<PAGE>
Registration Nos: 33-12109
811-5030
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 25 [ X ]
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 26 [ X ]
----
LIBERTY FUNDS TRUST V (FORMERLY COLONIAL TRUST V)
-------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
-------------------------------------------------
(Address of Principal Executive Offices)
(617) 426-3750
--------------
(Registrant's Telephone Number, including Area Code)
Name and Address of Agent for Service: Copy to:
- ------------------------------------- -------
Nancy L. Conlin, Esquire John M. Loder, Esquire
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b).
[ X ] On May 31, 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 V (FORMERLY COLONIAL TRUST V)
------------------------------------------------
Cross Reference Sheet Pursuant to Rule 481(a)
---------------------------------------------
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
Item Number of Form N1A Location or Caption in Prospectus
- ----------------------- ---------------------------------
Part A
- ------
1. Front Cover Page; Back Cover Page
2. The Funds; Other Investment Strategies and Risks
3. The Funds
4. The Funds
5. Not Applicable
6. Front Cover Page; Managing the Funds; Your Account
7. Your Account
8. The Funds; Your Account
9. Financial Highlights
<PAGE>
COLONIAL STATE FUNDS Prospectus, May 31, 1999
- - 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
Advised by Colonial Management Associates, 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
TABLE OF CONTENTS
THE FUNDS 2
<TABLE>
<CAPTION>
<S> <C>
Investment Goal .................................................2
Primary Investment Strategies ...................................2
Primary Investment Risks ........................................2
Each of the following sections discusses Performance
History and Your Expenses for that Fund:
Colonial California Tax-Exempt Fund .............................5
Colonial Connecticut Tax-Exempt Fund ............................7
Colonial Florida Tax-Exempt Fund ................................9
Colonial Massachusetts Tax-Exempt Fund ..........................11
Colonial Michigan Tax-Exempt Fund ...............................13
Colonial Minnesota Tax-Exempt Fund ..............................15
Colonial New York Tax-Exempt Fund ...............................17
Colonial North Carolina Tax-Exempt Fund .........................19
Colonial Ohio Tax-Exempt Fund ...................................21
YOUR ACCOUNT 23
How To Buy Shares................................................23
Sales Charges ...................................................24
How to Exchange Shares ..........................................26
How to Sell Shares ..............................................26
Distribution and Service Fees ...................................27
Other Information About Your Account ............................28
MANAGING THE FUNDS 30
Investment Advisor ..............................................30
Portfolio Managers ..............................................30
OTHER INVESTMENT
STRATEGIES AND RISKS 31
FINANCIAL HIGHLIGHTS 33
Colonial California Tax-Exempt Fund .............................33
Colonial Connecticut Tax-Exempt Fund ............................35
Colonial Florida Tax-Exempt Fund ................................37
Colonial Massachusetts Tax-Exempt Fund ..........................39
Colonial Michigan Tax-Exempt Fund ...............................41
Colonial Minnesota Tax-Exempt Fund ..............................43
Colonial New York Tax-Exempt Fund ...............................45
Colonial North Carolina Tax-Exempt Fund .........................47
Colonial Ohio Tax-Exempt Fund ...................................49
</TABLE>
<PAGE>
THE FUNDS Colonial State Funds
UNDERSTANDING TAX-EXEMPT BONDS
TAX-EXEMPT BONDS are issued by state and local governments for various public
purposes. The interest on tax-exempt bonds typically is not subject to federal
income tax. As a result, the yields on tax-exempt securities are generally lower
than the yields on taxable bonds with similar maturities. Tax-exempt bond funds
may be appropriate for investors in high tax brackets who seek current income
that is free from state and federal tax.
INVESTMENT GOAL
Each Fund seeks as high a level of after-tax total return as is consistent with
prudent risk.
PRIMARY INVESTMENT STRATEGIES
Each Fund seeks to obtain its investment goal by pursuing current income exempt
from federal income tax and its state's personal income tax (if any) and by
pursuing opportunities for long-term appreciation. Under normal market
conditions, each Fund invests primarily in investment grade municipal bonds, the
interest on which is exempt from federal income tax and that state's income
taxes, other than any alternative minimum tax. Each Fund will invest at least
80% of its net assets in tax-exempt securities except when investing for
defensive purposes during time of adverse market conditions. The Florida Fund
may invest in municipal bonds not issued in the State of Florida that are exempt
from the Florida intangibles tax. The Minnesota Fund invests its assets so that
at least 95% of its exempt-interest are derived from Minnesota sources as
specified by Minnesota law.
In selecting municipal bonds for a Fund, the advisor primarily invests in
"investment grade" securities rated in the four highest categories by Standard &
Poor's Rating Services, a division of the McGraw-Hill Companies, Inc. (S&P), and
Moody's Investors Services, Inc. (Moody's) or unrated securities that the
advisor believes to be comparable in quality to investment grade securities.
Each Fund may also invest up to 25% of its total assets in lower rated debt
securities, which are rated below investment grade by Moody's or S&P, or
comparable unrated securities.
PRIMARY INVESTMENT RISKS
The following are the primary risks of investing in the Funds:
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse
determinations by the Internal Revenue Service may make the income from some of
these bonds taxable. Bonds that are backed by the issuer's taxing authority,
known as general obligations, may partially depend for payment on legislative
appropriation and/or aid from other governments. These bonds may be vulnerable
to legal limits on a government's power to raise revenue or increase taxes.
Other tax-exempt bonds, known as special revenue obligations, are payable from
revenues earned by a particular project or other revenue source. These bonds are
subject to greater risk of default than general obligations because investors
can look only to the revenue generated by the project or private company, rather
than to the credit of the state or local government issuer of the bonds.
2
<PAGE>
THE FUNDS Colonial State Funds
Interest rate risk is the risk of a change in the price of a bond when interest
rates change. In general, if interest rates rise, bond prices fall; and if
interest rates fall, bond prices rise. Changes in the values of bonds usually
will not affect the amount of income the Fund receives from them but will affect
the value of the Fund's shares. Interest rate risk is generally greater for
bonds with longer maturities.
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 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.
Lower rated debt securities involve greater risk of loss due to credit
deterioration and are less liquid, especially during periods of economic
uncertainty or change, than higher quality debt securities.
State Municipal Market Volatility. A state's municipal market is volatile and
can be significantly affected by adverse tax, legislative or political changes
and the financial and economic condition of the state that issues municipal
securities. As described below, municipal issues in each state will be affected
by these factors and will, in turn, affect the value of each Fund's investments.
California: California municipal issuers experienced severe financial
difficulties during the early 1990s. Although California's economy is recovering
there is no assurance that it will continue to do so. Voter passed initiatives
have restricted state and local taxing and spending authority. These and any
future initiatives could limit the state's financial flexibility and ultimately
impair their ability to repay debt obligation.
Connecticut: Although Connecticut is one of the wealthiest states in the nation
as measured by per capita income, the state faces the challenge of being one of
the costliest in which to live and do business. For example, southwestern
Connecticut has a concentration of companies in the financial services and many
management sectors. These companies are a driving force behind the state's
economy, however, they would be most affected by market volatility.
Florida: Florida does not impose a personal income tax on its residents and is
largely dependent on consumption-based taxes that are more susceptible to
general economic
3
<PAGE>
THE FUNDS Colonial State Funds
conditions. This could affect the state's ability to pay principal and interest
on municipal securities in an economic downturn. Florida relies heavily on the
agriculture, tourism and construction industries which are all susceptible to
the general economic condition.
Massachusetts: Massachusetts carries a substantial debt burden.
The Commonwealth continues to accumulate debt with ongoing infrastructure
projects such as the Central Artery/Third Harbor Tunnel project. Massachusetts'
economy has been susceptible to downturns in the U.S. economy, particularly in
the areas of high-technology, financial services, biotechnology and health care.
Michigan: Because Michigan's economy relies on motor vehicle production and
durable goods manufacturing, its economy is sensitive to trends in those
industries. Property tax reform in the early 1990s reduced a source of state
revenue, therfore decreasing the state's financial flexibility.
Minnesota: Minnesota has benefited from a diversified economy, with a clear base
in the manufacturing sector, the service sector including healthcare and
construction. The state faces the risk of a slow down in the manufacturing
sector as a significant portion of the state's manufacturing experts have gone
to Asian countries.
New York: The New York economy has generally improved since experiencing a
severe downturn in the early 1990s. However, expansion of the state's economy
still lags the national average. Surpluses in the state's budget in recent years
have offset earlier deficits, but the legislature has enacted multi-year tax
cuts which may create shortfalls in the future.
North Carolina: North Carolina's economy has diversified from the traditional
industries of textile, furniture and tobacco, into financial services, research
and high technology. In reaction to the economic downturn in the early 1990s the
state reduced expenditures and increased taxes to restore financial balance. The
potential impact of the world economic crisis on such non-durable goods
production present risks to the states economy.
Ohio: Ohio is an industrialized state with a diverse economy. The state's
concentration of export industries creates a higher degree of risk associated
with international economic conditions. Unemployment rates remain below the
national level; however, the state remains vulnerable to manufacturing led-
recession.
As non-diversified mutual funds, each Fund is allowed to invest a greater
percentage of its total net assets in the securities of a single issuer.
Therefore, each Fund may have an increased risk of loss compared to a similar
diversified mutual fund.
Because of these risks, the Funds may not achieve their investment goal and you
could lose money if you invest in the Funds.
4
<PAGE>
THE FUNDS Colonial state funds
Information on other securities in which the Funds may invest and other risks
that are not principal strategies and risks appear under "Other Investment
Strategies and Risks."
5
<PAGE>
THE FUNDS Colonial California Tax-Exempt Fund
UNDERSTANDING PERFORMANCE
Calendar-year total return shows the Fund's Class A share performance for each
of the last ten complete 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-year, five-year and ten-year periods. It includes the effects of Fund
expenses. The table shows each class's returns with sales charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. California Tax-Exempt Municipal peer group average (Lipper
Average). Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in the Lipper Average
or Lehman Index.
PERFORMANCE HISTORY (California)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and 10 years. 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)
[BAR GRAPH]
1989 9.13%
1990 5.98%
1991 11.21%
1992 7.81%
1993 10.54%
1994 -7.29%
1995 19.52%
1995 3.67%
1997 9.63%
1998 5.98%
The Fund's year-to-date total return through March 31, 1999 was +0.59%.
Best quarter: 1st quarter 1995, +8.14%
Worst quarter: 1st quarter 1994, -5.90%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Class A (%) 0.94 4.91 6.90
Class B (%) 0.19 4.82 6.91(1)
Class C (%) 4.50 5.81(1) 7.35(1)
Lehman Index (%) 6.48 6.22 8.22
Lipper Average (%) 5.77 5.67 7.62
</TABLE>
(1) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on August 4, 1992, and Class C shares were initially
offered on August 1, 1997.
6
<PAGE>
THE FUNDS Colonial California Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(2) 5.00 1.00
Redemption fee(3) (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 (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.15 0.90 0.90(4)
Other expenses (%) 0.21 0.21 0.21
Total annual fund operating expenses (%) 0.86 1.61 1.61(4)
</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 $558 $735 $927 $1,482
Class B: did not sell your shares $163 $507 $874 $1,706
sold all your shares at
the end of the period $663 $807 $1,074 $1,706
Class C: did not sell your shares $163 $507 $874 $1,907
sold all your shares at
the end of the period $263 $507 $874 $1,907
</TABLE>
(2) This charge applies only to purchases of $1 million to $5 million if shares
obtained through these purchases are redeemed within 18 months after
purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. As a result, the actual 12b-1 fee for Class C
shares was 0.60% and the total annual Fund operating expenses were 1.31%.
7
<PAGE>
THE FUNDS Colonial Connecticut Tax-Exempt 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 each class's returns with sales charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and Lipper, Inc. Connecticut Tax-Exempt Municipal peer group average (Lipper
Average). Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in Lipper Average or
Lehman Index.
PERFORMANCE HISTORY (Connecticut)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and since inception. 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)
1992 8.88%
1993 12.86%
1994 -7.24%
1995 16.99%
1996 3.74%
1997 9.19%
1998 6.44%
The Fund's year-to-date total return through March 31, 1999 was +0.38%.
Best quarter: 1st quarter 1995, +7.50%
Worst quarter: 1st quarter 1994, -6.38%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
SINCE
INCEPTION
(NOVEMBER
1 YEAR 5 YEARS 1, 1991)
<S> <C> <C> <C>
Class A (%) 1.39 4.50 6.46
Class B (%) 0.65 4.40 6.47(5)
Class C (%) 4.97 5.39(5) 7.09(5)
Lehman Index (%) 6.48 6.22 N/A
Lipper Average (%) 5.80 5.23 N/A
</TABLE>
(5) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on June 8, 1992, and Class C shares were initially
offered on August 1, 1997.
8
<PAGE>
THE FUNDS Colonial Connecticut Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(6) 5.00 1.00
Redemption fee(7) (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(8) (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.17 0.92 0.92(8)
Other expenses (%) 0.24 0.24 0.24
Total annual fund operating expenses(8) (%) 0.91 1.66 1.66
</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 $563 $750 $952 $1,536
Class B: did not sell your shares $168 $522 $900 $1,760
sold all your shares at
the end of the period $668 $822 $1,100 $1,760
Class C: did not sell your shares $168 $522 $900 $1,960
sold all your shares at
the end of the period $268 $522 $900 $1,960
</TABLE>
(6) 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.
(7) There is a $7.50 charge for wiring sale proceeds to your bank.
(8) The Fund's advisor voluntarily agreed to waive advisory fees and reimbursed
the Fund for certain expenses. The distributor has voluntarily agreed to
waive a portion of the Class C 12b-1 fee. As a result, the actual
management fee was 0.36% for each share class, the 12b-1 fee for Class C
shares was 0.62% and total annual Fund operating expenses for Classes A, B
and C were 0.77%, 1.52%, and 1.22%, respectively.
9
<PAGE>
THE FUNDS Colonial Florida Tax-Exempt 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 each class's returns with sales charges.
THE FUND'S RETURN is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. Florida Tax-Exempt Municipal peer group average (Lipper
Average). Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in the Lipper Average or
Lehman Index.
PERFORMANCE HISTORY (Florida)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and since inception. 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)
[BAR GRAPH]
<TABLE>
<S> <C>
1994 -7.27%
1995 16.59%
1996 3.62%
1997 9.11%
1998 5.93%
</TABLE>
The Fund's year-to-date total return through March 31, 1999 was -0.04%.
Best quarter: 1st quarter 1995, +7.66%
Worst quarter: 1st quarter 1994, -7.65%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
SINCE
INCEPTION
(FEBRUARY 1,
1 YEAR 5 YEARS 1993)
<S> <C> <C> <C>
Class A (%) 0.90 4.28 5.39
Class B (%) 0.14 4.19 5.35
Class C (%) 4.45 4.61(9) 5.55(9)
Lehman Index (%) 6.48 6.22 N/A
Lipper Average (%) 5.53 5.28 N/A
</TABLE>
(9) Class C (newer class shares) performance information includes returns of
the Fund's Class B shares (the oldest existing fund class) for periods
prior to the inception of the newer class shares. Class B shares were
initially offered on February 1, 1993 and Class C shares were initially
offered on August 1, 1997.
10
<PAGE>
THE FUNDS Colonial Florida Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(10) 5.00 1.00
Redemption fee(11) (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(12) (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.18 0.93 0.93(12)
Other expenses (%) 0.31 0.31 0.31
Total annual fund operating expenses(12) (%) 0.99 1.74 1.74
</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 $571 $775 $995 $1,628
Class B: did not sell your shares $177 $547 $943 $1,851
sold all your shares at
the end of the period $677 $847 $1,143 $1,851
Class C: did not sell your shares $177 $547 $943 $2,050
sold all your shares at
the end of the period $277 $547 $943 $2,050
</TABLE>
(10) 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.
(11) There is a $7.50 charge for wiring sale proceeds to your bank.
(12) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses. The distributor has voluntarily
agreed to waive a portion of the Class C 12b-1 fee. As a result, the actual
management fee would be 0.44% for each share class, the 12b-1 fee for Class
C shares would be 0.63% and total annual Fund operating expenses for
Classes A, B and C would be 0.93%, 1.68%, and 1.38%, respectively.
11
<PAGE>
THE FUNDS Colonial Massachusetts Tax-Exempt Fund
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURN shows the Fund's Class A share performance for each
of the last ten complete 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-year, five-year and ten-year periods. It includes the effects of Fund
expenses. The table shows each class's returns with sales charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. Massachusetts Tax-Exempt Municipal peer group average
(Lipper Average). Unlike the Fund, indices are not investments, do not incur
fees or expenses and are not professionally managed. It is not possible to
invest directly in indices. Sales charges are not reflected in the Lipper
Average or Lehman Index.
PERFORMANCE HISTORY (Massachusetts)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and 10 years. 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)
[BAR GRAPH]
<TABLE>
<S> <C>
1989 8.39%
1990 6.38%
1991 13.05%
1992 9.58%
1993 11.82%
1994 -5.70%
1995 18.36%
1995 2.92%
1997 9.02%
1998 6.00%
</TABLE>
The Fund's year-to-date total return through March 31, 1999 was +0.14%.
Best quarter: 1st quarter 1995, +7.42%
Worst quarter: 1st quarter 1994, -4.97%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 0.96 4.80 7.28
Class B (%) 0.24 4.72 7.29(13)
Class C (%) 4.53 5.70(13) 7.74(13)
Lehman Index (%) 6.48 6.22 8.22
Lipper Average (%) 5.42 5.33 7.57
</TABLE>
(13) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on June 8, 1992, and Class C shares were initially
offered on August 1, 1997.
12
<PAGE>
THE FUNDS Colonial Massachusetts Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(14) 5.00 1.00
Redemption fee(15) (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 (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.17 0.92 0.92(16)
Other expenses (%) 0.24 0.24 0.24
Total annual fund operating expenses (%) 0.91 1.66 1.66(16)
</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 $563 $750 $952 $1,536
Class B: did not sell your shares $168 $522 $900 $1,760
sold all your shares at
the end of the period $668 $822 $1,100 $1,760
Class C: did not sell your shares $168 $522 $900 $1,960
sold all your shares at
the end of the period $268 $522 $900 $1,960
</TABLE>
(14) 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.
(15) There is a $7.50 charge for wiring sale proceeds to your bank.
(16) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. As a result, the actual 12b-1 fee for Class C
shares was 0.62% and total annual Fund operating expenses were 1.36%.
13
<PAGE>
THE FUNDS Colonial Michigan Tax-Exempt Fund
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURN shows the Fund's Class A share performance for each
of the last ten complete 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-year, five-year and ten-year periods. It includes the effects of Fund
expenses. The table shows each class's returns with sales charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. Michigan Tax-Exempt Municipal peer group average (Lipper
Average). Unlike the Fund, the indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in the Lipper Average or
Lehman Index.
PERFORMANCE HISTORY (Michigan)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and 10 years. 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)
[BAR GRAPH]
<TABLE>
<S> <C>
1989 9.17%
1990 4.75%
1991 11.83%
1992 8.82%
1993 11.07%
1994 -5.95%
1995 16.54%
1996 3.24%
1997 9.71%
1998 5.96%
</TABLE>
The Fund's year-to-date total return through March 31, 1999 was +0.58%.
Best quarter: 1st quarter 1995, +7.41%
Worst quarter: 1st quarter 1994, -5.97%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 0.93 4.61 6.56
Class B (%) 0.18 4.52 6.57(17)
Class C (%) 4.49 5.50(17) 7.01(17)
Lehman Index (%) 6.48 6.22 8.22
Lipper Average (%) 5.23 5.22 7.58
</TABLE>
(17) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on, August 4, 1992, and Class C shares were initially
offered on August 1, 1997.
14
<PAGE>
THE FUNDS Colonial Michigan Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(18) 5.00 1.00
Redemption fee(19) (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 (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.15 0.90 0.90(20)
Other expenses (%) 0.34 0.34 0.34
Total annual fund operating expenses (20)(%) 0.99 1.74 1.74(20)
</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 $571 $775 $995 $1,628
Class B: did not sell your shares $177 $547 $943 $1,851
sold all your shares at
the end of the period $677 $847 $1,143 $1,851
Class C: did not sell your shares $177 $547 $943 $2,050
sold all your shares at
the end of the period $277 $547 $943 $2,050
</TABLE>
(18) There is a $7.50 charge for wiring sale proceeds to your bank.
(19) 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.
(20) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. As a result, the actual 12b-1 fee for Class C
shares would be 0.60% and the total annual Fund operating expenses
would be 1.44%.
15
<PAGE>
THE FUNDS Colonial Minnesota Tax-Exempt Fund
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURN shows the Fund's Class A share performance for each
of the last ten complete 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-year, five-year and ten-year (or life of the fund) periods. It includes the
effects of Fund expenses. The table shows each class's returns with sales
charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. Minnesota Tax-Exempt Municipal peer group average (Lipper
Average). Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in the Lipper Average or
Lehman Index.
PERFORMANCE HISTORY (Minnisota)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and 10 years. 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)
1989 8.10%
1990 7.31%
1991 9.30%
1992 7.35%
1993 10.70%
1994 -4.84%
1995 16.14%
1996 3.16%
1997 9.71%
1998 6.42%
The Fund's year-to-date total return through March 31, 1999 was +0.56%.
Best quarter: 1st quarter 1995, +7.06%
Worst quarter: 1st quarter 1994, -4.54%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 1.37 4.86 6.69
Class B (%) 0.71 4.77 6.70(21)
Class C (%) 4.96 5.75(21) 7.14(21)
Lehman Index (%) 6.48 6.22 8.22
Lipper Average (%) 5.55 5.26 7.35
</TABLE>
(21) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on August 4, 1992, and Class C shares were initially
offered on August 1, 1997.
16
<PAGE>
THE FUNDS Colonial Minnesota Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(22) 5.00 1.00
Redemption fee(23) (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 (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.17 0.92 0.92(24)
Other expenses (%) 0.33 0.33 0.33
Total annual fund operating expenses (%) 1.00 1.75 1.75(24)
</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 $572 $779 $1,003 $1,645
Class B: did not sell your shares $178 $552 $950 $1,867
sold all your shares at
the end of the period $678 $852 $1,150 $1,867
Class C: did not sell your shares $178 $552 $950 $2,066
sold all your shares at
the end of the period $278 $552 $950 $2,066
</TABLE>
(22) 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.
(23) There is a $7.50 charge for wiring sale proceeds to your bank.
(24) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares . As a result, the actual 12b-1 fee for Class
C shares would be 0.62% and total annual Fund operating expenses would be
1.45%.
17
<PAGE>
THE FUNDS Colonial New York Tax-Exempt Fund
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURN shows the Fund's Class A share performance for each
of the last ten complete 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-year, five-year and ten-year periods. It includes the effects of Fund
expenses. The table shows each class's returns with sales charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. New York Tax- Exempt Municipal peer group average (Lipper
Average). Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in the Lipper Average or
Lehman Index.
PERFORMANCE HISTORY (New York)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and 10 years. 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)
1989 7.66%
1990 5.33%
1991 12.69%
1992 8.50%
1993 12.21%
1994 -7.87%
1995 18.63%
1996 3.47%
1997 9.49%
1998 6.41%
The Fund's year-to-date total return through March 31, 1999 was +0.31%.
Best quarter: 1st quarter 1995, +8.29%
Worst quarter: 1st quarter 1994, -6.31%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 1.35 4.65 6.92
Class B (%) 0.61 4.55 6.93(25)
Class C (%) 4.93 5.54(25) 7.37(25)
Lehman Index (%) 6.48 6.22 8.22
Lipper Average (%) 5.64 5.17 7.57
</TABLE>
(25) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on August 4, 1992, and Class C shares were initially
offered on August 1, 1997.
18
<PAGE>
THE FUNDS Colonial New York Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(26) 5.00 1.00
Redemption fee(27) (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(28) (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.17 0.92 0.92(28)
Other expenses (%) 0.26 0.26 0.26
Total annual fund operating expenses(28) (%) 0.93 1.68 1.68
</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 $565 $757 $965 $1,562
Class B: did not sell your shares $171 $529 $912 $1,786
sold all your shares at
the end of the period $671 $829 $1,112 $1,786
Class C: did not sell your shares $171 $529 $912 $1,985
sold all your shares at
the end of the period $271 $529 $912 $1,985
</TABLE>
(26) 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.
(27) There is a $7.50 charge for wiring sale proceeds to your bank.
(28) The Fund's advisor voluntarily waived advisory fees and reimbursed the Fund
for certain expenses. The distributor has voluntarily agreed to waive a
portion of the Class C 12b-1 fee. As a result, the actual management fee
for each share class was 0.34%, the 12b-1 fee for Class C shares was 0.62%
and total annual operating expenses for Classes A, B and C were 0.77%,
1.52% and 1.22%, respectively.
19
<PAGE>
THE FUNDS Colonial North Carolina Tax-Exempt 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 each class's returns with sales charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. North Carolina Tax-Exempt Municipal peer group average
(Lipper Average). Unlike the Fund, indices are not investments, do not incur
fees or expenses and are professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in the Lipper Average or
Lehman Index.
PERFORMANCE HISTORY (North Carolina)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and since inception. 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)
[BAR GRAPH]
<TABLE>
<S> <C>
1994 -8.45%
1995 18.54%
1996 3.71%
1997 9.54%
1998 6.59%
</TABLE>
The Fund's year-to-date total return through March 31, 1999 was +0.27%.
Best quarter: 1st quarter 1995, +8.22%
Worst quarter: 1st quarter 1994, -7.18%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
SINCE
INCEPTION
(SEPTEMBER
1 YEAR 5 YEARS 1, 1993)
<S> <C> <C> <C>
Class A (%) 1.53 4.59 4.62
Class B (%) 0.80 4.50 4.64(29)
Class C (%) 5.11 4.89(29) 4.85(29)
Lehman Index (%) 6.48 6.22 8.22
Lipper Average (%) 5.56 5.13 7.18
</TABLE>
(29) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on September 1, 1993, and Class C shares were initially
offered on August 1, 1997.
20
<PAGE>
THE FUNDS Colonial North Carolina Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(30) 5.00 1.00
Redemption fee(31) (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 (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.17 0.92 0.92(32)
Other expenses (%) 0.43 0.43 0.43
Total annual fund operating expenses (%) 1.10 1.85 1.85(32)
</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 $582 $809 $1,054 $1,754
Class B: did not sell your shares $188 $582 $1,002 $1,976
sold all your shares at
the end of the period $688 $882 $1,202 $1,976
Class C: did not sell your shares $188 $582 $1,002 $2,172
sold all your shares at
the end of the period $288 $582 $1,002 $2,172
</TABLE>
(30) 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.
(31) There is a $7.50 charge for wiring sale proceeds to your bank.
(32) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. As a result, the actual 12b-1 fee for Class C
shares would be 0.62% and the total annual Fund operating expenses would be
1.55%.
21
<PAGE>
THE FUNDS Colonial Ohio Tax-Exempt Fund
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURN shows the Fund's Class A share performance for each
of the last ten complete 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-year, five-year and ten-year periods. It includes the effects of Fund
expenses. The table shows each class's returns with sales charges.
The Fund's return is compared to the Lehman Municipal Bond Index (Lehman Index)
and the Lipper, Inc. Ohio Tax-Exempt Municipal peer group average (Lipper
Average). Unlike the Fund, indices are not investments, do not incur fees or
expenses and are not professionally managed. It is not possible to invest
directly in indices. Sales charges are not reflected in the Lipper Average or
Lehman Index.
PERFORMANCE HISTORY (Ohio)
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. The
performance table following the bar chart shows how the Fund's average annual
returns for Class A, B and C shares compare with those of a broad measure of
market performance for 1 year, 5 years and 10 years. 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 reduction arrangements
may be discontinued at any time.
Calendar-Year Total Returns (Class A)
1989 8.13%
1990 7.17%
1991 10.97%
1992 8.69%
1993 10.97%
1994 -6.28%
1995 16.97%
1996 3.58%
1997 9.59%
1998 5.75%
The Fund's year-to-date total return through March 31, 1999 was 0.34.
Best quarter: quarter 1995, +7.08%
Worst quarter: quarter 1994, -6.21%
Average Annual Total Returns -- for periods ended December 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Class A (%) 0.72 4.62 6.87
Class B (%) 0.03 4.53 6.89(33)
Class C (%) 4.29 5.51(33) 7.33(33)
Lehman Index (%) 6.48 6.22 8.22
Lipper Average (%) 5.39 5.34 7.47
</TABLE>
(33) Class B and Class C (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A
share returns are not restated to reflect any differences in expenses (like
Rule 12b-1 fees) between Class A shares and the newer classes of shares. If
differences in expenses were reflected, the returns for periods prior to
the inception of the newer class shares would be lower. Class B shares were
initially offered on August 4, 1992, and Class C shares were initially
offered on August 1, 1997.
22
<PAGE>
THE FUNDS Colonial Ohio Tax-Exempt 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:
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same
- - 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) 4.75 0.00 0.00
Maximum deferred sales charge (load) on
redemptions (%) (as a percentage of the
offering price) 1.00(35) 5.00 1.00
Redemption fee(34) (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 (%) 0.50 0.50 0.50
Distribution and service (12b-1) fees (%) 0.15 0.90 0.90(36)
Other expenses (%) 0.27 0.27 0.27
Total annual fund operating expenses (%) 0.92 1.67 1.67(36)
</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 $ 564 $ 754 $ 960 $1,553
Class B: did not sell your shares $ 170 $ 527 $ 907 $1,777
sold all your shares at
the end of the period $ 670 $ 827 $1,107 $1,777
Class C: did not sell your shares $ 170 $ 527 $ 907 $1,976
sold all your shares at
the end of the period $ 270 $ 527 $ 907 $1,976
</TABLE>
(34) There is a $7.50 charge for wiring sale proceeds to your bank.
(35) 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.
(36) The Fund's distributor has voluntarily agreed to waive a portion of the
Class C shares 12b-1 fee. As a result, the actual 12b-1 fee for Class C
shares would be 0.60% and the total annual Fund operating expenses would be
1.37%.
