending Office" means, as to any Bank, the office or offices of such
Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on such Bank's signature page hereto or, in
the case of an Assignee Bank, in the Bank Assignment Agreement, or such other
office or offices as such Bank may from time to time notify to the Trusts and
the Agent.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, segregated asset
arrangement established in connection with reverse repurchase transactions,
encumbrance, lien (statutory or other) or preferential arrangement of any kind
or nature whatsoever in respect of any property (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing lease
having substantially the same economic effect as any of the foregoing, or the
filing of any financing statement naming the owner of the asset to which such
lien relates as debtor, under the Uniform Commercial Code or any comparable law)
and any contingent or other agreement to provide any of the foregoing, but not
including the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to a Fund under Article II
and may be a Base Rate Loan (including a Swing Loan), Federal Funds Rate Loan or
an Offshore Rate Loan (each, a "Type" of Loan).
"Loan Request" means a request for a Loan given by a Fund to the Agent
substantially in the form of Exhibit 2.3.
"Majority Banks" means, at any time, at least two (2) Banks then holding
at least sixty-six and two-thirds percent (66-2/3%) of the then-aggregate unpaid
principal amount of the Loans or, if no such principal amount is then
outstanding, at least two (2) Banks then having at least sixty-six and
two-thirds percent (66-2/3%) of the Commitments.
"Material Adverse Change" means any change that is material and adverse
to (x) the condition (financial or otherwise), business or prospects of a Fund,
provided any change occurring after the most recent Borrowing Date resulting
from a decrease in the Net Asset Value of a Fund shall not be deemed a Material
Adverse Change as long as such Fund's Net Asset Value has not decreased by more
than twenty-five percent (25%) per share since the Borrowing Date, or (y) the
ability of a Fund to duly and punctually pay and perform all or any of its
Obligations.
"Net Asset Value" means, at any date, Total Assets less Total
Liabilities.
"New Borrower Parties" is defined in the recitals.
"Non-United States Person" means any corporation, partnership,
association or trust that is organized under the laws of a jurisdiction other
than the United States of America or one of its states.
"Note" means the promissory note of a Fund, substantially in the form
set forth as Exhibit 2.2.
"Obligations" means all obligations (monetary or otherwise) of a Fund to
the Banks and the Agent under the Credit Documents and the Fee Letter, including
(a) all obligations to make payments to the Banks of, and in respect of the
principal amount of and interest on, any Loan and (b) all obligations of a Fund
to the Banks and the Agent in respect of fees, costs, expenses and
indemnification under Sections 9.4 and 9.5.
"Offshore Rate" means, for any Interest Period, with respect to Offshore
Rate Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/16th of 1%) determined by the Agent as follows:
Offshore Rate = IBOR
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means, for any day for any
Interest Period, the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day (whether
or not applicable to any Bank) under regulations issued from time to
time by the FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred to
as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined by the
Agent as the rate at which Dollar deposits in the approximate amount of
BofA's Offshore Rate Loan for such Interest Period would be offered by
BofA's Grand Cayman Branch, Grand Cayman B.W.I. (or such other office as
may be designated for such purpose by BofA), to major banks in the
offshore Dollar interbank market at their request at approximately 9:00
a.m. (San Francisco time) one (1) Business Day prior to the commencement
of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all Offshore
Rate Loans then outstanding as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the
Offshore Rate.
"Organization Documents" means, for any Trust, the Trust Agreement, the
bylaws, any certificate of determination or instrument relating to the rights of
preferred shareholders of such Trust and all applicable resolutions of the board
of trustees (or any committee thereof) of such Trust.
"Original Borrower Parties" is defined in the recitals.
"Other Taxes" means any present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement or any other Credit Documents.
"Participant" is defined in Section 9.7(b).
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan" means any "pension plan" or "welfare benefit plan" as such terms
are defined in ERISA.