23
<PAGE>
YOUR ACCOUNT
INVESTMENT MINIMUMS(37)
<TABLE>
<CAPTION>
<S> <C>
Initial Investment ........... $1,000
Subsequent Investments ....... $50
Automatic Purchase 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 the various options for buying shares:
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your account and
financial advisor buy Fund shares on your behalf.
By check For new accounts, send a completed application and check made payable
(new account) 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 investment
(existing account) stub included in your quarterly statement, or send a letter
of instruction (LOI) 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 another Fund at no
additional cost. To exchange by telephone, call 1-800-422-3737.
By wire You may purchase shares by wiring money from your bank account to your fund
account. To wire funds to your fund account, call 1-800-422-3737 to obtain a
control number and the wiring instructions.
By electronic funds You may purchase shares by electronically transferring money from your
transfer (EFT) 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 automatically from your
investment plan 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 fund into the
diversification same class of shares of another Fund at no additional sales charge. To
invest your dividends in another fund, call 1-800-345-6611.
</TABLE>
(37) 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.
24
<PAGE>
Your Account
CHOOSING A SHARE CLASS
The Funds 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.
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 Statement of Additional Information (SAI).
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your initial investment when you open your account. The sales charge you pay
on additional investments is based on the 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 table below also
shows the commission paid to the financial advisor firm on sales of Class A
shares.
The Funds
<TABLE>
<CAPTION>
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTMENT ADVISOR FIRM
<S> <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(38) 0.00% 0.00% 0.00%
</TABLE>
(38) 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.
25
<PAGE>
Your Account
UNDERSTANDING CONTINGENT
DEFERRED SALES CHARGES
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 the CDSC, the start of the
holding period is the month-end of the month in which the purchase is made.
Shares you purchase with reinvested dividends or capital gains are not subject
to a CDSC. When you place an order to sell shares, the fund will automatically
sell first those shares not subject to a CDSC and then those you have held the
longest. This policy helps reduce and possibly eliminate the potential impact of
the CDSC.
CLASS A SHARES 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(39)
</TABLE>
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge. In addition, certain investors may
purchase shares at a reduced sales charge or net asset value (NAV), which is the
value of a fund share excluding any sales charges. See the SAI for a description
of these situations.
CLASS B SHARES Your purchases of Class B shares are at a 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 up-front commission of
4.00% on sales of Class B shares for each of the State Funds).
The Funds
<TABLE>
<CAPTION>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE 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>
(39) Paid over 12 months but only to the extent the shares remain outstanding.
26
<PAGE>
Your Account
CLASS C SHARES Similar to Class B shares, your purchases of Class C shares are
at a 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 up-front
commission of 1.00% on sales of Class C shares.
The Funds
<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 a Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When a 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 Funds will generally send proceeds from the sale to you within seven days.
However, if you purchased your shares by check, a Fund may delay the sale of
your shares for up to 15 days after your initial purchase to protect against
checks that are returned.
27
<PAGE>
Your Account
Outlined below are the various options for selling shares:
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 order. To receive
financial advisor the financial advisor 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 a 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 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 electronically
funds transfer 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 0.10% for Class A shares
outstanding prior to November 30, 1994 and 0.25% for Class A shares thereafter,
and 1.00% for each of Class B and Class C shares, and are paid out of the assets
of these classes. The Distributor has voluntarily agreed to waive a portion of
each Fund's Class C share distribution fee so that it does not exceed 0.45%
annually. Over time, these fees will increase the cost of your shares and may
cost you more than paying other types of sales charges.(40)
(40) Class B shares automatically convert to Class A shares after eight
years, eliminating the distribution fee.
28
<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 Funds may use other data to determine the fair value of the
securities.
You can find the daily prices of some 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.
29
<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 The Funds have the potential to make the
following distributions:
Types of Distributions
<TABLE>
<S> <C>
Dividend/Ordinary Represents interest and dividends earned from securities
income held by each Fund; also includes short term capital
gains, which are gains on sales of securities a Fund buys
and then sells within a 12-month period.
Capital gains Represents capital gains on sales of securities held by
each Fund for more than 12 months.
</TABLE>
DISTRIBUTION OPTIONS Each Fund declares dividends daily and pays them monthly,
and any capital gains at least annually. Dividends begin to accrue on the day
that we receive payment and stop accruing on the day prior to the shares leaving
the account. You can choose one of following options for these distributions
when you open your account.(41) 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(42)
Receive all distributions in cash (with one of the following options):(42)
- - send the check to your address of record
- - send the check to a third party address
- - transfer the money to your bank via EFT
TAX CONSEQUENCES For federal income tax purposes, distributions of net
investment income by a Fund, whether in cash or additional securities, will
ordinarily constitute tax exempt income. Ordinarily, gains realized by the Fund
on the sale or exchange of investments, the income from which is tax-exempt,
will be taxable to shareholders. In addition, an investment in the Fund may
result in liability for federal Alternative Minimum Tax (AMT) both for
individuals and corporate shareholders.
You will be provided with information each year regarding the amount of ordinary
income and capital gains distributed to you for the previous year and any
portion of your distributions which is exempt from state and local taxes. Your
investment in the Fund may have additional personal tax implications. Please
consult your tax advisor on state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal income tax.
(41) If you do not indicate on your application your preference for handling
distributions, a Fund will automatically reinvest all distributions in
additional shares of the Fund.
(42) 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.
30
<PAGE>
MANAGING THE FUNDS
INVESTMENT ADVISOR
Colonial Management Associates, Inc. (Colonial), located at One Financial
Center, Boston, Massachusetts 02111, is the Funds' investment advisor. In its
duties as investment advisor, Colonial runs the Funds' day-to-day business,
including placing all orders for the purchase and sale of each Fund's portfolio
securities. Colonial has been an investment advisor since 1931. As of April 30,
1999, Colonial managed over $16.2 billion in assets.
Colonial's investment advisory business is managed together with the mutual
funds and institutional investment advisory businesses of its affiliate, Stein
Roe & Farnham Incorporated (Stein Roe), by a combined management team of
employees from both companies. Stein Roe also shares personnel, facilities and
systems with Colonial that may be used in providing administrative services to
the Funds. Both Colonial and Stein Roe are subsidiaries of Liberty Financial
Companies, Inc.
For the 1998 fiscal year, aggregate advisory fees paid to Colonial by the
California Fund, Connecticut Fund, Florida Fund, Massachusetts Fund, Michigan
Fund, Minnesota Fund, New York Fund, North Carolina Fund and Ohio Fund amounted
to 0.50%, 0.36%, 0.33%, 0.50%, 0.44%, 0.44%, 0.34%, 0.21% and 0.48% of average
daily net assets of each Fund, respectively.
PORTFOLIO MANAGERS
BRIAN M. HARTFORD, Senior Vice President of Colonial, has managed the Minnesota
Fund and other Colonial tax-exempt funds since 1993 and the North Carolina Fund
since August 1997. Mr. Hartford was a senior municipal trader of Colonial from
1991 until 1993.
WILLIAM C. LORING, Senior Vice President of Colonial, has managed the Ohio Fund
and the Michigan Fund since October 1997. Mr. Loring has managed various other
Colonial tax-exempt funds since 1986.
MAUREEN G. NEWMAN, Senior Vice President of Colonial, has managed the Florida
Fund since August 1997. Ms. Newman has managed various other Colonial tax-exempt
funds since May 1996. Prior to joining Colonial, Ms. Newman was a portfolio
manager and bond analyst at Fidelity Investments from May 1985 until May 1996.
GARY SWAYZE, Senior Vice President of Colonial, has managed the New York Fund
since September 1997, the California Fund since October 1997, the Connecticut
Fund since November 1997 and the Massachusetts Fund since July 1998. Prior to
joining Colonial in 1997, Mr. Swayze was a portfolio manager and a group leader
at Fidelity Management and Research Company and the writer and editor of a bond
market newsletter.
31
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
UNDERSTANDING THE FUNDS'
OTHER INVESTMENTS AND RISKS
Each Fund's primary investments and risks are described under "The Funds
- --Primary Investment Strategies" and "The Funds-- Primary Investment Risks." In
seeking to meet their investment goal, the Funds may also invest in other
securities and utilize other investment techniques. These securities and
investment techniques offer certain opportunities and carry various risks.
A Fund may elect not to buy all of these securities or use all of these other
techniques to the fullest extent permitted, unless it believes that doing so
will help the Fund achieve its investment goal. The Fund may not always achieve
its investment goal.
Additional information about a Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment techniques, is
contained in the SAI.
DERIVATIVES
Each Fund may enter into a number of hedging strategies, including those that
employ futures and options, to gain or reduce exposure to particular securities
or markets. These strategies may involve the use of financial instruments
commonly referred to as derivatives, whose value depends on, or is derived from,
the value of an underlying security, index or currency. The Funds may use
derivatives for hedging purposes (attempting to offset a potential loss in one
position by establishing an interest in an opposite position). Derivatives
involve the risk that they may exaggerate a loss, potentially losing more money
than the actual cost of the security, or limit a potential gain. Also, with some
derivatives there is the risk that the other party to the transaction may fail
to honor its contract terms, causing a loss to the Funds.
ASSET-BACKED SECURITIES(AMT)
Each Fund may invest in asset-backed securities, which are interests in pools of
debt securities. These securities involve prepayment risks, which is the
possibility that the underlying debt may be refinanced or prepaid prior to
maturity during periods of declining interest rates. In an environment of
declining interest rates, asset-backed securities may offer less potential for
gain than other debt securities. During periods of rising interest rates,
asset-backed securities have a high risk of declining in price because the
declining prepayment rates effectively increase the maturity of the securities.
In addition, the potential impact of prepayment on the price of an asset-backed
security may be difficult to predict and result in greater volatility.
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations are revenue bonds backed by leases or installment
purchase contracts for property or equipment. Lease obligations may not be
backed by the issuing municipality and a Fund may have limited recourse in the
event of a default or termination: may involve risks not usually associated with
general obligation bonds and other revenue bonds.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DOLLAR ROLLS
When-issued securities and forward commitments are securities which are
purchased prior to the date they are actually issued or delivered. These
securities involve the risk that they may fall in value by the time they are
actually issued or that the other party may fail to honor the contract terms. In
a dollar roll, a Fund sells a security and simultaneously enters into a
commitment to purchase a similar security at a later date. Dollar rolls also
involve the risk that the other party may not honor the contract terms.
ZERO COUPON BONDS
Each Fund may invest in zero coupon bonds. Zero coupon bonds are issued at less
than their face value and do not make any payments of interest. As a result,
these bonds include greater credit risk and are subject to greater volatility
than bonds that pay cash interest on a current basis.
32
<PAGE>
INVERSE FLOATERS
Each Fund may invest in inverse floaters, which are bonds that vary inversely
with short-term tax-exempt interest rates. The interest rates on these bonds
typically fall as short-term market interest rates rise and typically rise as
short-term market rates fall. Their market values are subject to greater risk
of fluctuation than securities bearing a fixed rate of interest, and they are
therefore generally more volatile.
ALTERNATIVE MINIMUM TAX (AMT)
The interest income distributed by the Funds from certain tax-exempt bonds may
be subject to the federal AMT for individuals and corporations. As a
fundamental policy that cannot be changed without shareholder approval, each
Fund may not invest more than 20% of its assets in bonds subject to the AMT.
Consult your tax advisor for more information.
TEMPORARY DEFENSE STRATEGIES
The advisor may determine that adverse market conditions make it desirable to
suspend temporarily a Fund's normal investment activities. During such times,
as a temporary defensive strategy, any of the nine Funds may invest in cash or
high-quality, short-term debt securities, without limit. Taking a temporary
defensive position may prevent a Fund from achieving its investment goal.
In seeking to achieve its goal, each Fund may invest in various types of
securities and engage in various investment techniques which are not the
principal focus of such Fund and therefore are not described in this prospectus.
These types of securities and investment practices are identified and discussed
in the Funds' (SAI), which you may obtain by contacting LFD(see back cover for
address and phone number). Approval by each Fund's shareholders is not required
to modify or change such Fund's goals or investment strategies.
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, 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.
--
33
<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 February 1 to January 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 applicable Funds (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, independent accountants, whose report, along with the Funds' financial
statements, is included in each Fund's annual report. You can request a free
copy of each Fund's annual report by calling 1-800-426-3750.
COLONIAL CALIFORNIA TAX-EXEMPT FUND
<TABLE>
<CAPTION>
Years ended January 31, 1999
1999 1998 1997
--------------------------- ----------------------------- -----------------
Class A Class B Class C Class A Class B Class C(b) Class A Class B
------- ------- ------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($)................... 7.720 7.720 7.720 7.370 7.370 7.660 7.540 7.540
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income....................... 0.354 0.294 0.318(a) 0.366 0.310 0.164(c) 0.386 0.331
Net realized and unrealized gain (loss)..... 0.111 0.111 0.111 0.426 0.426 0.132 (0.173) (0.173)
Total from Investment Operations............ 0.465 0.405 0.429 0.792 0.736 0.296 0.213 0.158
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($)
From net investment income.................. (0.352) (0.294) (0.317) (0.369) (0.313) (0.167) (0.383) (0.328)
In excess of net investment income.......... (0.012) (0.010) (0.011) (0.004) (0.004) -- -- --
From net realized gains..................... (0.075) (0.075) (0.075) (0.068) (0.068) (0.069) -- --
In excess of net realized gains............. (0.016) (0.016) (0.016) (0.001) (0.001) -- -- --
Total Distributions
Declared to Shareholders.................... (0.455) (0.395) (0.419) (0.442) (0.386) (0.236) (0.383) (0.328)
Net asset value --
End of period ($)......................... 7.730 7.730 7.730 7.720 7.720 7.720 7.370 7.370
Total return (%)(d)......................... 6.23 5.42 5.74(e) 11.05 10.23 3.93(e)(f) 2.98 2.21
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses(g)................................. 0.86 1.61 1.31(a) 0.87 1.62 1.32(c)(h) 0.88 1.63
Net investment income(g).................... 4.60 3.85 4.15(a) 4.92 4.17 4.32(c)(h) 5.23 4.48
Portfolio turnover.......................... 13 13 13 31 31 31 25 25
Net assets at end of period (000) ($)....... 246,576 99,485 5,963 255,838 101,657 101,657 264,053 100,873
</TABLE>
(a) Net of fees waived by the distributor which amounted to $0.023 per share
and 0.003%.
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Net of fees waived by the distributor which amounted to $0.011 per share
and 0.30%.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Had the advisor and/or distributor not waived a portion of expenses, total
return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(h) Annualized.
34
<PAGE>
Colonial California Tax-Exempt Fund
<TABLE>
<CAPTION>
Years ended January 31
1996 1995
<S> <C> <C> <C> <C>
Class A Class B Class A Class B
Net asset value --
Beginning of period ($) 6.870 6.870 7.660 7.660
Income from Investment
Operations ($)
Net investment income (a) 0.388 0.334 0.413 0.360
Net realized and
unrealized gain (loss) 0.671 0.671 (0.791) (0.791)
Total from Investment
Operations 1.059 1.005 (0.378) (0.431)
Less Distributions
Declared to
Shareholders ($)
From net investment
income (0.389) (0.335) (0.412) (0.359)
Net asset value --
End of period ($) 7.540 7.540 6.870 6.870
Total return (%) (b)(c) 15.78 14.94 (4.83) (5.55)
Ratios to Average
Net Assets (%)
Expenses 0.89(d) 1.64(d) 0.77 1.52
Net investment income 5.33(d) 4.58(d) 5.91 5.16
Fees and expenses waived
or borne by the advisor 0.01(d) 0.01(d) 0.06 0.06
Portfolio turnover 47 47 47 47
Net assets at end of period (000) ($) 304,581 106,925 301,912 98,975
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: $ 0.001 0.001 0.004 0.004
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
35
<PAGE>
Financial Highlights
Colonial Connecticut Tax-Exempt Fund
<TABLE>
<CAPTION>
Years ended January 31
1999 1998
Class A Class B Class C Class A Class B
<S> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.830 7.830 7.830 7.490 7.490
Income from Investment
Operations ($)
Net investment income (a) (h) 0.369 0.308 0.333(c) 0.385 0.328
Net realized and
unrealized gain (loss) 0.129 0.129 0.129 0.344 0.344
Total from Investment
Operations 0.498 0.437 0.462 0.729 0.672
Less Distributions
Declared to
Shareholders ($)
From net investment
income (0.368) (0.309) (0.333) (0.386) (0.330)
In excess of net
investment income (0.010) (0.008) (0.009) (0.003) (0.002)
Total Distributions
Declared to Shareholders (0.378) (0.317) (0.342) (0.389) (0.332)
Net asset value --
End of period ($) 7.950 7.950 7.950 7.830 7.830
Total return (%)(e)(f) 6.54 5.73 6.05 10.00 9.19
Ratios to Average
Net Assets (%)
Expenses(h) 0.77 1.52 1.22(c) 0.62 1.37
Net investment income (h) 4.69 3.94 4.24(c) 5.04 4.29
Fees and expenses waived
or borne by the advisor (h) 0.14 0.14 0.14 0.29 0.29
Portfolio turnover 6 6 6 12 12
Net assets at end of period (000) ($) 83,156 87,947 1,333 80,035 84,370
(a) Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.011 0.011 0.011 0.022 0.022
</TABLE>
<TABLE>
<CAPTION>
Years ended January 31
1998 1997
Class C(b) Class A Class B
<S> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.710 7.630 7.630
Income from Investment
Operations ($)
Net investment income (a) 0.173(d) 0.393 0.338
Net realized and
unrealized gain (loss) 0.124 (0.141) (0.141)
Total from Investment
Operations 0.297 0.252 0.197
Less Distributions
Declared to
Shareholders ($)
From net investment
income (0.177) (0.392) (0.337)
In excess of net
investment income -- -- --
Total Distributions
Declared to Shareholders (0.177) (0.392) (0.337)
Net asset value --
End of period ($) 7.830 7.490 7.490
Total return (%)(e)(f) 3.90(g) 3.48 2.71
Ratios to Average
Net Assets (%)
Expenses(h) 1.09(d)(i) 0.59 1.34
Net investment income (h) 4.48(d)(i) 5.28 4.53
Fees and expenses waived
or borne by the advisor (h) 0.28(i) 0.31 0.31
Portfolio turnover 12 21 21
Net assets at end of period (000) ($) 480 74,059 81,437
(a) Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.021 0.023 0.023
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Net of fees waived by the distributor which amounted to $0.024 per share
and 0.30%.
(d) Net of fees waived by the distributor which amounted to $0.012 per share
and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the advisor and/or distributor not waived a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(i) Annualized.
36
<PAGE>
Financial Highlights
COLONIAL CONNECTICUT TAX-EXEMPT FUND
<TABLE>
<CAPTION>
Years ended January 31
1996 1995
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.080 7.080 7.890 7.890
Income from Investment
Operations ($)
Net investment income(a) 0.400 0.345 0.418 0.363
Net realized and
unrealized gain (loss) 0.552 0.552 (0.809) (0.809)
Total from Investment
Operations 0.952 0.897 (0.391) (0.446)
Less Distributions
Declared to
Shareholders ($)
From net investment
income (0.402) (0.347) (0.418) (0.363)
In excess of net
investment income -- -- (0.001) (0.001)
Total Distributions
Declared to Shareholders (0.402) (0.347) (0.419) (0.364)
Net asset value --
End of period ($) 7.630 7.630 7.080 7.080
Total return (%)(b)(c) 13.77 12.93 (4.85) (5.57)
Ratios to Average
Net Assets (%)
Expenses 0.51(d) 1.25(d) 0.32 1.07
Net investment income 5.42(d) 4.68(d) 5.81 5.06
Fees and expenses waive
or borne by the advisor 0.42(d) 0.42(d) 0.55 0.55
Portfolio turnover 13 13 22 22
Net assets at end of
period (000) ($) 80,039 82,785 74,616 73,580
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.031 0.031 0.039 0.039
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived a portion of expenses, total
return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
37
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Florida Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1999 1998 1997
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(b) CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.790 7.790 7.790 7.430 7.430 7.710 7.620 7.620
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income(a) 0.356 0.296 0.320(c) 0.388 0.332 0.172(d) 0.395 0.340
Net realized and
unrealized gain (loss) 0.119 0.119 0.119 0.361 0.361 0.082 (0.194) (0.194)
Total from Investment
Operations 0.475 0.415 0.439 0.749 0.693 0.254 0.201 0.146
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment income (0.366) (0.307) (0.331) (0.389) (0.333) (0.174) (0.391) (0.336)
In excess of net investment
income (0.009) (0.008) (0.008) -- -- -- -- --
Total Distributions
Declared to Shareholders (0.375) (0.315) (0.339) (0.389) (0.333) (0.174) (0.391) (0.336)
Net asset value --
End of period ($) 7.890 7.890 7.890 7.790 7.790 7.790 7.430 7.430
Total return (%) (e)(f) 6.29 5.48 5.80 10.37 9.55 3.35(g) 2.80 2.03
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses (h) 0.82 1.57 1.27(c) 0.59 1.34 1.04(d)(j) 0.56 1.31
Interest expense -- -- -- -- -- -- (i) (i)
Net investment income(h) 4.59 3.84 4.14(c) 5.08 4.33 4.63(d)(j) 5.31 4.56
Fees and expenses waived
or borne by the advisor(h) 0.17 0.17 0.17 0.41 0.41 0.40(j) 0.44 0.44
Portfolio turnover 50 50 50 32 32 32 69 69
Net assets at end of
period (000) ($) 29,526 30,891 345 32,150 33,665 103 31,275 33,341
(a) Net of fees and expenses waived
or borne by the advisor which
amounted to: ($) 0.013 0.013 0.013 0.031 0.031 0.031 0.032 0.032
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(c) Net of fees waived by the distributor which amounted to $0.023 per
share and 0.30%.
(d) Net of fees waived by the distributor which amounted to $0.012 per
share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g) Not annualized.
(h) In 1999 and 1998, the benefits derived from custody credits and
directed brokerage arrangements had an impact of 0.01% and $0.001 per
share.
(i) Rounds to less than 0.01%.
(j) Annualized.
38
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Florida Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1996 1995
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.100 7.100 7.930 7.930
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.404 0.351 0.423 0.369
Net realized and
unrealized gain (loss) 0.535 0.533 (0.839) (0.839)
Total from Investment
Operations 0.939 0.884 (0.416) (0.470)
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.419) (0.364) (0.414) (0.360)
Net asset value --
End of period ($) 7.620 7.620 7.100 7.100
Total return (%) (b)(c) 13.55 12.72 (5.11) (5.83)
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses 0.45(d) 1.18(d) 0.22 0.97
Net investment income 5.45(d) 4.72(d) 5.92 5.17
Fees and expenses waived
or borne by the advisor 0.55(d) 0.55(d) 0.73 0.73
Portfolio turnover 83 83 45 45
Net assets at end of
period (000) ($) 32,599 35,741 27,498 31,116
(a)Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.040 0.040 0.052 0.052
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
39
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Massachusetts Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1999 1998 1997
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(a) CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 8.100 8.100 8.100 7.810 7.810 8.070 8.040 8.040
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income 0.384 0.322 0.347(b) 0.403 0.344 0.180(c) 0.415 0.357
Net realized and
unrealized gain (loss) 0.104 0.104 0.104 0.352 0.352 0.090 (0.234) (0.234)
Total from Investment
Operations 0.488 0.426 0.451 0.755 0.696 0.270 0.181 0.123
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.378) (0.318) (0.343) (0.406) (0.347) (0.180) (0.411) (0.353)
In excess of net
investment income (0.014) (0.012) (0.012) (0.003) (0.003) (0.004) -- --
From net realized gains (0.133) (0.103) (0.133) (0.056) (0.056) (0.056) -- --
In excess of net
realized gains (0.003) (0.033) (0.003) -- -- -- -- --
Total Distributions
Declared to Shareholders (0.528) (0.466) (0.491) (0.465) (0.406) (0.240) (0.411) (0.353)
Net asset value --
End of period ($) 8.060 8.060 8.060 8.100 8.100 8.100 7.810 7.810
Total return (%)(d) 6.25 5.44 5.76(e) 9.94 9.13 3.40 2.43 1.66
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses(g) 0.91 1.66 1.36(b) 0.90 1.65 1.37(c)(h) 0.90 1.65
Net investment income(g) 4.69 3.94 4.24(b) 5.05 4.30 4.47(c)(h) 5.32 4.57
Fees and expenses waived
or borne by the advisor (g) -- -- -- -- -- -- 0.00 0.00
Portfolio turnover 21 21 21 14 14 14 29 29
Net assets at end of
period (000) ($) 180,628 59,789 698 182,721 59,160 206 184,221 59,143
</TABLE>
(a) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(b) Net of fees waived by the distributor which amounted to $0.024 per
share and 0.30%.
(c) Net of fees waived by the distributor which amounted to $0.012 per
share and 0.30%.
(d) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sale charge.
(e) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(f) Not annualized. Had the advisor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(h) Annualized.
40
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Massachusetts Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1996 1995
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.390 7.390 8.130 8.130
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.424 0.367 0.444 0.388
Net realized and
unrealized gain (loss) 0.650 0.650 (0.738) (0.738)
Total from Investment
Operations 1.074 1.017 (0.294) (0.350)
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.424) (0.367) (0.446) (0.390)
Net asset value --
End of period ($) 8.040 8.040 7.390 7.390
Total return (%)(b)(c) 14.90 14.05 (3.49) (4.21)
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses 0.85(d) 1.60(d) 0.72 1.47
Net investment income 5.49(d) 4.74(d) 5.93 5.18
Fees and expenses waived
or borne by the advisor 0.06(d) 0.06(d) 0.12 0.12
Portfolio turnover 21 21 58 58
Net assets at end of period (000) ($) 207,759 60,651 193,303 53,973
(a) Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.005 0.005 0.009 0.009
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benifits
received, if any.
41
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Michigan Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1999 1998 1997
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(b) CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.320 7.320 7.320 6.930 6.930 7.200 7.130 7.130
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.341 0.285 0.307(c) 0.352 0.299 0.156(d) 0.354 0.302
Net realized and
unrealized gain (loss) 0.111 0.111 0.111 0.386 0.386 0.122 (0.198) (0.198)
Total from Investment
Operations 0.452 0.396 0.418 0.738 0.685 0.278 0.156 0.104
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($)
From net investment income (0.343) (0.288) (0.310) (0.348) (0.295) (0.158) (0.354) (0.303)
In excess of net
investment income (0.008) (0.007) (0.007) -- -- -- (0.002) (0.001)
From net realized gains (0.075) (0.075) (0.075) -- -- -- -- --
In excess of net realized gains (0.016) (0.016) (0.016) -- -- -- -- --
Total Distributions
Declared to Shareholders (0.442) (0.386) (0.408) (0.348) (0.295) (0.158) (0.356) (0.304)
Net asset value --
End of period ($) 7.330 7.330 7.330 7.320 7.320 7.320 6.930 6.930
Total return (%)(e)(f) 6.38 5.57 5.89 10.93 10.11 3.92(g) 2.35 1.58
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses (h) 0.93 1.68 1.38(c) 0.90 1.65 1.35(d)(i) 0.89 1.64
Net investment income (h) 4.64 3.89 4.19(c) 4.95 4.20 4.35(d)(i) 5.12 4.37
Fees and expenses waived
or borne by the advisor(h) 0.06 0.06 0.06 0.13 0.13 0.15(i) 0.12 0.12
Portfolio turnover 15 15 15 32 32 32 25 25
Net assets at end of
period (000) ($) 38,606 12,581 1,358 39,048 12,762 103 39,606 13,364
(a) Net of fees and expenses waived
or borne by the advisor which
amounted to: ($) 0.004 0.004 0.004 0.009 0.009 0.010 0.008 0.008
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(c) Net of fees waived by the distributor which amounted to $0.022 per
share and 0.30%.
(d) Net of fees waived by the Distributor which amounted to $0.011 per
share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benifits derived from custody credits and directed brokerage
arrangements had no impact.
(i) Annualized.
42
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Michigan Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1996 1995
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 6.660 6.660 7.340 7.340
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.368 0.317 0.410 0.359
Net realized and
unrealized gain (loss) 0.484 0.484 (0.689) (0.689)
Total from Investment
Operations 0.852 0.801 (0.279) (0.330)
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.382) (0.331) (0.401) (0.350)
Total Distributions
Declared to Shareholders (0.382) (0.331) (0.401) (0.350)
Net asset value --
End of period ($) 7.130 7.130 6.660 6.660
Total return (%) (b)(c) 13.13 12.30 (3.66) (4.39)
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses 0.80(d) 1.55(d) 0.62 1.37
Net investment income 5.34(d) 4.59(d) 6.08 5.33
Fees and expenses waived
or borne by the advisor 0.25(d) 0.25(d) 0.32 0.32
Portfolio turnover 48 48 40 40
Net assets at end of
period (000) ($) 43,308 15,236 41,844 14,144
(a) Net of fees and expenses waived or borne
by the advisor which amounted to: ($) 0.017 0.017 0.022 0.022
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
43
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Minnesota Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1999 1998 1997
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(b) CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.490 7.490 7.490 7.130 7.130 7.470 7.350 7.350
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.351 0.293 0.316(c) 0.362 0.308 0.163(d) 0.369 0.316
Net realized and
unrealized gain (loss) 0.110 0.110 0.110 0.405 0.405 0.066 (0.222) (0.222)
Total from Investment
Operations 0.461 0.403 0.426 0.767 0.713 0.229 0.147 0.094
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS($)
From net investment
income (0.345) (0.289) (0.311) (0.362) (0.308) (0.164) (0.367) (0.314)
In excess of net
investment income (0.015) (0.013) (0.014) -- -- -- -- --
From net realized gains (0.182) (0.182) (0.182) (0.045) (0.045) (0.045) -- --
In excess of realized gains (0.049) (0.049) (0.049) -- -- -- -- --
Total Distributions
Declared to Shareholders (0.591) (0.533) (0.556) (0.407) (0.353) (0.209) (0.367) (0.314)
Net asset value --
End of period ($) 7.360 7.360 7.360 7.490 7.490 7.490 7.130 7.130
Total return (%)(e)(f) 6.40 5.59 5.91 11.04 10.22 3.13(g) 2.16 1.40
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses (h) 0.94 1.69 1.39(c) 0.91 1.66 1.36(d)(i) 0.90 1.65
Net investment income (h) 4.62 3.87 4.17(c) 4.97 4.22 4.40(d)(i) 5.19 4.44
Fees and expenses waived
or borne by the advisor(h) 0.06 0.06 0.06 0.11 0.11 0.12(i) 0.13 0.13
Portfolio turnover 34 34 34 19 19 19 27 27
Net assets at end of
period (000) ($) 32,075 21,398 270 32,824 20,278 136 34,986 19,389
(a) Net of fees and expenses waived
or borne by the advisor which
amounted to: ($) 0.005 0.005 0.005 0.008 0.008 0.008 0.009 0.009
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(c) Net of fees waived by the distributor which amounted to $0.022 per
share and 0.30%.