"Pro Rata Share" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks,
as set forth on Schedule II, as such amount may be adjusted from time to time as
a result of an assignment made by such Bank pursuant to Section 9.7 or
otherwise.
"Refinancing" means the refinancing of the Agreement as contemplated by
this amendment and restatement of the Existing Agreement.
"Refinancing Date" has the meaning assigned to such term in Section 4.1.
"Regulation U" means the FRB's Regulation U.
"Related Party" means, with respect to a Fund and for purposes of
Section 6.16 only, any Person (i) that directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, such Fund, (ii) that beneficially owns or holds five percent (5%) or more
of the equity interest of such Fund or (iii) five percent (5%) or more of the
equity interest of which is beneficially owned or held by such Fund. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Replacement Bank" is defined in Section 3.7.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation, or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Scheduled Commitment Termination Date" means May 15, 2000; provided
that the Scheduled Commitment Termination Date may be extended for successive
364-day periods upon the written request of the Trusts therefor received by the
Agent and the Banks not less than forty-five (45) days prior to the
then-existing Scheduled Commitment Termination Date, and the receipt by the
Trusts within twenty (20) days of such existing Scheduled Commitment Termination
Date of the agreement by the Agent and the Banks (which shall be entirely at the
sole discretion of the Agent and each Bank, none of whom has any obligation
regarding such extension) to such requested extension. No agreement regarding
any particular extension shall create any obligation of the Agent or any Bank
regarding any subsequent extension.
"Subsidiary" means, with respect to any Person, any corporation of which
more than fifty percent (50%) of the outstanding capital stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.
"Surety Instruments" means all letters of credit (including standby and
commercial), bankers' acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"Swap Contract" means any agreement (including any master agreement and
any agreement, whether or not in writing, relating to any single transaction)
that is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, forward foreign exchange agreement, rate cap,
collar or floor agreement, currency swap agreement, cross-currency rate swap
agreement, swaption, currency option or any other similar agreement (including
any option to enter into any of the foregoing).
"Swing Loan" means a Loan made by BofA in accordance with the terms of
Section 2.15 of this Agreement.
"Target" has the meaning specified in the definition of "Change in
Control".
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Bank and the Agent, such taxes (including income
taxes or franchise taxes) as are imposed on or measured by each Bank's net
income by the jurisdiction (or any political subdivision thereof) under the laws
of which such Bank or the Agent, as the case may be, is organized or maintains a
lending office.
"Total Assets" means, with respect to a Fund as of any date, the
aggregate amount of all items that would be set forth as assets on a balance
sheet of such Fund on such date prepared in accordance with GAAP. The assets of
a Fund shall be valued in accordance with the Act, the rules and regulations
under the Act, and the valuation procedures set forth in its most recent
statement of additional information. Upon the written request of the Agent, a
Fund shall promptly furnish all such information as the Agent shall reasonably
request relating to the value of any portfolio security or other asset of such
Fund or the assignment of values thereto by such Fund or any other Person.
"Total Liabilities" means, with respect to a Fund as of any date, the
aggregate amount of all items that would be set forth as liabilities on a
balance sheet of such Fund on such date prepared in accordance with GAAP.
"Trust" has the meaning assigned to such term in the preamble.
"Trust Agreement" means, with respect to a Trust, such Trust's Agreement
and Declaration of Trust or similar instrument, as amended from time to time.
"Type" has the meaning specified in the definition of "Loan."
"United States" or "U.S." means the United States of America, its fifty
(50) states and the District of Columbia.
<PAGE>
SCHEDULE II
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
<S> <C> <C>
Bank of America National Trust
and Savings Association $50,000,000 25%
Fleet National Bank $50,000,000 25%
Mellon Bank, N.A. $50,000,000 25%
State Street Bank and Trust Company $50,000,000 25%
TOTAL $200,000,000 100%
</TABLE>
<PAGE>
SCHEDULE III
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
THE FUNDS
245 Summer Street, 3rd Floor
Boston, MA 02110-1129
Facsimile No.: (617) 585-4251
Attention: Fund Accounting
with a copy to:
245 Summer Street, 3rd Floor
Boston, MA 02110-1129
Facsimile No.: (617) 345-0919
Attention: Legal
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
Bank of America National Trust
and Savings Association
Agency Administrative Services
1850 Gateway Boulevard, 5th Floor
Concord, California 94520
Attention: Paul Brown
Agency Administrative Officer
Telephone: (925) 675-8375
Facsimile: (925) 675-8500
Payment Details:
Account No: 1233-15041
ABA No: 1210-0035-8
Reference: Colonial Management Associates
Attention: Paul Brown
Agency Administrative Officer
Telephone: (925) 675-8375
Facsimile: (925) 675-8500
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
Domestic and Offshore Lending Office:
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Notices (other than Loan Requests and Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Gerard Fogarty
Telephone: (312) 828-3014
Facsimile: (312) 987-0889
<PAGE>
FLEET NATIONAL BANK
Domestic and Offshore Lending Office:
One Federal Street
Mail Code MAOF0210
Boston, Massachusetts 02211
Attention: Robert McClelland
Telephone: (617) 346-5184
Facsimile: (617) 246-5825
Notices (other than Loan Requests and Notices of Conversion/Continuation):
Fleet National Bank
Financial Institutions
Mail Stop CT MO 0250
777 Main Street
Hartford Connecticut 06115
Attention: Lisa A. Pile
Telephone: (860) 986-4120
Facsimile: (860) 986-1264
<PAGE>
MELLON BANK, N.A.
Domestic and Offshore Lending Office:
One Mellon Bank Center, Room 305
Pittsburgh, Pennsylvania 15258
Attention: Marla DeYulis
Telephone: (412) 236-9141
Facsimile: (412) 234-8087
Notices (other than Loan Requests and Notices of Conversion/Continuation):
Mellon Bank, N.A.
One Mellon Bank Center
Room 305
Pittsburgh, Pennsylvania 15258
Attention: Marla DeYulis
Telephone: (412) 236-9141
Facsimile: (412) 234-8087
STATE STREET BANK AND TRUST COMPANY
Domestic and Offshore Lending Office:
State Street Bank and Trust Company
Lafayette Corporate Center
2 Avenue de Lafayette
Boston, MA 02111
Attention: Ned Siegel
Telephone: (617) 662-2314
Facsimile: (617) 662-2325
Notices (other than Loan Requests and Notices of Conversion/Continuation):
Street address:
State Street Bank and Trust Company
Lafayette Corporate Center
2 Avenue de Lafayette
Boston, MA 02111
Attention: Ned Siegel
Mailing address:
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101-0351
Attention: Ned Siegel
<PAGE>
EXHIBIT 2.2
Non-Negotiable
PROMISSORY NOTE
$__,000,000.00 _________, ________: as of ________ __, 199_
FOR VALUE RECEIVED, the undersigned Fund ("Fund"), promises to pay to
_____________________ (the "Bank"), as set forth in the Credit Agreement
hereinafter referred to and on the Commitment Termination Date (as defined in
the Credit Agreement), the principal sum of ____________________ AND 00/100
DOLLARS ($__,000,000.00) or, if less, the then-aggregate unpaid principal amount
of Base Rate Loans, Federal Funds Rate Loans and Offshore Rate Loans (as such
terms are defined in the Credit Agreement) as has been borrowed by the Fund
under the Credit Agreement. The Fund may borrow, repay and reborrow hereunder in
accordance with the provisions of the Credit Agreement. All Base Rate Loans,
Federal Funds Rate Loans and Offshore Rate Loans and all payments of principal
shall be recorded by the holder in its records.