(d) Net of fees waived by the distributor which amounted to $0.011 per
share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(i) Annualized.
44
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Minnesota Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1996 1995
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 6.840 6.840 7.480 7.480
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.384 0.332 0.415 0.363
Net realized and
unrealized gain (loss) (0.516) (0.516) (0.642) (0.642)
Total from Investment
Operations 0.900 0.848 (0.227) (0.279)
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.390) (0.338) (0.413) (0.361)
In excess of net
investment income -- -- -- --
From capital paid in -- -- -- --
Total Distributions
Declared to Shareholders (0.390) (0.338) (0.413) (0.361)
Net asset value -- End of period ($) 7.350 7.350 6.840 6.840
Total return (%)(b)(c) 13.50 12.66 (2.92) (3.65)
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses 0.85(d) 1.60(d) 0.72 1.47
Net investment income 5.41(d) 4.66(d) 5.98 5.23
Fees and expenses waived
or borne by the advisor 0.24(d) 0.24(d) 0.26 0.26
Portfolio turnover 42 42 26 26
Net assets at end of
period (000) ($) 36,586 19,083 35,846 14,731
(a) Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.016 0.016 0.018 0.018
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net benefits
received, if any.
45
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial New York Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1999 1998 1997
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(b) CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.380 7.380 7.380 7.040 7.040 7.270 7.250 7.250
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.358 0.301 0.324(c) 0.383 0.330 0.171(d) 0.393 0.340
Net realized and
unrealized gain (loss) 0.115 0.115 0.115 0.346 0.346 0.118 (0.207) (0.207)
Total from Investment
Operations 0.473 0.416 0.439 0.729 0.676 0.289 0.186 0.133
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment income (0.352) (0.296) (0.320) (0.384) (0.331) (0.179) (0.396) (0.343)
In excess of net
investment income (0.011) (0.010) (0.010) -- -- -- -- --
From capital paid in -- -- -- (0.005) (0.005) -- -- --
Total Distributions
Declared to Shareholders (0.363) (0.306) (0.329) (0.389) (0.336) (0.179) (0.396) (0.343)
Net asset value --
End of period ($) 7.490 7.490 7.490 7.380 7.380 7.380 7.040 7.040
Total return (%) (e)(f) 6.61 5.80 6.13 10.67 9.85 4.04(g) 2.76 1.99
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses (h) 0.77 1.52 1.22(c) 0.67 1.42 1.12(d)(i) 0.65 1.40
Net investment income (h) 4.78 4.03 4.33(c) 5.31 4.56 4.72(d)(i) 5.56 4.81
Fees and expenses waived
or borne by the advisor (h) 0.16 0.16 0.16 0.28 0.28 0.29(i) 0.29 0.29
Portfolio turnover 28 28 28 38 38 38 78 78
Net assets at end of
period (000) ($) 55,348 54,079 720 51,744 52,313 104 50,648 52,861
(a) Net of fees and expenses waived
or borne by the advisor which
amounted to: ($) 0.012 0.012 0.012 0.020 0.020 0.021 0.020 0.020
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(c) Net of fees waived by the distributor which amounted to $0.022 per
share and 0.30%.
(d) Net of fees waived by the distributor which amounted to $0.011 per
share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
(i) Annualized.
46
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial New York Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1996 1995
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 6.680 6.680 7.500 7.500
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.401 0.349 0.427 0.376
Net realized and
unrealized gain (loss) 0.576 0.576 (0.834) (0.834)
Total from Investment
Operations 0.977 0.925 (0.407) (0.458)
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.407) (0.355) (0.413) (0.362)
Net asset value --
End of period ($) 7.250 7.250 6.680 6.680
Total return (%)(b)(c) 14.99 14.15 (5.32) (6.04)
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses 0.58(d) 1.33(d) 0.42 1.17
Net investment income 5.72(d) 4.97(d) 6.25 5.50
Fees and expenses waived
or borne by the advisor 0.38(d) 0.38(d) 0.46 0.46
Portfolio turnover 39 39 65 65
Net assets at end of
period (000) ($) 56,795 53,505 53,322 43,166
(a) Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.026 0.026 0.032 0.032
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial North Carolina Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1999 1998 1997
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(c) CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.450 7.450 7.450 7.120 7.120 7.350 7.270 7.270
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income(a)(h) 0.342 0.285 0.307(b) 0.373 0.319 0.168(d) 0.376 0.322
Net realized and
unrealized gain (loss) 0.164 0.164 0.164 0.327 0.327 0.100 (0.150) (0.150)
Total from Investment
Operations 0.506 0.449 0.471 0.700 0.646 0.268 0.226 0.172
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($):
From net investment
income (0.348) (0.292) (0.314) (0.370) (0.316) (0.168) (0.376) (0.322)
In excess of net
investment income (0.008) (0.007) 0.007) -- -- -- -- --
Total Distributions
Declared to Shareholders (0.356) (0.299) (0.321) (0.370) (0.316) (0.168) (0.376) (0.322)
Net asset value --
End of period ($) 7.600 7.600 7.600 7.450 7.450 7.450 7.120 7.120
Total return (%)(e)(f) 6.98 6.17 6.49 10.10 9.28 3.69(g) 3.29 2.51
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses (h) 0.81 1.56 1.26(b) 0.49 1.24 0.96(d)(i) 0.45 1.20
Net investment income (h) 4.55 3.80 4.10(b) 5.11 4.36 4.55(d)(i) 5.29 4.54
Fees and expenses waived
or borne by the advisor(h) 0.29 0.29 0.29 0.64 0.64 0.63(i) 0.66 0.66
Portfolio turnover 26 26 26 23 23 23 38 38
Net assets at end of
period (000) ($) 16,426 17,387 505 16,425 17,348 174 16,522 17,427
(a) Net of fees and expenses waived
or borne by the advisor which
amounted to:($) 0.022 0.022 0.022 0.047 0.047 0.047 0.047 0.047
</TABLE>
(b) Net of fees waived by the distributor which amounted to $0.022 per
share and 0.30%.
(c) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(d) Net of fees waived by the distributor which amounted to $0.011 per
share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
agreements had an impact of 0.01% and $0.001 per share for the year
ended January 31, 1999. The benefits derived for the years ended
January 31, 1998 and 1997 had no impact.
(i) Annualized.
48
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial North Carolina Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY
1996 1995
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 6.680 6.680 7.500 7.500
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.386 0.334 0.396 0.345
Net realized and
unrealized gain (loss) 0.588 0.588 (0.822) (0.822)
Total from Investment
Operations 0.974 0.922 (0.426) (0.477)
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.384) (0.332) (0.394) (0.343)
Net asset value--
End of period ($) 7.270 7.270 6.680 6.680
Total return (%) (b)(c) 14.91 14.07 (5.55) (6.27)
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses 0.33(d) 1.08(d) 0.12 0.87
Net investment income 5.47(d) 4.72(d) 5.83 5.08
Fees and expenses waived
or borne by the advisor 0.76(d) 0.76(d) 0.93 0.93
Portfolio turnover 34 34 37 37
Net assets at end of
period (000) ($) 15,813 18,593 14,189 17,169
(a) Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.053 0.053 0.063 0.063
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
49
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Ohio Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1999 1998 1997
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(b) CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 7.720 7.720 7.720 7.340 7.340 7.610 7.510 7.510
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.350 0.291 0.314(c) 0.362 0.306 0.162(d) 0.372 0.318
Net realized and
unrealized gain (loss) 0.128 0.128 0.128 0.394 0.394 0.124 (0.179) (0.179)
Total from Investment
Operations 0.478 0.419 0.442 0.756 0.700 0.286 0.193 0.139
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.349) (0.292) (0.314) (0.365) (0.309) (0.165) (0.363) (0.309)
In excess of net
investment income (0.013) (0.011) (0.012) -- -- -- -- --
In excess of
net realized gains (0.021) (0.021) (0.021) -- -- -- -- --
From net realized gains (0.165) (0.165) (0.165) (0.011) (0.011) (0.011) -- --
Total Distributions
Declared to Shareholders (0.548) (0.489) (0.512) (0.376) (0.320) (0.176) (0.363) (0.309)
Net asset value --
End of period ($) 7.650 7.650 7.650 7.720 7.720 7.720 7.340 7.340
Total return (%) (e)(f) 6.44 5.62 5.95 10.58 9.76 3.81(g) 2.75 1.98
RATIOS TO AVERAGE
NET ASSETS (%)
Expenses (h) 0.90 1.65 1.35(c) 0.89 1.64 1.34(d)(i) 0.88 1.63
Net investment income (h) 4.51 3.76 4.06(c) 4.85 4.10 4.21(d)(i) 5.09 4.34
Fees and expenses waived
or borne by the advisor (h) 0.02 0.02 0.02 0.05 0.05 0.07(i) 0.04 0.04
Portfolio turnover 30 30 30 27 27 27 31 31
Net assets at end of
period (000) ($) 60,783 42,651 378 62,844 46,330 133 65,190 49,474
(a) Net of fees and expenses
waived or borne by the advisor
which amounted to: ($) 0.001 0.001 0.001 0.004 0.004 0.005 0.003 0.003
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(c) Net of fees waived by the distributor which amounted to $0.023 per
share and 0.30%.
(d) Net of fees waived by the distributor which amounted to $0.011 per
share and 0.30%.
(e) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(f) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
agreements had no impact.
(i) Annualized. 50
<PAGE>
FINANCIAL HIGHLIGHTS
Colonial Ohio Tax-Exempt Fund
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
1996 1995
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 6.930 6.930 7.670 7.670
INCOME FROM INVESTMENT
OPERATIONS ($)
Net investment income (a) 0.375 0.321 0.401 0.348
Net realized and
unrealized gain (loss) 0.585 0.585 (0.745) (0.745)
Total from Investment
Operations 0.960 0.906 (0.344) (0.397)
LESS DISTRIBUTIONS
DECLARED TO
SHAREHOLDERS ($)
From net investment
income (0.380) (0.326) (0.396) (0.343)
Net asset value --
End of period ($) 7.510 7.510 6.930 6.930
Total return (%) (b)(c) 14.18 13.34 (4.38) (5.10)
RATIOS TO AVERAGE
ASSETS (%)
Expenses 0.85(d) 1.60(d) 0.72 1.47
Net investment income 5.19(d) 4.44(d) 5.71 4.96
Fees and expenses waived
or borne by the advisor 0.11(d) 0.11(d) 0.16 0.16
Portfolio turnover 31 31 33 33
Net assets at end of
period (000) ($) 74,383 56,160 72,123 53,547
(a) Net of fees and expenses waived
or borne by the advisor which amounted to: ($) 0.008 0.008 0.011 0.011
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(c) Had the advisor and/or distributor not waived or reimbursed a portion
of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
51
<PAGE>
Notes
<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 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 V (formerly Colonial Trust V): 811-5030
- - 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
[LIBERTY LOGO] LIBERTY
COLONIAL CRABBE HUSON NEWPORT 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
SP-01/178H-0599
<PAGE>
<PAGE>
LIBERTY FUNDS TRUST V (FORMERLY COLONIAL TRUST V)
------------------------------------------------
Cross Reference Sheet Pursuant to Rule 481(a)
---------------------------------------------
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
Location or Caption in Statement of
Item Number of Form N-1A Additional Information
- ------------------------ ----------------------
Part B
- ------
10. Cover Page; Table of Contents
11. Organization and History
12. Investment Objective and Policies of the Funds;
Fundamental Investment Policies of the Funds;
Other Investment Policies of the Funds;
Miscellaneous Investment Practices
13. Fund Charges and Expenses
14. Fund Charges and Expenses
15. Fund Charges and Expenses; Management of the Funds
16. Fund Charges and Expenses; Management of the Funds
17. Organization and History; Fund Charges and
Expenses; Shareholder Meetings; Shareholder
Liability
18. Shareholder Meetings; Shareholder Liability
19. Taxes
20. Fund Charges and Expenses; Management of the Funds
21. Fund Charges and Expenses; Investment Performance;
Performance Measures
22. Independent Accountants
<PAGE>
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
STATEMENT OF ADDITIONAL INFORMATION
MAY 31, 1999
This Statement of Additional Information (SAI) contains information which may be
useful to investors but which is not included in the Prospectus 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 (each a Fund and collectively, the Funds). This SAI is not a
prospectus and is authorized for distribution only when accompanied or preceded
by the Prospectus of the Funds dated May 31, 1999. This SAI should be read
together with the Prospectus and each Fund's most recent Annual Report dated
January 31, 1999. Investors may obtain a free copy of the Prospectus and Annual
Reports from Liberty Funds Distributor, Inc. (LFD), One Financial Center,
Boston, MA 02111-2621. The financial statements and Report of Independent
Accountants appearing in each Fund's January 31, 1999 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' Prospectus.
TABLE OF CONTENTS
PART 1 PAGE
Definitions
Organization and History
Investment Objective and Policies of the Funds
Fundamental Investment Policies of the Funds
Other Investment Policies of the Funds
State Fiscal Conditions
California Tax Considerations
Connecticut Tax Considerations
Florida Tax Considerations
Massachusetts Tax Considerations
Michigan Tax Considerations
Minnesota Tax Considerations
New York Tax Considerations
North Carolina Tax Considerations
Ohio Tax Considerations
Fund Charges and Expenses
Investment Performance
Custodian
Independent Accountants
PART 2 PAGE
Miscellaneous Investment Practices
Taxes
Management of the Funds
Determination of Net Asset Value
How to Buy Shares
Special Purchase Programs/Investor Services
Programs for Reducing or Eliminating Sale Charges
How to Sell Shares
Distributions
How to Exchange Shares
Suspension of Redemptions
Shareholder Liability
Shareholder Meetings
Performance Measures
a
<PAGE>
Appendix I
Appendix II
0599
Part 1
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
STATEMENT OF ADDITIONAL INFORMATION
MAY 31, 1999
DEFINITIONS
"California Fund" or "Fund" Colonial California Tax-Exempt Fund
"Connecticut Fund" or "Fund" Colonial Connecticut Tax-Exempt Fund
"Florida Fund" or "Fund" Colonial Florida Tax-Exempt Fund
"Massachusetts Fund" or "Fund" Colonial Massachusetts Tax-Exempt Fund
"Michigan Fund" or "Fund" Colonial Michigan Tax-Exempt Fund
"Minnesota Fund" or "Fund" Colonial Minnesota Tax-Exempt Fund
"New York Fund" or "Fund" Colonial New York Tax-Exempt Fund
"North Carolina Fund" or Colonial North Carolina Tax-Exempt Fund
"Fund"
"Ohio Fund" or "Fund" Colonial Ohio Tax-Exempt Fund
"Trust" Liberty Funds Trust V
"Advisor" Colonial Management Associates, Inc.,
the Funds' investment advisor
"LFD" Liberty Funds Distributor, Inc., the
Funds' distributor
"LFSI" Liberty Funds Services, Inc., the Funds'
shareholder services and transfer agent.
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.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
The Prospectus describes each Fund's investment objective and investment
policies. Part 1 of this SAI includes additional information concerning, among
other things, the investment policies of the Funds. Part 2 contains additional
information about the following securities and investment techniques that are
utilized by the Funds:
Short-Term Trading
Lower Rated Debt Securities
Inverse Floaters
Short Sales
Forward Commitments ("When Issued" and "Delayed Delivery" Securities)
Repurchase Agreements
Futures Contracts and Related Options (Limited to interest rate
futures, tax-exempt bond index futures, options on such futures and
options on such indices)
Options on Securities
b
<PAGE>
Participation Interests
Stand-by Commitments
Zero Coupon Securities (Zeros)
Step Coupon Bonds (Steps)
Pay-In-Kind (PIK) Securities
Except as indicated below under "Fundamental Investment Policies," the Funds'
investment policies are not fundamental and the Trustees may change the
investment policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES OF THE FUNDS
The Investment Company Act of 1940 (Act) provides that a "vote of a majority of
the outstanding voting securities" means the affirmative vote of the lesser of
(1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy. The following fundamental
investment policies can not be changed without such a vote.
Each Fund may:
1. Borrow from banks, other affiliated funds and other entities to the extent
permitted by applicable law, provided that each 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 a result of owning securities and not more
than 5% of total assets;
3. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on the contracts do not exceed 5% of its
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;
6. Not concentrate more than 25% of its total assets in any one industry;
7. And will, under normal circumstances, invest at least 80% of its total
assets in State Bonds, subject to applicable State requirements.
OTHER INVESTMENT POLICIES OF THE FUNDS
As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term credit
to clear securities transactions and may make initial or maintenance margin
deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the Act's
diversification requirement, the issuer is the entity whose revenues support the
security.
c
<PAGE>
Notwithstanding the investment policies of the Funds, each Fund may invest
substantially all of its investable assets in another investment company that
has substantially the same investment objective, policies and restrictions as
each Fund.
STATE FISCAL CONDITIONS. The value of each Fund's shares may be affected by
factors pertaining to its state's economy (which may affect issuer tax revenues)
and the ability of issuers of Tax-Exempt Bonds (as defined in the Prospectus) to
meet their obligations, and may fluctuate more widely than the value of shares
of a portfolio investing in a number of different states. The availability of
federal, state and local aid to issuers of Tax-Exempt Bonds may also affect
their ability to meet their obligations. Payments of principal and interest on
revenue bonds and industrial revenue bonds will depend on the economic condition
of the specific revenue source, which could be affected by economic, political
and demographic conditions in the relevant state. There is no assurance that any
issuer of a Tax-Exempt Bonds will make full and timely payments of principal and
interest or remain solvent. For example, in December 1994, Orange County,
California filed for protection under the federal bankruptcy laws. A reduction
in the actual or perceived ability of an issuer of Tax-Exempt Bonds to meet its
obligations (including a reduction in the rating of its outstanding securities)
could also affect adversely the value and marketability of Tax-Exempt Bonds.
CALIFORNIA. After suffering from a recession in the early 1990s, the California
economy has largely recovered. The State's financial condition improved markedly
during the 1995-1998 fiscal years. The State's cash position also improved in
those years, erasing deficits that were amassed during the late 1980s and early
1990s. The State has enjoyed numerous upgrades of its credit ratings, with the
most recent coming from Moody's in October 1998. The Asian economic crisis,
which began in 1997, has had some dampening effects on the State's economy
(particularly in high technology manufacturing), however, and the pace of growth
in the State's economy is projected to slow.
At various times over the past twenty-one years, California voters have approved
constitutional amendments that seek to restrict State and/or local taxing or
spending authority. The most notable of these amendments is Proposition 13,
which limits ad valorem taxes on real property and restricts the ability of
taxing entities to increase real property and other taxes. In 1996, California
voters passed Proposition 218, which requires local governments to obtain voter
approval for many new and existing taxes and fees. These and other future
amendments could limit State and local governments' financial flexibility and
ultimately impair their ability to repay their debt obligations.
It is impossible to predict the time, location or magnitude of a major
earthquake or its effect on the California economy. In January 1994, a major
earthquake struck Los Angeles, causing significant property damage over a
four-county area. The possibility exists that another earthquake could create a
major dislocation of the California economy.
CONNECTICUT. Connecticut's economic recovery continues, although growth has
begun to decelerate. Total employment was up 1.8% in 1998, compared to a 2.1%
increase the prior year. Most industries are still adding jobs, albeit at a
slower pace than six months ago. Transportation equipment companies are the
leading employers and the financial services industry is holding its own despite
the markets' volatility. Unemployment is down to 3.7%, a decline of 1.4
percentage points from 1997. Fairfield County in southwestern Connecticut, with
its Fortune 500 headquarters and expanding financial services and money
management sector, is a main driver of the state's economy, although it would be
most affected by softness in the investment arena. Southeastern Connecticut is
the beneficiary of growth from two large casinos located there, including one
that is the state's second largest employer. Connecticut remains the wealthiest
state in the nation as measured by per capita income ($36,000, or 142% of the
national average). Still, the state is one of the costliest in which to live and
do business, experiences negative net migration, and has urban pockets of severe
poverty. Energy, labor and tax costs are significantly higher than nationwide
standards, which could provide challenges to continued economic growth.
The state's fiscal health has been robust, due to the expanding economy and
strong tax collections. The state comptroller has predicted that the FY 1999
surplus will be $416 million, or about $100 million higher than FY 1998, but the
Governor's recommended budget for this year would decrease that surplus to
approximately $30 million.
FLORIDA. The State continues to experience steady job growth, although the pace
has slowed marginally from recent years. The bulk of the new jobs is in the
service sectors, with one in three new jobs being service-related. The State's
economy is transforming from its traditional narrow base of agriculture and
seasonal tourism into a service- and trade-related economy with substantial
insurance, banking and export participation, as well as year-round tourist
attractions.
The rapid population and job growth brings pressure for more transportation
infrastructure, educational facilities and other needs that will require
substantial additional borrowing by State and local governments. Without a
personal income tax, Florida's
d
<PAGE>
financial operations remain largely dependent on consumption-based taxes that
are more vulnerable to general economic conditions. Nevertheless, the strong
economic expansion has yielded steadily improving financial performance
characterized by growing revenues and increasing year-end surpluses. Internet
sales may slightly weaken coverage on sales tax-backed debt, but do not
immediately threaten the generally high-grade ratings on these bonds.
MASSACHUSETTS. The Commonwealth of Massachusetts has a highly developed economy
with a large service sector, particularly in health care, financial services and
education. Strong economic growth in the 1980s was halted late in the decade by
weakening in the high technology, real estate and financial sectors, resulting
in steady job losses. The economy has since resumed growing at a healthy pace,
yielding job growth in excess of the national average in the past four years.
The Commonwealth's unemployment rate is now below the national average and
growth in personal income continues to exceed the regional and national
averages.
The Commonwealth has made great strides in stabilizing its fiscal condition
since the early 1990s. More realistic revenue expectations and increased efforts
to impose spending discipline have resulted in the elimination of deficit
financing, less reliance on short term borrowings, and eight consecutive years
of positive fund balances. Tax collections have been strong and fund balances
have grown to levels representing nearly 6% of revenues. Fiscal flexibility is
limited, however, by the Commonwealth's substantial debt load, which ranks in
the top five among all states. Significant State infrastructure needs, including
the Central Artery/Third Harbor Tunnel project, will increase the debt burden in
the future.
MICHIGAN. The State of Michigan is highly industrialized with a heavy economic
concentration in motor vehicle production and other durable goods manufacturing.
The industrial restructuring that took place in the early 1980s helped to reduce
the economic impact of the recession in the early 1990s. Additional
diversification since into services and finance may help to mitigate the impact
of future economic downturns, though the State still ranks below the national
average in terms of economic diversity. Cheaper imports due to Asian currency
devaluations pose a challenge to durable goods manufacturers in the State,
particularly with respect to the Big Three U.S. auto manufacturers, in terms of
profits and maintenance of market share.
The State has demonstrated a commitment to addressing budget imbalances, such as
those experienced in the early 1990s recession, through continued
cost-containment measures. Such measures, in conjunction with a strong State
economy, have enabled the State to balance its budget and build substantial
reserves. Increased reserve levels, including $1.00 billion in the budget
stabilization fund, are important in light of additional school aid funding
needs and decreased financial flexibility resulting from property tax reforms
enacted in 1993 and 1994.
MINNESOTA. Minnesota's financial position remains solid. With a well diversified
economy, Minnesota has enjoyed steady growth since 1991, although agriculture
has slowed in recent years. Most of the growth is occurring in the Twin Cities
area of Minneapolis and St. Paul. While there is a clear base in the
manufacturing sector, the service sector, particularly health care and
construction, has performed well.
Debt levels are moderate and within the policies set under the debt management
targeted levels. New management, while unpredictable and untested, does not
immediately threaten financial stability because of the institutional controls
in place.
Pursuant to Minnesota legislation enacted in 1995, dividend distributions that
would otherwise be exempt from Minnesota personal income tax in the case of
individuals, estates, and trusts may become subject to such tax if the exemption
of such income were judicially determined to discriminate against interstate
commerce. See "Minnesota Tax Considerations" for further discussion of this
legislation.
NEW YORK. The State of New York enjoys a generally diverse and substantial
economic base and a strong socio-economic profile. Although currently in
recovery following a severe downturn in the early 1990s, the State's economy is
expanding at a pace below that of the nation. Its manufacturing sector has
sharply contracted over time, and employment is now dominated by service
industries, which account for about one-third of employment. Offsetting these
trends is the robust performance of the securities industry that continues to
benefit from rising equity prices and low interest rates. Although job growth is
occurring, the State's unemployment rate remains higher than the national
average.
While surplus operations over the past 3 years have largely eliminated
accumulated deficits of prior years, the State still faces financial challenges
associated with enacted multi-year tax cuts which create the prospect of
significant shortfalls in the future. These shortfalls could be further
exacerbated if a downturn in the securities industry occurs.
e
<PAGE>
New York City is experiencing an economic resurgence resulting from a
flourishing securities industry and an expanding entertainment and tourism
sector. This economic activity has yielded improved financial performance and
several upgrades in the City's bond rating.
NORTH CAROLINA. The North Carolina economy has historically been dependent on
textile, furniture and tobacco manufacturing. However, the State has diversified
significantly into financial services, research, and high technology, industries
which led North Carolina out of the early 1990s recession. Technologically
advanced industries ranging from computer software to biotechnology continue to
locate near major universities, largely in the "Research Triangle" area. Though
the presence of textiles, furniture and tobacco manufacturing has been reduced,
their influence on the State's economy remains substantial. The potential impact
of the world economic crisis on such non-durable goods production presents risks
to the State's economy.
The recession of the late 1980s and the early 1990s put a strain on the State's
budget, which the State constitution requires to be balanced. Following this
period of recession-induced strain, financial balance was restored through tax
increases and expenditure reductions. During the State's economic recovery since
that time, State revenues have increased faster than expected. Conservative
budget practices have resulted in six consecutive years of operating surpluses
beginning in fiscal 1992. As a result, the State has lowered some taxes,
including the corporate income tax and the food tax. With a rapidly growing
population, the expenditure category that has experienced the largest increase
is education.
OHIO. Ohio is an industrialized state with a diverse economy that mirrors the
nation. Job growth has been concentrated in construction and services; however,
the rate of growth is beginning to slow as the work force ages. While the number
of manufacturing jobs in the state has been shrinking over the last two decades,
exposure to the cyclical auto and steel industries has diminished. Ohio's heavy
concentration of export industries creates a higher degree of risk associated
with international economic conditions. Unemployment rates remain below the
national level; however, the state remains vulnerable to a manufacturing led
recession.
A 1997 Ohio Supreme Court decision ruled that the State's method of school
funding was unconstitutional. In response, the State is increasing education
appropriations and school districts are to receive guaranteed funding through
2002. The State is providing supplemental subsidies to close the gaps in school
district spending with no new sources of funds earmarked for this additional
expense. Economic growth or additional revenue sources will be necessary to fund
this additional cost.
CALIFORNIA TAX CONSIDERATIONS
It is the policy of the Fund to meet all applicable requirements of the Internal
Revenue Code (Code) and the California Revenue and Taxation Code for
shareholders to be relieved of the obligation to pay regular federal income
taxes and California personal income tax on amounts distributed to them which
are derived from tax-exempt interest income. That is, the Fund will have at
least 50% of its total assets invested in tax-exempt bonds (and at least 50% of
its total assets invested in Tax-Exempt Bonds and U.S. government obligations
whose interest is excluded from income for California personal income tax
purposes) at the end of each quarter.
California law provides that, to the extent distributions by the Fund are
derived from interest on Tax-Exempt Bonds (as defined in the Prospectus) and
notes (or on obligations of the United States which pay interest excludable from
income under the Constitution or laws of the United States) and are designated
as such, such distributions shall be exempt from California personal income
taxes. For California personal income tax purposes, distributions derived from
other investments and distributions from any net realized capital gains will be
taxable, whether paid in cash or reinvested in additional shares.
Interest derived from Tax-Exempt Bonds is not subject to the California
alternative minimum tax and California personal income tax does not apply to any
portion of Social Security or railroad retirement benefits. Under the Code, a
portion of interest on any indebtedness (including insurance policy loans)
incurred or continued to purchase or carry shares of the Fund which is deemed to
relate to tax-exempt dividends will not be deductible. For California personal
income tax purposes none of such interest will be deductible. Depending on the
circumstances, the Internal Revenue Service or California Franchise Tax Board
may consider shares to have been purchased or carried with borrowed funds even
though the shares are not directly traceable to the borrowed funds. Shareholders
who are, within the meaning of Section 147 of the Code, "substantial users" (or
"related persons" of substantial users) of facilities financed by industrial
development bonds should consult their tax advisors as to whether the Fund is a
desirable investment.
Distributions from investment income and capital gains, including dividends
derived from interest paid on Tax-Exempt Bonds, will be subject to California
franchise tax and California corporate income tax.