Anything in this Note to the contrary notwithstanding, the Fund shall
be liable hereunder only for Base Rate Loans, Federal Funds Rate Loans and
Offshore Rate Loans borrowed by the Fund under the Credit Agreement and other
obligations with respect thereto. The sole source of repayment of the principal
of and interest on each Loan hereunder and other obligations with respect
thereto made with respect to the Fund shall be the revenues and assets of such
Fund and not from any other asset of the Trust or any other Fund as a series of
the Trust.
The Fund further promises to pay to the order of the Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement. Accrued
interest shall be payable on the dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
Bank of America National Trust and Savings Association, ABA No. 1210-0035-8,
Account No. 1233-15041 Reference: Colonial Management Associates, or at such
other place as may be designated by the Agent to the Fund in writing.
This Note is the Note referred to in, and evidences indebtedness
incurred under, a Credit Agreement dated as of April 29, 1996 (herein, as it may
be amended, modified or supplemented from time to time, called the "Credit
Agreement") among the Fund, the other parties thereto and the Bank, to which
Credit Agreement reference is made for a statement of the terms and provisions
thereof, including those under which the Fund is permitted and required to make
prepayments and repayments of principal of such indebtedness and under which
such indebtedness may be declared to be immediately due and payable.
A copy of the Agreement and Declaration of Trust of the below-named
trust (the "Trust") is on file with the Secretary of State of The Commonwealth
of Massachusetts and the Clerk of the City of Boston, and notice is hereby given
that none of the shareholders, trustees, officers, employees and other agents of
the Trust or the Fund shall be personally bound by or liable for any
indebtedness, liability or obligation arising hereunder, nor shall resort be had
to their private property for the satisfaction of any obligations or claim
arising hereunder.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is made under and governed by the internal laws of the State
of Illinois.
[NAME OF TRUST] ON BEHALF OF
[NAME OF FUND]
By: _____________________________
Title: __________________________
<PAGE>
LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date Amount of Repaid Principal Amount of Notation
Loan Paid Balance Unpaid Principal Made by
Total
</TABLE>
<PAGE>
EXHIBIT 2.3
FORM OF LOAN REQUEST
Reference is made to that certain Credit Agreement, dated as of April
29, 1996 (as amended, modified or supplemented from time to time, the "Credit
Agreement"), among the borrowers party thereto, various financial institutions
party thereto and Bank of America National Trust and Savings Association (the
"Bank"). Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Credit Agreement. Pursuant to the terms of
the Credit Agreement, the undersigned, on behalf of and with respect to the
[Name of Fund], hereby represents and certifies to the Agent and the Banks as
follows:
1. On _______________, the undersigned, on behalf of the [Name of
Fund], requested that the Bank make a [Type of Loan]1 in the principal amount of
$___________to be made on _____________ and having a tenor of
____________________.
2. The purpose for which such Loan will be used is
_________________________
- -------------------------------------------------------------------------.
3. As of ____________________2, (i) the Asset Coverage Ratio of such
Fund was as set forth in subparagraph (e) below and (ii) the Borrowing Base of
such Fund was as set forth in subparagraph (f) below, calculated as follows:
(a) Net Asset Value plus proposed
Loan ______________
(b) minus (without duplication) value of Assets subject to Liens
(including, without limitation, margin and asset allocation
arrangements but excluding Liens contemplated by Section
6.13(i)
and (vi)) ______________
(c) Adjusted Net Asset Value
((a) minus (b)) ______________
(d) Indebtedness (including proposed
Loan) ______________
(e) Asset Coverage Ratio ((c) divided
by (d)) ______________
(f) Borrowing Base ((c) times 33 1/3%) ______________
5. The undersigned further certifies, on behalf of the Fund, that (a)
the proceeds of such Loan will be utilized solely by the Fund designated above,
(b) to the best of its knowledge, no Default has occurred and is continuing as
of the date of this Borrowing Certificate and (c) the Asset Coverage Ratio of
the Fund as set forth in its prospectus is not more restrictive than 3 to 1.
6. The undersigned further certifies, on behalf of the Fund, that, with
respect to the Fund, there has not been outstanding, as of the close of business
(San Francisco time) on the day preceding the proposed Borrowing Date for the
requested Loan, a Loan that had been outstanding for at least two (2) weeks.
A copy of the Agreement and Declaration of Trust of the below-named
trust (the "Trust") is on file with the Secretary of State of The Commonwealth
of Massachusetts and the Clerk of the City of Boston, and notice is hereby given
that none of the shareholders, trustees, officers, employees and other agents of
the Trust or the Fund shall be personally bound by or liable for any
indebtedness, liability or obligation arising hereunder, nor shall resort be had
to their private property for the satisfaction of any obligations or claim
arising hereunder.
Date: ____________________ __________, on behalf of
[Name of Fund]
By: _____________________
Title: [Must be an Authorized
Officer of the Trust]
<PAGE>
EXHIBIT 2.4
NOTICE OF CONVERSION/CONTINUATION
Date: , 199
To: Bank of America National Trust and Savings Association, as Agent for
the Banks party to the Credit Agreement dated as of April 29, 1996 (as
amended, modified or supplemented from time to time, the "Credit
Agreement") among the investment companies party thereto, certain
financial institutions party thereto and Bank of America National Trust
and Savings Association, as Agent
Ladies and Gentlemen:
The undersigned, ___________________________ (the "Fund"), refers to
the Credit Agreement, the terms defined therein being used herein as therein
defined, and hereby gives you notice irrevocably, pursuant to Section 2.4 of the
Credit Agreement, of the [conversion] [continuation] of the Loans specified
herein, that:
1. The Conversion/Continuation Date is , 19 .
------------ --
2. The aggregate amount of the Loans to be [converted]
[continued] is $ .
3. The Loans are to be [converted into] [continued as][Federal
Funds Rate] [Offshore Rate] [Base Rate] Loans.
4. [If applicable:] The duration of the Interest Period for
the Loans included in the [conversion] [continuation] shall be days.
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the proposed Conversion/Continuation
Date, before and after giving effect thereto and to the application of the
proceeds therefrom:
(a) the representations and warranties of the Fund contained
in Article V of the Credit Agreement are true and correct as though
made on and as of such date (except to the extent such representations
and warranties relate to an earlier date, in which case they are true
and correct as of such date);
(b) no Default has occurred and is continuing or would result
from such proposed [conversion] [continuation];
(c) the proposed [conversion][continuation] will not cause the
aggregate principal amount of all outstanding Loans to exceed the
combined Commitments of the Banks; and
(d) there has not been outstanding, as of the close of
business (San Francisco time) on the day preceding the proposed
continuation date for the requested Loan, a Loan that had been
outstanding for at least two (2) weeks.
A copy of the Agreement and Declaration of Trust of the below-named
trust (the "Trust") is on file with the Secretary of State of The Commonwealth
of Massachusetts and the Clerk of the City of Boston, and notice is hereby given
that none of the shareholders, trustees, officers, employees and other agents of
the Trust or the Fund shall be personally bound by or liable for any
indebtedness, liability or obligation arising hereunder, nor shall resort be had
to their private property for the satisfaction of any obligations or claim
arising hereunder.
__________, on behalf of
[Name of Fund]
By:
Title: [Must be an Authorized Officer]
<PAGE>
EXHIBIT 2.14
FORM OF ALLOCATION NOTICE
Date: , 199
To: Bank of America National Trust and Savings Association, as Agent for
the Banks party to the Credit Agreement dated as of April 29, 1996 (as
amended, modified or supplemented from time to time, the "Credit
Agreement") among the investment companies party thereto, certain
financial institutions party thereto and Bank of America National Trust
and Savings Association, as Agent
Ladies and Gentlemen:
Reference is made to the Credit Agreement (the terms defined therein
being used herein as therein defined). This instrument is an Allocation Notice
as contemplated by the Credit Agreement. The allocation of liability of the
Funds as set forth herein shall be effective from the date hereof until a
later-dated Allocation Notice is delivered to the Agent.