CONNECTICUT TAX CONSIDERATIONS
f
<PAGE>
Distributions received by shareholders from the Fund that are treated as
exempt-interest dividends for federal income tax purposes are exempt from the
Connecticut personal income tax to the extent that they are derived from
interest on Tax-Exempt Bonds, and are designated as such. Other distributions
are subject to the Connecticut personal income tax, except that, in the case of
shares of the Fund held by shareholders as capital assets, those treated as
capital gain dividends for federal income tax purposes are not subject to the
tax to the extent derived from the sale or exchange of obligations issued by or
on behalf of the State of Connecticut, any political subdivision thereof, or
public instrumentality, state or local authority, district or similar public
entity created under the laws of Connecticut. Distributions that are subject to
the federal alternative minimum tax are subject to the net Connecticut minimum
tax, with the exception of those derived from interest on Tax-Exempt Bonds.
Distributions from investment income and capital gains, including dividends
derived from interest paid on Tax-Exempt Bonds, are included in gross income for
purposes of the Connecticut corporation business tax. However, seventy percent
of such distributions, provided that they are treated as dividends for federal
income tax purposes but not as exempt-interest dividends or capital gain
dividends, are deductible for purposes of this tax, but no deduction is allowed
for expenses related thereto.
FLORIDA TAX CONSIDERATIONS
Florida currently has no income tax on individuals. Thus individual shareholders
of the Fund will not be subject to any Florida state income tax on distributions
received from the Fund. However, certain distributions will be taxable to
corporate shareholders which are subject to Florida corporate income tax.
Florida currently imposes an "intangibles tax" at the annual rate of 0.20% on
certain securities and other intangible assets owned by Florida residents.
Certain types of tax-exempt securities of Florida issuers, United States
government securities and tax-exempt securities issued by certain U.S.
territories and possessions (including the Commonwealth of Puerto Rico, the
United States Virgin Islands and Guam) are exempt from this intangibles tax. The
Fund has received a ruling from Florida authorities that, if on December 31 of
any year the Fund's portfolio consists solely of such exempt assets, the Fund's
shares will be exempt from the Florida intangibles tax payable for the following
year. To take advantage of this exemption in any year, the Fund must sell any
non-exempt assets held in its portfolio prior to December 31. Such sales could
result in capital losses or in the realization of taxable capital gains, as well
as transaction costs that would likely reduce the Fund's investment return and
might exceed any investment return the Fund achieved by investing in non-exempt
assets during the year.
You should consult your tax advisor to determine the precise application of
Florida or other state law to your particular situation.
MASSACHUSETTS TAX CONSIDERATIONS
Distributions received by shareholders from the Fund are exempt from
Massachusetts personal income tax to the extent that they are derived from
interest on Tax-Exempt Bonds or certain U.S. territories and possessions
(including the Commonwealth of Puerto Rico, the United States Virgin Islands or
Guam) and are designated as such. The Fund believes that gains it realizes on
the sale of certain Tax-Exempt Bonds are exempt from Massachusetts personal
income taxation and will designate them as such when those gains are distributed
to shareholders.
Distributions from investment income and capital gains, including dividends
derived from interest paid on Tax-Exempt Bonds, may be subject to Massachusetts
corporate excise tax.
In 1994, the Massachusetts personal income tax statute was modified to provide
for graduated rates of tax (with some exceptions) on gains from the sale or
exchange of capital assets held for more than one year based on the length of
time the asset has been held since January 1, 1995. The Massachusetts Department
of Revenue has released proposed regulations providing that the holding period
of the mutual fund (rather than that of its shareholders) will be determinative
for purposes of applying the revised statute to shareholders that receive
capital gain distributions, so long as the mutual fund separately designates the
amount of such distributions attributable to each of six classes of gains from
the sale or exchange of capital assets held for more than one year in a notice
provided to shareholders and the Commissioner of Revenue on or before March 1 of
the calendar year after the calendar year of such distributions. In the absence
of such notice, the holding period of the assets giving rise to such gain is
deemed to be more than one but not more than two years. Shareholders should
consult their tax advisors with respect to the Massachusetts tax treatment of
capital gain distributions from the Fund.
The foregoing is a general summary of the Massachusetts tax consequences of
investing in the Fund. You should consult your tax advisor regarding specific
questions as to federal, state or local taxes.
MICHIGAN TAX CONSIDERATIONS
g
<PAGE>
To the extent that dividends from the Fund are derived from interest on debt
obligations issued by the State of Michigan or its political subdivisions or
certain U.S. territories and possessions (including the Commonwealth of Puerto
Rico, United States Virgin Islands or Guam), the interest on which is excludable
from gross income for purposes of both federal income taxation and Michigan
personal income tax ("Michigan Bonds"), such dividends will be exempt from
Michigan personal income tax. For Michigan personal income tax purposes,
exempt-interest dividends attributable to any investment other than Michigan
Bonds or certain obligations of the United States will be fully taxable.
Distributions representing capital gains, if any, will be fully taxable for
Michigan personal income tax purposes. The Michigan intangibles tax was fully
repealed as of January 1, 1998.
Certain Michigan cities have adopted Michigan's Uniform City Income Tax
Ordinance, which under the Michigan City Income Tax Act is the only income tax
ordinance that may be adopted by cities in Michigan. To the extent that
distributions from the Fund are not subject to Michigan income tax, they are not
subject to any Michigan city's income tax.
You should consult your tax advisor if you are subject to the Michigan Single
Business Tax.
MINNESOTA TAX CONSIDERATIONS
Provided that the Fund qualifies as a separate "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), and subject to
the discussion in the paragraph below, shareholders of the Fund who are
individuals, estates or trusts and who are subject to the regular Minnesota
personal income tax, will not be subject to such tax on Fund dividends under
existing law to the extent that such distributions qualify as exempt-interest
dividends under section 852(b)(5) of the Code which are derived from interest
income on tax-exempt obligations of the State of Minnesota or its political or
governmental subdivisions, municipalities, governmental agencies or
instrumentalities (Minnesota Sources). The foregoing will apply, however, only
if the portion of the exempt-interest dividends from Minnesota Sources that is
paid to all shareholders represents 95% or more of the exempt-interest dividends
that are paid by the Fund. If the 95% test is not met, all exempt-interest
dividends that are paid by the Fund generally will be subject to the regular
Minnesota personal income tax. Even if the 95% test is met, to the extent that
exempt-interest dividends that are paid by the Fund are not derived from
Minnesota Sources, such dividends generally will be subject to the regular
Minnesota personal income tax. Other distributions of the Fund, including
distributions from net short-term and long-term capital gains, are generally not
exempt from the regular Minnesota personal income tax.
Legislation enacted in 1995 provides that it is the intent of the Minnesota
legislature that interest income on obligations of Minnesota governmental units,
including obligations of the Minnesota Sources described above, and
exempt-interest dividends that are derived from interest income on such
obligations, be included in the net income of individuals, estates, and trusts
for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations of governmental issuers located in other states, or exempt-interest
dividends derived from such obligations, is so included. This provision applies
to taxable years that begin during or after the calendar year in which such
judicial decision becomes final, regardless of the date on which the obligations
were issued, and other remedies apply for previous taxable years. The United
States Supreme Court in 1995 denied certiorari in a case in which an Ohio state
court upheld an exemption for interest income on obligations of Ohio
governmental issuers, even though interest income on obligations of non-Ohio
governmental issuers was subject to tax. In 1997, the United State Supreme Court
denied certiorari in a subsequent case from Ohio, involving the same taxpayer
and the same issue, in which the Ohio Supreme Court refused to reconsider the
merits of the case on the ground that the prior final state court judgment
barred any claim arising out of the transaction that was the subject of the
previous action. It cannot be predicted whether a similar case will be brought
in Minnesota or elsewhere, or what the outcome of such case would be.
Shareholders of the Fund who are individuals, estates or trusts may be subject
to the Minnesota alternative minimum tax as a result of the receipt of
exempt-interest dividends that are attributable to certain private activity bond
interest even though derived from Minnesota Sources. In addition, the entire
portion of exempt-interest dividends that is received by such shareholders and
that is derived from sources other than Minnesota Sources generally is subject
to the Minnesota alternative minimum tax. Further, should the 95% test fail to
be met, all of the exempt-interest dividends that are paid by the Fund,
including those derived from Minnesota Sources, generally will be subject to the
Minnesota alternative minimum tax in the case of shareholders of the Fund who
are individuals, estates or trusts.
Subject to certain limitations that are set forth in the Minnesota rules, Fund
dividends, if any, that are derived from interest on certain United States
obligations are not subject to the regular Minnesota personal income tax or the
Minnesota alternative minimum tax in the case of shareholders of the Fund who
are individuals, estates, or trusts.
h
<PAGE>
Fund distributions, including exempt-interest dividends, are not excluded in
determining the Minnesota franchise tax on corporations, which is measured by
taxable income and alternative minimum taxable income. Fund distributions may
also be taken into account in certain cases in determining the minimum fee that
is imposed on corporations, S corporations and partnerships.
NEW YORK TAX CONSIDERATIONS
New York law provides that, to the extent distributions by a regulated
investment company are derived from interest on debt obligations issued by the
State of New York or its political subdivisions or certain other governmental
entities (for example, the Commonwealth of Puerto Rico, the United States Virgin
Islands or Guam), the interest on which was excludable from gross income for
purposes of both federal income taxation and New York State or City personal
income taxation (New York Bonds) and designated as such, such distributions
shall be exempt from New York State and City personal income taxes. For New York
State and City personal income tax purposes, distributions derived from
investments other than New York Bonds and distributions from any net short-term
capital gains will be taxable as ordinary income, whether paid in cash or
reinvested in additional shares.
Distributions by the Fund from investment income and capital gains, including
exempt-interest dividends, are included in a corporation's net investment income
for purposes of calculating such corporation's New York State franchise taxes
and the New York City General Corporation Tax if received by a corporation
subject to those taxes, and will be subject to such taxes to the extent that a
corporation's net investment income is allocated to New York State and/or New
York City. Distributions by the Fund may be subject to state taxes in states
other than New York and to local taxes in cities other than New York City, both
for individual and corporate shareholders.
The foregoing is a summary of certain New York State and New York City income
tax consequences of investing in the Fund. Shareholders should consult their tax
advisor to determine the precise effect of an investment in the Fund on their
particular tax situation (including possible liability for federal alternative
minimum tax and state and local taxes).
NORTH CAROLINA TAX CONSIDERATIONS
The State of North Carolina has repealed its Intangible Personal Property tax
formerly applicable to shares of stock, including shares of certain mutual
funds. The repeal is effective for taxable years beginning after 1994.
Under existing North Carolina law, as long as the Fund qualifies as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, and 50% or more of the value of the total assets of the Fund at the
close of each quarter of its taxable year consists of obligations whose interest
is exempt from federal income tax, dividends received from the Fund that
represent either (i) interest exempt from federal income tax and received by the
Fund on obligations of North Carolina or its political subdivisions; nonprofit
educational institutions organized or chartered under the laws of North
Carolina; or Guam, Commonwealth of Puerto Rico, or the United States Virgin
Islands, including the governments thereof and their agencies, instrumentalities
and authorities, or (ii) interest received by the Fund on direct obligations of
the United States will be exempt from North Carolina individual, trust and
estate income taxation.
Any capital gains distributed by the Fund (except for capital gains attributable
to the sale by the Fund of an obligation, the profit from which is exempt by a
North Carolina statute) or gains realized by the shareholder from a redemption
or sale of shares of the Fund will be subject to North Carolina individual,
trust or estate income taxation.
Section 23-48 of the North Carolina General Statutes appears to permit any city,
town, school district, county or other taxing district to avail itself of the
provisions of Chapter 9 of the United States Bankruptcy Code, but only with the
consent of the Local Government Commission of the State and of the holders of
such percentage or percentages of the indebtedness of the issuer as may be
required by the Bankruptcy Code (if any such consent is required). Thus,
although limitations apply, in certain circumstances political subdivisions
might be able to seek the protection of the Bankruptcy Code.
Fund shareholders that are corporations are advised to consult their own tax
advisors regarding the North Carolina tax consequences to them of investing in
the Fund.
OHIO TAX CONSIDERATIONS
Provided that the Fund continues to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (Code), and that at all
times at least 50% of the value of the total assets of the Fund consists of
obligations issued by or on behalf of Ohio, political subdivisions thereof or
agencies or instrumentalities of Ohio or its political subdivisions (Ohio
Obligations), or similar obligations of other states or their subdivisions (50%
value test), (i) distributions with respect to shares of the Fund
("Distributions") will be exempt from Ohio personal income tax and municipal and
school district income taxes in Ohio,
i
<PAGE>
and will be excluded from the net income base of the Ohio corporation franchise
tax to the extent such Distributions are properly attributable to interest
payments on Ohio Obligations, and (ii) Distributions of profit made on the sale,
exchange, or other disposition of Ohio Obligations, including Distributions of
"capital gain dividends," as defined in the Code, properly attributable to the
sale, exchange, or other disposition of Ohio Obligations, will be exempt from
Ohio personal income tax, and municipal and school district income taxes in
Ohio, and will be excluded from the net income base of the Ohio corporation
franchise tax.
Assuming, the 50% value test is satisfied, distributions that are properly
attributable to interest on obligations of the United States or its territories
or possessions (including obligations issued by the governments of the
Commonwealth of Puerto Rico, the United States Virgin Islands or Guam
("Territorial Obligations"), or of any authority, commission, or instrumentality
of the United States that is exempt from state income taxes under the laws of
the United States will be exempt from Ohio personal income tax and municipal and
school district income taxes in Ohio, and, provided in the case of Territorial
Obligations, such interest is excluded from gross income for federal income tax
purposes, will be excluded from the net income base of the Ohio corporation
franchise tax.
However, other Distributions will generally not be exempt from Ohio personal
income tax and municipal and school district income taxes in Ohio, and shares of
the Fund will not be excluded from the net worth base of the Ohio corporation
franchise tax.
FUND CHARGES AND EXPENSES
Under the Funds' Management Agreement, the Funds pay the Advisor a monthly fee
based on the Funds' combined average daily net assets, determined at the close
of each business day during the month at the following annual rates: 0.50% on
the first $2 billion and 0.45% of any excess over $2 billion.
RECENT FEES PAID TO THE ADVISOR, LFD AND LFSI (dollars in thousands)
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $1,759 $1,789 $1,939
Bookkeeping fee 133 135 142
Shareholder service and transfer agent fee 498 538 591
12b-1 fees:
Service fee (Classes A, B and C)(a) 542 509 516
Distribution fee (Class B) 744 753 768
Distribution fee (Class C) 26 1 0
Fees waived or borne by LFD (Class C) (10) (b) 0
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $830 $794 $799
Bookkeeping fee 67 65 64
Shareholder service and transfer agent fee 246 243 245
12b-1 fees:
Service fee (Classes A, B and C)(a) 285 251 226
Distribution fee (Class B) 636 614 609
Distribution fee (Class C) 6 1 0
Fees waived or borne by the Advisor (225) (461) (491)
Fees waived or borne by LFD (Class C) (2) (b) 0
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $313 $325 $335
Bookkeeping fee 31 32 32
Shareholder service and transfer agent fee 91 98 104
</TABLE>
j
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12b-1 fees:
Service fee (Classes A, B and C)(a) 112 111 106
Distribution fee (Class B) 239 249 255
Distribution fee (Class C) 1 (b) 0
Fees waived or borne by the Advisor (105) (266) (284)
Fees waived or borne by LFD (Class C) (b) 0 0
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $1,197 $1,204 $1,285
Bookkeeping fee 93 94 97
Shareholder service and transfer agent fee 341 370 396
12b-1 fees:
Service fee (Classes A, B and C)(a) 396 375 366
Distribution fee (Class B) 445 443 438
Distribution fee (Class C) 3 (b) 0
Fees waived or borne by the Advisor 0 0 (6)
Fees waived or borne by LFD (Class C) (1) 0 0
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $258 $260 $280
Bookkeeping fee 28 28 29
Shareholder service and transfer agent fee 79 82 90
12b-1 fees:
Service fee (Classes A, B and C)(a) 80 76 75
Distribution fee (Class B) 95 98 105
Distribution fee (Class C) 6 (b) 0
Fees waived or borne by the Advisor (31) (66) (63)
Fees waived or borne LFD (Class C) (2) 0 0
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $264 $265 $282
Bookkeeping fee 28 28 29
Shareholder service and transfer agent fee 81 85 90
12b-1 fees:
Service fee (Classes A, B and C)(a) 90 84 85
Distribution fee (Class B) 154 147 145
Distribution fee (Class C) 2 (b) 0
Fees waived or borne by the Advisor (33) (58) (73)
Fees waived or borne by LFD (Class C) (1) 0 0
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $533 $512 $539
Bookkeeping fee 47 46 46
Shareholder service and transfer agent fee 159 157 167
12b-1 fees:
Service fee (Classes A, B and C)(a) 186 163 161
Distribution fee (Class B) 394 393 400
Distribution fee (Class C) 4 (b) 0
Fees waived or borne by the Advisor (169) (289) (302)
Fees waived or borne by LFD (Class C) (1) (0) (0)
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $167 $167 $171
</TABLE>
k
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Bookkeeping fee 27 27 27
Shareholder service and transfer agent fee 51 53 54
12b-1 fees:
Service fee (Classes A, B and C)(a) 56 53 49
Distribution fee (Class B) 127 128 133
Distribution fee (Class C) 2 (b) 0
Fees waived or borne by the Advisor (97) (216) (219)
Fees waived or borne by LFD (Class C) (1) (0) (0)
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Management fee (before reduction) $523 $553 $612
Bookkeeping fee 46 48 52
Shareholder service and transfer agent fee 158 179 198
12b-1 fees:
Service fee (Classes A, B and C)(a) 156 158 162
Distribution fee (Class B) 328 354 388
Distribution fee (Class C) 2 (b) 0
Fees waived or borne by the Advisor (15) (216) (48)
Fees waived or borne by LFD (Class C) (1) (0) (0)
</TABLE>
(a) Class C shares were first offered on August 1, 1997.
(b) Rounds to less than one.
BROKERAGE COMMISSIONS (dollars in thousands)
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $2 $13 $5
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $2 $2 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $1 $2 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $1 $1 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $2 $3 $1
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
l
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $2 $4 $1
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $1 $1 $3
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $(c) $1 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Total commissions $3 $5 $2
Directed transactions 0 0 0
Commissions on directed transactions 0 0 0
</TABLE>
(c) Rounds to less than one.
TRUSTEES AND TRUSTEES' FEES
For the fiscal year ended January 31, 1999 and the calendar year ended December
31, 1998, the Trustees received the following compensation for serving as
Trustees(d):
Total Compensation From The Fund Complex
Paid To The Trustees For The Calendar Year
Trustee Ended December 31, 1998(e)
- ------- --------------------------
Robert J. Birnbaum(f) $ 99,429
Tom Bleasdale(f) 115,000(g)
John V. Carberry(h)(i) N/A
Lora S. Collins(f) 97,429
James E. Grinnell(f) 103,071
William D. Ireland, Jr.(j) 35,333
Richard W. Lowry(f) 98,214
Salvatore Macera(k) 25,250
William E. Mayer(f) 99,286
James L. Moody, Jr.(f) 105,857(l)
John J. Neuhauser(f) 105,323
George L. Shinn(j) 31,334
Thomas E. Stitzel(k) 25,250
Robert L. Sullivan(f) 104,100
Anne-Lee Verville(f)(h) 23,445(m)
Sinclair Weeks, Jr.(j) 34,333
(d) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
m
<PAGE>
(e) At December 31, 1998, the complex consisted of 47 open-end and 5 closed-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).
(f) Elected by the shareholders of LVIT on October 30, 1998.
(g) Includes $52,000 payable in later years as deferred compensation.
(h) 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.
(i) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(j) Retired as a Trustee of the Trust on April 24, 1998.
(k) Elected by the shareholders of the open-end Colonial Funds on October 30,
1998, and by the Trustees of the closed-end Colonial Funds on December 17,
1998.
(l) Total compensation of $105,857 for the calendar year ended December 31,
1998, will be payable in later years as deferred compensation.
(m) Total compensation of $23,445 for the calendar year ended December 31,
1998, will be payable in later years as deferred compensation.
<TABLE>
<CAPTION>
CALIFORNIA FUND CONNECTICUT FUND
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Fiscal Year Ended Fiscal Year Ended
Trustee January 31, 1999 January 31, 1999
- ------- ---------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $2,091 1,365
Tom Bleasdale 2,417(o) 1,577(p)
John V. Carberry(n) N/A N/A
Lora S. Collins 2,050 1,337
James E. Grinnell 2,182() 1,425()
William D. Ireland, Jr. 484 314
Richard W. Lowry 1,832 1,345
Salvatore Macera 578 376
William E. Mayer 2,115 1,383
James L. Moody, Jr. 2,235(q) 1,460(r)
John J. Neuhauser 2,230 1,458
George L. Shinn 380 247
Thomas E. Stitzel 578 376
Robert L. Sullivan 2,183 1,439
Anne-Lee Verville 610(s) 396(t)
Sinclair Weeks, Jr. 463 300
</TABLE>
(n) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(o) Includes $1,082 payable in later years as deferred compensation.
(p) Includes $706 payable in later years as deferred compensation.
(q) Total compensation of $2,235 for the fiscal year ended January 31, 1999
will be payable in later years as deferred compensation.
(r) Total compensation of $1,460 for the fiscal year ended January 31, 1999
will be payable in later years as deferred compensation.
(s) Total compensation of $610 for the fiscal year ended January 31, 1999, will
be payable in later years as deferred compensation.
n
<PAGE>
(t) Total compensation of $396 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
<TABLE>
<CAPTION>
FLORIDA FUND MASSACHUSETTS FUND
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Fiscal Year Ended Fiscal Year Ended
Trustee January 31, 1999 January 31, 1999
- ------- ---------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $ 976 $1,656
Tom Bleasdale 1,127(v) 1,913(w)
John V. Carberry(u) N/A N/A
Lora S. Collins 956 1,623
James E. Grinnell 1,018 1,728
William D. Ireland, Jr. 227 383
Richard W. Lowry 962 1,611
Salvatore Macera 263 455
William E. Mayer 988 1,674
James L. Moody, Jr. 1,042(x) 1,769(y)
John J. Neuhauser 1,045 1,766
George L. Shinn 178 301
Thomas E. Stitzel 263 455
Robert L. Sullivan 1,041 1,737
Anne-Lee Verville 277(z) 480(aa)
Sinclair Weeks, Jr. 218 365
</TABLE>
(u) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(v) Includes $502 payable in later years as deferred compensation.
(w) Includes $665 payable in later years as deferred compensation.
(x) Total compensation of $1,042 for the fiscal year ended January 31, 1999
will be payable in later years as deferred compensation.
(y) Total compensation of $1,769 for the fiscal year ended January 31, 1999
will be payable in later years as deferred compensation.
(z) Total compensation of $277 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(aa) Total compensation of $480 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
<TABLE>
<CAPTION>
MICHIGAN FUND MINNESOTA FUND
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Fiscal Year Ended Fiscal Year Ended
Trustee January 31, 1999 January 31, 1999
- ------- ---------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $ 929 $ 934
Tom Bleasdale 1,077(cc) 1,083(dd)
John V. Carberry(bb) N/A N/A
Lora S. Collins 910 915
James E. Grinnell 970 975
William D. Ireland, Jr. 217 218
Richard W. Lowry 916 921
Salvatore Macera 252 253
William E. Mayer 942 947
James L. Moody, Jr. 994(ee) 999(ff)
John J. Neuhauser 995 1,000
George L. Shinn 168 170
Thomas E. Stitzel 252 253
Robert L. Sullivan 997 1,001
</TABLE>
o
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Anne-Lee Verville 265(gg) 267(hh)
Sinclair Weeks, Jr. 207 208
</TABLE>
(bb) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(cc) Includes $479 payable in later years as deferred compensation.
(dd) Includes $482 payable in later years as deferred compensation.
(ee) Total compensation of $994 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(ff) Total compensation of $999 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(gg) Total compensation of $265 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(hh) Total compensation of $267 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
<TABLE>
<CAPTION>
NEW YORK FUND NORTH CAROLINA FUND
Aggregate Compensation Aggregate Compensation
From Fund For The From Fund For The
Fiscal Year Ended Fiscal Year Ended
Trustee January 31, 1999 January 31, 1999
- ------- ---------------- ----------------
<S> <C> <C>
Robert J. Birnbaum $1,138 $859
Tom Bleasdale 1,315(jj) 993(kk)
John V. Carberry(ii) N/A N/A
Lora S. Collins 1,116 842
James E. Grinnell 1,188 897
William D. Ireland, Jr. 261 199
Richard W. Lowry 1,120 848
Salvatore Macera 312 232
William E. Mayer 1,154 871
James L. Moody, Jr. 1,216(ll) 917(mm)
John J. Neuhauser 1216 921
George L. Shinn 205 156
Thomas E. Stitzel 312 232
Robert L. Sullivan 1206 921
Anne-Lee Verville 329(nn) 244(oo)
Sinclair Weeks, Jr. 250 192
</TABLE>
(ii) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(jj) Includes $588 payable in later years as deferred compensation.
(kk) Includes $443 payable in later years as deferred compensation.
(ll) Total compensation of $1,216 for the fiscal year ended January 31, 1999
will be payable in later years as deferred compensation.
(mm) Total compensation of $917 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(nn) Total compensation of $329 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
(oo) Total compensation of $244 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation.
OHIO FUND
Aggregate Compensation
p
<PAGE>
From Fund For The
Fiscal Year Ended
Trustee January 31, 1999
- ------- ----------------
James J. Birnbaum $1,138
Tom Bleasdale 1,320(qq)
John V. Carberry(pp) N/A
Lora S. Collins 1,115
James E. Grinnell 1,187
William D. Ireland, Jr. 266
Richard D. Lowry 1,121
Salvatore Macera 308
William E. Mayer 1,153
James L. Moody, Jr. 1,218(rr)
John J. Neuhauser 1,216
George L. Shinn 208
Thomas E. Stitzel 308
Robert L. Sullivan 2,062
Anne-Lee Verville 325(ss)
Sinclair Weeks, Jr. 255
(pp) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(qq) Includes $588 payable in later years as deferred compensation.
(rr) Total compensation of $1,218 for the fiscal year ended January 31, 1999
will be payable in later years as deferred compensation.
(ss) Total compensation of $325 for the fiscal year ended January 31, 1999 will
be payable in later years as deferred compensation
For the fiscal year ended December 31, 1998, certain of the Trustees received
the following compensation in their capacities as Trustees or Directors of the
Liberty All-Star Equity Fund and of the Liberty All-Star Growth Fund, Inc.
(together Liberty All-Star Funds):
Total Compensation From Liberty All-Star Funds For
Trustee The Calendar Year Ended December 31, 1998(tt)
- ------- --------------------------------------------
Robert J. Birnbaum $25,000
John V. Carberry(uu)(vv) N/A
James E. Grinnell 25,000
Richard W. Lowry 25,000
William E. Mayer(ww) 14,000
John J. Neuhauser(xx) 25,000
(tt) The Liberty All-Star Funds are advised by Liberty Asset Management Company
(LAMCO). LAMCO is an indirect wholly-owned subsidiary of Liberty Financial
(an intermediate parent of the Advisor).
(uu) Does not receive compensation because he is an affiliated Trustee and
employee of Liberty Financial.
(vv) Elected by the trustees of the Liberty All-Star Funds on June 30, 1998.
(ww) 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.
(xx) Elected by the shareholders of the Liberty All-Star Funds on April 22,
1998.
q
<PAGE>
OWNERSHIP OF THE FUNDS
At April 30, 1999, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Class of shares of the California,
Connecticut, Florida, Massachusetts, Michigan, Minnesota, New York, North
Carolina and Ohio Funds.
As of record on May 1, 1999, the following shareholders owned 5% or more of the
following Funds' outstanding Class A, Class B and Class C shares:
California Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
7.58%) (Class B: 6.66%) (Class C: 9.49%); Bank of America Cust. FBO Donald V. &
Linda Strough TTEE, Strough Rev. Trust U/A 6/3/83, P.O. Box 513577,
Los Angeles, CA 90051 (Class C: 12.79%)
Connecticut Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
12.07%) (Class B: 17.03%) (Class C: 30.02%); Colonial Management Associates,
Inc., One Financial Center, Boston, MA 02111-2621 (Class C: 5.63%); John
Gaetano, 91 Atwater Avenue, Derby, CT 06478 (Class C: 5.71%); Karl P. Banach &
Josephine D. Banach JTWROS, 40 Mountain View Terrace, Cheshire, CT 06410
(Class C: 5.15%); Anthony T. Bianca, Jr. TTEE, 164 Hickory Hill Road, New
Britian, CT 06052 (Class C: 5.21%); Raymond James & Associates, Inc., 2850 NE
9th Court, Pampano Beach, FL 33062 (Class C: 5.17%)
Florida Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL, 32216 (Class A:
16.17%) (Class B: 19.43%); Colonial Management Associates, Inc., One Financial
Center, Boston, MA 02111-2621 (Class C: 31.84%); John R. MacLean TTEE,
139 Anchor Drive, Vero Beach, FL 32963-2941 (Class C: 21.76%); Marjorie E.
Worstall, 3206 S. Hopkins Avenue, Titusville, FL 32780-5698 (Class C: 29.12%);
Dorothy C. Fisher & Harry F. Fisher, Jr. TTEE, 1048 Main Street, Sebastian,
FL 32958-4170 (Class C: 15.07%)
Massachusetts Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
5.30%) (Class C: 19.99%); Colonial Management Associates, Inc., One Financial
Center, Boston, MA 02111-2621 (Class C: 12.09%); Theodore A. Waldron, Jr. &
Mary B. McMillan JTWROS, 280 Walnut Street, Wellesley, MA 02481-3326 (Class C:
5.14%) Sybil N. Wetzler & Teresa A. Wetzler-Finn & Steven A. Finn TTEES,
5 Tallyho Lane, Andover, MA 01810-4514 (Class C: 11.11%); Robert G. Mitchell &
Marilyn N. Mitchell JTWROS, P.O. Box 1154, South Chatham, MA 02659 (Class C:
5.60%); Teresa A. Wetzler-Finn & Lawrence A. Wetzler TTEES, 5 Tallyho Lane,
Andover, MA 01810-4514 (Class C: 8.27%)
Michigan Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216-0561
(Class A: 11.42%) (Class B: 22.61%); Colonial Management Asscociates, Inc., One
Financial Center, Boston, MA 02111-2621 (Class C: 7.07%); Thomas F. O'Meara &
Judity O'Meara JTWROS, 9832 Melrose, Livonia, MI 48150-2822 (Class C: 13.85%)
Minnesota Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class B:
11.42%) (Class C: 22.61%); Colonial Management Associates, Inc., One Financial
Center, Boston, MA 02111-2621 (Class C: 34.17%); Luella C. Bellomo, 1857 Eagle
Ridge Drive, St. Paul, MN 55118 (Class C: 18.30%); Mark J. Ritter & Robert M.