<TABLE>
<CAPTION>
=================================================================== ================================================
Name of Fund % Allocation
=================================================================== ================================================
<S> <C>
Colonial Income Fund
=================================================================== ================================================
Colonial High Yield Securities Fund
=================================================================== ================================================
Colonial Strategic Income Fund
=================================================================== ================================================
Stein Roe Advisor Tax Managed Growth Fund
=================================================================== ================================================
Colonial Short Duration U.S. Government Fund
=================================================================== ================================================
Newport Tiger Cub Fund
=================================================================== ================================================
Newport Japan Opportunities Fund
=================================================================== ================================================
Newport Greater China Fund
=================================================================== ================================================
Colonial Global Equity Fund
=================================================================== ================================================
Colonial International Horizons Fund
=================================================================== ================================================
Colonial Select Value Fund
=================================================================== ================================================
The Colonial Fund
=================================================================== ================================================
Colonial Global Utilities Fund
=================================================================== ================================================
Colonial Strategic Balanced Fund
=================================================================== ================================================
Colonial International Stock Fund
=================================================================== ================================================
Colonial Intermediate Tax Exempt Fund
=================================================================== ================================================
Colonial High Yield Municipal Fund
=================================================================== ================================================
Colonial Utilities Fund
=================================================================== ================================================
Colonial Tax Exempt Insured Fund
=================================================================== ================================================
Colonial Tax Exempt Fund
=================================================================== ================================================
Colonial California Tax Exempt Fund
=================================================================== ================================================
Colonial Connecticut Tax Exempt Fund
=================================================================== ================================================
Colonial Florida Tax Exempt Fund
=================================================================== ================================================
Colonial Massachusetts Tax Exempt Fund
=================================================================== ================================================
Colonial Michigan Tax Exempt Fund
=================================================================== ================================================
Colonial Minnesota Tax Exempt Fund
=================================================================== ================================================
Colonial New York Tax Exempt Fund
=================================================================== ================================================
Colonial North Carolina Tax Exempt Fund
=================================================================== ================================================
Colonial Ohio Tax Exempt Fund
=================================================================== ================================================
Colonial Small Cap Value Fund
=================================================================== ================================================
Colonial Growth and Income Fund
=================================================================== ================================================
Newport Tiger Fund
=================================================================== ================================================
Colonial Value Fund
=================================================================== ================================================
=================================================================== ================================================
Crabbe Huson Contrarian Fund
=================================================================== ================================================
=================================================================== ================================================
Crabbe Huson Contrarian Income Fund
=================================================================== ================================================
=================================================================== ================================================
Crabbe Huson Small Cap Fund
=================================================================== ================================================
=================================================================== ================================================
Crabbe Huson Managed Income & Equity Fund
=================================================================== ================================================
=================================================================== ================================================
Crabbe Huson Equity Fund
=================================================================== ================================================
=================================================================== ================================================
Crabbe Huson Real Estate Investment Fund
=================================================================== ================================================
=================================================================== ================================================
Crabbe Huson Oregon Tax-Free Fund
=================================================================== ================================================
=================================================================== ================================================
Newport Asia Pacific Fund
=================================================================== ================================================
=================================================================== ================================================
100%
=================================================================== ================================================
</TABLE>
<PAGE>
LIBERTY FUNDS TRUST I, ON BEHALF OF
COLONIAL INCOME FUND, COLONIAL HIGH
YIELD SECURITIES FUND, COLONIAL
STRATEGIC INCOME FUND AND STEIN ROE
TAX MANAGED GROWTH FUND
By:____________________________________________
Title:__________________________________________
LIBERTY FUNDS TRUST II, ON BEHALF OF
COLONIAL SHORT DURATION U.S.
GOVERNMENT FUND, NEWPORT
TIGER CUB FUND, NEWPORT JAPAN
OPPORTUNITIES FUND AND NEWPORT
GREATER CHINA FUND
By:____________________________________________
Title:__________________________________________
LIBERTY FUNDS TRUST III, ON BEHALF OF
COLONIAL GLOBAL EQUITY FUND, COLONIAL
INTERNATIONAL HORIZONS FUND, COLONIAL
SELECT VALUE FUND, THE COLONIAL FUND,
COLONIAL GLOBAL UTILITIES FUND,
COLONIAL STRATEGIC BALANCED FUND,
CRABBE HUSON CONTRARIAN FUND,
CRABBE HUSON CONTRARIAN INCOME FUND,
CRABBE HUSON SMALL CAP FUND, CRABBE
HUSON MANAGED INCOME & EQUITY FUND,
CRABBE HUSON EQUITY FUND, CRABBE
HUSON REAL ESTATE INVESTMENT FUND AND
CRABBE HUSON OREGON TAX-FREE FUND
By:____________________________________________
Title:__________________________________________
LIBERTY FUNDS TRUST IV, ON BEHALF OF
COLONIAL INTERMEDIATE TAX EXEMPT
FUND, COLONIAL HIGH YIELD MUNICIPAL
FUND, COLONIAL UTILITIES FUND,
COLONIAL TAX EXEMPT INSURED FUND AND
COLONIAL TAX EXEMPT FUND
By:____________________________________________
Title:__________________________________________
LIBERTY FUNDS TRUST V, ON BEHALF OF
COLONIAL CALIFORNIA TAX EXEMPT FUND,
COLONIAL CONNECTICUT TAX EXEMPT
FUND, COLONIAL FLORIDA TAX EXEMPT
FUND, COLONIAL MASSACHUSETTS TAX
EXEMPT FUND, COLONIAL MICHIGAN TAX
EXEMPT FUND,
COLONIAL MINNESOTA TAX EXEMPT FUND,
COLONIAL NEW YORK TAX EXEMPT FUND,
COLONIAL NORTH CAROLINA TAX EXEMPT
FUND AND COLONIAL OHIO TAX EXEMPT
FUND
By:____________________________________________
Title:__________________________________________
LIBERTY FUNDS TRUST VI, ON BEHALF OF
COLONIAL SMALL CAP VALUE FUND,
COLONIAL U.S. GROWTH AND INCOME FUND
AND COLONIAL VALUE FUND
By:____________________________________________
Title:__________________________________________
<PAGE>
LIBERTY FUNDS TRUST VII, ON BEHALF
OF NEWPORT TIGER FUND
By:____________________________________________
Title:__________________________________________
<PAGE>
EXHIBIT 4.1(c)
FORM OF OPINION OF COUNSEL TO THE FUNDS
<PAGE>
EXHIBIT 5.7-1
SCHEDULE OF LITIGATION
None.
<PAGE>
EXHIBIT 5.7-2
SCHEDULE OF CONTINGENT LIABILITIES
None.
<PAGE>
EXHIBIT 6.1
FORM OF BORROWING BASE CERTIFICATE
Reference is made to that certain Credit Agreement, dated as of April
29, 1996 (as amended, modified or supplemented from time to time, the "Credit
Agreement"), among certain investment companies party thereto, various financial
institutions party thereto and Bank of America National Trust and Savings
Association, as Agent. Capitalized terms used herein and not otherwise defined
shall have the meanings given to such terms in the Credit Agreement.
Pursuant to the terms of the Credit Agreement, the undersigned, on
behalf of and with respect to the [Name of Fund] (the "Fund"), hereby represents
and certifies to the Agent and the Banks that as of __________ __, 199_, (i) the
Borrowing Base of the Fund was the amount shown in subparagraph (e) below and
(ii) the Asset Coverage Ratio was the ratio set forth in subparagraph (f) below,
each calculated as follows:
(a) Net Asset Value ______________
(b) minus (without duplication) value of Assets subject to Liens
(including, without limitation, margin and asset allocation
arrangements but excluding Liens contemplated by Section
6.13(i) and (vi)) ______________
(c) Adjusted Net Asset Value
((a) minus (b)) ______________
(d) Indebtedness ______________
(e) Borrowing Base ((c) times 33 1/3%) ______________
(f) Asset Coverage Ratio ((c) divided
by (d)) ______________
The Asset Coverage Ratio of the Fund as set forth in its prospectus is
not more restrictive than 3 to 1.