Ritter, 1626 Laurel Avenue, St. Paul, MN 55104 (Class C: 16.02%)
New York Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund
Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A:
12.93%) (Class B: 18.61%) (Class C: 8.46%); Colonial Management Associates,
Inc., One Financial Center, Boston, MA 02111-2621 (Class C: 10.77%); Richard T.
Green, 175-40 Murdock Avenue, St. Albans, NY 11434-1433 (Class C: 8.87%);
Howard Read, 25 Eagle Street, Albany, NY 12207-1901 (Class C: 8.86%); Milan
Svilar, 6443 Fitchett Street, Rego Park, NY 11379 (Class C: 13.64%); Read &
Laniado, 25 Eagle Street, Albany, NY 12207-1901 (Class C: 9.84%)
North Carolina Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual
Fund Operations, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216
(Class B: 7.70%); Colonial Management Associates, Inc., One Financial Center,
Boston, MA 02111-2621 (Class C: 16.80%); Johnny A. Byrd & Kay F. Byrd JTWROS,
4705 Rodcliff Road, Raleigh, NC 27609 (Class C: 6.57%); Ben A. Griffin, Jr. &
Gail B. Griffin JTWOS, 8508 Sugar Creek Drive, Sanford, NC 27330 (Class C:
6.87)
Ohio Fund: Merrill Lynch, Pierce, Fenner & Smith, Inc., Mutual Fund Operations,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32216 (Class A: 6.62%)
(Class B: 6.01%) (Class C: 8.61%); Colonial Management Associates, Inc., One
Financial Center, Boston, MA 02111-2621 (Class C: 30.53%)
At April 30, 1999 there were the following number of shareholders of each Fund:
CLASS A CLASS B CLASS C
California Fund 3,810 1,839 59
Connecticut Fund 1,497 1,725 35
Florida Fund 518 524 5
Massachusetts Fund 3,345 1,595 19
Michigan Fund 1,004 290 18
Minnesota Fund 1,032 593 7
New York Fund 1,050 1,078 15
North Carolina Fund 431 400 13
Ohio Fund 1,893 1,379 5
SALES CHARGES (dollars in thousands)
CLASS A SHARES
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $189 $178 $245
Initial sales charges retained by LFD 25 24 32
</TABLE>
r
<PAGE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $223 $220 $252
Initial sales charges retained by LFD 29 28 31
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by LFD (yy) 0 0
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $50 $93 $95
Initial sales charges retained by LFD 6 11 11
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $252 $210 $273
Initial sales charges retained by LFD 34 26 33
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $54 $31 $72
Initial sales charges retained by LFD 7 4 9
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $49 $42 $69
Initial sales charges retained by LFD 5 5 9
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $106 $111 $152
Initial sales charges retained by LFD 13 15 17
Aggregate CDSC on Fund redemptions retained
by LFD 10 0 0
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $53 $33 $63
Initial sales charges retained by LFD 7 4 9
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate initial sales charges on Fund share sales $72 $39 $57
Initial sales charges retained by LFD 9 4 7
Aggregate CDSC on Fund redemptions retained
by LFD (yy) 0 0
</TABLE>
CLASS B SHARES
================================================================================
s
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate (CDSC) on Fund redemptions retained by LFD $217 $223 $317
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $165 $203 $222
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $118 $102 $160
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $114 $183 $221
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $18 $29 $46
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $23 $63 $50
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $100 $142 $161
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $31 $50 $86
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $97 $153 $202
</TABLE>
CLASS C SHARES
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $3 $1 $0
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
CONNECTICUT FUND
Years ended January 31
</TABLE>
t
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $(yy) $0 $0
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
Years ended January 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Aggregate CDSC on Fund redemptions retained by LFD $0 $0 $0
</TABLE>
(yy) Rounds to less than one.
12b-1 PLAN, CDSCS AND CONVERSION OF SHARES
The Funds each offer three classes of shares - Class A, Class B and Class C.
Each Fund may in the future offer other classes of shares. The Trustees have
approved a 12b-1 plan (Plan) for each Fund pursuant to Rule 12b-1 under the Act.
Under the Plan, each Fund pays LFD monthly a service fee at an annual rate of
0.10% of each Fund's net assets attributed to the outstanding shares of each
class on November 30, 1994, and a service fee of 0.25% of each Fund's net assets
attributed to each Class of shares issued and outstanding thereafter. The Funds
also pay LFD monthly a distribution fee at an annual rate of 0.75% of each
Fund's average daily net assets attributed to each Fund's Class B and Class C
shares. LFD has voluntarily agreed to waive a portion of the Class C share
distribution fee so that it does not exceed 0.45% annually. LFD may use the
entire amount of such fees to defray the costs of commissions and service fees
paid to financial service firms (FSFs) and for certain other purposes. Since the
distribution and service fees are payable regardless of the amount of LFD's
expenses, LFD may realize a profit from the fees.
The Plan authorizes any other payments by the Funds to LFD and its affiliates
(including the Advisor) to the extent that such payments might be construed to
be indirect financing of the distribution of each Fund's shares.
The Trustees believe the Plan could be a significant factor in the growth and
retention of each Fund's assets resulting in a more advantageous expense ratio
and increased investment flexibility which could benefit each class of each
Fund's shareholders.
u
<PAGE>
The Plan will continue in effect from year to year so long as continuance is
specifically approved at least annually by a vote of the Trustees, including the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan (Independent Trustees), cast in person at a meeting called
for the purpose of voting on the Plan. The Plan may not be amended to increase
the fee materially without approval by vote of a majority of the outstanding
voting securities of the relevant class of shares and all material amendments of
the Plan must be approved by the Trustees in the manner provided in the
foregoing sentence. The Plan may be terminated at any time by vote of a majority
of the Independent Trustees or by vote of a majority of the outstanding voting
securities of the relevant class of shares. The continuance of the Plan will
only be effective if the selection and nomination of the Trustees who are not
interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which
may include a CDSC. Class B shares are offered at net asset value and are
subject to a CDSC if redeemed within six years after the 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. The CDSCs are described in the
Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or
amounts representing capital appreciation. In determining the applicability and
rate of any CDSC, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing reinvestment of
distributions and finally of other shares held by the shareholder for the
longest period of time.
Eight years after the end of the month in which a Class B share is purchased,
such share and a pro rata portion of any shares issued on the reinvestment of
distributions will be automatically converted into Class A shares having an
equal value, which are not subject to the distribution fee.
SALES-RELATED EXPENSES (dollars in thousands) of LFD relating to the Funds for
the fiscal year ended January 31, 1999 were:
<TABLE>
<CAPTION>
CALIFORNIA FUND CONNECTICUT FUND
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fees to FSFs $354 $585 $52 $120 $616 $10
Cost of sales material 31 34 16 29 38 3
(including printing and mailing expenses)
Allocated travel, entertainment and other 36 38 19 32 41 3
promotional expenses (including advertising)
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND MASSACHUSETTS FUND
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fees to FSFs $48 $129 $2 $256 $328 $5
Cost of sales material
(including printing and mailing expenses) 6 8 (zz) 44 18 2
Allocated travel, entertainment and other
promotional expenses (including advertising) 6 7 (zz) 50 21 2
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND MINNESOTA FUND
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fees to FSFs $52 $49 $10 $45 $150 $2
Cost of sales material
(including printing and mailing expenses) 5 3 4 5 10 (zz)
Allocated travel, entertainment and other
promotional expenses (including advertising) 6 3 4 5 10 (zz)
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND NORTH CAROLINA FUND
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fees to FSFs $102 $317 $6 $24 $69 $4
Cost of sales material
(including printing and mailing expenses) 24 19 2 6 4 2
Allocated travel, entertainment and other
promotional expenses (including advertising) 30 21 2 5 4 1
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
OHIO FUND
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Fees to FSFs $80 $152 $ 2
Cost of sales material including (printing and mailing expenses) 6 8 (zz)
Allocated travel, entertainment and other promotional expenses
(including advertising) 6 8 (zz)
</TABLE>
(zz) Rounds to less than one.
INVESTMENT PERFORMANCE
The following Funds' Class A, Class B and Class C share yields for the month
ended January 31, 1999 were:
CLASS A SHARES
================================================================================
<TABLE>
<CAPTION>
Tax-Equivalent
Yield Yield (aaa) Adjusted Yield (bbb)
----- ---------- -------------------
<S> <C> <C> <C>
California Fund 3.57% 6.52% N/A
Connecticut Fund 3.46% 6.00% 3.32%
Florida Fund 3.60% 5.96% 3.52%
Massachusetts Fund 3.50% 6.16% N/A
Michigan Fund 3.49% 6.04% N/A
Minnesota Fund 3.78% 6.84% N/A
New York Fund 3.74% 6.94% 3.60%
North Carolina Fund 3.77% 6.77% N/A
Ohio Fund 3.62% 6.46% N/A%
</TABLE>
CLASS B SHARES
================================================================================
<TABLE>
<CAPTION>
Tax-Equivalent
Yield Yield (aaa) Adjusted Yield (bbb)
----- ---------- -------------------
<S> <C> <C> <C>
California Fund 2.99% 5.46% N/A
Connecticut Fund 2.88% 4.99% 2.74%
Florida Fund 3.03% 5.02% 2.94%
Massachusetts Fund 2.92% 5.14% N/A
Michigan Fund 2.91% 5.04% N/A
Minnesota Fund 3.22% 5.83% N/A
New York Fund 3.17% 5.88% 3.03%
North Carolina Fund 3.20% 5.74% N/A
Ohio Fund 3.05% 5.44% N/A
</TABLE>
CLASS C SHARES
================================================================================
<TABLE>
<CAPTION>
Tax-Equivalent
Yield Yield (aaa) Adjusted Yield (bbb)
----- ---------- -------------------
<S> <C> <C> <C>
California Fund 3.29% 6.01% 2.98%
Connecticut Fund 3.17% 5.50% 2.86%
Florida Fund 3.33% 5.51% 3.03%
Massachusetts Fund 3.22% 5.67% 2.92%
Michigan Fund 3.21% 5.56% 2.90%
Minnesota Fund 3.52% 6.37% 3.22%
New York Fund 3.47% 6.44% 3.14%
North Carolina Fund 3.48% 6.25% 3.24%
Ohio Fund 3.35% 5.98% 3.05%
</TABLE>
(aaa) Calculated using the effective maximum combined federal and state tax
rates.
(bbb) Without voluntary expense limit.
The following Funds' average annual total returns at January 31, 1999 were:
w
<PAGE>
CLASS A SHARES(ccc)
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 1.18% 4.98% 6.85%
Without sales charge 6.23% 6.01% 7.37%
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Since inception
1 YEAR 5 YEARS 11/1/91 to 1/31/99
------ ------- ------------------
<S> <C> <C> <C>
With sales charge of 4.75% 1.48% 4.57% 6.55%
Without sales charge 6.54% 5.59% 7.27%
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Since inception
1 YEAR 5 YEARS 2/1/93 to 1/31/99
------ ------- -----------------
<S> <C> <C> <C>
With sales charge of 4.75% 1.24% 4.35% 5.54%
Without sales charge 6.29% 5.37% 6.39%
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 1.20% 4.79% 7.21%
Without sales charge 6.25% 5.82% 7.73%
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 1.33% 4.63% 6.50%
Without sales charge 6.38% 5.65% 7.02%
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 1.35% 4.84% 6.62%
Without sales charge 6.40% 5.87% 7.14%
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 1.55% 4.68% 6.88%
Without sales charge 6.61% 5.71% 7.40%
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Since inception
1 YEAR 5 YEARS 9/1/93 to 1/31/99
------ ------- -----------------
<S> <C> <C> <C>
With sales charge of 4.75% 1.90% 4.69% 4.74%
Without sales charge 6.98% 5.71% 5.68%
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With sales charge of 4.75% 1.38% 4.69% 6.81%
Without sales charge 6.44% 5.71% 7.33%
</TABLE>
CLASS B SHARES(ccc)
================================================================================
x
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 0.42%(5.00% CDSC) 4.89% (2.00% CDSC) 6.85%(ddd)
Without CDSC 5.42% 5.21% 6.85%(ddd)
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Since inception
1 Year 5 Years 6/8/92 to 1/31/99
------ ------- -----------------
<S> <C> <C> <C>
With applicable CDSC 0.73% (5.00% CDSC) 4.47% (2.00% CDSC) 6.54%(ddd)
Without CDSC 5.73% 4.80% 6.54%(ddd)
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Since inception
1 Year 5 Years 2/1/93 to 1/31/99
------ ------- -----------------
<S> <C> <C> <C>
With applicable CDSC 0.48% (5.00% CDSC) 4.25% (2.00% CDSC) 5.48% (1.00% CDSC)
Without CDSC 5.48% 4.59% 5.60%
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 0.46% (5.00% CDSC) 4.70% (2.00% CDSC) 7.20%(ddd)
Without CDSC 5.44% 5.02% 7.20%(ddd)
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 0.57% (5.00% CDSC) 4.53% (2.00% CDSC) 6.51%(ddd)
Without CDSC 5.57% 4.86% 6.51%(ddd)
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 0.67% (5.00% CDSC) 4.75% (2.00% CDSC) 6.62%(ddd)
Without CDSC 5.59% 5.08% 6.62%(ddd)
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 0.80%(5.00% CDSC) 4.58%(2.00% CDSC) 6.88%(ddd)
Without CDSC 5.80% 4.92% 6.88%(ddd)
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Since inception
1 Year 5 Years 9/1/93 to 1/31/99
------ ------- -----------------
<S> <C> <C> <C>
With applicable CDSC 1.17%(5.00% CDSC) 4.59% (2.00%) 4.75%(1.00% CDSC)
Without CDSC 6.17% 4.92% 4.89%
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 0.67%(5.00% CDSC) 4.59%(2.00% CDSC) 6.82%(ddd)
Without CDSC 5.62% 4.92% 6.82%(ddd)
</TABLE>
y
<PAGE>
z
<PAGE>
CLASS C SHARES(ccc)
================================================================================
<TABLE>
<CAPTION>
CALIFORNIA FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 4.74%(1.00% CDSC)5.86%(ddd) 7.30%(ddd)
Without CDSC 5.74% 5.86%(ddd) 7.30%(ddd)
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT FUND
Since inception
1 YEAR 5 YEARS 11/1/91 to 1/31/99
------ ------- ------------------
<S> <C> <C> <C>
With applicable CDSC 5.05%(1.00% CDSC)5.45%(ddd) 7.17%(1.00% CDSC)(ddd)
Without CDSC 6.05% 5.45%(ddd) 7.17%(ddd)
</TABLE>
<TABLE>
<CAPTION>
FLORIDA FUND
Since inception
1 YEAR 5 YEARS 2/1/93 to 1/31/99
------ ------- ------------------
<S> <C> <C> <C>
With applicable CDSC 4.80%(1.00% CDSC)4.68%(ddd) 5.68% (1.00% CDSC)(ddd)
Without CDSC 5.80% 4.68%(ddd) 5.68%(ddd)
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 4.76%(1.00% CDSC)5.67%(ddd) 7.65%(ddd)
Without CDSC 5.76% 5.67%(ddd) 7.65%(ddd)
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 4.89%(1.00% CDSC)5.51%(ddd) 6.95%(ddd)
Without CDSC 5.89% 5.51%(ddd) 6.95%(ddd)
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 4.93%(1.00% CDSC)5.72%(ddd) 7.07%(ddd)
Without CDSC 5.91% 5.72%(ddd) 7.07%(ddd)
</TABLE>
<TABLE>
<CAPTION>
NEW YORK FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 5.13%(1.00% CDSC)5.56%(ddd) 7.32%(ddd)
Without CDSC 6.13% 5.56%(ddd) 7.32%(ddd)
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA FUND
Since inception
1 YEAR 5 YEARS 9/1/93 to 1/31/99
------ ------- ------------------
<S> <C> <C> <C>
With applicable CDSC 5.49%(1.00% CDSC)4.99%(ddd) 4.96% (1.00% CDSC)(ddd)
Without CDSC 6.49% 4.99%(ddd) 4.96%(ddd)
</TABLE>
<TABLE>
<CAPTION>
OHIO FUND
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
With applicable CDSC 4.96%(1.00% CDSC)5.57%(ddd) 7.26%(ddd)
Without CDSC 5.95% 5.57%(ddd) 7.26%(ddd)
</TABLE>
(ccc) Performance results reflect any voluntary waiver or reimbursement by the
Advisor or its affiliates of class expenses. Absent this waiver or reimbursement
arrangement, performance results would have been lower. See Prospectus for
details.
(ddd) Newer class share performance includes returns of each Fund's Class A
shares (Class B shares for the Florida Fund and the North Carolina Fund) (the
oldest existing fund class) for periods prior to the inception of the newer
Class shares. The oldest existing share returns were not restated to reflect any
expense differential
aa
<PAGE>
(i.e., Rule 12b-1 fees) between the oldest existing fund class shares and the
newer class shares. Had the expense differential been reflected, the returns of
all of the Funds, except for the Florida Fund and the North Carolina Fund for
periods prior to the inception of the newer class shares would have been lower.
The following Funds' Class A, Class B and Class C share distribution rates at
January 31, 1999, based on the most recent month's distribution, annualized, and
the maximum offering price at the end of the month were:
FUND CLASS A CLASS B CLASS C
- ---- ------- ------- -------
California Fund 4.18% 3.65% 3.94%
Connecticut Fund 4.28% 3.76% 4.05%
Florida Fund 4.20% 3.67% 3.97%
Massachusetts Fund 4.26% 3.72% 4.02%
Michigan Fund 4.30% 3.77% 4.08%
Minnesota Fund 4.18% 3.64% 3.95%
New York Fund 4.23% 3.70% 3.99%
North Carolina Fund 4.12% 3.58% 3.88%
Ohio Fund 4.26% 3.74% 4.04%
See Part 2 of this SAI, "Performance Measures," for how calculations are made.
CUSTODIAN
The Chase Manhattan Bank, located at 270 Park Avenue, New York, NY 10017-0270 is
the Funds' custodian. The Funds' custodian is responsible for safeguarding each
Fund's cash and securities, receiving and delivering securities and collecting
the Fund's interest and dividends.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, located at 160 Federal Street, Boston, MA 02110-2624
are the Funds' independent accountants, providing audit and tax return
preparation services and assistance and consultation in connection with the
review of various Securities and Exchange Commission filings. The financial
statements incorporated by reference in this SAI have been so incorporated, and
the financial highlights in the Prospectus have been so included, in reliance
upon the report of PricewaterhouseCoopers LLP given on the authority of said
firm as experts in accounting and auditing.
bb
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the
Advisor. "Funds" include each series of Liberty Funds Trust I (formerly Colonial
Trust I), Liberty Funds Trust II (formerly Colonial Trust II), Liberty Funds
Trust III (formerly Colonial Trust III), Liberty Funds Trust IV (formerly
Colonial Trust IV), Liberty Funds Trust V (formerly Colonial Trust V), Liberty
Funds Trust VI (formerly Colonial Trust VI), Liberty Funds Trust VII (formerly
Colonial Trust VII), Liberty Funds Trust VIII (formerly LFC Utilities Trust) and
Liberty Funds Trust IX (formerly LAMCO Trust I) . In certain cases, the
discussion applies to some but not all of the funds, and you should refer to
your Fund's Prospectus and to Part 1 of this SAI to determine whether the matter
is applicable to your Fund. You will also be referred to Part 1 for certain data
applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
Part 1 of this SAI lists on page b which of the following investment practices
are available to your Fund. If an investment practice is not listed in Part 1 of
this SAI, it is not applicable to your Fund.
Short-Term Trading
In seeking the fund's investment objective, the Advisor will buy or sell
portfolio securities whenever it believes it is appropriate. The Advisor's
decision will not generally be influenced by how long the fund may have owned
the security. From time to time the fund will buy securities intending to seek
short-term trading profits. A change in the securities held by the fund is known
as "portfolio turnover" and generally involves some expense to the fund. These
expenses may include brokerage commissions or dealer mark-ups and other
transaction costs on both the sale of securities and the reinvestment of the
proceeds in other securities. If sales of portfolio securities cause the fund to
realize net short-term capital gains, such gains will be taxable as ordinary
income. As a result of the fund's investment policies, under certain market
conditions the fund's portfolio turnover rate may be higher than that of other
mutual funds. The fund's portfolio turnover rate for a fiscal year is the ratio
of the lesser of purchases or sales of portfolio securities to the monthly
average of the value of portfolio securities, excluding securities whose
maturities at acquisition were one year or less. The fund's portfolio turnover
rate is not a limiting factor when the Advisor considers a change in the fund's
portfolio.
Lower Rated Debt Securities
Lower rated debt securities are those rated lower than Baa by Moody's or BBB by
S&P, or comparable unrated debt securities. Relative to debt securities of
higher quality,
1. an economic downturn or increased interest rates may have a more
significant effect on the yield, price and potential for default for
lower rated debt securities;
2. the secondary market for lower rated debt securities may at times become
less liquid or respond to adverse publicity or investor perceptions,
increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower rated debt securities may have a
greater impact on the fund's achievement of its investment objective;
and
4. lower rated debt securities may be less sensitive to interest rate
changes, but are more sensitive to adverse economic developments.
In addition, certain lower rated debt securities may not pay interest in cash on
a current basis.
Small Companies
Smaller, less well established companies may offer greater opportunities for
capital appreciation than larger, better established companies, but may also
involve certain special risks related to limited product lines, markets, or
financial resources and dependence on a small management group. Their securities
may trade less frequently, in smaller volumes, and fluctuate more sharply in
value than securities of larger companies.
Foreign Securities
The fund may invest in securities traded in markets outside the United States.
Foreign investments can be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. Securities
<PAGE>
of some foreign companies are less liquid or more volatile than securities of
U.S. companies, and foreign brokerage commissions and custodian fees may be
higher than in the United States. Investments in foreign securities can involve
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividend or interest payments. Foreign
securities, like other assets of the fund, will be held by the fund's custodian
or by a subcustodian or depository. See also "Foreign Currency Transactions"
below.
The fund may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. This "excess
distribution" will be allocated over the fund's holding period for such
investment. The PFIC tax is the highest ordinary income rate in effect for any
period multiplied by the portion of the "excess distribution" allocated to such
period, and it could be increased by an interest charge on the deemed tax
deferral.
The fund may possibly elect to include in its income its pro rata share of the
ordinary earnings and net capital gain of PFICs. This election requires certain
annual information from the PFICs which in many cases may be difficult to
obtain. An alternative election would permit the fund to recognize as income any
appreciation (and to a limited extent, depreciation) on its holdings of PFICs as
of the end of its fiscal year. See "Taxation" below.
Other Investment Companies
The fund may invest in other investment companies. Such investments will involve
the payment of duplicative fees through the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies.
Zero Coupon Securities (Zeros)
The fund may invest in zero coupon securities, which are securities issued at a
significant discount from face value and do not pay interest at intervals during
the life of the security. Zero coupon securities include securities issued in
certificates representing undivided interests in the interest or principal of
mortgage-backed securities (interest only/principal only), which tend to be more
volatile than other types of securities. The fund will accrue and distribute
income from stripped securities and certificates on a current basis and may have
to sell securities to generate cash for distributions.
Step Coupon Bonds (Steps)
The fund may invest in debt securities which pay interest at a series of
different rates (including 0%) in accordance with a stated schedule for a series
of periods. In addition to the risks associated with the credit rating of the
issuers, these securities may be subject to more volatility risk than fixed rate
debt securities.
Tender Option Bonds
A tender option bond is a municipal security (generally held pursuant to a
custodial arrangement) having a relatively long maturity and bearing interest at
a fixed rate substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the municipal security's fixed
coupon rate and the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the securities, coupled
with the tender option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt rate. The
Advisor will consider on an ongoing basis the creditworthiness of the issuer of
the underlying municipal securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying municipal securities and for other
reasons.
Pay-In-Kind (PIK) Securities
The fund may invest in securities which pay interest either in cash or
additional securities. These securities are generally high yield securities and,
in addition to the other risks associated with investing in high yield
securities, are subject to the risks that the interest payments which consist of
additional securities are also subject to the risks of high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper is promissory notes issued by
businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the fund
would be allowed to invest in directly.
Securities Loans
The fund may make secured loans of its portfolio securities amounting to not
more than the percentage of its total assets specified in Part 1 of this SAI,
thereby realizing additional income. The risks in lending portfolio securities,
as with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. As a matter of policy, securities loans are made to banks and
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral in cash or short-term debt obligations at least equal at
all times to the value of the securities on loan. The borrower pays to the fund
an amount equal to any dividends or interest received on securities lent. The
fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities pass to the borrower,
the fund retains the right to call the loans at any time on reasonable notice,
and it will do so in order that the securities may be voted by the fund if the
holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The fund may also call such loans in order
to sell the securities involved.
Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
The fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments" and "when
issued securities") if the fund holds until the settlement date, in a segregated
account, cash or liquid securities in an amount sufficient to meet the purchase
price, or if the fund enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Where such purchases are made
through dealers, the fund relies on the dealer to consummate the sale. The
dealer's failure to do so may result in the loss to the fund of an advantageous
yield or price. Although the fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of a
commitment prior to settlement if the Advisor deems it appropriate to do so. The
fund may realize short-term profits or losses (generally taxed at ordinary
income tax rates in the hands of the shareholders) upon the sale of forward
commitments.
Mortgage Dollar Rolls
In a mortgage dollar roll, the fund sells a mortgage-backed security and
simultaneously enters into a commitment to purchase a similar security at a
later date. The fund either will be paid a fee by the counterparty upon entering
into the transaction or will be entitled to purchase the similar security at a
discount. As with any forward commitment, mortgage dollar rolls involve the risk
that the counterparty will fail to deliver the new security on the settlement
date, which may deprive the fund of obtaining a beneficial investment. In
addition, the security to be delivered in the future may turn out to be inferior
to the security sold upon entering into the transaction. Also, the transaction
costs may exceed the return earned by the fund from the transaction.
Mortgage-Backed Securities
Mortgage-backed securities, including "collateralized mortgage obligations"
(CMOs) and "real estate mortgage investment conduits" (REMICs), evidence
ownership in a pool of mortgage loans made by certain financial institutions
that may be insured or guaranteed by the U.S. government or its agencies. CMOs
are obligations issued by special-purpose trusts, secured by mortgages. REMICs
are entities that own mortgages and elect REMIC status under the Internal
Revenue Code. Both CMOs and REMICs issue one or more classes of securities of
which one (the Residual) is in the nature of equity. The funds will not invest
in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs
may be prepaid if the underlying 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 the fund 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 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.
Purchasing call options. The fund may purchase call options to hedge against an
increase in the price of securities that the fund wants ultimately to buy. Such
hedge protection is provided during the life of the call option since the fund,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the fund might
have realized had it bought the underlying security at the time it purchased the
call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission (SEC) has taken the
position that OTC options purchased by the fund and assets held to cover OTC
options written by the fund are illiquid securities. Although the Staff has
indicated that it is continuing to evaluate this issue, pending further
developments, the fund intends to enter into OTC options transactions only with
primary dealers in U.S. government securities and, in the case of OTC options
written by the fund, only pursuant to agreements that will assure that the fund
will at all times have the right to repurchase the option written by it from the
dealer at a specified formula price. The fund will treat the amount by which
such formula price exceeds the amount, if any, by which the option may be
"in-the-money" as an illiquid investment. It is the present policy of the fund
not to enter into any OTC option transaction if, as a result, more than 15% (10%
in some cases, refer to your fund's Prospectus) of the fund's net assets would
be invested in (i) illiquid investments (determined under the foregoing formula)
relating to OTC options written by the fund, (ii) OTC options purchased by the
fund, (iii) securities which are not readily marketable, and (iv) repurchase
agreements maturing in more than seven days.
Risk factors in options transactions. The successful use of the fund's options
strategies depends on the ability of the Advisor to forecast interest rate and
market movements correctly.
When it purchases an option, the fund runs the risk that it will lose its entire
investment in the option in a relatively short period of time, unless the fund
exercises the option or enters into a closing sale transaction with respect to
the option during the life of the option. If the price of the underlying
security does not rise (in the case of a call) or fall (in the case of a put) to
an extent sufficient to cover the option premium and transaction costs, the fund
will lose part or all of its investment in the option. This contrasts with an
investment by the fund in the underlying securities, since the fund may continue
to hold its investment in those securities notwithstanding the lack of a change
in price of those securities.
The effective use of options also depends on the fund's ability to terminate
option positions at times when the Advisor deems it desirable to do so. Although
the fund will take an option position only if the Advisor believes there is a
liquid secondary market for the option, there is no assurance that the fund will
be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable, the fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A marketplace may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of option transactions, which may limit the fund's ability to
realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the fund has
expired, the fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash or liquid securities, equal in value to the amount of the fund's obligation
under the contract (less any applicable margin deposits and any assets that
constitute "cover" for such obligation), will be segregated with the fund's
custodian.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchanges or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission (CFTC),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the fund purchases or sells a security, no price is paid or received
by the fund upon the purchase or sale of a futures contract, although the fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash and/or U.S. government securities. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds by the fund to
finance the transactions. Rather, initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The fund may elect to close some or all of its futures positions at any time
prior to their expiration. The purpose of making such a move would be to reduce
or eliminate the hedge position then currently held by the fund. The fund may
close its positions by taking opposite positions which will operate to terminate
the fund's position in the futures contracts. Final determinations of variation
margin are then made, additional cash is required to be paid by or released to
the fund, and the fund realizes a loss or a gain.