[To the best knowledge of the undersigned Authorized Officer, no
Default with respect to the Fund has occurred and is continuing.]
[Describe Event of Default and actions being taken to remedy it.]
A copy of the Agreement and Declaration of Trust of the below-named
trust (the "Trust") is on file with the Secretary of State of The Commonwealth
of Massachusetts and the Clerk of the City of Boston, and notice is hereby given
that none of the shareholders, trustees, officers, employees and other agents of
the Trust or the Fund shall be personally bound by or liable for any
indebtedness, liability or obligation arising hereunder, nor shall resort be had
to their private property for the satisfaction of any obligations or claim
arising hereunder.
Date: ____________________ __________, on behalf of
[Name of Fund]
By:
Title: [Must be an Authorized
Officer]
<PAGE>
ANNEX I
Original Borrower Parties
Liberty Funds Trust I on behalf of Colonial Income Fund, Colonial High Yield
Securities Fund, Colonial Strategic Income Fund and Stein Roe Advisor Tax
Managed Growth Fund
Liberty Funds Trust II on behalf of Colonial Short Duration U.S. Government
Fund, Newport Tiger Cub Fund, Newport Japan Opportunities Fund and Newport
Greater China Fund
Liberty Funds Trust III on behalf of Colonial Global Equity Fund, Colonial
International Horizons Fund, Colonial Select Value Fund, The Colonial Fund,
Colonial Global Utilities Fund and Colonial Strategic Balanced Fund
Liberty Funds Trust IV on behalf of Colonial Intermediate Tax Exempt Fund,
Colonial High Yield Municipal Fund, Colonial Utilities Fund, Colonial Tax Exempt
Insured Fund and Colonial Tax Exempt Fund
Liberty Funds Trust V on behalf of Colonial California Tax Exempt Fund, Colonial
Connecticut Tax Exempt Fund, Colonial Florida Tax Exempt Fund, Colonial
Massachusetts Tax Exempt Fund, Colonial Michigan Tax Exempt Fund, Colonial
Minnesota Tax Exempt Fund, Colonial New York Tax Exempt Fund, Colonial North
Carolina Tax Exempt Fund and Colonial Ohio Tax Exempt Fund
Liberty Funds Trust VI on behalf of Colonial Small Cap Value Fund and Colonial
U.S. Growth and Income Fund
Liberty Funds Trust VII on behalf of Newport Tiger Fund
<PAGE>
New Borrower Parties
Liberty Funds Trust III, on behalf of Crabbe Huson Contrarian Fund, Crabbe Huson
Contrarian Income Fund, Crabbe Huson Small Cap Fund, Crabbe Huson Managed Income
& Equity Fund, Crabbe Huson Equity Fund, Crabbe Huson Real Estate Investment
Fund and Crabbe Huson Oregon Tax-Free Fund
Liberty Funds Trust VI, on behalf of Colonial Value Fund (formerly known as the
Colonial Equity Income Fund) and Newport Asia Pacific Fund
- --------
1 If request relates to a Swing Loan, insert Swing Loan.
2 Use immediately preceding Business Day.
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees of Colonial Trust III and
Shareholders of Crabbe Huson Funds:
We consent to the use of our report dated December 4, 1998 for the Crabbe Huson
Funds incorporated by reference herein and to the references to our firm under
the captions "Financial Highlights" in the prospectuses and "Independent
Auditors" in the Statement of Additional Information.
KPMG LLP
Boston, Massachusetts
August 12, 1999