Such closing transactions involve additional commission costs.
Options on futures contracts. The fund will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
liquid securities equal in value to the commodity value (less any applicable
margin deposits) have been deposited in a segregated account of the fund's
custodian. The fund may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. The fund may use such options on
futures contracts in lieu of writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above.
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RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the fund is subject to the Advisor's ability to predict
correctly, movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the fund
when the purchase or sale of a futures contract would not, such as when there is
no movement in the prices of the hedged investments. The writing of an option
on a futures contract involves risks similar to those risks relating to the
sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution, by exchanges, of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a hedge position held by the fund, the fund may seek to
close out a position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain contacts 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 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 of 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 government entity may purchase and sell futures contracts and related options
on interest rate and U.S. Treasury securities when, in the option 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
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
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<PAGE>
held in its portfolio and securities prices increase instead, the fund will
lose part or all of the benefit of the increased values of those securities
that it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or
no correlation at all, between movements in the index futures and the
securities of the portfolio being hedged, the prices of index futures may not
correlate perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures markets are subject
to margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between
the index and futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the securities market, and
as a result the futures market may attract more speculators than the securities
market. Increased participation by speculators in the futures market may also
cause temporary price distortions. Due to the possibility of price distortions
in the futures market and also because of the imperfect correlation between
movements in the index and movements in the prices of index futures, even a
correct forecast of general market trends by the Advisor may still not result
in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right,
in return for the premium paid, to assume a position in an index futures
contract (a long position if the option is a call and a short position if the
option is a put), at a specified exercise price at any time during the period
of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
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 give 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 give 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.
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It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security or securities being hedged is less than the amount
of foreign currency the fund is obligated to deliver and if a decision is made
to sell the security or securities and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security or securities if the
market value of such security or securities exceeds the amount of foreign
currency the fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in
compliance with the SEC's requirements, cash or liquid securities, equal in
value to the amount of the fund's obligation under the contract (less any
applicable margin deposits and any assets that constitute "cover" for such
obligation), will be segregated with the fund's custodian.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
fund intends to purchase or sell currency futures contracts only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or at any particular time. In such event, it may not
be possible to close a futures position and, in the event of adverse price
movements, the fund would continue to be required to make daily cash payments of
variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The fund will only purchase or write currency options when the Advisor believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
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The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less that $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 of 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 in 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.
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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.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely
to changes in short-term interest rates and whose values fluctuate inversely to
changes in long-term interest rates. The value of certain inverse floaters will
fluctuate substantially more in response to a given change in long-term rates
than would a traditional debt security. These securities have investment
characteristics similar to leverage, in that interest rate changes have a
magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The fund may purchase securities that have been privately placed but that are
eligible for purchase and sale under Rule 144A of the Securities Act of 1933
("1933 Act"). That Rule permits certain qualified institutional buyers, such as
the fund, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The Advisor, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the fund's investment restriction on illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Advisor will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined by the Advisor that a Rule 144A security is no longer liquid, the
fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the fund does not invest more than its
investment restriction on illiquid securities allows. Investing in Rule 144A
securities could have the effect of increasing the amount of the fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
TAXES
In this section, all discussions of taxation at the shareholder level relate to
federal taxes only. Consult your tax advisor for state, local and foreign tax
considerations and for information about special tax considerations that may
apply to shareholders that are not natural persons or not U.S. citizens or
resident aliens.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that 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.
RETURN OF CAPITAL DISTRIBUTIONS. To the extent that a distribution is a return
of capital for federal tax purposes, it reduces the cost basis of the shares on
the record date and is similar to a partial return of the original investment
(on which a sales charge may have been paid). There is no recognition of a gain
or loss, however, unless the return of capital exceeds the cost basis in the
shares.
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.
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Distributions of long-term capital gains (that is, the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year) will be taxable to shareholders as such,
regardless of how long a shareholder has held the shares in the fund. In
general, any distributions of net capital gains will be taxed to shareholders
who are individuals at a maximum rate of 20%.
Distributions will be taxed as described above whether received in cash or in
fund shares. Dividends and distributions on a fund's shares are generally
subject to federal income tax as described herein to the extent they do not
exceed the fund's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of shares
purchased at a time when a fund's net asset value reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when a fund's net asset value also reflects unrealized
losses.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt fund will have at least 50%
of its total assets invested in tax-exempt bonds at the end of each quarter so
that dividends from net interest income on tax-exempt bonds will be exempt from
federal income tax when received by a shareholder. The tax-exempt portion of
dividends paid will be designated within 60 days after year-end based upon the
ratio of net tax-exempt income to total net investment income earned during the
year. That ratio may be substantially different from the ratio of net tax-exempt
income to total net investment income earned during any particular portion of
the year. Thus, a shareholder who holds shares for only a part of the year may
be allocated more or less tax-exempt dividends than would be the case if the
allocation were based on the ratio of net tax-exempt income to total net
investment income actually earned while a shareholder.
The Tax Reform Act of 1986 makes income from certain "private activity bonds"
issued after August 7, 1986, a tax preference item for the AMT at the maximum
rate of 28% for individuals and 20% for corporations. If the fund invests in
private activity bonds, shareholders may be subject to the AMT on that part of
the distributions derived from interest income on such bonds. Other provisions
of the Tax Reform Act affect the tax treatment of distributions for
corporations, casualty insurance companies and financial institutions; interest
on all tax-exempt bonds is included in corporate adjusted current earnings when
computing the AMT applicable to corporations. Seventy-five percent of the excess
of adjusted current earnings over the amount of income otherwise subject to the
AMT is included in a corporation's alternative minimum taxable-income.
Dividends derived from any investments other than tax-exempt bonds and any
distributions of short-term capital gains are taxable to shareholders as
ordinary income. Any distributions of long-term capital gains will in general be
taxable to shareholders as long-term capital gains (generally subject to a
maximum 20% tax rate for shareholders who are individuals) 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").
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<PAGE>
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 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 (be) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. government securities, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the fund and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any issuer (other than U.S. government
securities).
HEDGING TRANSACTIONS. If the fund engages in hedging transactions, including
hedging transactions in options, future contracts and straddles, or other
similar transactions, it will be subject to special tax rules (including
constructive sale, mark-to-market, straddle, wash sale, and short sale rules),
the effect of which may be to accelerate income to the fund, defer losses to the
fund, cause adjustments in the holding periods of the fund's securities, convert
long-term capital gains into short-term capital gains or convert short-term
capital losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to shareholders. The
fund will endeavor to make any available elections pertaining to such
transactions in a manner believed to be in the best interest of the fund.
SECURITIES ISSUED AT A DISCOUNT. The fund's investment in securities issued at
a discount and certain other obligations will (and investments in securities
purchased at a discount may) require the fund to accrue and distribute income
not yet received. In such cases, the fund may be required to sell assets
(possibly at a time 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.
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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 (IN THIS SECTION, AND THE FOLLOWING SECTIONS ENTITLED
"TRUSTEES AND OFFICERS," "THE MANAGEMENT AGREEMENT," "ADMINISTRATION AGREEMENT,"
"THE PRICING AND BOOKKEEPING AGREEMENT," "PORTFOLIO TRANSACTIONS," "INVESTMENT
DECISIONS," AND "BROKERAGE AND RESEARCH SERVICES," THE "ADVISOR" REFERS TO
COLONIAL MANAGEMENT ASSOCIATES, INC.)
The Advisor is the investment advisor to each of the funds (except for Colonial
Money Market Fund, Colonial Municipal Money Market Fund, Colonial Global
Utilities Fund, Stein Roe Advisor Tax-Managed Value Fund, Newport Tiger Fund,
Newport Tiger Cub Fund, Newport Japan Opportunities Fund, Newport Greater China
Fund and Newport Asia Pacific Fund - see Part I of each Fund's respective SAI
for a description of the investment advisor). The Advisor is a subsidiary of
Liberty Funds Group LLC (LFG), One Financial Center, Boston, MA 02111. LFG is an
indirect wholly-owned subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), which in turn is a direct majority-owned subsidiary of Liberty
Corporate Holdings, Inc., which in turn is a direct wholly-owned subsidiary of
LFC Management Corporation, which in turn is a direct wholly-owned subsidiary of
Liberty Mutual Equity Corporation, which in turn is a direct wholly-owned
subsidiary of Liberty Mutual Insurance Company (Liberty Mutual). Liberty Mutual
is an underwriter of workers' compensation insurance and a property and casualty
insurer in the United States. Liberty Financial's address is 600 Atlantic
Avenue, Boston, MA 02210. Liberty Mutual's address is 175 Berkeley Street,
Boston, MA 02117.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
<TABLE>
<CAPTION>
Name and Address Age Position with 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).
Tom Bleasdale 68 Trustee Retired (formerly Chairman of the Board and Chief
102 Clubhouse Drive #275 Executive Officer, Shore Bank & Trust Company from
Naples, Florida 34105 1992-1993); Director of The Empire Company since June,
1995.
John V. Carberry * 51 Trustee Senior Vice President of Liberty Financial (formerly
56 Woodcliff Road Managing Director, Salomon Brothers (investment banking)
Wellesley Hills, MA 02481 from January, 1988 to January, 1998).
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 63 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 71 Trustee Retired Partner, KPMG Peat Marwick LLP.
45 Sankaty Avenue
Siasconset, MA 02564
Anne-Lee Verville 53 Trustee Consultant (formerly General Manager, Global Education
359 Stickney Hill Road Industry from 1994 to 1997, and President, Applications
Hopkinton, NH 03229 Solutions Division from 1991 to 1994, IBM Corporation
(global education and global applications)).
</TABLE>
15
<PAGE>
<TABLE>
<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 LFG 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).
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Timothy J. Jacoby 46 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
LFG (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).
Advisor
Nancy L. Conlin 45 Secretary Secretary of the Funds since April, 1998 (formerly
Assistant Secretary from July, 1994 to April, 1998);
Director, Senior Vice President, General Counsel, Clerk
and Secretary of the Advisor since April, 1998
(formerly Vice President, Counsel, Assistant Secretary
and Assistant Clerk from July, 1994 to April, 1998);
Vice President, General Counsel and Secretary of LFG
since December, 1998 (formerly Vice President-, General
Counsel and Clerk of TCG from April, 1998 to December,
1998; (formerly Assistant Clerk from July, 1994 to
April, 1998); (formerly Partner, Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo from June, 1990 to June, 1994)
Joseph R. Palombo 46 Vice President Vice President of the Funds since April, 1999;
Executive Vice President and Director of the Advisor
since April, 1999; Executive Vice President and Chief
Administrative Officer of LFG since April, 1999;
(formerly Chief Operating Officer, Putnam Mutual Funds
from 1994 to 1998).
</TABLE>
* A Trustee who is an "interested person" (as defined in the Investment
Company Act of 1940 ("1940 Act")) of the fund or the Advisor.
The business address of the officers of each fund is One Financial Center,
Boston, MA 02111.
The Trustees serve as trustees of all funds for which each Trustee (except Mr.
Carberry) will receive an annual retainer of $45,000 and attendance fees of
$8,000 for each regular joint meeting and $1,000 for each special joint meeting.
Committee chairs
17
<PAGE>
receive an annual retainer of $5,000 and Committee chairs receive $1,000 for
each special meeting attended on a day other than a regular joint meeting day.
Committee members receive an annual retainer of $1,000 and $1,000 for each
special meeting attended on a day other than a regular joint meeting day.
Two-thirds of the Trustee fees are allocated among the funds based on each
fund's relative net assets and one-third of the fees are divided equally among
the funds.
The Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has
rendered investment advisory services to investment company, institutional and
other clients since 1931. The Advisor currently serves as investment advisor or
administrator for 39 open-end and 5 closed-end management investment company
portfolios. Trustees and officers of the Trust, who are also officers of the
Advisor or its affiliates, will benefit from the advisory fees, sales
commissions and agency fees paid or allowed by the Trust. More than 30,000
financial advisors have recommended the funds to over 800,000 clients worldwide,
representing more than $16.3 billion in assets.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that
the Trust will indemnify its Trustees and officers against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Trust but that such indemnification will not
relieve any officer or Trustee of any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties. The Trust, at its expense, provides liability
insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the funds into a master fund/feeder
fund structure. Under this structure, a fund may invest all or a portion of its
investable assets in investment companies with substantially the same investment
objectives, policies and restrictions as the fund. The primary reason to use the
master fund/feeder fund structure is to provide a mechanism to pool, in a single
master fund, investments of different investor classes, resulting in a larger
portfolio, investment and administrative efficiencies and economies of scale.
THE MANAGEMENT AGREEMENT (THIS SECTION DOES NOT APPLY TO COLONIAL MONEY MARKET
FUND, COLONIAL MUNICIPAL MONEY MARKET FUND, COLONIAL GLOBAL UTILITIES FUND,
STEIN ROE ADVISOR TAX-MANAGED VALUE FUND, NEWPORT TIGER FUND, NEWPORT JAPAN
OPPORTUNITIES FUND, NEWPORT TIGER CUB FUND, NEWPORT GREATER CHINA FUND OR
NEWPORT ASIA PACIFIC FUND)
Under a Management Agreement (Agreement), the Advisor has contracted to furnish
each fund with investment research and recommendations or fund management,
respectively, and accounting and administrative personnel and services, and with
office space, equipment and other facilities. For these services and facilities,
each fund pays a monthly fee based on the average of the daily closing value of
the total net assets of each fund for such month. Under the Agreement, any
liability of the Advisor to the Trust, a fund and/or its shareholders is limited
to situations involving the Advisor's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all
expenses not assumed by the Advisor including, but not limited to, auditing,
legal, custodial, investor servicing and shareholder reporting expenses. The
Trust pays the cost of printing and mailing any Prospectuses sent to
shareholders. LFD pays the cost of printing and distributing all other
Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO COLONIAL MONEY MARKET
FUND, COLONIAL MUNICIPAL MONEY MARKET FUND, COLONIAL GLOBAL UTILITIES FUND,
STEIN ROE ADVISOR TAX-MANAGED VALUE FUND, NEWPORT TIGER FUND, NEWPORT JAPAN
OPPORTUNITIES FUND, NEWPORT TIGER CUB FUND, NEWPORT GREATER CHINA FUND AND
NEWPORT ASIA PACIFIC FUND AND THEIR RESPECTIVE TRUSTS).
Under an Administration Agreement with each fund named above, the Advisor, in
its capacity as the Administrator to each fund, has contracted to perform the
following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its
directors, officers and employees to serve as Trustees,
officers or agents of each fund;
18
<PAGE>
(c) preparing and, if applicable, filing all documents required
for compliance by each fund with applicable laws and
regulations;
(d) preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees and
shareholders;
(e) coordinating and overseeing the activities of each fund's
other third-party service providers; and
(f) maintaining certain books and records of each fund.
With respect to Colonial Money Market Fund and Colonial Municipal Money Market
Fund, the Administration Agreement for these funds provides for the following
services in addition to the services referenced above:
(g) Monitoring compliance by the fund with Rule 2a-7 under the
(1940 Act and reporting to the Trustees from time to time with
respect thereto; and
(h) Monitoring the investments and operations of the following
Portfolios: SR&F Municipal Money Market Portfolio (Municipal
Money Market Portfolio) in which Colonial Municipal Money
Market Fund is invested;
SR&F Cash Reserves Portfolio in which Colonial Money Market
Fund is invested.
The Advisor is paid a monthly fee at the annual rate of average daily net assets
set forth in Part 1 of this SAI.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor provides pricing and bookkeeping services to each fund pursuant to a
Pricing and Bookkeeping Agreement. The Advisor, in its capacity as the
Administrator to each of Colonial Money Market Fund, Colonial Municipal Money
Market Fund and Colonial Global Utilities Fund, is paid an annual fee of
$18,000, plus 0.0233% of average daily net assets in excess of $50 million. For
each of the other funds (except for Newport Tiger Fund, Newport Japan
Opportunities Fund, Newport Tiger Cub Fund, Newport Greater China Fund and
Newport Asia Pacific Fund), the Advisor is paid monthly a fee of $2,250 by each
fund, plus a monthly percentage fee based on net assets of the fund equal to the
following:
1/12 of 0.000% of the first $50 million;
1/12 of 0.035% of the next $950 million;
1/12 of 0.025% of the next $1 billion;
1/12 of 0.015% of the next $1 billion; and
1/12 of 0.001% on the excess over $3 billion
The Advisor provides pricing and bookkeeping services to Newport Tiger Fund,
Newport Japan Opportunities Fund, Newport Tiger Cub Fund, Newport Greater China
Fund and Newport Asia Pacific Fund for an annual fee of $27,000, plus 0.035% of
each fund's average daily net assets over $50 million.
Stein Roe & Farnham Incorporated, the investment advisor of the Municipal Money
Market Portfolio, provides pricing and bookkeeping services to the Portfolio for
a fee of $25,000 plus 0.0025% annually of average daily net assets of the
Portfolio over $50 million.
PORTFOLIO TRANSACTIONS
THE FOLLOWING SECTIONS ENTITLED "INVESTMENT DECISIONS" AND "BROKERAGE AND
RESEARCH SERVICES" DO NOT APPLY TO COLONIAL MONEY MARKET FUND, COLONIAL
MUNICIPAL MONEY MARKET FUND, STEIN ROE ADVISOR TAX-MANAGED VALUE FUND AND
COLONIAL GLOBAL UTILITIES FUND. FOR EACH OF THESE FUNDS, SEE PART 1 OF ITS
RESPECTIVE SAI. THE ADVISOR OF NEWPORT TIGER FUND, NEWPORT JAPAN OPPORTUNITIES
FUND, NEWPORT TIGER CUB FUND, NEWPORT GREATER CHINA FUND AND NEWPORT ASIA
PACIFIC FUND FOLLOWS THE SAME PROCEDURES AS THOSE SET FORTH UNDER "BROKERAGE AND
RESEARCH SERVICES."
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the
funds (except for the Colonial Money Market Fund, Colonial Municipal Money
Market Fund, Colonial Global Utilities Fund, Stein Roe Advisor Tax-Managed Value
19
<PAGE>
Fund, Newport Tiger Fund, Newport Japan Opportunities Fund, Newport Tiger Cub
Fund, Newport Greater China Fund and Newport Asia Pacific Fund, each of which is
administered by the Advisor. The Advisor's affiliate, CASI, advises other
institutional, corporate, fiduciary and individual clients for which CASI
performs various services. Various officers and Trustees of the Trust also serve
as officers or Trustees of other funds and the other corporate or fiduciary
clients of the Advisor. The funds and clients advised by the Advisor or the
funds administered by the Advisor sometimes invest in securities in which the
fund also invests and sometimes engage in covered option writing programs and
enter into transactions utilizing stock index options and stock index and
financial futures and related options ("other instruments"). If the fund, such
other funds and such other clients desire to buy or sell the same portfolio
securities, options or other instruments at about the same time, the purchases
and sales are normally made as nearly as practicable on a pro rata basis in
proportion to the amounts desired to be purchased or sold by each. Although in
some cases these practices could have a detrimental effect on the price or
volume of the securities, options or other instruments as far as the fund is
concerned, in most cases it is believed that these practices should produce
better executions. It is the opinion of the Trustees that the desirability of
retaining the Advisor as investment advisor to the funds outweighs the
disadvantages, if any, which might result from these practices.
The portfolio managers of Colonial Utilities Fund, a series of Liberty Funds
Trust IV (formerly Colonial Trust IV), will use the trading facilities of Stein
Roe & Farnham Incorporated, an affiliate of the Advisor, to place all orders for
the purchase and sale of this fund's portfolio securities, futures contracts and
foreign currencies.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
"best execution" (as defined below) and such other policies as the Trustees may
determine, the Advisor 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.
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<PAGE>
The Advisor may use the services of AlphaTrade Inc. (ATI), its registered
broker-dealer subsidiary, when buying or selling equity securities for a fund's
portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule
17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays ATI
on portfolio transactions are reasonable and fair compared to commissions
received by other broker-dealers in connection with comparable transactions
involving similar securities being bought or sold at about the same time. The
Advisor will report quarterly to the Trustees on all securities transactions
placed through ATI so that the Trustees may consider whether such trades
complied with these procedures and the Rule. ATI employs electronic trading
methods by which it seeks to obtain best price and execution for the fund, and
will use a clearing broker to settle trades.
PRINCIPAL UNDERWRITER
LFD is the principal underwriter of the Trust's shares. LFD has no obligation to
buy the funds' shares, and purchases the funds' shares only upon receipt of
orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
LFSI is the Trust's investor servicing agent (transfer, plan and dividend
disbursing agent), for which it receives fees which are paid monthly by the
Trust. The fee paid to LFSI is based on the average daily net assets of each
fund plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES
AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY LFSI.
The agreement continues indefinitely but may be terminated by 90 days' notice by
the fund to LFSI or generally by 6 months' notice by LFSI to the fund. The
agreement limits the liability of LFSI to the fund for loss or damage incurred
by the fund to situations involving a failure of LFSI to use reasonable care or
to act in good faith in performing its duties under the agreement. It also
provides that the fund will indemnify LFSI against, among other things, loss or
damage incurred by LFSI on account of any claim, demand, action or suit made on
or against LFSI not resulting from LFSI's bad faith or negligence and arising
out of, or in connection with, its duties under the agreement.
DETERMINATION OF NET ASSET VALUE
Each fund determines net asset value (NAV) per share for each class as of the
close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern
time, 3:00 p.m. Central time) each day the Exchange is open. Currently, the
Exchange is closed Saturdays, Sundays and the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
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. The net asset value of the Municipal Money Market
Portfolio will not be determined on days when the Exchange is closed unless, in
the judgment of the Municipal Money Market Portfolio's Board of Trustees, the
net asset value of the Municipal Money Market Portfolio should be determined on
any such day, in which case the determination will be made at 3:00 p.m., Central
time. Debt securities generally are valued by a pricing service which determines
valuations based upon market transactions for normal, institutional-size trading
units of similar securities. However, in circumstances where such prices are not
available or where the Advisor deems it appropriate to do so, an
over-the-counter or exchange bid quotation is used. Securities listed on an
exchange or on NASDAQ are valued at the last sale price. Listed securities for
which there were no sales during the day and unlisted securities are valued at
the last quoted bid price. Options are valued at the last sale price or in the
absence of a sale, the mean between the last quoted bid and offering prices.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost pursuant to procedures adopted by the Trustees. The values of
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the exchange rate for that day. Portfolio positions for which there are no
such valuations and other assets are valued at fair value as determined by the
Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. Trading on certain foreign securities markets may not take place on
all business days in New York, and trading on some foreign securities markets
takes place on days which are not business days in New York and on which the
fund's NAV is not calculated. The values of these securities used in determining
the NAV are computed as of such times. Also, because of the amount of time
required to collect and process trading information as to large numbers of
securities issues, the values of certain securities (such as convertible bonds,
U.S. government securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest practicable time
prior to the close of the Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the Exchange which
will not be reflected in the computation of each fund's NAV. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value following procedures
approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Newport Tiger Fund, Newport
Japan Opportunities Fund, Newport Tiger Cub Fund, Newport Greater China Fund and
Newport Asia Pacific Fund. " Advisor" in these two paragraphs refers to each
fund's investment advisor, Newport Fund Management, Inc.)
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Trading in securities on stock exchanges and over-the-counter markets in the Far
East is normally completed well before the close of the business day in New
York. Trading on Far Eastern securities markets may not take place on all
business days in New York, and trading on some Far Eastern securities markets
does take place on days which are not business days in New York and on which the
fund's NAV is not calculated.
The calculation of the fund's NAV accordingly may not take place
contemporaneously with the determination of the prices of the fund's portfolio
securities used in such calculations. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the close
of the Exchange (when the fund's NAV is calculated) will not be reflected in the
fund's calculation of NAV unless the Advisor, acting under procedures
established by the Board of Trustees of the Trust, deems that the particular
event would materially affect the fund's NAV, in which case an adjustment will
be made. Assets or liabilities initially expressed in terms of foreign
currencies are translated prior to the next determination of the NAV of the
fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (THIS SECTION CURRENTLY DOES NOT APPLY TO
COLONIAL MONEY MARKET FUNDS, - SEE "AMORTIZED COST FOR MONEY MARKET FUNDS" UNDER
"OTHER INFORMATION CONCERNING THE PORTFOLIO" IN PART 1 OF THE SAI OF AND
COLONIAL MUNICIPAL MONEY MARKET FUND FOR INFORMATION RELATING TO THE MUNICIPAL
MONEY MARKET PORTFOLIO)
Money market funds generally value their portfolio securities at amortized cost
according to Rule 2a-7 under the 1940 Act.
Portfolio instruments are valued under the amortized cost method, whereby the
instrument is recorded at cost and thereafter amortized to maturity. This method
assures a constant NAV but may result in a yield different from that of the same
portfolio under the market value method. The Trust's Trustees have adopted
procedures intended to stabilize a money market fund's NAV per share at $1.00.
When a money market fund's market value deviates from the amortized cost of
$1.00, and results in a material dilution to existing shareholders, the Trust's
Trustees will take corrective action that may include: realizing gains or
losses; shortening the portfolio's maturity; withholding distributions;
redeeming shares in kind; or converting to the market value method (in which
case the NAV per share may differ from $1.00). All investments will be
determined pursuant to procedures approved by the Trust's Trustees to present
minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the
Colonial Money Market Fund for a specimen price sheet showing the computation of
maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of
the fund and tables of charges. This SAI contains additional information which
may be of interest to investors.
The Fund will accept unconditional orders for shares to be executed at the
public offering price based on the NAV per share next determined after the order
is placed in good order. The public offering price is the NAV plus the
applicable sales charge, if any. In the case of orders for purchase of shares
placed through FSFs, the public offering price will be determined on the day the
order is placed in good order, but only if the FSF receives the order prior to
the time at which shares are valued and transmits it to the fund before the fund
processes that day's transactions. If the FSF fails to transmit before the fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF. If the FSF
receives the order after the time at which the fund values its shares, the price
will be based on the NAV determined as of the close of the Exchange on the next
day it is open. If funds for the purchase of shares are sent directly to LFSI,
they will be invested at the public offering price next determined after receipt
in good order. Payment for shares of the fund must be in U.S. dollars; if made
by check, the check must be drawn on a U.S. bank.
The fund receives the entire NAV of shares sold. For shares subject to an
initial sales charge, LFD's commission is the sales charge shown in the fund's
Prospectus less any applicable FSF discount. The FSF discount is the same for
all FSFs, except that LFD retains the entire sales charge on any sales made to a
shareholder who does not specify a FSF on the Investment Account Application
("Application"). LFD generally retains 100% of any asset-based sales charge
(distribution fee) or contingent deferred sales charge. Such charges generally
reimburse LFD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the fund which are returned by
the purchaser's bank or checkwriting privilege checks for which there are
insufficient funds in a shareholder's account to cover redemption will subject
such purchaser or shareholder to a $15 service fee for each check returned.
Checks must be drawn on a U.S. bank and must be payable in U.S. dollars.
LFSI acts as the shareholder's agent whenever it receives instructions to carry
out a transaction on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account, the designated FSF
will receive the applicable
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sales commission. Shareholders may change FSFs at any time by written notice to
LFSI, provided the new FSF has a sales agreement with LFD.
Shares credited to an account are transferable upon written instructions in good
order to LFSI and may be redeemed as described under "How to Sell Shares" in the
Prospectus. Certificates will not be issued for Class A shares unless
specifically requested and no certificates will be issued for Class B, C, T or Z
shares. The Colonial money market funds will not issue certificates.
Shareholders may send any certificates which have been previously acquired to
LFSI for deposit to their account.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or
eliminated at any time.
FUNDAMATIC PROGRAM. As a convenience to investors, shares of most funds advised
by Colonial, Newport Fund Management, Inc., Crabbe Huson Group, Inc. and Stein
Roe & Farnham Incorporated may be purchased through the Fundamatic Program.
Preauthorized monthly bank drafts or electronic funds transfers for a fixed
amount of at least $50 are used to purchase a fund's shares at the public
offering price next determined after LFD receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the next business day
thereafter). If your Fundamatic purchase is by electronic funds transfer, you
may request the Fundamatic purchase for any day. Further information and
application forms are available from FSFs or from LFD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B and C). The Automated Dollar Cost
Averaging program allows you to exchange $100 or more on a monthly basis from
any mutual fund advised by Colonial, Newport Fund Management, Inc., Crabbe Huson
Group, Inc. and Stein Roe & Farnham Incorporated in which you have a current
balance of at least $5,000 into the same class of shares of up to four other
funds. Complete the Automated Dollar Cost Averaging section of the Application.
The designated amount will be exchanged on the third Tuesday of each month.
There is no charge for exchanges made pursuant to the Automated Dollar Cost
Averaging program. Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same Class of shares of funds by written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.
Any additional payments or exchanges into your fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax
purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum), or change your selection of funds, by telephone or in
writing; if in writing by mailing your instructions to Liberty Funds Services,
Inc. P.O. Box 1722, Boston, MA 02105-1722.
You should consult your FSF or investment advisor to determine whether or not
the Automated Dollar Cost Averaging program is appropriate for you.
LFD offers several plans by which an investor may obtain reduced initial or
contingent deferred sales charges. These plans may be altered or discontinued at
any time. See "Programs For Reducing or Eliminating Sales Charges" for more
information.
TAX-SHELTERED RETIREMENT PLANS. LFD offers prototype tax-qualified plans,
including Individual Retirement Accounts (IRAs), and Pension and Profit-Sharing
Plans for individuals, corporations, employees and the self-employed. The
minimum initial Retirement Plan investment is $25. Investors Bank & Trust
Company is the Trustee of LFD prototype plans and charges a $15 annual fee.
Detailed information concerning these Retirement Plans and copies of the
Retirement Plans are available from LFD.
Participants in non-LFD prototype Retirement Plans (other than IRAs) also are
charged a $10 annual fee unless the plan maintains an omnibus account with LFSI.
Participants in LFD prototype Plans (other than IRAs) who liquidate the total
value of their account will also be charged a $15 close-out processing fee
payable to LFSI. The fee is in addition to any applicable CDSC. The fee will not
apply if the participant uses the proceeds to open a LFD IRA Rollover account in
any fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these Plans
and consideration of the suitability of fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling LFSI, shareholders or their FSF of
record may change an address on a recorded telephone line. Confirmations of
address change will be sent to both the old and the new addresses. Telephone
redemption privileges are suspended for 30 days after an address change is
effected.
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CASH CONNECTION. Dividends and any other distributions, including Systematic
Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification
reinvestment program (ADD) generally allows shareholders to have all
distributions from a fund automatically invested in the same class of shares of
another fund. An ADD account must be in the same name as the shareholder's
existing open account with the particular fund. Call LFSI for more information
at 1-800-422-3737.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHT OF ACCUMULATION AND STATEMENT OF INTENT (Class A and Class T shares only)
(Class T shares can only be purchased by the shareholders of Newport Tiger Fund
who already own Class T shares). Reduced sales charges on Class A and T shares
can be effected by combining a current purchase with prior purchases of Class A,
B, C, T and Z shares of the funds distributed by LFD. The applicable sales
charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on
the previous day of all funds' Class A shares held by the
shareholder (except shares of any money market fund, unless such
shares were acquired by exchange from Class A shares of another
fund other than a money market fund and Class B, C, T and Z
shares).
LFD must be promptly notified of each purchase which entitles a shareholder to a
reduced sales charge. Such reduced sales charge will be applied upon
confirmation of the shareholder's holdings by LFSI. A fund may terminate or
amend this Right of Accumulation.
Any person may qualify for reduced sales charges on purchases of Class A and T
shares made within a thirteen-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in funds (except shares of
any money market fund, unless such shares were acquired by exchange from Class A
shares of another non-money market fund). The value is determined at the public
offering price on the date of the Statement. Purchases made through reinvestment
of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, LFSI will hold shares in escrow to secure
payment of the higher sales charge applicable to Class A or T shares actually
purchased. Dividends and capital gains will be paid on all escrowed shares and
these shares will be released when the amount indicated has been purchased. A
Statement does not obligate the investor to buy or a fund to sell the amount of
the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which
would qualify for a further quantity discount, a retroactive price adjustment
will be made at the time of expiration of the Statement. The resulting
difference in offering price will purchase additional shares for the
shareholder's account at the applicable offering price. As a part of this
adjustment, the FSF shall return to LFD the excess commission previously paid
during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to
LFD an amount equal to the difference between the sales charge paid and the
sales charge that should have been paid. If the shareholder fails within twenty
days after a written request to pay such difference in sales charge, LFSI will
redeem that number of escrowed Class A shares to equal such difference. The
additional amount of FSF discount from the applicable offering price shall be
remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available
from your FSF, or from LFSI at 1-800-345-6611.
COLONIAL ASSET BUILDER INVESTMENT PROGRAM (THIS SECTION CURRENTLY APPLIES ONLY
TO THE CLASS A SHARES OF COLONIAL SELECT VALUE FUND AND THE COLONIAL FUND, EACH
A SERIES OF LIBERTY FUNDS TRUST III (FORMERLY COLONIAL TRUST III)). A reduced
sales charge applies to a purchase of certain funds' Class A shares under a
Statement of Intent for the Colonial Asset Builder Investment Program (Program).
The Program offer may be withdrawn at any time without notice. A completed
Program may serve as the initial investment for a new Program, subject to the
maximum of $4,000 in initial investments per investor. Shareholders in this
program are subject to a 5% sales charge. LFSI will escrow shares to secure
payment of the additional sales charge on amounts invested if the Program is not
completed. Escrowed shares are credited with distributions and will be released
when the Program has ended. Shareholders are subject to a 1% fee on the amount
invested if they do not complete the Program. Prior to
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completion of the Program, only scheduled Program investments may be made in a
fund in which an investor has a Program account. The following services are not
available to Program accounts until a Program has ended:
<TABLE>
<S> <C>
Systematic Withdrawal Plan Share Certificates
Sponsored Arrangements Exchange Privilege
$50,000 Fast Cash Colonial Cash Connection
Right of Accumulation Automatic Dividend Diversification
Telephone Redemption Reduced Sales Charges for any "person"
Statement of Intent
</TABLE>
* Exchanges may be made to other funds offering the Program.
Because of the unavailability of certain services, this Program may not be
suitable for all investors.
The FSF receives 3% of the investor's intended purchases under a Program at the
time of initial investment and 1% after the 24th monthly payment. LFD may
require the FSF to return all applicable commissions paid with respect to a
Program terminated within six months of inception, and thereafter to return
commissions in excess of the FSF discount applicable to shares actually
purchased.
Since the Asset Builder plan involves continuous investment regardless of the
fluctuating prices of funds shares, investors should consult their FSF to
determine whether it is appropriate. The Plan does not assure a profit nor
protect against loss in declining markets.
REINSTATEMENT PRIVILEGE. An investor who has redeemed Class A, B, C or T shares
may, upon request, reinstate within one year a portion or all of the proceeds of
such sale in shares of the same Class of any fund at the NAV next determined
after LFSI receives a written reinstatement request and payment. Any CDSC paid
at the time of the redemption will be credited to the shareholder upon
reinstatement. The period between the redemption and the reinstatement will not
be counted in aging the reinstated shares for purposes of calculating any CDSC
or conversion date. Investors who desire to exercise this privilege should
contact their FSF or LFSI. Shareholders may exercise this Privilege an unlimited
number of times. Exercise of this privilege does not alter the Federal income
tax treatment of any capital gains realized on the prior sale of fund shares,
but to the extent any such shares were sold at a loss, some or all of the loss
may be disallowed for tax purposes. Consult your tax advisor.
PRIVILEGES OF COLONIAL EMPLOYEES OR FINANCIAL SERVICE FIRMS (IN THIS SECTION,
THE "ADVISOR" REFERS TO COLONIAL MANAGEMENT ASSOCIATES, INC. IN ITS CAPACITY AS
THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS). Class A shares of certain funds
may be sold at NAV to the following individuals whether currently employed or
retired: Trustees of funds advised or administered by the Advisor; directors,
officers and employees of the Advisor, LFD and other companies affiliated with
the Advisor; registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales arrangements
with LFD; and such persons' families and their beneficial accounts.
SPONSORED ARRANGEMENTS. Class A and Class T shares (Class T shares can only be
purchased by the shareholders of Newport Tiger Fund who already own Class T
shares) of certain funds may be purchased at a reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to, or permits group solicitation of, its
employees, members or participants in connection with the purchase of shares of
the fund on an individual basis. The amount of the sales charge reduction will
reflect the anticipated reduction in sales expense associated with sponsored
arrangements. The reduction in sales expense, and therefore the reduction in
sales charge, will vary depending on factors such as the size and stability of
the organization's group, the term of the organization's existence and certain
characteristics of the members of its group. The funds reserve the right to
revise the terms of or to suspend or discontinue sales pursuant to sponsored
plans at any time.
Class A and Class T shares (Class T shares can only be purchased by the
shareholders of Newport Tiger Fund who already own Class T shares) of certain
funds may also be purchased at reduced or no sales charge by clients of dealers,
brokers or registered investment advisors that have entered into agreements with
LFD pursuant to which the funds are included as investment options in programs
involving fee-based compensation arrangements, and by participants in certain
retirement plans.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE
"ADVISOR" REFERS TO COLONIAL MANAGEMENT ASSOCIATES, INC. IN ITS CAPACITY AS THE
ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Classes A, B and C) CDSCs may be
waived on redemptions in the following situations with the proper documentation:
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<TABLE>
<S> <C>
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
LFD for at least two years.
</TABLE>
The CDSC also may be waived where the FSF agrees to return all or an agreed upon
portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the
Fund or through the shareholder's FSF. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund may delay
selling your shares for up to 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by dishonored purchase
payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or
stock power form to LFSI, along with any certificates for shares to be sold. The
sale price is the net asset value (less any applicable contingent deferred sales
charge) next calculated after the Fund receives the request in proper form.
Signatures must be guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution. Stock power forms are
available from FSFs, LFSI and many banks. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving joint owners and
individual retirement account holders. Call LFSI for more information
1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued
to receive that day's price, are responsible for furnishing all necessary
documentation to LFSI and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN
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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 (except for
Newport Tiger Cub Fund, Newport Japan Opportunities Fund, Newport Asia Pacific
Fund and Newport Greater China Fund) are automatically eligible to redeem up to
$100,000 of the fund's shares by calling 1-800-422-3737 toll-free any business
day between 9:00 a.m. and the close of trading of the Exchange (normally 4:00
p.m. Eastern time). Transactions received after 4:00 p.m. Eastern time will
receive the next business day's closing price. Telephone redemptions are limited
to a total of $100,000 in a 30-day period. Redemptions that exceed $100,000 may
be accomplished by placing a wire order trade through a broker or furnishing a
signature guarantee request. Telephone redemption privileges for larger amounts
and for Newport Tiger Cub Fund, Newport Japan Opportunities Fund, Newport
Greater China Fund and Newport Asia Pacific Fund may be elected on the
Application. LFSI will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Telephone redemptions are not available
on accounts with an address change in the preceding 30 days and proceeds and
confirmations will only be mailed or sent to the address of record unless the
redemption proceeds are being sent to a pre-designated bank account.
Shareholders and/or their FSFs will be required to provide their name, address
and account number. FSFs will also be required to provide their broker number.
All telephone transactions are recorded. A loss to a shareholder may result from
an unauthorized transaction reasonably believed to have been authorized. No
shareholder is obligated to execute the telephone authorization form or to use
the telephone to execute transactions.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLONIAL MANAGEMENT
ASSOCIATES, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN
FUNDS) (Available only on the Class A shares of certain funds) Shares may be
redeemed by check if a shareholder has previously completed an Application and
Signature Card. LFSI will provide checks to be drawn on BankBoston (the "Bank").
These checks may be made payable to the order of any person in the amount of not
less than $500 nor more than $100,000. The shareholder will continue to earn
dividends on shares until a check is presented to the Bank for payment. At such
time a sufficient number of full and fractional shares will be redeemed at the
next determined net asset value to cover the amount of the check. Certificate
shares may not be redeemed in this manner.
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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 Municipal Money Market Fund will be
earned starting with the day after that fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other
continuously offered funds (with certain exceptions) on the basis of the NAVs
per share at the time of exchange. Class T and Z shares may be exchanged for
Class A shares of the other funds. The prospectus of each fund describes its
investment objective and policies, and shareholders should obtain a prospectus
and consider these objectives and policies carefully before requesting an
exchange. Shares of certain funds are not available to residents of all states.
Consult LFSI before requesting an exchange.
By calling LFSI, shareholders or their FSF of record may exchange among accounts
with identical registrations, provided that the shares are held on deposit.
During periods of unusual market changes or shareholder activity, shareholders
may experience delays in contacting LFSI by telephone to exercise the telephone
exchange privilege. Because an exchange involves a redemption and reinvestment
in another fund, completion of an exchange may be delayed under unusual
circumstances, such as if the fund suspends repurchases or postpones payment for
the fund shares being exchanged in accordance with federal securities law. LFSI
will also make exchanges upon receipt of a written exchange request and share
certificates, if any. If the shareholder is a corporation, partnership, agent,
or surviving joint owner, LFSI will require customary additional documentation.
Prospectuses of the other funds are available from the LFD Literature Department
by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably
believed to have been authorized. No shareholder is obligated to use the
telephone to execute transactions.
You need to hold your Class A and Class T shares for five months before
exchanging to certain funds having a higher maximum sales charge. Consult your
FSF or LFSI. In all cases, the shares to be exchanged must be registered on the
records of the fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at
NAV for the same class of shares of the fund.
An exchange is generally a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
SUSPENSION OF REDEMPTIONS
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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 (i.e. cumulative) rather than
average annual total returns or may not reflect the sales charge or CDSC.
Total return for a newer class of shares for periods prior to inception includes
(a) the performance of the newer class of shares since inception and (b) the
performance of the oldest existing class of shares from the inception date up to
the date the newer class was offered for sale. In calculating total rate of
return for a newer class of shares in accordance with certain formulas required
by the SEC, the performance will be adjusted to take into account the fact that
the newer class is subject to a different sales charge than the oldest class
(e.g., if the newer class is Class A shares, the total rate of return quoted
will reflect the deduction of the initial sales charge applicable to Class A
shares; if the newer class is Class B or Class C shares, the total rate of
return quoted will reflect the deduction of the CDSC applicable to Class B or
Class C shares). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different class specific
expenses than the oldest class of shares (e.g., Rule 12b-1 fees). Therefore, the
total rate of return quoted for a newer class of shares will differ from the
return that would be quoted had the newer class of shares been outstanding for
the entire period over which the calculation is based (i.e., the total rate of
return quoted for the newer class will be higher than the return that would have
been quoted had the newer class of shares been outstanding for the entire period
over which the calculation is based if the class specific expenses for the newer
class are higher than the class specific expenses of the oldest class, and the
total rate of return quoted for the newer class will be lower than the return
that would be quoted had the newer class of shares been
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outstanding for this entire period if the class specific expenses for the newer
class are lower than the class specific expenses of the oldest class).
Performance results reflect any voluntary waivers or reimbursements of fund
expenses by the Advisor, Administrator or its affiliates. Absent these waivers
or reimbursements, performance results would have been lower.
YIELD
MONEY MARKET. A money market fund's yield and effective yield is computed in
accordance with the SEC's formula for money market fund yields.
NON-MONEY MARKET. The yield for each class of shares of a fund is determined by
(i) calculating the income (as defined by the SEC for purposes of advertising
yield) during the base period and subtracting actual expenses for the period
(net of any reimbursements), and (ii) dividing the result by the product of the
average daily number of shares of the fund that were entitled to dividends
during the period and the maximum offering price of the fund on the last day of
the period, (iii) then annualizing the result assuming semi-annual compounding.
Tax-equivalent yield is calculated by taking that portion of the yield which is
exempt from income tax and determining the equivalent taxable yield which would
produce the same after-tax yield for any given federal and, in some cases, state
tax rate, and adding to that the portion of the yield which is fully taxable.
Adjusted yield is calculated in the same manner as yield except that expenses
voluntarily borne or waived by the Advisor or its affiliates have been added
back to actual expenses.
DISTRIBUTION RATE. The distribution rate for each class of shares of a fund is
usually calculated by dividing annual or annualized distributions by the maximum
offering price of that class on the last day of the period. Generally, the
fund's distribution rate reflects total amounts actually paid to shareholders,
while yield reflects the current earning power of the fund's portfolio
securities (net of the fund's expenses). The fund's yield for any period may be
more or less than the amount actually distributed in respect of such period.
The fund may compare its performance to various unmanaged indices published by
such sources as are listed in Appendix II.
The fund may also refer to quotations, graphs and electronically transmitted
data from sources believed by the Advisor to be reputable, and publications in
the press pertaining to a fund's performance or to the Advisor or its
affiliates, including comparisons with competitors and matters of national and
global economic and financial interest. Examples include Forbes, Business Week,
Money Magazine, The Wall Street Journal, The New York Times, The Boston Globe,
Barron's National Business & Financial Weekly, Financial Planning, Changing
Times, Reuters Information Services, Wiesenberger Mutual Funds Investment
Report, Lipper Analytical Services Corporation, Morningstar, Inc., Sylvia
Porter's Personal Finance Magazine, Money Market Directory, SEI Funds Evaluation
Services, FTA World Index and Disclosure Incorporated, Bloomberg and Ibbotson.
All data are based on past performance and do not predict future results.
TAX-RELATED ILLUSTRATIONS. The Fund also may present hypothetical illustrations
(i) comparing the Fund's and other mutual fund's pre-tax and after-tax total
returns, and (ii) showing the effects of income, capital gain and estate taxes
on performance.
GENERAL. From time to time, the fund may discuss or quote its current portfolio
manager as well as other investment personnel and members of the tax management
oversight team, including such person's views on: the economy; securities
markets; portfolio securities and their issuers; investment philosophies,
strategies, techniques and criteria used in the selection of securities to be
purchased or sold for the fund, including the New ValueTM investment strategy
that expands upon the principles of traditional value investing; the fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment and
evaluation of credit, interest rate, market and economic risks and similar or
related matters.
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
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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.
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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.
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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.
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.
34
<PAGE>
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:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for, but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings
is identical to that of the Municipal Bond ratings as set forth above, except
for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in
the Aa and A classifications of its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INVESTORS SERVICE
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and/or
dividends and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in the
`AAA' and `AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated `F-1+'.
A bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest or dividends and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
securities and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or
the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
35
<PAGE>
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.
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.
36
<PAGE>
APPENDIX II
1998
<TABLE>
<CAPTION>
SOURCE CATEGORY RETURN (%)
<S> <C>
CREDIT SUISSE FIRST BOSTON:
First Boston High Yield 0.58
LIPPER, INC.:
AMEX Composite Index P 0.64
AMEX Computer Tech IX P 81.46
AMEX Institutional IX P 37.59
AMEX Major Market IX P 18.32
Aust Crdtstlt:Osh IX P N/A
Bse Sensex Index -16.50
CAC 40:FFR IX P 31.47
CD Rate 1 Month Index Tr 5.61
CD Rate 3 Month Index Tr 5.59
CD Rate 6 Month Index Tr 5.58
Consumer Price Index 1.61
Copnhgn SE:Dkr IX P N/A
DAX:Dm IX Tr 17.71
Dow Jones 65 Comp Av P 10.10
Dow Jones Ind Average P 16.10
Dow Jones Ind Dly Reinv 18.13
Dow Jones Ind Mth Reinv 18.15
Dow Jones Trans Av P -3.29
Dow Jones Trans Av Tr 0.02
Dow Jones Util Av P 14.37
Dow Jones Util Av Tr 18.88
FT-SE 100:Pd IX P 14.55
Hang Seng:Hng Kng $ IX -6.29
Jakarta Composite Index N/A
Jasdaq Index:Yen P N/A
Klse Composite Index -1.40
Kospi Index N/A
Lear High Growth Rate IX 1.53
Lear Low Priced Value IX -1.52
Lehman 1-3 Govt/Corp Tr 6.96
Lehman Aggregate Bd P 2.03
Lehman Aggregate Bd Tr 8.69
Lehman Cp Bd Int Tr 8.29
Lehman Govt Bd Int P 1.99
Lehman Govt Bd Int Tr 8.49
Lehman Govt Bd Long P 6.59
Lehman Govt Bd Long Tr 13.41
Lehman Govt Bd P 3.27
Lehman Govt Bd Tr 9.85
Lehman Govt/Cp Bd P 2.70
Lehman Govt/Cp Bd Tr 9.47
Lehman Govt/Cp Int P 1.78
Lehman Govt/Cp Int Tr 8.44
Lehman High Yield P -6.46
Lehman High Yield Tr 1.60
Lehman Muni 10 Yr IX Tr 6.76
Lehman Muni 3 Yr IX Tr 5.21
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
Lehman Muni Bond IX Tr 6.48
Lehman 7-Year Muni Bond 6.23
ML 0-3 Yr Muni IX P 0.02
ML 0-3 Yr Muni IX Tr 5.01
ML 1-3 Yr Treasury IX P 0.60
ML 1-3 Yr Treasury IX Tr 7.00
ML 1-5 Yr Gv/Cp Bd IX P 1.12
ML 1-5 Yr Gv/Cp Bd IX Tr 7.68
ML 1-5 Yr Treasury IX P 1.32
ML 1-5 Yr Treasury IX Tr 7.74
ML 10+ Yr Treasury IX Tr 13.55
ML 15 Yr Mortgage IX P 0.85
ML 15 Yr Mortgage IX Tr 7.30
ML 3-5 Yr Govt IX P 2.40
ML 3-5 Yr Govt IX Tr 8.87
ML Corp Master Index P 1.47
ML Corp Master Index Tr 8.72
ML Glbl Govt Bond Inx P 7.71
ML Glbl Govt Bond Inx Tr 14.12
ML Glbl Gv Bond IX II P 8.32
ML Glbl Gv Bond IX II Tr 14.97
ML Global Bond Index P 6.07
ML Global Bond Index Tr 12.78
ML Gov Corp Master IX P 2.69
ML Gov Corp Master IX Tr 9.53
ML Govt Master Index P 3.17
ML Govt Master Index Tr 9.85
ML High Yld Master IX P -5.59
ML High Yld Master IX Tr 3.66
ML Mortgage Master IX P 0.68
ML Mortgage Master IX Tr 7.19
ML Treasury Master IX P 3.35
ML Treasury Master IX Tr 10.03
MSCI AC Americas Free GD 25.77
MSCI AC Americas Free ID 23.77
MSCI AC Asia Fr-Ja IX GD -7.79
MSCI AC Asia Fr-Ja IX ID -10.27
MSCI AC Asia Pac - Ja GD -4.77
MSCI AC Asia Pac - Ja ID -7.30
MSCI AC Asia Pac Fr-J GD -4.42
MSCI AC Asia Pac Fr-J ID -7.12
MSCI AC Asia Pac IX GD 2.03
MSCI AC Asia Pac IX ID 0.53
MSCI AC Europe IX GD 27.18
MSCI AC Europe IX ID 24.84
MSCI AC Fe - Ja IX GD -4.83
MSCI AC Fe - Ja IX ID -7.16
MSCI AC Fe Fr-Ja IX GD -4.82
MSCI AC Fe Fr-Ja IX ID -7.39
MSCI AC Fe Free IX GD 3.38
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
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MSCI AC World IX GD 21.72
MSCI AC World IX ID 19.69
MSCI AC World-USA IX GD 14.09
MSCI AC Wrld Fr-Ja IX GD 24.09
MSCI AC Wrld Fr-Ja IX ID 21.93
MSCI AC Wrld-Ja IX GD 23.80
MSCI AC Wrld-Ja IX ID 21.64
MSCI Argentina IX GD -24.30
MSCI Argentina IX ID -27.30
MSCI Australia IX GD 7.06
MSCI Australia IX ID 3.80
MSCI Australia IX ND 6.07
MSCI Austria IX GD 0.77
MSCI Austria IX ID -0.91
MSCI Austria IX ND 0.35
MSCI Belgium IX GD 68.73
MSCI Belgium IX ID 64.84
MSCI Belgium IX ND 67.75
MSCI Brazil IX GD -39.62
MSCI Brazil IX ID -44.07
MSCI Canada IX GD -5.70
MSCI Canada IX ID -7.44
MSCI Canada IX ND -6.14
MSCI Chile IX GD -28.50
MSCI Chile IX ID -30.65
MSCI China Dom Fr IX ID -51.52
MSCI China Free IX ID -43.83
MSCI China Non Dom IX ID -42.06
MSCI Colombia IX GD -42.17
MSCI Colombia IX ID -45.32
MSCI Czech Rep IX GD 0.54
MSCI Czech Rep IX ID -0.66
MSCI Denmark IX GD 9.38
MSCI Denmark IX ID 7.82
MSCI Denmark IX ND 8.99
MSCI EAFE + Canada IX GD 19.11
MSCI EAFE + Canada IX ID 17.02
MSCI EAFE + Canada IX ND 18.76
MSCI EAFE + EMF IX GD 15.25
MSCI EAFE + EMF IX ID 13.13
MSCI EAFE + Em IX GD 14.94
MSCI EAFE + Em IX ID 12.84
MSCI EAFE - UK IX GD 21.02
MSCI EAFE - UK IX ID 19.17
MSCI EAFE - UK IX ND 20.59
MSCI EAFE Fr IX ID 18.32
MSCI EAFE GDP Wt IX GD 27.12
MSCI EAFE GDP Wt IX ID 25.12
MSCI EAFE GDP Wt IX ND 26.71
MSCI EAFE IX GD 20.33
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
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MSCI EMF Asia IX ID -12.36
MSCI EMF Far East IX GD -6.23
MSCI EMF Far East IX ID -7.33
MSCI EMF IX GD -25.34
MSCI EMF IX ID -27.52
MSCI EMF Latin Am IX GD -35.11
MSCI EMF Latin Am IX ID -38.04
MSCI Em Asia IX GD -8.57
MSCI Em Asia IX ID -9.90
MSCI Em Eur/Mid East GD -26.01
MSCI Em Eur/Mid East ID -27.37
MSCI Em Europe IX GD -30.11
MSCI Em Europe IX ID -31.17
MSCI Em Far East IX GD -4.12
MSCI Em Far East IX ID -5.28
MSCI Em IX GD -23.21
MSCI Em IX ID -25.30
MSCI Em Latin Am IX GD -35.29
MSCI Em Latin Am IX ID -38.19
MSCI Europe - UK IX GD 33.95
MSCI Europe - UK IX ID 31.86
MSCI Europe - UK IX ND 33.38
MSCI Europe GDP Wt IX ID 31.74
MSCI Europe IX GD 28.91
MSCI Europe IX ID 26.53
MSCI Europe IX ND 28.53
MSCI European Union GD 30.44
MSCI European Union ID 27.93
MSCI Far East Free IX ID 1.52
MSCI Far East IX GD 2.56
MSCI Far East IX ID 1.22
MSCI Far East IX ND 2.39
MSCI Finland IX GD 122.63
MSCI Finland IX ID 119.10
MSCI Finland IX ND 121.64
MSCI France IX GD 42.06
MSCI France IX ID 40.00
MSCI France IX ND 41.54
MSCI Germany IX GD 29.88
MSCI Germany IX ID 28.17
MSCI Germany IX ND 29.43
MSCI Greece IX GD 78.11
MSCI Greece IX ID 75.01
MSCI Hongkong IX GD -2.92
MSCI Hongkong IX ID -7.60
MSCI Hongkong IX ND -2.92
MSCI Hungary IX GD -8.16
MSCI Hungary IX ID -8.70
MSCI India IX GD -21.24
MSCI India IX ID -22.89
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
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MSCI Italy IX GD 53.20
MSCI Italy IX ID 50.99
MSCI Italy IX ND 52.52
MSCI Japan IX GD 5.25
MSCI Japan IX ID 4.27
MSCI Japan IX ND 5.05
MSCI Jordan IX GD -11.01
MSCI Jordan IX ID -14.26
MSCI Kokusai IX GD 27.46
MSCI Kokusai IX ID 25.30
MSCI Kokusai IX ND 26.96
MSCI Korea IX GD 141.15
MSCI Korea IX ID 137.54
MSCI Luxembourg IX ID 8.63
MSCI Malaysia IX GD -29.49
MSCI Malaysia IX ID -31.04
MSCI Mexico Free IX GD -33.53
MSCI Mexico Free IX ID -34.50
MSCI Mexico IX GD -34.18
MSCI Mexico IX ID -35.12
MSCI Netherland IX GD 23.93
MSCI Netherland IX ID 21.13
MSCI Netherland IX ND 23.23
MSCI New Zealand IX GD -21.48
MSCI New Zealand IX ID -25.23
MSCI New Zealand IX ND -22.62
MSCI Nordic IX GD 23.83
MSCI Nordic IX ID 21.78
MSCI Nordic IX ND 23.25
MSCI Norway IX GD -29.67
MSCI Norway IX ID -31.21
MSCI Norway IX ND -30.06
MSCI Nth Amer IX GD 29.04
MSCI Nth Amer IX ID 27.11
MSCI Nth Amer IX ND 28.46
MSCI Pac - Japan IX GD -6.22
MSCI Pac - Japan IX ID -9.55
MSCI Pac - Japan IX ND -6.64
MSCI Pacific Fr-Jpn ID -8.40
MSCI Pacific Free IX ID 1.43
MSCI Pacific IX GD 2.69
MSCI Pacific IX ID 1.16
MSCI Pacific IX ND 2.44
MSCI Pakistan IX GD -56.61
MSCI Pakistan IX ID -60.56
MSCI Peru IX GD -40.22
MSCI Peru IX ID -42.11
MSCI Philippines Fr Ixgd 13.45
MSCI Philippines Fr Ixid 12.60
MSCI Philippines IX GD 16.10
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
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MSCI Sing/Mlysia IX ID -14.62
MSCI Sing/Mlysia IX ND -12.88
MSCI Singapore Fr IX GD -3.59
MSCI Singapore Fr IX ID -5.31
MSCI South Africa IX GD -27.56
MSCI South Africa IX ID -29.84
MSCI Spain IX GD 50.58
MSCI Spain IX ID 47.87
MSCI Spain IX ND 49.90
MSCI Sri Lanka IX GD -25.57
MSCI Sri Lanka IX ID -27.30
MSCI Sweden IX GD 14.54
MSCI Sweden IX ID 12.62
MSCI Sweden IX ND 13.96
MSCI Swtzrlnd IX GD 24.05
MSCI Swtzrlnd IX ID 22.57
MSCI Swtzrlnd IX ND 23.53
MSCI Taiwan IX GD -20.64
MSCI Taiwan IX ID -21.45
MSCI Thailand IX GD 19.09
MSCI Thailand IX ID 18.74
MSCI Turkey IX GD -52.51
MSCI Turkey IX ID -53.53
MSCI UK IX GD 17.80
MSCI UK IX ID 14.84
MSCI UK IX ND 17.80
MSCI USA IX GD 30.72
MSCI USA IX ID 28.79
MSCI USA IX ND 30.14
MSCI Venezuela IX GD -49.16
MSCI Venezuela IX ID -52.69
MSCI World - UK IX GD 25.63
MSCI World - UK IX ID 23.73
MSCI World - UK IX ND 25.11
MSCI World - USA IX GD 19.11
MSCI World - USA IX ID 17.02
MSCI World - USA IX ND 18.76
MSCI World GDP Wt IX ID 25.61
MSCI World IX Free ID 22.82
MSCI World IX GD 24.80
MSCI World IX ID 22.78
MSCI World IX ND 24.34
MSCI Wrld - Austrl IX GD 25.03
MSCI Wrld - Austrl IX ID 23.03
MSCI Wrld - Austrl IX ND 24.58
Madrid SE:Pst IX P 37.19
NASDAQ 100 IX P 85.31
NASDAQ Bank IX P -11.77
NASDAQ Composite IX P 39.63
NASDAQ Industrial IX P 6.82
NASDAQ Insurance IX P -0.06
NASDAQ Natl Mkt Cmp IX 40.23
NASDAQ Natl Mkt Ind IX 6.27
NASDAQ Transport IX P -7.85
NYSE Composite P 16.55
NYSE Finance IX P 5.13
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
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
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 Utilities 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
</TABLE>
<TABLE>
<CAPTION>
THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUST:
<S> <C>
Real Estate Investment Trust Index -17.50
SALOMON SMITH BARNEY:
10 Year U.S. Government (Sovereign) 10.00
10 Year United Kingdom (Sovereign) 19.55
10 Year France (Sovereign) 12.59
10 Year Germany (Sovereign) 10.94
10 Year Japan (Sovereign) 0.50
10 Year Canada (Sovereign) 9.41
</TABLE>
44
<PAGE>
45
<PAGE>
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
46
<PAGE>
Part C Other Information
-----------------
Item 23. Exhibits
--------
Colonial California Tax-Exempt Fund (CCATEF)
Colonial Connecticut Tax-Exempt Fund (CCTTEF)
Colonial Florida Tax-Exempt Fund (CFLTEF)
Colonial Massachusetts Tax-Exempt Fund (CMATEF)
Colonial Michigan Tax-Exempt Fund (CMITEF)
Colonial Minnesota Tax-Exempt Fund (CMNTEF)
Colonial New York Tax-Exempt Fund (CNYTEF)
Colonial North Carolina Tax-Exempt Fund (CNCTEF)
Colonial Ohio Tax-Exempt Fund (COHTEF)
(a)(1) Amended Agreement and Declaration of Trust (3)
(a)(2) Amendment No. 4 to the Agreement and Declaration of Trust
(b) Amended By-Laws
(c) Form of Specimen of Share Certificate - filed as Exhibit 4
in Part C, Item 24(b) of Post-Effective Amendment No. 45 to
the Registration Statement on Form N-1A of Liberty Funds
Trust IV (formerly Colonial Trust IV) (File Nos. 2-62492 and
811-2865) and is hereby incorporated by reference and made a
part of this Registration Statement
(d)(1) Form of Management Agreement between Liberty Funds Trust V
(formerly Colonial Trust V) and Colonial Management
Associates, Inc.(1)
(d)(2) Amendment No. 1 to the Management Agreement between Liberty
Funds Trust V (formerly Colonial Trust V) and Colonial
Management Associates, Inc. (3)
(e)(1) Distribution Agreement between the Registrant and Liberty
Funds Distributor, Inc. - filed as Exhibit 6(a) in Part C,
Item 24(b) of Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A of Liberty Funds Trust
VI (formerly Colonial Trust VI), (File Nos. 33-45117 &
811-6529) and is hereby incorporated by reference and made a
part of this Registration Statement
(e)(2) 12b-1 Plan Implementing Agreement between the Registrant and
Liberty Funds Distributor, Inc. - filed as Exhibit 6(b) in
Part C, Item 24(b) of Post-Effective Amendment No. 17 to
the Registration Statement on Form N-1A of Liberty Funds
Trust VI (formerly Colonial Trust VI), Registration Nos.
33-45117 & 811-6529) and is hereby incorporated by reference
and made a part of this Registration Statement
(e)(3) Form of Selling Agreement with Liberty Funds Distributor,
Inc. - filed as Exhibit 6(b) in Part C, Item 24(b) of
Post-Effective
<PAGE>
Amendment No. 49 to the Registration Statement on Form N-1A
of Liberty Funds Trust I (formerly Colonial Trust I),
Registration Nos. 2-41251 and 811-2214) and is hereby
incorporated by reference and made a part of this
Registration Statement
(e)(4) Form of Asset Retention Agreement - filed as Exhibit 6(d) in
Part C, Item 24(b) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Liberty Funds Trust
VI (formerly Colonial Trust VI) (File Nos. 33-45117 and
811-6529) and is hereby incorporated by reference and made a
part of this Registration Statement
(f) Not Applicable
(g)(1) Global Custody Agreement with The Chase Manhattan Bank -
filed as Exhibit 8 in Part C, Item 24(b) of Post-Effective
Amendment No 13 to the Registration Statement on Form N-1A
of Liberty Funds Trust VI (formerly Colonial Trust VI) (File
Nos. 33-45117 and 811-6529) and is hereby incorporated by
reference and made a part of this Registration Statement
(g)(2) Amendment 3 to Appendix A of Global Custody Agreement with
The Chase Manhattan Bank - filed as 8(a)(2) in Part C, Item
23 of Post-Effective Amendment No. 54 to the
Registration Statement on Form N-1A of Liberty Funds Trust I
(formerly Colonial Trust I, Registration Nos. 2-41251
and 811-2214) and is hereby incorporated by reference and
made part of this Registration
(h)(1) Pricing and Bookkeeping Agreement - filed as Exhibit 9(b) in
Part C, Item 24(b) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Liberty Funds Trust
VI (formerly Colonial Trust VI) (File Nos. 33-45117 and
811-6529) and is hereby incorporated by reference and made a
part of this Registration Statement
(h)(2) Amendment to Appendix I of Pricing and Bookkeeping Agreement
- filed as Exhibit (h)(2) in Part C, Item 23 of
Post-Effective Amendment No. 54 to the Registration
Statement on Form N-1A of Liberty Funds Trust I (formerly
Colonial Trust I) (File Nos. 2-41251 and 811-2214) and is
hereby incorporated by reference and made a part of this
Registration Statement
(h)(3) Amended and Restated Shareholders' Servicing and Transfer
Agent Agreement as amended - filed as Exhibit No. 9.(b) in
Part C, Item 24(b) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A of Liberty Funds Trust
VI (formerly Colonial Trust VI), (File Nos. 33-45117 &
811-6529) and is hereby incorporated by reference and made a
part of this Registration Statement
(h)(4) Amendment No. 13 to Schedule A of Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended - filed as Exhibit (h)(6) in Part C, Item 23 of
Post-Effective Amendment No. 54 to the Registration
Statement on Form N-1A of Liberty Funds Trust I
<PAGE>
(formerly Colonial Trust I), (File Nos. 2-41251 and
811-2214) and hereby incorporated by reference and made a
part of this Registration Statement
(h)(5) Amendment No. 19 to Appendix I of the Amended and Restated
Shareholders' Servicing and Transfer Agent Agreement as
amended - filed as Exhibit (h)(7) in Part C, Item 23 of
Post-Effective Amendment No. 54 to the Registration
Statement on Form N-1A of Liberty Funds Trust I (formerly
Colonial Trust I), (File Nos. 2-41251 and 811-2214) and is
hereby incorporated by reference and made a part of this
Registration Statement
(h)(6) Credit Agreement (2)
(h)(7) Amendment No. 1 to the Credit Agreement - filed as Exhibit
9(f) in Part C, Item 24(b) of Post-Effective Amendment No.
99 to the Registration Statement on Form N-1A of Liberty
Funds Trust III (formerly Colonial Trust III) (File Nos.
2-15184 and 811-881) and is hereby incorporated by reference
and made a part of this Registration Statement
(h)(8) Amendment No. 2 to the Credit Agreement - filed as Exhibit
9(g) in Part C, Item 24(b) of Post-Effective Amendment No.
99 to the Registration Statement on Form N-1A of Liberty
Funds Trust III (formerly Colonial Trust III) (File Nos.
2-15184 and 811-881) and is hereby incorporated by reference
and made a part of this Registration Statement
(h)(9) Amendment No. 3 to the Credit Agreement - filed as Exhibit
9(h) in Part C, Item 24(b) of Post-Effective Amendment No.
99 to the Registration Statement on Form N-1A of Liberty
Funds Trust III (formerly Colonial Trust III) (File Nos.
2-15184 and 811-881) and is hereby incorporated by reference
and made a part of this Registration Statement
(h)(10) Amendment No. 4 to the Credit Agreement - filed as Exhibit
9(h) in Part C, Item 24(b) of Post-Effective Amendment No.
102 to the Registration Statement on Form N-1A of Liberty
Funds Trust III (formerly Colonial Trust III) (File Nos.
2-15184 & 811-881) and is hereby incorporated by reference
and made a part of this Registration Statement
(i) Opinion and Consent of Counsel, Liberty Funds Trust V
(formerly Colonial Trust V), formerly known as Colonial
Massachusetts Tax-Exempt Trust (3)
(j) Consent of Independent Accountants
(k) Not Applicable
(l) Not Applicable
(m) Rule 12b-1 Distribution Plan - filed as Exhibit (m) in Part
C, Item 23 of Post-Effective Amendment No. 56
<PAGE>
to the Registration Statement on Form N-1A of Liberty Funds
Trust I (formerly Colonial Trust I) (File Nos. 2-41251 &
811-2214) and is hereby incorporated by reference and made a
part of this Registration Statement
(n) Not Applicable
(o) Plan pursuant to Rule 18f-3(d) under the Investment Company
Act of 1940 - filed as Exhibit (o) in Part C, Item 23 of
Post-Effective Amendment No. 107 to the Registration
Statement of Liberty Funds Trust III (formerly Colonial
Trust III), (File Nos. 2-15184 and 811-881) and is hereby
incorporated and made a part of this Registration Statement
Power of Attorney for: Robert J. Birnbaum, Tom Bleasdale, John V.
Carberry, Lora S. Collins, James E. Grinnell, Richard W. Lowry,
Salvatore Macera, William E. Mayer, James L. Moody, Jr., John J.
Neuhauser, Thomas E. Stitzel, Robert L. Sullivan and Anne-Lee
Verville - filed as Exhibit 18(a) in Part C, Item 24(b) of
Post-Effective Amendment No. 50 to the Registration Statement of
Liberty Funds Trust IV (formerly Colonial Trust IV), (File Nos.
2-62492 and 811-2865) and is hereby incorporated and made a part
of this Registration Statement
(1) Incorporated by reference to Post-Effective Amendment No. 10
to the Registration Statement filed on or about June 5,
1992.
(2) Incorporated by reference to Post-Effective Amendment No. 19
to the Registration Statement filed on or about May 20,
1996.
(3) Incorporated by reference to Post-Effective Amendment No. 21
to the Registration Statement filed on or about
May 23, 1997.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None
Item 25. Indemnification
---------------
See Article VIII of Amendment No. 3 to the Agreement and Declaration
of Trust filed as Exhibit (a) (1) hereto.
The Registrant's advisor, Colonial Management Associates, Inc., has an
ICI Mutual Insurance Company Directors and Officers/Errors and
Omissions Liability insurance policy. The policy provides
indemnification to the Registrant's trustees and officers.
Item 26. Business and Other Connections of Investment Adviser
The following sets forth business and other
connections of each director and officer of Colonial
Management Associates, Inc. (see next page):
Registrant's investment adviser/administrator, Colonial Management
Associates, Inc. ("Colonial"), is registered as an investment adviser under
the Investment Advisers Act of 1940 (1940 Act). Colonial Advisory Services,
Inc. (CASI), an affiliate of Colonial, is also registered as an investment
adviser under the 1940 Act. As of the end of the fiscal year, December
31, 1998, CASI had four institutional, corporate or other account under
management or supervision, the market value of which was approximately $227
million. As of the end of the fiscal year, December 31, 1998, Colonial
was the investment adviser, sub-adviser and/or administrator to 57
mutual funds, including funds sub-advised by Colonial, the market value of
which investment companies was approximately $18,950.90 million. Liberty
Funds Distributor, Inc., a subsidiary of Colonial Management Associates,
Inc., is the principal underwriter and the national distributor of all of
the funds in the Liberty Mutual Funds complex, including the Registrant.
The following sets forth the business and other connections of each
director and officer of Colonial Management Associates, Inc.:
(1) (2) (3) (4)
Name and principal
business
addresses* Affiliation
of officers and with Period is through 04/30/99. Other
directors of investment business, profession, vocation or
investment adviser adviser employment connection Affiliation
- ------------------ ---------- -------------------------------- -----------
Allard, Laurie V.P.
Archer, Joseph A. V.P.
Ballou, William J. V.P., Liberty Trusts I through IX Asst. Sec.
Asst. Colonial High Income
Sec., Municipal Trust Asst. Sec.
Counsel Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
Liberty Financial Advisers,
Inc. Asst. Sec.
Liberty Funds Group LLC Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.
Barron, Suzan M. V.P., Liberty Trusts I through IX Asst. Sec.
Asst. Colonial High Income
Sec., Municipal Trust Asst. Sec.
Counsel Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
AlphaTrade Inc. Asst. Clerk
Liberty Funds Distributor,
Inc. Asst. Clerk
Liberty Financial Advisers,
Inc. Asst. Sec.
Liberty Funds Group LLC Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.
Barsketis, Ophelia Sr.V.P. Stein Roe & Farnham Incorporated Snr. V.P.
Berliant, Allan V.P.
Boatman, Bonny E. Sr.V.P.; Colonial Advisory Services, Exec. V.P.
IPC Mbr. Inc.
Bunten, Walter V.P.
Campbell, Kimberly V.P.
Carnabucci,
Dominick V.P.
Carome, Kevin Sr.V.P.; Liberty Funds Distributor,
IPC Mbr. Inc. Assistant Clerk
Liberty Funds Group LLC Sr. V.P.
Stein Roe & Farnham
Incorporated General Counsel
Carroll, Sheila A. Sr.V.P.
Citrone, Frank Sr.V.P.
Conlin, Nancy L. Sr. V.P.; Liberty Trusts I through IX Secretary
Sec.; Clerk Colonial High Income
IPC Mbr.; Municipal Trust Secretary
Dir; Gen. Colonial InterMarket Income
Counsel Trust I Secretary
Colonial Intermediate High
Income Fund Secretary
Colonial Investment Grade
Municipal Trust Secretary
Colonial Municipal Income
Trust Secretary
Liberty Funds Distributor,
Inc. Dir.; Clerk
Liberty Funds Services, Inc. Clerk; Dir.
Liberty Funds Group LLC V.P.; Gen.
Counsel and
Secretary
Liberty Variable Investment
Trust Secretary
Colonial Advisory Services,
Inc. Dir.; Clerk
AlphaTrade Inc. Dir.; Clerk
Liberty Financial Advisors,
Inc. Dir.; Sec.
Liberty All-Star Equity Fund Secretary
Liberty All-Star Growth Fund,
Inc. Secretary
Connaughton, V.P. Liberty Trust I through VIII CAO; Controller
J. Kevin Liberty Variable Investment
Trust CAO; Controller
Colonial High Income
Municipal Trust CAO; Controller
Colonial Intermarket Income
Trust I CAO; Controller
Colonial Intermediate High
Income Fund CAO; Controller
Colonial Investment Grade
Municipal Trust CAO; Controller
Colonial Municipal Income
Trust CAO; Controller
Liberty All-Star Equity Fund Controller
Liberty All-Star Growth Fund,
Inc. Controller
Liberty Trust IX Controller
Daniszewski, V.P.
Joseph J.
Dearborn, James V.P.
Desilets, Marian H. V.P. Liberty Funds Distributor,
Inc. V.P.
Liberty Trust I through IX Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial Intermarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.
DiSilva-Begley, V.P. Colonial Advisory Services, Compliance
Linda IPC Mbr. Inc. Officer
Eckelman, Marilyn Sr.V.P.
Ericson, Carl C. Sr.V.P. Colonial Intermediate High
IPC Mbr. Income Fund V.P.
Colonial Advisory Services, Pres.; CEO
Inc. and CIO
Evans, C. Frazier Sr.V.P. Liberty Funds Distributor,
Inc. Mng. Director
Feloney, Joseph L. V.P. Colonial Advisory Services,
Asst. Tres. Inc. Asst. Treas.
Liberty Funds Group LLC Asst. Treas.
Finnemore, Sr.V.P. Colonial Advisory Services,
Leslie W. Inc. Sr. V.P.
Franklin, Sr. V.P. AlphaTrade Inc. President
Fred J. IPC Mbr. Liberty Financial Companies, Chief
Inc. Compliance Ofcr
Garrison, William V.P. Stein Roe & Farnham
Incorporated V.P.
Gibson, Stephen E. Dir.; Pres.; Liberty Funds Group LLC Dir.;
CEO; Pres.; CEO;
Chairman of Exec. Cmte.
the Board; Mbr.; Chm.
IPC Mbr. Liberty Funds Distributor,
Inc. Dir.; Chm.
Colonial Advisory Services,
Inc. Dir.; Chm.
Liberty Funds Services, Inc. Dir.; Chm.
AlphaTrade Inc. Dir.
Liberty Trusts I through VIII President
Colonial High Income
Municipal Trust President
Colonial InterMarket Income
Trust I President
Colonial Intermediate High
Income Fund President
Colonial Investment Grade
Municipal Trust President
Colonial Municipal Income
Trust President
Liberty Financial Advisors,
Inc. Director
Stein Roe & Farnham
Incorporated Asst. Chairman
Liberty Variable Investment
Trust President
Grabowski, Neil V.P.
Hanson, Loren Sr. V.P.;
IPC Mbr.
Harasimowicz, V.P.
Stephen
Harris, David V.P. Stein Roe Global Capital Mngmt Principal
Hartford, Brian Sr.V.P.
Haynie, James P. Sr.V.P. Colonial Advisory Services,
Inc. Sr. V.P.
Held, Dorothy V.P.
Hernon, Mary V.P.
Hill, William V.P. Colonial Advisory Services, V.P.
Inc.
Hounsell, Clare V.P. Stein Roe & Farnham
Incorporated V.P.
Iudice, Jr. V.P.; Liberty Funds Group LLC Controller,
Philip J. Controller CAO, Asst.
Asst. Treas.
Treasurer Liberty Funds Distributor, CFO,
Inc. Treasurer
Colonial Advisory Services, Controller;
Inc. Asst. Treas.
AlphaTrade Inc. CFO, Treas.
Liberty Financial Advisors,
Inc. Asst. Treas.
Jacoby, Timothy J. Sr. V.P.; Liberty Funds Group LLC V.P., Treasr.,
CFO; CFO
Treasurer Liberty Trusts I through VIII Treasr.,CFO
Colonial High Income
Municipal Trust Treasr.,CFO
Colonial InterMarket Income
Trust I Treasr.,CFO
Colonial Intermediate High
Income Fund Treasr.,CFO
Colonial Investment Grade
Municipal Trust Treasr.,CFO
Colonial Municipal Income
Trust Treasr.,CFO
Colonial Advisory Services,
Inc. CFO, Treasr.
Liberty Financial Advisors,
Inc. Treasurer
Stein Roe & Farnham
Incorporated Snr. V.P.
Liberty Variable Investment
Trust Treasurer, CFO
Liberty All-Star Equity Fund Treasurer
Liberty All-Star Growth Fund,
Inc. Treasurer
Liberty Trust IX Treasurer
Jansen, Deborah Sr.V.P. Stein Roe & Farnham
Incorporated Sr. V.P.
Jersild, North V.P. Stein Roe & Farnham
Incorporated V.P.
Johnson, Gordon V.P.
Knudsen, Gail E. V.P. Liberty Trusts I through IX Asst. Treas.
Colonial High Income
Municipal Trust Asst. Treas.
Colonial InterMarket Income
Trust I Asst. Treas.
Colonial Intermediate High
Income Fund Asst. Treas.
Colonial Investment Grade
Municipal Trust Asst. Treas.
Colonial Municipal Income
Trust Asst. Treas.
Liberty Variable Investment
Trust Asst. Treas.
Liberty All-Star Equity Fund Asst. Treas.
Liberty All-Star Growth Fund,
Inc. Asst. Treas.
Lapointe, Thomas V.P.
Lasher, Bennett V.P.
Lasman, Gary V.P.
Lennon, John E. Sr.V.P. Colonial Advisory Services,
Inc. V.P.
Lenzi, Sharon V.P.
Lessard, Kristen V.P.
Loring, William
C., Jr. Sr.V.P.
MacKinnon,
Donald S. Sr.V.P.
Marcus, Harold V.P.
Muldoon, Robert V.P.
Newman, Maureen Sr.V.P.
O'Brien, David Sr.V.P.
Ostrander, Laura Sr.V.P. Colonial Advisory Services,
Inc. V.P.
Palombo, Joseph R. Dir.; Colonial Advisory Services,
Exe.V.P.; Inc. Dir.
IPC Mbr.; Colonial High Income
Municipal Trust V.P.
Colonial InterMarket Income
Trust I V.P.
Colonial Intermediate High
Income Fund V.P.
Colonial Investment Grade
Municipal Trust V.P.
Colonial Municipal Income
Trust V.P.
Liberty Trusts I through IX V.P.
Liberty Funds Services, Inc. Director
Liberty Funds Group LLC CAO; Ex. V.P.
Liberty Funds Distributor,
Inc. Director
AlphaTrade Inc. Director
Liberty Financial Advisors,
Inc. Director
Stein Roe & Farnham
Incorporated Exec. V.P.
Liberty Variable Investment
Trust V.P.
Liberty All-Star Equity Fund V.P.
Liberty All-Star Growth Fund,
Inc. V.P.
Peishoff, William V.P.
Peterson, Ann T. V.P. Colonial Advisory Services,
Inc. V.P.
Pielech, Mitchell V.P.
Pope, David V.P.
Rao, Gita Sr.V.P.
Reading, John V.P.; Liberty Funds Services, Inc. Asst. Clerk
Asst. Liberty Funds Group LLC Asst. Sec.
Sec.; Colonial Advisory Services,
Asst. Inc. Asst. Clerk
Clerk and Liberty Funds Distributor,
Counsel Inc. Asst. Clerk
AlphaTrade Inc. Asst. Clerk
Liberty Trusts I through IX Asst. Sec.
Colonial High Income
Municipal Trust Asst. Sec.
Colonial InterMarket Income
Trust I Asst. Sec.
Colonial Intermediate High
Income Fund Asst. Sec.
Colonial Investment Grade
Municipal Trust Asst. Sec.
Colonial Municipal Income
Trust Asst. Sec.
Liberty Financial Advisors,
Inc. Asst. Sec.
Liberty Variable Investment
Trust Asst. Sec.
Liberty All-Star Equity Fund Asst. Sec.
Liberty All-Star Growth Fund,
Inc. Asst. Sec.
Rega, Michael V.P. Colonial Advisory Services,
Inc. V.P.
Salopek, Steven V.P. Stein Roe & Farnham
Incorporated V.P.
Schermerhorn, Scott Sr. V.P.
Seibel, Sandra L. V.P. Colonial Advisory Services,
Inc. V.P.
Shields, Yvonne V.P. Stein Roe & Farnham
Incorporated V.P.
Smalley, Greg V.P.
Spanos, Gregory J. Sr. V.P. Colonial Advisory Services,
Inc. Exec. V.P.
Stevens, Richard V.P. Colonial Advisory Services,
Inc. V.P.
Stoeckle, Mark Sr.V.P. Colonial Advisory Services,
Inc. V.P.
Swayze, Gary Sr.V.P.
Thomas, Ronald V.P.
Wallace, John V.P. Colonial Advisory Services,
Asst.Tres. Inc. Asst. Treas.
Liberty Funds Group LLC Asst. Treas.
Ware, Elizabeth M. V.P.
Wiley, Christine V.P.
Wiley, Peter V.P.
- ------------------------------------------------
*The Principal address of all of the officers and directors of the investment
adviser is One Financial Center, Boston, MA 02111.
<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-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
Ballou, Rick Sr. V.P. None
Bartlett, John Managing Director None
Blakeslee, James Sr. V.P. None
Blumenfeld, Alex V.P. None
Bozek, James Sr. V.P. None
Brown, Beth V.P. None
Burtman, Tracy V.P. None
Butch, Tom Sr. V.P. None
Campbell, Patrick V.P. None
Chrzanowski, V.P. None
Daniel
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Dir; Clerk Secretary
Davey, Cynthia Sr. V.P. None
Desilets, Marian V.P. Asst. Sec
Devaney, James Sr. V.P. None
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
Gariepy, Tom V.P. None
Gauger, Richard V.P. None
Gerokoulis, Sr. V.P. None
Stephen A.
Gibson, Stephen E. Director; Chairman President
of the Board
Goldberg, Matthew Sr. V.P. None
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
Hussey, Robert Sr. V.P. None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia V.P. None
Jones, Jonathan V.P. None
Kelley, Terry M. V.P. None
Kelson, David W. Sr. V.P. None
Libutti, Chris V.P. None
Martin, 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
Piken, Keith V.P. None
Place, Jeffrey Managing Director None
Powell, Douglas V.P. None
Predmore, Tracy 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
Sandberg, Travis V.P. None
Santosuosso, Louise Sr. V.P. None
Schulman, David Sr. 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
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
--------------------------------
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder include Registrant's
Secretary; Registrant's investment adviser and/or administrator,
Colonial Management Associates, Inc.; Registrant's principal
underwriter, Liberty Funds Distributor, Inc.; Registrant's transfer
and dividend disbursing agent, Liberty Funds Services, Inc.; and the
Registrant's custodian, The Chase Manhattan Bank. The address for each
person except the Registrant's custodian is One Financial Center,
Boston, MA 02111. The address for the custodian is 270 Park Avenue,
New York, NY 10017-2070.
Item 29. Management Services
-------------------
See Item 5 as discussed in Part A and Item 16 as discussed in Part B.
Item 30. Undertakings
------------
(1) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of
removal of any trustee when requested in writing to do so by the
record holders of not less than 10 per cent of the Registrant's
outstanding shares and to assist its shareholders in the
communicating with other shareholders in accordance with the
requirements of Section 16(c) of the Investment Company Act of
1940.
(2) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as though such provisions of the
Act were applicable to the Fund, except that the request referred
to in the third full paragraph thereof may only be made by
shareholders who hold in the aggregate at least 1% of the
outstanding shares of the Fund, regardless of the net asset value
of shares held by such requesting shareholders.
(3) The Registrant hereby undertakes to furnish free of charge to
each person to whom a prospectus is delivered, a copy of the
applicable series' annual report to shareholders containing the
information required by Item 5A of Form N-1A.
<PAGE>
************
NOTICE
------
A copy of the Agreement and Declaration of Trust, as amended, of Liberty
Funds Trust V (Trust) (formerly Colonial Trust V) is on file with the Secretary
of The Commonwealth of Massachusetts and notice is hereby given that this
amendment to the Trust's Registration Statement has been executed on behalf of
the Trust by an officer of the Trust as an officer and by its Trustees as
trustees and not individually and the obligations of or arising out of this
Registration Statement 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 the requirements
for effectiveness of the Registration Statement pursuant to Rule 485(b) and has
duly caused this Post-Effective Amendment No. 25 to its Registration Statement
under the Securities Act of 1933 and Amendment No. 26 under the Investment
Company Act of 1940, to be signed in this City of Boston and The Commonwealth of
Massachusetts on this 28th day of May 1999.
LIBERTY FUNDS TRUST V
By: /s/ STEPHEN E. GIBSON
--------------------------------
Stephen E. Gibson, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment has been signed below by the following persons in their capacities and
on the date indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
STEPHEN E. GIBSON President (chief May 28, 1999
- ----------------- executive officer)
Stephen E. Gibson
TIMOTHY J. JACOBY Treasurer and Chief May 28, 1999
- ----------------- Financial Officer
Timothy J. Jacoby (principal financial
officer)
J. KEVIN CONNAUGHTON Controller and Chief May 28, 1999
- -------------------- Accounting Officer
J. Kevin Connaughton (principal accounting
officer)
<PAGE>
ROBERT J. BIRNBAUM* Trustee
- ------------------
Robert J. Birnbaum
TOM BLEASDALE* Trustee
- -------------
Tom Bleasdale
JOHN V. CARBERRY* Trustee
- ----------------
John V. Carberry
LORA S. COLLINS*
- ---------------
Lora S. Collins Trustee
JAMES E. GRINNELL*
- -----------------
James E. Grinnell Trustee
*SUZAN M. BARRON
RICHARD W. LOWRY* Trustee ---------------
- ---------------- Suzan M. Barron
Richard W. Lowry Attorney-in-fact
For each Trustee
May 28, 1999
SALVATORE MACERA* Trustee
- ----------------
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
EXHIBIT INDEX
-------------
(a)(2) Amendment No. 4 to the Agreement and Declaration of Trust
(b) Amended By Laws
(j) Consent of Independent Accountants
AMENDMENT NO. 4
TO THE
AGREEMENT AND DECLARATION OF TRUST
OF
COLONIAL TRUST V
WHEREAS, Section 1 of Article I of the Agreement and Declaration of
Trust (Declaration of Trust) dated June 1, 1992, as amended, of Colonial Trust V
(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
V, do hereby certify that the undersigned have determined to conduct the
business of the Trust under the name "Liberty Funds Trust V" 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 V"
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. 4 to the Agreement and Declaration of Trust of Colonial Trust V as
their free act and deed, before me, this March 18, 1999.
Mary P. Mahoney
Notary Public
My Commission Expires: 2/22/2002
Amended 10/09/92 - Section 11
Amended 2/16/96 -Section 3.1, paragraph 2
Amended 4/1/99 - Name, Section 1.1
BY-LAWS
OF
LIBERTY FUNDS TRUST V
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 V, 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 president, 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
January 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.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 25 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated March 11, 1999, relating to the financial
statements and financial highlights appearing in the January 31, 1999 Annual
Reports to Shareholders 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, which are also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Independent Accountants" in the Statement of Additional
Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 26, 1999
